Current Demand for Farmland in the UK
If we perceive that UK farmland is good value for money, demand will naturally rise.
What then has changed our perceptions to such a degree that we are now experiencing a boom in agricultural land prices after what has been such a stagnant period for farmland owners in the UK? As Steven McLaughlin, RICS spokesperson and rural specialist in the West Midlands, states: “With demand currently outstripping supply, we are seeing the upward trend of land prices continue across the region. Supporting this, there has been a positive turn of fortunes for farmers, as confidence returns to the agricultural sector. (source:RICS.org)
The price of all land is based on Supply and Demand. Basically, Farmland supply is fixed, which means the only variable is demand, and subsequently price. The current rise in demand for farmland can be attributed to the following factors:
The largest impact on demand for farmland is Domestic ( UK) and European legislation. For example:
Common Agricultural Policy (CAP) provides many forms of cash relief to European farmers. Irish and Danish farmers benefiting from this financial support are currently snapping up UK farmland which they consider to be comparatively cheap.
Planning Policy has become more sympathetic to farmland development. For example, there is speculation by developers that due to the government’s commitment to provide hundreds of thousands of new homes across the UK, they will relax the green belt boundaries. ie land with agricultural consent is worth £4000 an acre and the same land with residential consent would be worth as much as £1,000,000 an acre.
Diversification is giving farmers the chance to explore a wide range of opportunities which are financially more rewarding than the traditional use of farmland. E.g. Quarying, woodland, wind turbines, telecommunication masts, light industrial storage, offices and an array of leisure pursuits including: clay pigeon shooting, 4 x 4 off-roading, camping sites, fishing etc.
Tax Breaks , specifically Inheritance Tax benefits, designed to ensure that farms can be passed down through the generations without paying crippling death duties, are now being manipulated by the city traders as a way to invest in land to soak up their surplus cash, without having to pay inheritance tax.
Another area which impacts heavily on the demand for farmland is Commodity Pricing. For example:
China and India have both experienced a monumental growth in industry over the last decade which has led to a substantial increase in personal wealth. This has allowed individuals to choose a healthier lifestyle. They can afford to buy imported goods including milk (in a powdered form) and meat, which is benefiting farmers worldwide.
Organic and Green Farming , such as that undertaken by the Duchee of Cornwall, has been able to establish premium pricing for premium produce.
Bio Fuel is finally becoming a serious contender for farmland usage, largely due to the current trend for ‘Green Fuel’. Various cereal oils can be cost-effectively extracted and refined to produce a carbon-neutral petrol replacement. Woodchip is also used as a bio-mass fuel for a carbon-neutral power station fuel or domestic heating.
Futures Markets , due to the current demand for Bio Fuel there is speculation that there will be a shortage of cereal as a plain food source, as demand outstrips supply. Therefore, arable farms supplying cereal for consumption will achieve higher prices than experienced for some considerable time.
Although atrocious UK summers and persistent diseases such as Foot and Mouth, Blue Tongue, BSE and Bird flu have consistently blighted the reputation of UK farming, it appears by current statistics we should all take heed of the famous author Mark Twain ‘Buy land, they’re not making it anymore!’
source: Anna Donaldson