Agricultural Rents "Holding their Own"
The last twelve months have seen many changes in agriculture as a whole. While many sectors of the economy are suffering from the credit crunch, the agricultural market, and in particular farm and land rents, are still holding their own as farmers have the vision to see that what they produce is of high quality and is still in demand. This has been reflected in the continuing confidence in both the rental and sales market.
Over the last year we have seen a rollercoaster in agriculture. Average wheat prices have fluctuated from a high of £200 per tonne reducing to under £100 per tonne by the end of the year. Despite a difficult harvest leading to poor quality we have benefited from increased yields. Weather conditions have impacted on all sectors of the industry therefore increasing costs this autumn. While the arable farmer’s costs have increased, the sheep and beef sector have seen increased prices with lambs trading at a 30% premium on last year, with beef following suit. The dairy sector has also seen higher prices for both milk and calves, with milk prices at 26ppl to 18ppl compared to this time last year.
There is justifiable optimism that higher output prices for most sectors will continue. However, if the recently improved margins are to be maintained, producers must look carefully at reducing their costs and should explore alternative avenues.
While this is nothing new in farming, there is still confidence in the future and there continues to be a great deal of interest in any land that is available either to let or to purchase. This increased demand has been reflected in prices achieved and in the North West we have seen an increase in sale prices of at least 33%, although there is evidence that land values have now plateaued and the heat has come out of the market.
An increasing number of farmers ceasing production, whether through retirement or some other reason, do not wish to dispose of their property often due to an emotional tie to the family farm or the need to retain the farmhouse as a residence. Many of these farmers are now becoming landlords and will need professional advice both in relation to the form of tenure that they adopt and the taxation implications of what they are doing. One option maybe to enter into a Farm Business Tenancy agreement which allows them to retain the farm while a tenant farms the land and pays a rent.
Such agreements are extremely flexible and can be adjusted to suit most circumstances. Furthermore FBT’s are very attractive to the established farmer who wants to increase the size of their business without substantial investment. This has lead to keen demand and high tendered rents for any farms or land that have come onto the market. While rents achieved may seem to be high in the light of recent history, the Single Farm Payment often underpins the market due to the fact that some farmers have high value entitlements which can only be activated with the acquisition of additional land.
Farm rent reviews have been off the agenda for 10 years or so and many practitioners are having to relearn old skills while newer entrants to the profession may be facing such negotiations for the first time. Many notices for farm rent reviews have been served over the last twelve months and, despite the fluctuations in prices and costs that have subsequently been experienced, significant rent increases are being agreed. However, it is important to remember that the landlord / tenant relationship is a partnership that relies upon a profitable and sound farming business and some landlords have had to lower their expectations with regard to the level of increases that might have been expected 12 months ago.
Despite recent volatility in prices and costs, the renewed optimism in agriculture looks set to remain and this should be reflected by an upward trend for rents and continuing demand for land as it comes available.
By Becky Evans, assistant Land Agent, Denton Clark, Chester