Farming landscape with fields© Tim Scrivener

What drives the farmland market – and what this ultimately means for the future of farming post Brexit – is more complicated than many realise.

The farmland market is a more varied and complex animal than government adviser Dieter Helm and others would have the government believe. 

Mr Helm, chairman of the Natural Capital Committee, has suggested that if Defra secretary Michael Gove delivers on his intention to redirect farm support away from direct payments into rural development and environmental programmes, then the inevitable result is that land prices will fall substantially.

See also: Land values to fall post Brexit, warns government adviser

The problem is that of all the many varied and changing influences on the sale value of farmland, the present subsidy regime with all its issues is among the least significant, despite Mr Helm’s observations. 

Given the basic payment is not a payment for ownership, but for the qualifying occupation of farmland, a much stronger case can be made for subsidies’ effect on annual rents.

Land prices have not been related to production capacity for decades

The price of farmland has not been related to its production capacity for many decades. It is the result of the interplay of supply and demand, with people with different interests holding land and potentially wanting it. 

Farmers’ interest is driven by location; land is not interchangeable like quoted shares. As the area of land for sale has fallen steadily since the Second World War, the chance for a local purchase is seen as “once in a lifetime”. 

jeremy moodyJeremy Moody, secretary and advisor, The Central Association of Agricultural Valuers

Where land is already owned, the purchase need not be self-funding – a moment fleetingly seen by some in 1991 – as borrowing costs can be spread over the farmer’s whole acreage. 

Farming has not earned Dieter Helm’s “normal” 5-10% return on land in many decades – but nor does much other property.

Sometimes farmers predominate in the marketplace, sometimes non-farmers; there are relatively few overseas buyers in either category. After a decade of farmers dominating the market, we are now seeing more non-farmers coming forward to buy farmland, as they have for centuries, for reasons that rarely include income. 

See also: Government adviser’s warning on land prices ‘misinformed’

It is one of the ultimate tangible assets. It may complement other property, providing privacy, amenity or sport, serve environmental purposes, or, like the many smaller purchases of woodland, simply be for pleasure and pride in owning part of Britain. 

These are all reasons that make a marketplace, not limited to the commercial objectives of agriculture. However, once bought, someone is needed to farm it.

There is a difference between land ownership and occupation

While land prices may exclude those without capital from land ownership, it does not exclude them from farming. Instead, renting and contracting give access to land through business relationships with those, whether former farmers or non-farmers, who do own land.

Good policy needs a clear understanding of the distinction between ownership by anyone willing and able and occupation by good, skilled and innovative farmers

The commercial objectives of agriculture may often be better served by renting at least part of the land being farmed, so capital can be used in the business rather than tied up in land. 

Other business generally uses rented premises and farming would be burdened if it were expected to own all the assets it uses, especially when land is typically at a price than cannot be funded just from farming the land in question.

Expecting Brexit to bring a more challenging and a more commercial environment, we will need the best farmers having access to land in this way, delivering high performance and using innovation for the improved productivity we need. 

We will need flexibility in the land market

The flexibility for that can be helped by encouraging those who might retire to offer the use of their land for rent, opening up the sector. 

England started the 20th century with 90% of farmland rented. That fell steadily as estates sold and tenants bought until the decline of the let sector was halted by the 1995 tenancy reform. Now over 35% of the land area is let.

Over the last 30 years, economic pressures and the need for skills and good machinery have seen an increasing separation of the ownership and use of farmland, using a variety of agreements and structures. 

That is to the economic good of the industry, which cannot afford a model based only on owners farming and farmers owning. That is why the CAAV has promoted discussion of taxation to open up the market for occupation of farmland.

If we are to avoid a distorted debate, good policy needs a clear understanding of the distinction between ownership by anyone willing and able and occupation by good, skilled and innovative farmers.

That distinction is one of the keys to making a success of the post-Brexit world.