An old friend of mine was the first person in Norfolk to pay more than £100/acre for a farm. It was in the early 1960s and it was knocked down to him at a public auction on market day in Norwich.
The news travelled like wildfire around the market and when he later walked into the restaurant where many farmers were eating, lunch conversation stopped and all heads turned to look at this man. The diners obviously thought he had muck for brains.
Few farms are auctioned publicly these days. Land agents prefer to set a guide price and then wait for offers. Official average values for arable land are said to be £8,000-9,000/acre, but most around here seem to start at £10,000. And some deals, including especially high-quality land or a nice house, or where a neighbour has sold a field or two for building, are being done a few thousand above that. My friend was clearly not as thick as some people thought he was all those years ago.
The thing is, land has always sold for more than could be justified by what it could produce. And yet it has almost always been the best long-term investment anyone could wish for. I include the word “almost” because, despite the paradoxical truth of the above, even I find it hard to see how or when £10,000-15,000/acre land will ever pay to farm. The only obvious way to profit from such land is to buy it, watch it rise in value for a few years, and then sell it again. Fortunes have been made by speculators who have done that in recent years, but committed farmers usually like to own land, not money.
But as stockbrokers warn, values can drop as well as rise. Inheritance tax protection for those with a lot to protect will have provided the initial incentive for some deals. And maybe such purchases will come right for farming after a number of years – for instance, when demand for food increases exponentially, as predicted by another recent report.
This one was published by the Cambridge Institute for Sustainable Leadership and forecast that Britain will soon need 35% more land to feed our growing population. So, expensive land may become viable.
What concerns me more, however, are recent developments in the land rental market. Demands made by agents on behalf of owners are seldom talked about in detail in the pub, but there is evidence that some agents, watching the price at which land has been selling, have decided to seriously raise their rental demands. Agricultural Holdings Act rent demands are high enough, but farm business tenancies have always been higher because they are usually added to existing commercial units and the economies of scale are assumed to apply.
There are similar stories regarding the profit share (rental equivalent) demanded by agents on contract farming agreements.
Furthermore, my grapevine tells me of offers for the few opportunities to acquire such farms that are wildly optimistic and have no chance of producing a profit for bidders. Meanwhile, most farm commodity prices have fallen to uneconomic levels, even for those who are paying reasonable rents. OK, the media is full of speculation about the exciting times ahead that we farmers can expect – sometime. But they’re not here yet and seem unlikely to arrive in the immediate future. And rents have to be paid on time.
I fear some of the agreements being entered into by overambitious punters may end in tears.
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