10 April 1998

Land prices facing a two-prong attack

A CONTINUING strong £ and CAP reform will drive down land prices and further erode gross margins, accelerating the trend to larger businesses.

Simon Rubinsohn, chief economist of capital management specialists Capel-Cure Myers, speaking at a recent Country Landowners Association seminar, said uncertainty over the euros strength and high UK interest rates would maintain demand for sterling.

"It seems there will not be much relief on the currency front for some years. This will not help land prices and, as we saw when Britain was in the ERM, the land market will be softer."

Agenda 2000 proposals would also have a profound impact, Bill Hall, head of ADAS, Wolverhampton, told the 120 farmers who attended the seminar at Harper Adams College, Shropshire.

The proposals were designed to remove the need for export subsidies. That would help dispose of surpluses brought about by EU enlargement, but would hammer farm incomes and change farm structure.

Wheat gross margin should be maintained, but those of oilseed rape, pulses and linseed would plummet, bringing the prospect of wall-to-wall wheat growing.

The proposals would squeeze dairy farming profitability even more. Excluding headage subsidies that could be added under national envelope payment arrangements, the average gross margin of a 5500-litre cow would fall from the £916 level seen in 1996/97 to £616 a cow. For a 7500-litre cow the drop would be £405 to £917 a cow.

Milk quotas would prevent producers from increasing yields. The only positive factor was that quota prices should fall in line with profits.

Bigger businesses would continue to grow by absorbing smaller units. The trend would be accelerated by big buyers focusing on fewer suppliers, expensive technological changes, and more flexible land occupancy and business structures. &#42

Robert Davies