A YEAR ago, experts predicted arable land values were close to peaking and that any further increases would be fuelled by the re-emergence of rollover funds, from within and outside the industry. That is exactly what happened.
Despite sharp downturns in forward prices for cereals, activity was dramatically increased in the run-up to the Budget.
Assessing the unrivalled benefits of rollover, re-investment, inheritance tax and capital gains tax reliefs, on agricultural land is a relatively simple exercise compared with crystal ball gazing on world commodity markets.
One of the few election statements new Labour had been confident in making about rural affairs was that it perceived agricultural land to be a tax haven.
Solicitors and land agents were working to the early hours under the threat of stamp duty being raised as high as a rumoured 7%, and a potentially swingeing attack on capital taxes. Much to everyones surprise, nothing happened beyond a slight increase in stamp duty, to 1.5% on property over £250,000 and 2% on property over £500,000. In itself, that is not likely to have anything more than a stabilising effect on the market.
"The south, or south east, is generating a lot of wealth," says Tony Morris-Eyton of Knight Frank, London. "Although the pound is affecting some businesses, there is still a great deal of money looking for agricultural land.
By comparison, farmers are having to weigh a land purchase up against world cereal prices and the effect of the strong £, whats going to happen to potato prices, and the effect of the weather."
Even before the Budget, the land market had begun to show signs of disparity. On one hand, premium prices of 20% or more were being paid in competitive circumstances, and for farms with a strong residential element. On the other hand, farmers and land agents in predominantly arable areas were becoming keenly aware of the pressures on the cereal sector.
Two pre-Budget sales of similar quality arable land in Dorset resulted in one block selling for £7,660/ha (£3,100/acre) and the other for less than £5,930/ha (£2,400/acre). Laurence Goulds recently published confidence index displays the potential effect of lower wheat output on land values and predicts that should other strong influences on the market be removed, land values could fall by 30%.
More modest predictions are made by land agents Clegg Kennedy Drew (up to 10% during the next12 months) and Savills (up to 20% over the next two to three years).
Despite recording an overall increase of 1.1% in the average value of British farmland over the last six months, boosted by values in Scotland and in areas with a residential premium, the latest Savills Farmland Value Survey records a dip of 1.4% in the eastern counties, 1.3% in the East Midlands and 1.8% in the West Midlands.
It puts prime arable land at an average of £7,155/ha (£2,897/acre), up 0.7% on the year, against an average 116.4% rise since 1992.
The deadline pressure of the July Budget has passed. Supply and demand will continue to be the key factor and there is no sign of an increased supply of land onto the market. The buying power that remains at the top end of the agricultural industry will be offset by increasing pressure on those whose businesses have been sustained by high, perhaps false, profitability over the last few years.
Even since the Budget, several Norfolk farmers have paid around £11,115/ha (£4,500/acre) for extra land, in the knowledge of wheat prices less than £80/t. Buyers looking for land in south Lincolnshire are said to be prepared to pay at least as much as six months ago. As always, eyes will be watching the heavier, cereal-only soil in the Fens, which always provides the first indication of a fading market.
Jim Major of Brown & Co believes that land values will continue to defy gravity. "Farm incomes are only part of the picture," he said. "Despite what consultants are saying, there are strong elements in the market that will prevail against the obvious factors that will affect farm incomes."
The first is that there remains a great deal of unspent farming profit. "There are significant numbers of parishes and farmers in this position," said Mr Major, "although I agree with the view that lower demand for poorer quality land will bring its value down."
The second is the lack of Budget action. It is little more than a nine-month reprieve that will fuel continued transactions, albeit in a patchier market, allowing landowners to restructure and to state their case against, for example, possible changes to inheritance tax relief. The March 1998 Budget may have a more dramatic effect coming late.
"The Chancellor has effectively said, be warned," says Jim Bryant of Bidwells.
Declining confidence in grain prices is having an impact on land values, as Catherine Paice explains.