Agricultural land prices hit record high

Published 19th Apr 2011

Rising food prices have pushed up the price of arable land in parts of the UK, but life is tougher for livestock farmers


Agricultural land prices in Britain have hit record levels following the surge in global food prices, according to figures from Savills.

An acre of prime arable land in East Anglia is fetching up to £8,500 compared with around £3,000 in 2005, with demand driven by the dramatic increase in wheat prices over the past year. Last week, feed wheat was selling for nearly £200 a tonne, a 115% gain on the £93 a tonne price British farmers were achieving this time last year.

"There's no recession in the arable land market at the moment, it's really flying," said Savills director Christopher Miles. "There is a lack of supply coming on to the market at the same time that farming has become a lot more profitable as commodity prices have shot up."

But while the "grain barons" of East Anglia and Lincolnshire are enjoying record prices, livestock farmers in other regions are coming under pressure.

"Pig farmers are losing £20-£30 per finished animal, while dairy and beef producers are barely covering the cost of production," said Ian Ashbridge of Farmers Weekly. A doubling in animal feed prices, plus rising fuel and haulage costs, have thrown many into losses.

Land used for livestock farms sells for much lower prices, with £3,000 an acre not uncommon in northern counties. The drought-like conditions across much of Britain are piling more pressure on livestock farmers, who rely on rainfall for grass much more than the drier eastern part of the country.

Savills expects a continued surge in the price of arable land, forecasting 10-15% growth in 2011, driving the highest cost per acre over £10,000. The forecast chimes with the latest Rural Land Market Survey from the Royal Institution of Chartered Surveyors, which found prices rising steeply everywhere in the UK except Scotland.

Domestic farmers, agribusiness investors and cash-rich individuals have replaced the "lifestyle" buyers from the cities, plus the Irish and Danish, who helped drive the market before 2007. "They see it as a store of value in inflationary times, it's gold with a cashflow," said Miles.

Supply is tightest in East Anglia, where the number of acres for sale was less than half of that for the same time last year, said Savills. "This pushed up average values by 5% to £6,553 per acre, but where competition was strongest values achieved highs of £8,500 per acre for prime arable land in the region."

Other land agents are not as bullish. Bidwells, one of the biggest agents in East Anglia, said a lot of land is beginning to come on to the market as foreign owners start to sell up.

"You just need to look in Farmers Weekly where the amount of land for sale last week was probably as much as they've had in the last eight weeks combined," said land agent Ben Taylor. "People are seeing the prices being achieved and are now attempting to sell. I suspect future price growth won't be quite as fast as some are predicting, although over the long term arable is going to continue to attract investors."

He added that Britain currently has a two-tier market, with "arable very optimistic, livestock less so", he said.

The rise in agricultural land and food prices is likely to put pressure on policymakers to cut subsidies to farmers. The current single farm payment scheme gives British farmers a subsidy of around £90-£100 an acre, but it is under review and many farmers are anxiously anticipating what will happen after 2012.

Some farmers argue that despite the soaring price of wheat, they have gained little because they forward-sold their supply when prices were lower.

"It wasn't long ago that famers were getting around £110 a tonne for wheat, compared to a cost of production of £105-£110 a tonne, and they sold forward," said Ashbridge. "In the meantime, things like diesel have jumped in price, while ammonium nitrate fertiliser, while below its peak, has still doubled in price."

In reality, however, the price of agricultural land and food prices reflects global as much as domestic factors. Forward market prices for wheat remain very strong, despite a note last week from Goldman Sachs advising investors to take profits in the commodity sector. Wheat prices surged after a poor harvest last year in Russia and Ukraine prompted a temporary export ban.

Demand for meat products, fed on grain, is rising in China and other emerging markets, while in the US many farmers have switched from wheat production to making bioethanol.

Meanwhile, rural farmhouses remain firm in an otherwise weak residential property market. Rural specialists Carter Jonas said the average price of a farmhouse rose by 1% in the first quarter of 2011, compared with the 0.6% fall in the average house price in Britain over the same period.

Source: ' Guardian '

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