I first started tracking the farmland market in the UK at the turn of the century when I joined Farmers Weekly magazine as its property editor. Back then decent farmland was priced at around £2,500 an acre. Fast forward to the present day and land routinely changes hands for more than £10,000 an acre.
According to the Knight Frank Farmland Index (I jumped the journo/corporate fence in 2008), the average price of bare farmland in England and Wales – that’s land with no houses or buildings on it, just crops or animals – was worth £2,037 an acre in 2000. It’s now £7,672 an acre – a rise of almost 280 per cent.
So what’s happened during that time to drive up prices? Farm incomes certainly haven’t risen by that kind of multiple.
Put simply, it’s down to the rather dull supply-and-demand equation. Very little farmland comes up for sale publicly, but there are plenty of reasons all sorts of different people want to buy it.
Since a change to the legislation governing agricultural tenancies in 1995 – email me if you really want the detail – it is now much easier for farmers to rent out their land without creating a long-term tenancy.
Rather than sell up when they’ve had enough of farming, many landowners just lease out their land to neighbours looking for economies of scale. They get a steady income and get to stay in their lovely farmhouse.
Farmers also tend to have fairly low levels of gearing, meaning bank foreclosures are relatively rare. In addition, EU agricultural subsidy payments (more on this later) help support businesses that would otherwise struggle to survive As a result, the amount of land on the market has dropped significantly.
So that’s supply – what about demand? Well, farmers generally take a long-term view and they are always keen to buy more land, especially if it’s a 'once-in-lifetime-opportunity' on their doorstep, even if they’re not making much money.
Tax plays a big role as well. Farmland is helpful when it comes to inheritance planning, while buying more land (or rolling-over) is a useful way to mitigate their capital gains tax bill when farmers have sold land for development. Imagine how much land is being bought for HS2 alone.
Investors also like farmland. When commodities hit their cyclical highs (currently they’re enduring a bit of a trough) land is seen as a way to buy into the trend. In times of economic turbulence the safe-haven argument comes into play: even if yields are low there is no risk of land in the UK disappearing down the proverbial pan like an equity portfolio.
The rural dream helps too. Lifestyle buyers looking for a pretty home or estate in the countryside have long helped to support prices by competing with farmer buyers.
But, values can’t keep going up, can they? Of course not. In fact, they have actually fallen by 8 per cent on average over the past 12 months, according to our data. Although, when you consider that agricultural commodity prices have been in the doldrums for over two years, that is a pretty resilient performance.
What about Brexit? Well, on the face of it, leaving the EU doesn’t look like good news for agriculture.
In 2015, the £2.4 billion of EU subsidies paid to UK farmers accounted for about 75 per cent of their Total Income from Farming (TIFF) as measured by the Government. Once we leave the EU and the warm, although much maligned, embrace of its Common Agricultural Policy it is hard to see agriculture being supported to the same extent by a UK government with so many other hungry mouths to feed in Westminster, not least the NHS.
If support is cut and some farmers can no longer survive, surely that will rebalance the supply and demand equation I mentioned earlier leading to an inevitable slide in prices? The answer very much depends on the extent of any cuts. But I don’t think support will be disappearing overnight as it did in New Zealand during the mid-1980s.
EU farm subsidies are already heavily focused around the delivery of environmental benefits and the lobbying power of the likes of the RSPB and National Trust will ensure that kind of support continues – farmers will just have to do more for the environment to qualify for payments.
The drop in the value of sterling following the EU referendum has already helped to boost the competitiveness of the UK’s agricultural exports and is making farmland more attractive to overseas investors. If you’re buying in dollars the value of land has fallen by over 20 per cent in the past 12 months.
And many of the other reasons to buy farmland will continue once we leave the EU. Theresa May has promised more houses and more spending on infrastructure. That will inevitably lead to more farmers with roll-over funds to invest.
More efficient farmers will continue to look for greater economies of scale and will either rent or buy more land when it becomes available – especially once the commodity super-cycle kicks off again as it one day it inevitably will.
But as somebody from farming stock myself, my greatest hope is that Brexit will encourage a new wave of agricultural innovation and entrepreneurial thinking in the UK that has been stifled by the ever-present safety net of EU support.
I mentioned New Zealand earlier. Despite enduring an almost total removal of farm support, only 5 per cent of farmers have left the industry and productivity has rocketed since 1984. Land values dipped for a few years, but have overall climbed by more than 500 per cent since then.
So it is possible for land values to rise in a no-subsidy, liberalised trade environment – the southern hemisphere version of a hard Brexit. It's too early to say the shine is about to be wiped off the UK’s farmland market just yet.
Andrew Shirley is Head of Rural Research at Knight Frank
You can read Andrew's latest farmland research and Brexit analysis here.