Like all aspects of the property and land market, the price of farmland is in constant flux. Prices rise and fall based on economic factors and inflation.
Unlike agricultural markets in other countries, the UK market is finite.
As an island nation, the UK has a limited amount of farmland which is slowly being developed as urban areas expand. As a result of this, the price of farmland in the UK is gradually increasing in price.
Last year’s unprecedented events placed a new focus on agricultural land, the price of produce, and how much we as a nation depend on farmland.
Recent lifestyle shifts have placed more stress on organic, non-GMO, fresh produce at low prices has also put additional strain on farms. Agricultural land, therefore, has to produce more at lower costs affecting the relationship between investment and earnings.
Research suggests that in recent years, more than in any other point in history, farmland is being bought to be developed into commercial and urban investments.
After urban investment projects, the second-largest buyer of UK farmland is existing farmers looking to expand their farms to scale up operations and to meet increasingly demanding market needs.
The end result, is that only a small percentage of farmland is being bought to establish new farms.
The History Of Farmland Prices
Because of the UK’s limited supply of land, farmland prices have historically been reasonably volatile. Major world events have had significant impacts on the cost of buying agricultural land.
Looking back in history, as you would expect, the most significant events include both World Wars – which saw a considerable increase in demand for farmland and fresh produce.
However, since very few people had money to buy farmland, the cost per acre actually dropped during the war periods and allowed for new buyers to enter the market.
It goes without saying that considerable fluctuations in inflation have also impacted the price of farmland.
The UK joining the EU in 1975 led to a stabilisation of prices and a modernisation of the industry. This was the turning point, and at which point, there became fewer new entrants into the agricultural market – the modern farming industry as we know it was born.
The Last Twenty Years
The period from the early 2000s through to 2015 saw the largest continuous growth in farmland prices. The prices sky rocketed.
According to research by the Bank of England, Savills, and the Office for National Statistics, the average price per acre stood at around £3,500 per acre at the beginning of the millennium.
By 2015 this had jumped to over £9,000 per acre.
Land prices in some areas of England even peaked at around £12,500 per acre. At the same time, prices in Canada, where land is abundant, were around £800 per acre.
Even during the economic crash of 2008, when house prices crashed, the cost of farmland continued to increase as markets looked to tangible assets for security. Compared to house prices, farmland has been more stable and has seen more consistent growth over the past 20 years.
However, as the UK started to debate its membership of the European Union, farmland prices began to fall.
Before the decision to leave the EU, farmland prices per acre were up over 100% compared to that of ten years before. House prices in London were up just 42%.
Farmland prices after the EU referendum fell to an average of around £7,500 per acre. This was mainly caused by uncertainty and caution rather than a real change in demand.
However, in the past few years, prices have stabilised and are showing signs of increasing again as people become more secure in the UK’s farming future.
The Past Year And Looking Forward
While major global events have had a considerable impact on agricultural land price in the past, last year’s Covid-19 pandemic had a surprisingly small effect on the cost of farmland in the UK.
In saying that, 2020 saw a record low amount of farmland go for sale publicly. Just 114,000 acres were made available for purchase on the public market.
Another way 2020 bucked recent trends, is that 2020 also saw a large increase in demand for turning agricultural land into forestry land to help fight carbon emissions. More and more government incentives are turning wasted or unused land into forests to help the fight against climate change.
Experts suggest that the resilience the market has showed over the past years bodes well for prices.
The small increase in prices over the past year means that the shrinking availability of farmland is a more significant driver than the economic influences.
Farmland is more in demand as less of it becomes available.
Looking forward, now the UK has left the EU and it can dictate its own farming policy, the price of farmland is likely to only see a significant change if there is a change in import prices.
There may be a small decrease in prices as the UK sets up its own policies and works out how much produce needs to be imported from Europe and the US.
If farmers can pivot to provide high-quality produce from farms in the UK, the price of farmland will likely show consistent growth.
Understandably, local competition and location will continue to play a huge factor in the fluctuations of farmland prices. Prices will also be dictated by the UK’s lifestyle and diet choices. If consumers look to scale down their consumption of meat products, livestock farmers may struggle, and in turn, land used for crops will be more valuable.
The past twenty years have seen the most stable and predictable market for agricultural land.
The most influential factor on UK farmland prices is the limited and shrinking availability of agricultural land. This driver will likely continue to push farmland prices up.
The question remains only whether the buyers of this land will be farmers looking to expand operations, or commercial and urban developers who will see farmland as investments where they can build on for housing estates, retail parks etc.
High prices are a good sign. But only if farmers can afford the land.
As pressure increases on farmers to provide low-cost produce, each acre of land offers fewer returns, and farmers will often need financial assistance to purchase land – this is where the farming finance specialists at Evangate FS can help.
Buying farmland is a long-term investment. UK farmland changes hand on average every 200 years.
The return on investment takes several years, and as such, high-priced farmland requires specialist finance loans to help farmers buy it. If farmers delay too long, they may be priced out of the market by the urban developers!
If you are interested in buying farmland, speak to our specialist agricultural finance team today at Evangate FS.