In mid-August the Government re-published its plan to phase out agricultural support after Brexit and focus on environmental enhancement. Following a change of Prime Minister and Defra Secretary, confirmation that the aims and plan remain unchanged is welcome, even if the outcome of the Brexit process remains unclear.

The industry has no more knowledge about plans for the agricultural transition period than it did when the Agriculture Bill was published over a year ago. Key information such as the rate at which direct payments could be cut between 2022 and 2027 remains unknown. Combined with uncertain future trading arrangements with the EU, this makes budgeting challenging.

The Government’s headline-grabbing plans to encourage retirement and restructuring by allowing farmers to take their diminishing annual direct payments as a single capitalised lump sum also remain undeveloped. A consultation is planned later this year.

Our analysis of land advertised for rent by all agents, shows that in the year to 30 April 2019, 18,300 acres were publicly marketed for rent by Farm Business Tenancy (FBT) in England and Wales, a 20 per cent drop compared with the previous 12 months. The reduction in supply suggests that due to the uncertainty surrounding Brexit and the prospect of capitalised direct payments, owner occupiers or tenants who are considering retiring are deferring their decision until their options become clearer.

However open market tenders show that when land is offered for rent, there is a strong field of applicants who are keen to expand and their tenders reflect their ambition and the level of competition. A similar pattern of supply and demand is being seen in the farmland sales market.

While generalisation is difficult, those tendering greater rents tend to be either growing high-value crops, farming larger acreages or are businesses supported by a diverse range of income streams.

From a landlord’s perspective, the latter group are perhaps most attractive as a diverse business is likely to be more resilient during challenging times. Protecting the long-term productivity of the land has become a significant objective for the majority of landowners. So when a prospective tenant proposes a rotation including potatoes or maize, the landowner is likely to consider the proposed frequency carefully to ensure the land is used sustainably and that the tenant plans to make sufficient investment in soil fertility and preventing soil erosion in order to maintain soil health

Where land is already let, rent review activity remains low: the volume currently being conducted is around 20 per cent of peak levels. Deciding whether to proceed with a rent review is a very site specific question, dependent upon the characteristics of the farm and current rent.

For Agricultural Holdings Act (AHA) tenancies which were previously reviewed three or four years ago, their rent increased on average by 7.6 per cent when reviewed in the year to 30 April 2019. FBT rents increased more. On average an FBT rent review was settled with a 13.7 per cent increase in the rent during the year to 30 April 2019. Around these averages there is considerable variation in results as shown by the chart below.

Distribution of AHA and FBT rent review results in year to 30 April 2019

By spring 2020 the future of the tenanted land sector in England should be becoming clearer, with the results of the Government’s recent agricultural tenancy reform consultation and upcoming consultation on capitalised direct payments providing welcome direction.

In due course policy developed from both of these consultations has the potential to significantly increase the supply of letting opportunities onto the market.

Further information

Contact Savills Rural