Although less frequent, reviews are occurring where budgets or comparables suggest an increase or decrease is justified. The majority of rent reviews are still being initiated by landlords – 94% were in our 2017 sample. Most of these reviews led to an increase in the rent, although in 18% of cases a standstill was agreed and in 14% the rent was reduced.

The average outcome for an AHA review was an 8% increase in rent, whilst FBTs averaged 11%. Long durations between reviews are not inflating these average increases. 94% of the AHAs were last reviewed three or four years ago, and the average outcome of these reviews was 7% so varies little from the full sample.

Settlements vary

The range of AHA settlements is relatively close to the average whilst FBT outcomes are more widely distributed (see Figure 1).

^{Source: Savills Research}

Since 2012 the size of rental increase agreed during reviews has been dropping. This trend continues, with the 2016 average outcomes of 9% for AHA reviews and 15% for FBTs both being higher than the latest statistics. This drop in the rate of rental growth is understandable. Whilst the weakened pound has supported output prices, relative to spring 2014 many are lower; average wheat prices have reduced by 11%, lamb by 14%, milk by 19%, although beef prices are 5% higher. The decline in income has been partly offset by lower prices for some key farm inputs such as fuel (-18%) and fertiliser (nitrogen -19%, phosphate -7%), however soya prices have increased 5%. Farmers’ CAP subsidy payments have also increased due to the favourable exchange rate.

^{Source: Savills Research}

New Farm Business Tenancies

Where new tenancies were agreed, rents were on average 15% higher, compared with 11% for reviews. We continue to see good competition for land advertised to let.

Our monitoring of the national market shows that 23,000 acres of arable and pasture land were advertised by agents within national publications and property portals across England and Wales in 2017. This area is just 2% lower than in 2016, so landlords' willingness to let land has not been affected by the uncertainty surrounding Brexit.

Outlook

Our Agricultural Rent Survey reports rental trends, but also illustrates that due to the diversity of agricultural land, holdings and enterprises the picture is not consistent. The prospects for rental change need considering on a case by case basis using budgets and comparable evidence. When rents have increased rapidly in the past it has been driven by commodity price spikes.

Global grain stocks have been increasing since 2012 so the prospect of a weather related price spike, such as seen for wheat in 2012/13, is reduced. Within the UK wheat usage for bio-ethanol production has now become more consistent and the supply and demand balance is tighter. This supports domestic prices, meaning the UK is not as dependent on exports as it once was.

In the dairy sector, milk prices have been increasing over the past 12 months – the latest data for June 2017 shows a 30% uplift – but they are still below their November 2013 peak. Record butter prices are the dominant factor driving farmgate prices. Lower EU milk supply is a contributing factor, following incentives to reduce output during late 2016 and 2017. Processors have recently announced consecutive price increases and believe global trends will justify further price gains.

Both cattle and sheep prices are higher than a year ago and this is consistent with global trends. Consolidation activity in the red meat processing sector could lead to efficiencies, although concentrating buying power could weaken market competition.

Encouragingly, the sector’s export strategy is bearing fruit with a number of new export markets opened in 2017 and exports to key target markets increasing.

Many rents agreed in 2018 will next be eligible for review in 2021, after Brexit. The present Treasury assurances underwrite farm subsidises until 2020 (2019 BPS claim), whilst the Conservative Party manifesto pledged to “commit the same cash total in funds for farm support until the end of the parliament”. Significantly these assurances are given at national budget level and do not guarantee how it is allocated between farmers. However, practically it is expected that a BPS based system will continue after Brexit until the Government has a new policy ready, so the current distribution of support would continue in the short term.

In the longer term support distribution could change materially, depending on the allocation of funding between income support, rural development and environmental measures; and whether policies such as payment size capping are introduced. Environment Secretary Michael Gove has recently said that “the lion’s share of support funding should go to farmers to help them to do the right thing environmentally”. He has also spoken about productivity and resilience being future policy priorities, and acknowledged the importance of protecting the “human ecology” of upland areas and family farms. At this stage it is difficult to predict what this will mean in economic terms at farm level.

^Glossary:

^{■ AHA: Tenancies originally created before 1 September 1995, they have security of tenure and often have succession rights allowing the tenancy to pass to relatives, and due to the rent formula rents are lower than for FBTs.}

^{■ FBT: Tenancies agreed on or after 1 September 1995. Parties have greater freedom to negotiate terms, and the rent is normally open market.}

^Footnote

^{For brevity the “Year to 30 April 2017” is referred to as “2017” in this document, and “2016” refers to the “Year to 30 April 2016”.}