The Cambridge region is of national significance within the agricultural industry, due to the scale of many farm business’ and diverse cropping. Brexit is the greatest issue for farmers to consider at present, be it the impact this will have on support payments; the implications arising from trade negotiations; and the availability of seasonal labour.

Whilst businesses are preparing for the impact of Brexit, crucial aspects such as our future trading arrangements with the EU remain uncertain. The prospect of departing the EU with no deal in place appears to have become more likely, although the Government remains confident tariff free access will be secured. For agricultural policy we do at least know the direction of travel. Future policy and any support schemes will have an increased focus on public money for public goods, especially environmental enhancements.

The Government recently published the long-awaited Agriculture Bill. The Bill represents a significant departure from the approach that we are accustomed to under the Common Agricultural Policy. Crucially, unlike the CAP, there will be no income support element to the payments planned under the Agriculture Bill. The transition away from the current system of payments based on the area of land farmed is planned for 2021 onwards for a period of seven years. This transition phase is likely to expose arrangements in rent, tenancy and tax planning that will require careful consideration.

The outcome of trade negotiations is probably more important than domestic agricultural policy. It is a ‘no deal’ scenario which poses the biggest short-term challenges to the UK economy. Trade flows between the EU and the UK will be subject to tariffs and rules constrained by the WTO default position. The effect of the imposition of new tariffs and procedures with a key trading partner is the main concern here.

There are three separate areas to consider: the effect of tariffs, the effect of border inspections, and the implications for UK agricultural policy as a result.

Land sales and values

As a result one might have expected a reduction in the number of farm sales, particularly given the challenging weather we have experienced since last autumn.

However, our research shows that across England supply in the first seven months of 2018 was up 14% on the same period of last year. However, there were significant variations in activity across the English regions. In the East of England activity was significantly higher – up 52% on the same period of 2017.

The scale and profile of demand has remained largely unchanged over the past three years, with farmers accounting for around 40% of purchases. In 2017, there was increased interest from institutions, while the return of the lifestyle buyer has continued. Expansion of existing farm businesses remained the primary reason for buyers and accounted for just over half of total transactions.

Personal circumstances, such as retirement and death, account for a significant number of sales – around 40% during the past three years. However, the number of sellers citing debt as their principal motivation has increased from about 8% in 2015, to around 20% since 2018.

With future farm income potentially under pressure, and the cost of serving loans set to increase, we believe debt will continue to be one of the material factors driving supply and could also temper demand.

The decline in average farmland values over the past three years is well documented and there are now clear signs that values for most regions and land types are settling with only minor price adjustments. The latest results of our Farmland Value Survey show that average values across GB are relatively stable, falling by just -0.6% during the first half of 2018.

There is also widening disparity between pure commercial productive ground and holdings with higher amenity value. This is clearly seen in average arable values in the eastern regions. In the East of England average prime arable values are around £9,000 per acre although the actual prices achieved are dependent on local demand.

Future opportunities

The shape of future agricultural policy is currently uncertain although the evidence is building and we know that after 2022 any subsidy system will be on a very different basis to the direct BPS payments.

Farmland is different from other assets in that it is tangible; you can live on it, play on it, bring up your family on it and at the same time it also offers a range of income generation opportunities from food to energy. In addition, it is transferable to the next generation in a tax-efficient way.

Long term capital appreciation is the prime attraction for holding agricultural land as an investment, as income returns are historically relatively modest compared to commercial property. Its performance is relatively recession proof resulting in a low or negative correlation with other traditional asset classes such as stocks and bonds and therefore it is a valuable asset to hold as part of a diversified investment portfolio.

Many factors contribute to the performance of farmland values and it is the balance between them that determines the outcome for each sector of the market. The current strength of commodity prices and the weak pound are positive influences for arable farm profitability at a time when the future of agricultural trade and policy is uncertain.

Our outlook for the next five years shows an overall recovery to positive growth, albeit at a pace below historic trends. However, much will depend on the outcome of trade negotiations and revisions to agricultural subsidy.