There is a bright long-term future for agriculture, despite the challenges faced by farmers last year, and land will continue to be a strong asset in which to invest, said a farm agent at a conference yesterday (Tuesday 26 Feb).

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The farmland market is likely to stabilise but demand will still outstrip supply and premiums will be paid for land able to cope with a deluge of rain after last year's weather brought the quality of land into sharp focus, around 150 delegates heard at Strutt & Parker's Scottish Property Seminar in Edinburgh on Tuesday.

James Butler, Associate in Strutt & Parker's Edinburgh office, said, "2012 will certainly not be regarded as a vintage year for farming, with income down £111m – or 15 percent - due to incessant rain and a subsequent reduction in yields, rising input costs and a currency exchange rate that was against us. However, farmers tend to be a resilient bunch and even with such a tough year, it wasn’t enough to convince them all to start selling up."

He said many farmers were reluctant to sell because of historically low bank borrowing rates, fairly robust farmgate prices, with some exceptions, uncertainty over CAP Reform and the lack of attractive options for reinvestment.

"Supply remained low with 23,000 arable and pasture acres entering the market," said Mr Butler. "This equates to 40 percent less than the average since 2000. Specifically, [across all agencies] only 15 farms in excess of 500 acres were launched and six of these were upland farms. Also, only four dairy farms were marketed publicly."

However, for all that, it was not a flat year. Mr Butler said, "Our team had a particularly busy 2012, selling 42 percent more farms than the previous year. Margins in farming are becoming tighter but land values remain strong – in fact, in the last half dozen years, the value of farmland has doubled – how many assets can you say that about?"

He pointed to the example of Chapel Mains Farm, an arable and stock-rearing farm in Lauderdale offered for sale in seven lots or as a whole for offers over £3.8million, which generated 33 viewings before an English agri-businessman pre-emptively offered a significant premium to secure the whole.

He said there was demand for good arable land "often seen as a sound investment" as well as for hill units with potential for tree planting or renewable energy which can provide substantial and steady income as well as tax benefits. He added, "For the out and out farmers, economies of scale are key today, resulting in demand for both extensive units and blocks of bare land next to their existing holding. A lack of subsidies available for constructing farm buildings has made well-equipped farms more popular.

"Active farmers still dominate the market, with upsizers benefitting from economies of scale, to the fore. They often come from outwith Scotland, in particular from England and Ireland, as they can get more land for their money."

Mr Butler said there will still challenges, including uncertainty over CAP Reform and, in Scotland, the Independence debate. However, he added, "The agricultural industry is volatile but I do believe that there is a brighter future for agriculture in the long run. The rise in the global population will increase the demand for food and the global land mass will decrease due to climate change, industrialisation and pollution. There is no sign of a glut of land coming to the market, which will keep land prices firm; there are still tax benefits from owning land; renewable energy can provide a lucrative income if it can be produced on the farm; and while Scottish farmland remains cheaper than many other EU countries, demand will prevail."

Meanwhile, Robert McCulloch, one of the partners handling estate sales in Strutt & Parker's Edinburgh office, said more estates changed hands in 2012 than in 2011. He added that where, in 2011, 43 percent were in the Highland mixed sporting estate category the tables turned in 2012 with 48 percent of sales in the lowland residential, agricultural and sporting category (figures compiled from across all agencies).

He said, "The perception that circulated in 2012 was that the 'froth had come off' the estate market and it had weakened following a strong 2011. In fact, the number of transactions to have taken place has increased from 21 to 23 sales. Although the total sum of money invested has dropped by 5 percent from £81.5m in 2011 to £77.2m last year, it is still substantially higher than in each year between 2008 and 2010. It is interesting to note that the average sale price of estate has been consistent over the last three years at between £3.4m and £3.9m. So, as we predicted this time last year, the market has remained open for business."

Mr McCulloch added that contrary to popular opinion, the market is dominated by UK-based purchasers with just 26 percent sold to buyers based overseas in countries including China, the USA, Switzerland and Scandinavia.

Mr McCulloch concluded, "We may or may not be heading towards Independence, the UK, European and worldwide economies may or may not improve over the year ahead and the sun may or may not come out this summer, but regardless of these factors and many more, the estates offered for sale over the next 12 months will attract interest and find buyers if they properly marketed and correctly priced."