H & H Bowe Chartered Surveyors have reported a strong start to the market in 2011. Here Senior Agricultural Advisor Andy Dyer comments on the current market for agricultural land in North West England.

There is plenty of interest from both sellers and purchasers who are willing to test the market. Whilst supply of farmland and farms remains tight, the interest from investors and farmers alike remains high. A number of sellers who wish to increase their farmed acreage are actively marketing their own smaller units in order to be in a strong position if the opportunity to purchase a larger unit arises.

Behind these bullish comments however lies the impact that the availability of money has on individuals’ ability to make a move when they want to. Banks and mortgage companies are still in a position to lend to potential purchasers. However any business plan on which any investment is based needs to show a level of return that is sustainable in case interest rates rise at some point in the future. There are investors out there, and in some cases they have serious amounts of money to potentially invest in farmland, but they are increasingly looking beyond the tax benefits of holding farmland and need to know that the return on their investment is sustainable.

In recent years the fact that farmers have derived considerable financial benefit from the Single Farm Payment and Environmental Stewardship Schemes has greatly assisted the capacity of lenders to lend money on the back of an almost “guaranteed” return. The future value of these payments may not be so secure, particularly if EU farm budgets are cut or spread more thinly between member states. We therefore may see a steady erosion in the value of these payments and therefore any business plan produced to support a given level of borrowing will need to recognise this in the future. The level of income from sales of livestock, cereals etc produced on the farm may be more difficult to predict in the longer term given the volatility of world and domestic markets. Trying to predict a return on capital invested may therefore become much harder in the years to come.

Farmland prices have undoubtedly risen in recent years and with average prices now supposedly in the region of £6,500 per acre, as compared to £2,000 per acre roughly ten years ago, one could be forgiven for thinking that there is no limit to where prices might end up. As with all averages there is a considerable variation within the quoted figures and within the last ten years we have seen a lot of roll-over money, money from compensation claims and money released from sale of building plots helping to fuel these price rises. As the next generation of farmers comes forward they may not be able to expand their businesses, in the same way as their parents and grandparents if land prices continue to increase at the same rate as they have done in recent years and even more so if the availability of money at reasonable interest rates is diminished.