Ian Hope, a partner with Galbraith, believes that the price of good quality farmland will be maintained, certainly throughout 2019 and that any change in interest rates is far more likely to threaten price stability than any changes to subsidy payments.
The AMC is still lending at 3.5 to 4% fixed over a 30-year period – this is very significant for the industry. If interest rates rise, that will be a much bigger threat to the farmland market than any changes to farm subsidies which may occur post-Brexit. Economic forecasts show that interest rates are unlikely to rise in the short term.
Over the past ten years, farmland prices have shown exponential growth. This growth obviously tailed off in 2017/18 and in some regions, there may even have been a small dip in prices but overall prices have reached a plateau but have not fallen. The best quality land continues to be in strong demand.
In 2018, the highest price achieved for a block of bare agricultural land sold by Galbraith was £17,000 per acre, which is a record for the firm with some Perthshire and Fife land still selling for £10-£13,000 per acre. In two or three examples, the purchasers did not buy the BPS entitlement as part of the purchase as the businesses had taken the decision to farm without subsidies. There are a number of examples of farm businesses starting to operate as if they were in a non-subsidised industry.
There is scope for a potential fall in land prices in the livestock sector, perhaps partly due to changes in consumer lifestyles and reduced meat consumption, but farmers in these sectors are already adapting to the ever-changing market place. Whether it be switching to added value produce, diversification, renewable energy production or new environmentally friendly farming practices, farmers have a history of adapting and will continue to do so. Hill farmers currently in receipt of LFASS may be in a position to benefit from environmental subsidies if the Scottish government continues to prioritize these.
The Scottish Cabinet Secretary for the Rural Economy, Fergus Ewing, has indicated that he wants to maintain direct subsidies to farmers for the medium term, certainly until 2024 and possibly for two years after that. A repositioning away from traditional subsidies towards ‘green’ farming post- 2021 is likely, but farmers have already begun to adapt to this following the introduction of ‘Greening’ and previous opportunities to enter into agri-environmental schemes. If previous environmental schemes are anything to go by, then in many cases, hill farmers will have existing habitat that can easily be converted to fall under the environmental options that will replace direct subsidies. Many of our clients have adopted integrated land use policies to prepare for the potential reduction in subsidies post-2021.
Woodland planting will remain a priority for the Scottish Government and after several years they are now starting to meet the planting area targets that they have set. It is therefore anticipated that planting grants will remain and will continue to be attractive for hill land. Forestry is currently seen as a good investment due to the global rise in timber prices. As a result planting land is likely to continue to underpin the price of hill land.
We anticipate there may be a slight reduction in supply to the farmland market in 2019 driven by continued uncertainty due to Brexit, which is actually likely to maintain farmland values. We do not anticipate any significant price rises or falls in the coming years but expect land values to show flat or slight growth in the long term.
In the last 12 months, more than 100 agricultural properties totalling over 15,000 acres, with a value in excess of £100 million, were marketed by Galbraith in Scotland. The majority of these properties were sold at closing dates, a factor that reflects demand. There is plenty of evidence to show that demand will continue and values will hold steady.