Opinion: Has the supertanker of farm rents turned, asks the Tenant Farmers’ Association
16:00 30 March 2014
Since the latter half of the last decade agricultural rents have gone in only one direction, upwards, writes George Dunn, chief executive of the Tenant Farmers’ Association.
Over the past few years landlords and their agents have been used to serving notices for rent review on farm tenants in the expectation that increases would follow when the reviews took place in the year after the notices were served - but this year is different.
The Tenant Farmers Association is warning agricultural landlords and their agents that there is no scope for rent increases this year on farm tenancies regulated by the Agricultural Holdings Act 1986 following their last rent reviews three years ago.
Understandably this will come as quite a shock to the system particularly as we are coming off a set of rent reviews from last autumn which saw average rents on Agricultural Holdings Act tenancies increase by around 20%.
Circumstances last autumn were rather different from today.
Despite the very cold spring of last year the rent reviews followed a relatively straightforward harvest with reasonable ground conditions thereafter and also pre date the very wet weather experienced at the end of the year and in the first weeks of this year.
Although cereal prices had fallen from their peak of around £220 per tonne down to £145 per tonne by last August, they were again on the climb at the time rent reviews were being settled.
There was clearly an expectation of both better conditions and better prices.
Finished cattle prices were also quite strong last autumn but have dipped away ever since.
Potato producers had experienced high prices in the months leading up to the autumn 2013 rent reviews.
Rent reviews follow a three year cycle which means that rents reviewed last autumn would have been previously reviewed in 2010.
Looking back to 2010, for much of the year feed wheat prices were below £100 per tonne.
Finished cattle prices were at two thirds of their autumn 2013 levels and finished lamb prices had taken a dive to around £3.50 per kilogram deadweight in comparison to £4 per kilogram deadweight at autumn last year.
Potatoes reached a peak of only £190 per tonne in 2010 in comparison to over £300 per tonne just prior to last year’s rent reviews.
The rent increases reported therefore reflect an improvement in farm profitability overall between the three years separating the reviews.
The same cannot be said for reviews taking place this year.
In comparison to 2011, farm budgets this year are showing lower levels of profitability due to steady or slightly lower prices in most sectors and an increase in costs across all headings.
However, there is, as yet, little evidence of reductions in comparable rents leading to the conclusion that standstills in rent should be the order of the day.
The TFA has just completed its annual round of meetings with its panel of Recommended Professionals including around 50 leading, rural practice chartered surveyors who act for both tenants and landlords.
We put the hypothesis that there was no justification for rent increases this year where rents were properly reviewed three years ago and there was unanimous agreement in support of that view.
Of course this analysis is based on averages.
There will be individual circumstances which will dictate different outcomes.
For example, a rent set too highly in 2011 may be ripe for a reduction and there will be cases where the opposite is also true.
It is vital therefore that individuals take specific advice on their case.
The market in farm business tenancies continues to be a worry.
Reports of rents tendered seem to lack any resemblance to reality.
One factor driving rents is the production of maize to feed anaerobic digesters where there are regular reports of rents being paid in excess of £300 per acre which, in the view of the TFA, makes the government’s subsidy of anaerobic digestion through the feed in tariff unsustainable.
As a result the TFA is calling for the feed in tariff to be removed for plants using maize as a feedstock whilst allowing it to be retained for plants using food waste and green waste which is around a third as efficient in terms of power generation in comparison to maize.