Is 2020 set to be the year for farmers to act or to take stock?
PUBLISHED: 06:36 01 February 2020
East Anglian farmers wanting to buy or sell land should “proceed with confidence” this year, land experts suggest.
Despite some of the continuing uncertainties, agents believe the UK is entering a more politically settled era now that Brexit is set on a course.
Brexit worries probably contributed to a tightening of the market last year as fewer farmers appeared willing to put land on the market.
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But Robert Fairey, partner at Brown & Co, believes 2020 will be a year for landowners to take stock - and to act.
"As we now have the election behind us and potentially some political stability, hopefully this will encourage owners and businesses to make their decisions and carry out their plans, especially if they have been putting them on hold during the last 12 months as a result of the uncertainty surrounding our exit from Europe. Stagnation never helps any business or industry."
But while Brexit appeared to be holding the land market back last year, with a tightening of supply, already this year, there are reports of the housing market becoming more active.
"We are anticipating greater activity in the farmland market so buyers and sellers should proceed with confidence this year," he said.
Oliver Holloway of Clarke and Simpson said although the supply of land coming onto the market in 2019 was generally down on recent years, prices remained surprisingly buoyant.
"This, combined with the recent election result, may well give landowners the confidence to forge ahead with land sales and which were potentially put on hold last year," he said.
"Looking ahead into 2020, it is highly likely that rollover relief will continue to be a motivational driver for many purchasers."
Brexit uncertainty remains the most likely downward threat to prices, but unless a significant number of farmers choose to exit the industry, it was "highly unlikely" to cause a sudden slump in prices, he said.
"The majority of farmers tend to have longer term objectives and remain resilient to short term fluctuations and many will remain positive in 2020 and beyond.
"In my experience, committed farming businesses are looking well beyond Brexit and will be keen to secure more land if it becomes available this year.
"The more commercially minded landowners will continue to look into diversification of capital - land typically delivers a return of 1-2%."
Other asset classes can easily beat this, he pointed out, although they came with their own set of risks, tax issues and skill sets.
"However, the fact that 75 acres of outlying land, sold and reinvested, could replace the Basic Payment Scheme (BPS) income on over 500 acres of the core farm cannot be ignored."
William Hargreaves, who leads the rural team at Savills Ipswich, pointed out that by 2028, without the Common Agricultural Policy, farmers will no longer receive a subsidy based on the acres they farm.
"The last approach that anyone should be considering is let's 'wait and see'," he warned.
"Whether it's revisiting farm contracts, exploring possibilities for collaboration, reassessing costs or looking at ways to increase productivity - now is the time to put your business under review.
"Considering how the farm can be of most value to the public in order to receive public money and to capitalise on the growing area of private investment in natural capital will also be crucial moving forward, as will assessing the farm's assets and the opportunities for diversification."
While diversification wasn't for all farmers, Savills' rural vibrancy index showed that diversified enterprises continue to drive the rural economy, with 16.3% annual growth.
"As consumers have become more demanding so farm diversification activities have become more consumer-focused, sophisticated and varied," he said.
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"The customer should be at the heart of every business decision and when diversifying it is imperative to understand what customers need and value.
"Businesses should consider emerging trends that have an impact on consumer behaviour and values as these will offer the best opportunities - an emphasis on wellness, the environment, sustainable living and 'experience over possessions' are all recent examples.
"Breweries, distilleries and vineyards have displayed significant continuous growth while online selling, farmers' markets, holiday lets, glamping, adventure sports, workshops, office space and renewable energy also remain popular."
Bury St Edmunds-based pig consultant Peter Crichton said there were more questions than answers over domestic pig after exiting the European Union, with a 'no-deal' a worst-case scenario for the sector - but the outlook for the sector still remained positive.
"With around 50% of UK breeding units now operating on an outdoor welfare friendly basis, pig farmers will have to look at ways in which they can also receive payments for delivering better water and air quality, higher animal welfare standards and more open access to the countryside."
Flooding and run-off prevention and soil quality improvement need to be factored in - as will a fall in demand for red meat in the UK and EU, he said.
More rules to encourage great supply chain transparency could help improve producers' hands in negotiations, he suggested.
"Funds available by way of the Basic Payment Scheme this year will remain as they were in 2019 and for future years the government has pledged to match the payments to farmers and switching their attention to environmental benefits and payments," he said.
"The UK pig industry needs to find ways in which the sale and marketing of domestic pig meat can be regenerated with more focus made on pig meat consumption levels, due to competition from 'meatless' plant-based alternative sources of protein."
The industry needed to look "long and hard" at switching production to convenience and "fast" foods, he suggested.
The UK pig market was benefiting from trade with China following the African Swine Fever epidemic, but this would not last.
"Once the affected herds in the Far East are re-stocked and production is back in full swing the China export trade volumes will shrink," he said.
Pig farmers should push for better promotion of their produce, he said.
Jason Cantrill, senior associate director in the farming department at Strutt and Parker, said the farming industry was entering a period of rapid change, and now was the time to act and make businesses resilient for the future.
"The government has confirmed it is still its intention to start phasing out BPS payments from 2021, so this is the last year that farmers can rely on receiving a full BPS payment," he said.
"The challenge is to find ways to fill the financial gap that this will open up, while also responding to the challenges the industry faces in terms of addressing climate change."
Farmers and landowners would benefit from a good understanding of the performance, ensuring they are in the top 25% of best-performing farms to help to insulate them from any reductions in direct support.
"It is amazing the number of people who do not know what their costs of production are to grow a tonne of wheat," he said.
"But this sort of information can be critical when it comes to strategic decision-making about the future. Making sure your business is as efficient as possible should be a priority.
"Farmers should also consider optimising any income sources away from combinable crop production.
"Many have already taken steps to do so, either by diversifying or shifting into new enterprises, such as poultry."
It was also worth considering joining the Countryside Stewardship Scheme, which could offer "surprisingly high" levels of funding, with a number of options also offering management benefits, such as on cultural control of blackgrass.