Farming Viewpoint: It’s time for a reality check on farm rents, says George Dunn

George Dunn, chief executive of the Tenant Farmers Association

George Dunn, chief executive of the Tenant Farmers Association - Credit: Archant

I REMEMBER back to 1997 and my early days in my current role as chief executive of the Tenant Farmers Association.

The previous year had been one of the most profitable for UK agriculture and indeed since that time the measure of Total Income from Farming has never been higher.

Two years previously saw the introduction of farm business tenancies through the enactment of the Agricultural Tenancies Act 1995. The sudden availability of more land to let and the strong returns experienced by producers in 1996 became, for the unsuspecting, a heady cocktail which led them to lose restraint in the deals they were prepared to do to secure additional land in the rental market.

As I was taking my seat behind my desk at TFA head office in January 1997 things had already begun to slide and by the following year incomes had plunged to one third of the levels they were in 1996 remaining in the doldrums for the next decade.

Many of the early telephone calls I took in 1997 were from individuals who had suddenly woken up to the reality of the deals they had made in the previous year and their inability to see how they would be able to make a profit in the newly arrived, challenging times.

Many large contract farming outfits which had out-bid other farmers to gain access to land decided to throw in the towel.

Some who had taken on land at exalted levels of rent managed to convince their landlords to offer abatements whilst others had to wait until the first opportunity for a rent review, three years after taking the land, to get the rent down. Typically with term lengths of five years the maths did not look good.

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I very much fear that we are seeing history repeat itself. The circumstances are somewhat different but the outcomes will be the same. On the back of predicted high output prices (particularly for arable but also for beef and sheep) coupled with a strong, expansionist desire, tender rents for farm business tenancies have been at eye watering levels, regularly in excess of £200 per acre.

Compared with rents on traditional tenancies let under the Agricultural Holdings Act 1986 which take into consideration farm profitability, tender rents for farm business tenancies are running at anything up to three times their level. This is simply not sustainable.

As I noted in my remarks in this column in December, the exceptionally wet weather in the second half of 2012 left many either without or with a significantly poorer harvest than they could have reasonably expected.

The continuing wet weather has left many without winter or spring crops in the ground and even those who have managed to drill are looking at crops which have either died underwater or are unlikely to produce anything like a decent yield or quality of crop.

As rent invoices now begin to land on farm office desks for the normal payment due six months in advance, I suspect a large number of individuals will be wishing that they could turn back the clock to before they allowed hubris, scarcity and the economics of the madhouse to encourage them to bid over the odds for the unproductive land they now hold.

When will we see a more responsible tender market in let land?

It behoves both landlords and potential tenants to take a realistic, sustainable long-term view factoring in volatility in prices, costs and weather.

To date, some have been too eager to offer high rents and landlords have been too eager to accept them without having due regard to the consequences of their decisions.

It’s time to wake up and smell the coffee.