Brexit fears hold back growth in UK farmland, finds Knight Frank

Head of rural research Andrew Shirley says some businesses are looking ahead to post-Brexit subsidy reforms, but the market remains 'unpredictable and highly polarized.'

UK farmland markets grew by just 0.7 percent during the second quarter as concerns over Brexit weighed on limited availability and competitive bidding, according to commercial property consultancy Knight Frank.

The average price for agricultural land in England and Wales reached £7,030 ($8,795; €7,812) per acre over the three months since Q1 2019, according to the commercial property consultancy’s Q2 2019 Farmland Index report published Tuesday. This was a decline of 2 percent from a year ago and 5 percent from five years prior, but 46 percent above farmland values reported in 2009.

Knight Frank highlighted limited acreage for sale and competitive bidding for the few large tracts of quality land available as driving factors of second quarter activity.

“The market remains unpredictable and highly polarized,” wrote Knight Frank head of rural research Andrew Shirley. “Continued demand from a range of buyers, including farm businesses, those with rollover relief and lifestyle purchasers, have combined to offset the lack of clarity around Brexit.”

Shirley told Agri Investor that although that offset has encouraged some deals to be done privately, in general markets have been flat and characterized by limited land for sale and investors taking a “wait and see” attitude to the question of how the UK’s exit from the European Union will impact ag.

Current plans call for existing agricultural subsidies to be phased out after seven years, according to Shirley, who added that the fact another general election is also scheduled to take place within the same period adds an additional element of uncertainty for investors. While Parliament is currently debating an agricultural bill expected to provide more detail, the broad direction of some likely reforms is already clear, he said.

“The subsidy situation is going to switch from payments based on area – which anyone can qualify for – to environmental payments rewarding landowners or farmers for delivering public goods, whether that’s carbon sequestration, better soil or better biodiversity,” said Shirley. “A lot of business are looking at what their estates or farms can offer.”

As businesses rely on subsidies to remain profitable, their removal could bring more farmland onto the market, Shirley said.

Potential threats to food security have played a role in some national debate regarding the policy approach to Brexit, but Shirley said such discussion has had a fairly limited impact on the investor interest in UK farmland.

“The British population would not tolerate no food on the shelves and when push came to shove, I don’t think Europe would allow that to happen either. The government would sort it out, so it would be a short-term issue I don’t think would have an impact on investor sentiment,” said Shirley. “At times of change, there are challenges for certain people and opportunities for others and this is certainly the biggest change we are going to see in the UK.”