UK farmland prices have taken their biggest hit since the global financial crisis in 2008, according to real estate agents Knight Frank.
Farmland prices have fallen by 3 percent in the first quarter, following a 1.7 percent drop in the final quarter of 2015.
The referendum on UK membership of the EU, to be held in June 23, has sparked fears that an exit will result in the reduction or even removal of subsidies for UK farmers, affecting farmland values and the cost of agricultural credit.
But it is not the sole reason for the drop in prices, according to Knight Frank.
“Brexit is one more consideration that has come on top of a sustained period of low commodity prices,” head of rural research at the estate agents, Andrew Shirley, told Agri Investor.
Payments to UK agriculture from the European Agricultural Guarantee Fund rose from £2.5 billion in 2008 to £3.12 billion in 2014, with grazing farming the most subsidy-reliant sector.
As well as shielding farmers from the immediate effects of price volatility, the EU pays farmers to carry out environmental improvements on farmed land.
Shirley said the possibility of a British exit from the EU has helped drive down farmland deal volumes, but was reluctant to name Brexit as the main or only factor.
“[The prospect of Brexit] just adds to the uncertainty,” he said.
In the last ten years, he pointed out, British farmland prices rose by 180 percent. In recent years, prices have dipped in certain quarters, but have not hindered overall annual growth, until now. Prices have dropped 1.9 percent since March 2015.
“One thing I can say about the referendum is that a lot of deals have been put on hold until afterwards. There is just less confidence in the market, but it is difficult to benchmark. The market was a bit fragile and this certainly hasn’t helped,” said Shirley.
Shirley said, anecdotally, different farming industries and regions are showing some variations in terms of deal volume and prices. He said land values in some parts of the country, such as Herefordshire, seemed to be holding up comparatively well because farmers have sought diversified income streams from non-agricultural industries such as renewable enterprises, or have gone into growing industries like poultry.
In a talk earlier this year, European environmental policy researcher Allan Buckwell warned that leaving the EU could constrain investment in UK agriculture, depress producer profitability and temporarily push down farmland prices. He also warned a serious dip in land prices could lead to credit tightening and increases in the cost of borrowing.
But banks do not appear to be panicking over the fall in prices. Barclays head of agriculture Mark Southern said his bank was not seeing any increases in rural debt costs or a tightening of credit as a result of lowering farmland values.
Rural lender Agri Partners’ partner Robert Bourn said that the only change he has noted in the lending market is “a shift from high street lenders that are converting interest-only mortgages to capital-repayment mortgages, with monthly payments.
“This obviously poses a challenge to farmers that receive income seasonally and who may not have cash reserves to service mortgages on a monthly basis.”
He said the implications of Brexit for agricultural credit were still unclear.
“What we do know, however, is farmland in the UK is a long-term investment and the fundamentals that support UK farmland values will remain, if not strengthen. Supply is historically low, the resource is finite, there are competing land uses and a variety of ownership motives that all support farmland values in the long term.”
He said, overall, prices are still relatively high, and in previous times of uncertainty, such as the global financial crisis, lenders remained relatively supportive of UK agriculture.