Year in review, 2023: Farmland value growth begins to ease

Data from Rural Bank, ANREV and Savills all pointed to farmland values growing less quickly in 2023, with interest rates and high inflation the main culprits.

Aerial shot of crops growing on the Sunshine Farms Aggregation in NSW, Australia

After several years of strong growth, 2023 was the year that growth in farmland values began to at least show signs of moderation, if not quite a reversal.

In Australia, Rural Bank’s data showed that the growth rate in farmland values there declined significantly in H1 2023, with the median price per hectare only increasing by 0.1 percent compared to a year earlier, to remain essentially flat at A$8,515.

This compares with the previous four half-yearly periods that each saw year-on-year growth of between 16-23 percent.

ANREV’s Australian Farmland Index, while covering a smaller subset of farms, also showed capital growth of just 3.21 percent on an annualized basis to the end of June 2023 – part of a downward trend since mid-2021 after seasonal conditions improved Down Under.

Data from Savills gave us an insight into other jurisdictions, too, showing that prices in Central Asia and Western Europe began to fall in 2022, with North America showing a small increase. South American farmland values held up well, too.

Overall, the picture painted by Savills showed that the average increase in farmland values worldwide was 3.3 percent last year, down from an 18 percent average increase in 2021.

Even if some of these results show that there is still capital growth to be had, it has still been lagging behind inflation.

The impact of higher interest rates has also finally started to bite after years of ‘free’ money helped family farmers in particular compete with investors and corporates, meaning that a certain segment of the market is less able to bid for assets and drive-up prices.

There are signs that some investors are beginning to respond to this. Growth Farms is perhaps the most striking example in 2023, as the firm recommended to unitholders that they wind up its Australian Agricultural Lease Fund four years early to take advantage of high farmland asset values.

Senior portfolio director David Sackett said: “We think values are likely to be a bit flatter, or see smaller increases for the next few years.”

Liam Lenaghan, managing director of goFARM Australia, was even more strident in an interview with The Weekly Times this year, saying: “I don’t think prices are going to plateau, I think they are going to collapse in terms of land prices; we are seeing it already.”

Not everyone shares quite such a strong view – and if central banks do end up loosening monetary policy in 2024, then the land value doves may be proved wrong.

For now, it does seem that 2023 was finally the year that farmland values’ recent upward march was slowed to something more akin to a crawl.