Farmland market update – Q1 2020

Despite the farmland market looking set for a confident start to the decade, the average value of bare agricultural land in England and Wales fell by 0.6% in the first quarter of the year, according to the latest results of the Knight Frank Farmland Index, which now stands at £6,960/acre.

Both buyers and vendors seemed in a more positive frame of mind following the results of the general election with a number of new farms and estates due to be launched. The fact that the feared assault on Agricultural Property Relief in the Budget never materialised was also welcome.

However, the movement restrictions put in place to combat the Covid-19 outbreak mean the market is now on hold until the summer at the earliest and very little market evidence exists to support a significant move in average values either way.

Assuming farms can be launched by July we expect values to increase in the third quarter of the year as the pent up buyer demand rewards those who bring their properties, particularly bare land, to the market quickly.

Over the longer term, Covid-19 could support values if investors move towards tangible asset classes, which is what we saw after the 2008 financial crisis. The growing realisation that global supply chains are extremely vulnerable to “black swan” type events may also encourage the government to focus more on food security.

Overall though, I still feel the key driver for the farmland market remains Brexit, both in terms of the shape of the trade deal negotiated with the EU and the impact of exchanging the area-based support provided by the Common Agricultural Policy for environmental payments revolving around the concept of public money for public goods.

But however this pans out, values are likely to become more disparate and localised as soil quality, location, cropping options and the ability to deliver the aforementioned public goods become increasingly important.