A farm buyer's guide

The fortunes of livestock farmers diverge from their arable counterparts’

Despite occasional bad press concerning the state of farming in the UK, average real income per agricultural worker grew 17% in 2008, the fourth fastest growth in the EU.

The French, meanwhile, suffered a 10% drop, while the Danes were down a huge 25%.

Many farmers feel that the supermarkets have forced them to continually accept lower prices, in effect making them pay for reductions on the shelf.

However, there is evidence that the pressure from farmers has started to tell. In April 2007, for example, Tesco raised the price it paid for milk to 22p a litre after protests by dairy farmers.

Safe haven

Savills, the estate agency, says there is still a shortage of supply, with the amount of farmland coming onto the market in 2009 falling significantly in England and Wales, although this hasn’t stopped values falling 1.4% in the first quarter of 2009, by 1.4% (see Savills' 2009 Q1, Land Market Value Bulletin).

With farms for sale seen as a safe haven for investors, especially given turbulence in other markets, Savills expects values to recover the value lost during 2008.

It’s a different story in Scotland, where supply has rocketed by 61%, and values remain broadly unchanged. 

South of the border the little land that is available tends to be in the more marginal agricultural areas. The market in the farming heartlands of the east of England is severely restricted and land rarely comes up for sale.

The amount of land for sale has been dwindling since the end of the Second World War, and this trend is likely to continue. 70% of land traded between farmers is sold to land-owning farmers looking to expand.

But farmers only buy 50% of land traded. ‘Lifestyle buyers’ – affluent urban dwellers wanting to escape the pressures of city life – have entered the market in significant numbers, accounting for 29% of purchases. Running a farm is almost ‘rock n’ roll’ now that former Blur guitarist Alex James owns a 200-acre farm in the Cotswolds.

If you’re dreaming of an unending idyll, however, consider the words of one-time American President Dwight E Eisenhower: “Farming looks mighty easy when your plough is a pencil and you’re a thousand miles from the corn field.”

Farming involves early mornings, long hours and hard physical labour, often in the wet and cold.

Buy to let

While many nevertheless farm purely for the lifestyle, some see it as an investment. Buy-to-let farmland is in the same league as buy-to-let residential property.

Lifestyle buyers – affluent urban dwellers wanting to escape the pressures of city life – have entered the market in significant numbers, accounting for 29% of purchases

 

Let land has shown a return of over 10% over the past 20 years, encouraging many country house buyers to buy the surrounding land and let it out to farmers. About a third of the land in England is tenanted.

In the marginal areas away from the agribusiness heartlands of Lincolnshire and Norfolk, where volume crops are grown at profit, running a small farm is increasingly the preserve of the affluent.

Land prices are high now, but Savills expects them to grow further so buyers can be confident of a good profit when they sell up.

A primary reason for the long-term trend of rising values is that commodity prices are strong and rising, meaning farming really isn’t as hard to make money from as you might have thought. And the subsidies provided through the Single Payment Scheme introduced in 2005 give farmers extra help in making their business successful.

Fortunes vary across the sector, however, with rising grain prices boosting profits on cereal farms, but decimating incomes on pig and poultry farms. Think carefully about the type of farm you buy and the crops you grow.

The export market is buoyant at the moment with confidence in British farming recovered after the BSE and foot and mouth crises, and the weak pound boosting competitiveness. Exports totalled £10.5bn in 2006, topping the previous record set in 1996, before the BSE crisis.

Interest in high-quality, locally produced goods has grown in recent years. A mixture of patriotism and growing concern about the carbon footprint of imported food gives British farmers a great selling point to exploit domestically.

The proliferation of farmers’ markets, which, 10 years after the first one was opened in Bath, now number more than 500, is more evidence that people value fresh, local food. With downward pressure on prices applied by supermarkets, these markets offer farmers a chance to cut out the middleman.

The organic market has grown spectacularly in the UK in recent years, with sales growing by 27% a year between 1997 and 2007 and the market now worth around £2bn. The amount of farmland catering for the demand increased by 10.5% between January 2005 and January 2006.

Of course, you don’t have to go organic to make money, but it does seem that, for the more modest farmer, this is a good way to make ends meet.

Whatever you do as a farmer, however, you will always be at the mercy of the weather. On the one hand, events like the freak floods that took place during July 2007 wreak havoc with food production.

But if, as some scientists predict, the UK is heading for a warmer climate, then new opportunities will open up. Already the UK’s wine industry, which used to seem as incongruous as a Jamaican bobsleigh team, is now building a solid reputation and even winning awards.

Perhaps we might yet see olive groves in Norfolk.

Listen to a farm owner talk about 'Starting an agricultural business'