Brexit – Thoughts on its possible impacts – Kate Russell, CAAV

Kate Russell of  the Central Association of Agricultural Valuers spoke on day two of the conference.

Key elements of Kates’ talk included:

The Brief
The potential impact of Brexit particularly touching on

  • what causes changes in land value and the potential impact of Brexit
  • how these changes might play out socially and environmentally

What causes change in land values?
Supply and demand for farmland is affected by a huge range of factors, including:

  • Performance of alternative investments
  • General economic outlook
  • Cost of borrowing
  • Farm commodity prices
  • Currency exchange rates
  • Relative value of UK farmland compared to elsewhere

Over a decade of capital growth

  • Capital values for average arable land increased from c. £2,000/acre in 2002 to c. £8,000/acre in 2016
  • That period of growth came after a long period of near static values
  • Current market is more textured: where there are buyers, good land still sells well

Potential impact of Brexit on land values

  • Brexit is a process which will unfold over time – change won’t happen overnight
  • At least initially, we will see similar amounts of support made available to farmers – but for what?
  • In the longer term, levels of support may fall – in the EU as well as UK – which could affect rental values

Possible upwards pressure?

Upwards pressure on land values could come from

  • Economic uncertainty
  • Relative performance of other investments
  • Increasing pressure from other land use – housing, infrastructure, etc

Possible downwards pressure?

  • Institutional investors see the end of the bull run
  • Trade deals unfavourable for UK agriculture
  • Unfavourable currency exchange rates
  • Uncertainty over agricultural incomes

How might these changes play out socially and environmentally?

  • UK land market is fairly stable, both in sales and in lettings
  • The Brexit process will unfold over time
  • We can expect evolution, rather than revolution

Some themes – Do policy better, Improve competitiveness, More collaboration, Get farming businesses into the hands of those equipped to handle this

Do policy better

  • Opportunity to fit policies better to UK agriculture
  • How devolved will that be?
  • Obligations to international treaties will remain
  • EU anxious to avoid regulation dumping
  • Industry and stakeholder input needed

Improve competitiveness:
commodity producers

  • Inexorable pressure on costs
  • More use of technology
  • More production on best yielding land
  • Marginal land uncropped or put to other use – ag-environment or PES schemes?
  • Businesses expanding where that can lower overheads over the whole

Improve competitiveness:
others

Those who can’t compete in commodity markets may have two options:

  • Add value to produce – Processing, niche markets etc
  • Become a multi-income stream business – Diversify – Let land out to commodity producers – Use the resources in other ways

More collaboration

  • Happening already – Farmer Clusters, Nature Improvement Partnerships etc
  • Landscape scale delivery is attractive in policy terms
  • Increases scope for delivery of PES type schemes
  • Opportunities for AONBs?

The farmers of the future

  • Businesses must be viable and resilient
  • Lenders are generally supportive of the sector
  • Opportunities are there for new entrants and growing businesses
  • Succession and retirement planning remains a real issue – esp for housing

What about woodlands?

  • Markets for timber are more active
  • Large scale new forestry planting is returning to parts of Scotland
  • Much talk of multiple benefits
  • Does the National Forest offer a model?

Closing thoughts 

  • Change will be gradual
  • Opportunities will be there for those who can adapt
  • Although most farmers aren’t in it for the money, they cannot maintain our landscapes without it
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