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EDDIE GILLANDERS: Farmers looking to expand may face more competition in the future

By Eddie Gillanders

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DESPITE the amount of land being sold for forestry or to offset the carbon footprint of big business, most farms coming on the market for sale are still being bought by other farmers, according to Savills’ Forres-based rural land specialist, Faye Gonzalez.

"Farmers and landowners seeking to expand may face more competition in the future."
"Farmers and landowners seeking to expand may face more competition in the future."

But farmers and landowners seeking to expand may face more competition in the future as investment in natural capital becomes the main driving force in the land market although these investors will be looking for large swathes of land, Ms Gonzalez told Savills’ annual market outlook conference in Aberdeen.

Overseas buyers from the USA, Northern Europe and France are also becoming more active in the land market in Scotland.

The likelihood of the Bank of England increasing interest rates to four per cent may have a negative effect in the short-term but in the long-term, there’s no doubt that the value of land will continue to increase.

Buyers are showing a particular interest in Scotland where the average price of land – as it has done historically – is still below the rest of the UK, currently averaging about £10,000/acre but only £7000 in Aberdeenshire.

There are many factors dictating the price of land, Ms Gonzalez pointed out, with cash and borrowing accounting for an estimated 37 per cent of all sales, followed by 33 per cent from non-farming funds and 30 per cent from roll-over funding.

Savills most recent land market report, published in November, reported a 40 per cent reduction in land for sale in Scotland in the January to September period last year which had attracted prospective buyers from far afield to view the limited number of acres on the market.

A large 1062 acres upland farm in the Borders had attracted 21 viewers within a few weeks of being launched on the market and a similar 494 acres farm near Biggar had generated 16 viewers in the first three weeks.

“Both farms appealed to farmers from both north and south of the border because of their scale,” said Savills rural agency head in Scotland, Evelyn Changing.

“A clear trend is that those with roll-over funds are keen to take advantage of current capital gains tax reliefs.

“Without them, we might begin to see some downward pressure on values to reflect the higher costs and uncertainty which the agricultural sector, like many others, is suffering.”

Roll-over funds have also influenced the strong prices being paid for planting land. Although Ms Changing says there is some evidence that this market is beginning to cool with some planters now carrying a bank of land ready to enter the planting application process and others adjusting their financial modelling based on recent changes in interest rates.

Many livestock farmers are also looking to the future with the aim of making their enterprises more self-sufficient, rather than having to buy in expensive feed.

“A number of large livestock farmers have sold hill ground and are looking to invest in additional productive low-ground acres to produce their own feed and straw,” said Ms Changing.

This trend has also been confirmed by Strutt and Parker who said this week that the rise in the number of hill farms sold in Scotland last year suggested farmers were seeking to capitalise on the high prices being paid by forestry and environmentally motivated buyers.

A total of 24 hill farms came on the open market last year compared with 11 in 2021 and only nine in 2020.

“Hill farms accounted for 27 per cent of the farms on the market in 2022 compared to 10-20 per cent in previous years,” said Strutt and Parker’s farm agent for Scotland, Diane Fleming. “This signals that some farmers have been tempted to take advantage of the premium prices on offer from forestry and natural capital buyers.”

The value of land suitable for afforestation peaked at over £8000/acre in the first half of the year but cooled in the second half of the year to £5000 to £5500/acre when the rules on how carbon credits can be attributed to commercial plantations changed, coupled with the rise in supply.

However, prices for upland farms are still well above traditional agricultural values.

The average value of prime arable land on the east coast last year was £9500/acre, although a record price of over £20,000/acre was paid for some arable land along the golden mile between Arbroath and Carnoustie. Prices generally ranged from £4500/acre in the Highlands to £16,000/acre in the Lothians.

Almost 90 per cent of the 41,600 acres launched on the open market last year – 30 per cent above the five-year average - had found a buyer before the end of the year.

Despite rising costs, the general uncertainty about the future and increased competition from non-farming interests, it’s likely that farmers will continue to be the main buyers.

Spreading overhead costs over more acres by buying a neighbouring farm usually makes economic sense.

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