If you are a farmer or an aspiring farmer in the UK, you might have noticed that the cost of arable land has been increasing in recent years. According to Strutt and Parker, the average value of arable land in England reached £9,500/acre in the first quarter of 2022, which is 2% higher than a year ago and not far off the values seen at the peak of the market in 2014/2015. Prices have risen still further in 2023, up to £11,100/acre1. The average value of pasture also increased by 3% to £7,500/acre over the same period.
But what is driving this rise in land prices and is it likely to continue? Here are some of the main factors that are influencing the demand and supply of arable land in the UK.
Demand factors
- Brexit and trade deals. The UK’s departure from the EU and the subsequent trade deals with other countries have created both opportunities and challenges for UK farmers. On one hand, Brexit has reduced some of the regulatory burdens and subsidies that were imposed by the EU’s Common Agricultural Policy (CAP), giving farmers more flexibility and autonomy over their businesses. On the other hand, Brexit has also increased the uncertainty and volatility of the agricultural markets, as well as the competition from cheaper imports from countries with lower standards. As a result, some farmers are looking to expand their land holdings to achieve economies of scale and diversify their income streams, while others are looking to exit the sector or retire. This has increased the demand for arable land from both buyers and sellers.
- Environmental schemes and carbon credits. Another factor that has boosted the demand for arable land is the growing interest in environmental schemes and carbon credits. The UK government has introduced several initiatives to encourage farmers to adopt more sustainable and regenerative practices, such as the Environmental Land Management (ELM) scheme, which will replace the CAP subsidies from 2024. The ELM scheme will pay farmers for delivering public goods, such as improving soil health, water quality, biodiversity and climate change mitigation. In addition, some private companies are also offering carbon credits to farmers who can demonstrate that they are sequestering carbon in their soils or reducing their emissions. These schemes and credits can provide an additional source of income for farmers, as well as enhance their environmental credentials and reputation. Therefore, some farmers are keen to acquire more arable land to participate in these schemes and credits, or to sell their land to those who are interested.
- Lifestyle buyers and investors. A third factor that has increased the demand for arable land is the influx of lifestyle buyers and investors. Lifestyle buyers are typically non-farmers who are looking for a rural retreat or a hobby farm, often driven by a desire to escape from urban stress or to pursue a more sustainable way of living. Investors are typically individuals or institutions who are looking for a long-term and stable asset class, often driven by a need to diversify their portfolio or to hedge against inflation or currency fluctuations. Both lifestyle buyers and investors are attracted by the low interest rates, the tax benefits, the capital appreciation potential and the social and environmental benefits of owning arable land. Therefore, they are willing to pay premium prices for quality land with good amenities and access.
Supply factors
- Limited availability and low turnover. One of the main factors that has pushed up the cost of arable land is the limited availability and low turnover of land on the market. Arable land is a finite resource that cannot be easily created or expanded. Moreover, arable land is often held for a long time by farmers or families who have emotional or sentimental attachments to their land. According to Savills, the average turnover rate of farmland in England is estimated at once in every 200 years2. Therefore, there is always a scarcity of arable land for sale, especially in prime locations or regions with high agricultural productivity.
- Rising input costs and yields. Another factor that has contributed to the rise in cost of arable land is the rising input costs and yields of farming. The input costs of farming include things like seeds, fertilisers, pesticides, machinery, labour, energy and water. These costs have been increasing over time due to various factors such as inflation, climate change, regulation and innovation. However, these costs have also been offset by increasing yields due to technological advancements, improved agronomy and crop varieties. Therefore, farming can still be profitable and viable for many farmers who can achieve high levels of efficiency and productivity on their land. This means that they can afford to pay higher prices for arable land or hold on to their existing land. The cost of arable land in the UK has been increasing due to a combination of demand and supply factors. The demand for arable land has been driven by Brexit and trade deals, environmental schemes and carbon credits, and lifestyle buyers and investors. The supply of arable land has been constrained by limited availability and low turnover, and supported by rising input costs and yields. These factors are likely to continue to influence the market for arable land in the foreseeable future, although there might be some regional variations and fluctuations depending on local conditions and events.
There are many factors that are influencing the cost of arable land in the UK, and these are likely to continue in the foreseeable future. Therefore, it is important to protect your land and your livelihood with adequate and appropriate insurance. Whether you are buying, selling or holding arable land, you need to make sure that your insurance covers all the potential hazards and liabilities that you may face, such as fire, theft, vandalism, flooding, crop failure, public liability and employer’s liability. You also need to make sure that your insurance is up to date and reflects the current value and use of your land.
At Rowett Insurance we can help. We have a team of experienced and friendly advisors who can offer you advice and tailored solutions for your farming business. Get in touch today on 01726 871144 option 2 to find out more.