While more details are coming forward about what the farming sector might look like post Brexit, much uncertainty remains. Director John Robson offers his thoughts on the opportunities and threats for professional farmers.
Over 18 months on from the Brexit vote, we can look back over a hugely busy period in agriculture. Despite all the uncertainty regarding the future of subsidies and trading conditions, we are still seeing farm businesses taking long-term decisions, restructuring their businesses and setting up new enterprises.
We have now seen the first rises in interest rates and clear indications that more will follow but the lenders have in general already anticipated the changes and there is still long-term money available at unbelievably competitive rates.
Interest in land and smaller units continues to be driven by neighbour pressure, which is not at all surprising as businesses strive to strengthen their positions for the long term and, in general, agricultural land changes hands very rarely. In addition, investment driven interest from non-agricultural sources is able to compete with there being virtually no vacant possession premium when land let on Farm Business Tenancies comes to the market. Contrast this with the traditional position where land let on Agricultural Holdings Act tenancies valued out at between 50% and 60% of vacant possession value.
We can see that, provided the chancellor doesn’t have any unexpected surprises in relation to Agricultural Property Relief, we can expect a wider, more commercial ownership base moving into the agricultural marketplace and this will lead to more new tenancies becoming available on a pure business footing.
Farming is a profession, and a vocation which rewards an individual’s excellence and persistence. There is no certainty in the outcome of the negotiations with Europe and, realistically, we have to accept changes in support that the industry receives. But through all of this, those committed to taking a lead role in the industry continue to push on.
Businesses that specialise and, where possible, diversify stand every chance of coming through the challenges that the next five years will bring. So to will those who sensibly expand and take further advantages of economies’ of scale.
We will see an increasing number of joint enterprises with partnerships and share farm arrangements, as fears over the long term future of Inheritance Tax relief on agricultural property is bringing these alternative business structures back into the mainstream in a way that we haven’t seen since the early 1980s prior to the introduction of Farm Business Tenancies.
This brings with it a new wave of opportunities for young entrants perhaps with less financial backing to get a foothold in the industry more in line with the New Zealand model.
Couple all this with a steady increase in purely investment landlords, we can conclude that demand for agricultural land and tenancies is reasonably stable for the long term.