Farmers are trying to recover from a series of setbacks just as the value of their land spikes, experts say.
Confidence in the agricultural sector has taken a hit as farmers try to limit the impact of one of the wettest winters on record.
To add to their misery, commodity prices have fallen and the Basic Payment Scheme (BPS), which has kept many in the black until now, is coming to an end.
With agricultural subsidies tapering off to help them through the highs and lows of weather and prices, they are in for a tough year, land brokers admit.
Oliver Holloway of Clarke and Simpson said the weather remains an important topic.
“It is no surprise that one of the wettest winters on record, combined with falling commodity prices and the phasing out of the basic payment, has damaged the confidence of even the most optimistic farmers,” he said.
“Until this year, it was unheard of for a farmer to sow sugar beets before the previous crop had been harvested.”
A raft of new legislation coming into force on sustainability and the environment and the looming election mean more changes are on the horizon, he added.
“The phasing out of the Basic Payment Scheme (BPS) is now well underway and 2024 marks the first year of decoupled payments,” he said.
The now decoupled BPS payments will be phased out until they are completely phased out in 2017, with the Department for Environment, Food and Rural Affairs (DEFRA) beginning to offer higher payment rates through the Sustainable Farming Incentive (SFI) and Countryside Stewardship (CS) to bridge the funding gap, he pointed out.
“Farmers are a resilient bunch and history shows that short-term fluctuations in weather, commodity prices and policy generally have little impact on land values,” he said.
“However, it appears we have seen the farmland market at its peak and I expect 2024 to be a period of consolidation as supply and demand become somewhat more balanced.”
Giles Allen of Strutt and Parker predicted that the trials faced by farmers in recent months would exacerbate the volatility in profitability that has emerged in recent years.
“While most arable farmers in East Anglia made decent profits in 2021 and 2022, they fell in 2023 and the outlook for 2024 is that profits will fall further,” he said.
“The wet conditions have both reduced the yield potential of winter crops and increased the area of spring crops, so growers are faced with a year of low yields, at a time when basic payments are also falling further.”
Growers were now focused on finding ways to reduce risks – with many taking advantage of one or more of the grant schemes on offer such as the SFI and the Farming Equipment and Technology Fund – as part of their strategy, he said.
“Some are also looking to reduce debt in light of higher interest rates, and this is leading to some land sales, although in our experience retirement and profit-taking remain the most common reasons for sales at this time.”
Although the supply of agricultural land reaching the market in the east of England has increased significantly, this has been largely due to the launch of a number of sizeable farms and estates, rather than an increase in the total number of farms available, he added to.
“We do expect supply to continue to increase over the summer months, but things could slow down again in the run-up to the general election.”
Demand has decreased, but there was still “an active pool” of buyers, he said. These came from a broader base, as farmer buyers dropped out and were replaced by environmental buyers, urban investors and buyers pursuing development projects.
“There can be wide variations in the strength of demand depending on location,” he added.
“The increased caution among farm buyers is likely due to higher interest rates for anyone needing a mortgage, rather than the weather.”
The terrible weather had not yet affected supply, demand or price, he said.
‘There has been no noticeable impact on values which have stabilized over the past twelve months, with the average arable land value across England being around £11,000/acre, although average values in the east have tended to be slightly lower.
Louise Grant of Brown & Co said the recent flooding had a “significant” impact on farmers’ morale.
“The ongoing challenges and setbacks caused by the floods have increased stress and frustration among farmers,” she said.
‘The damage to agricultural land, crops and infrastructure has caused financial tension and uncertainty for many farmers.
“The ongoing flooding has disrupted agricultural activities, leading to delays in planting, harvesting and other essential activities.
“Farmers have suffered crop losses that have affected not only their incomes but also their long-term planning and investment decisions.”
Some may be looking at ways to limit future flooding — including improving drainage systems or adjusting their planting and harvesting schedules, she said.
“However, these strategies require additional resources and may not be feasible for all farmers, especially those with limited financial resources.”
The floods could also have an impact on agricultural land coming to market, with farmers who have suffered significant damage may be reluctant to sell their land until they can recover or receive adequate compensation, she suggested.
“In the long term, the general perception of farmland as a stable and reliable investment may be eroded,” she said.
“Potential buyers and investors can become more cautious and assess the flood risk of specific areas before making purchasing decisions.
“This could lead to a decrease in demand for agricultural land in flood-prone areas and potentially impact the overall agricultural land market.”
Oliver Carr, deputy director of Savills’ national office team for West Suffolk, admitted it had been a difficult start to the year for farmers.
“The reduction in the basic payment system has been exacerbated by lower margins as costs have risen and commodity prices have fallen,” he said.
“This is not helped by the exceptionally wet weather, which has delayed many harvest preparations.”
Some began to consider their options and change the way they farm and manage their land, he said.
“Many of our teams have been busy helping customers explore additional revenue streams through, for example, the Sustainable Farming Incentive and stewardship programs, which include rewetting peatlands, alleviating flooding, neutralizing nutrients, rewilding the biodiversity, the net benefit of biodiversity and more active floodplain management are all on the agenda and offer a potential financial alternative.”
Others made the difficult decision to leave the industry, he said. They had already seen more farmland come onto the market in the first three months of this year compared to the same period last year – and expected this to continue.
“A greater selection offers buyers the opportunity to be more selective and focus on the best properties.
“For example, the quality of a farm’s infrastructure has a strong influence on its values. Farms with good quality buildings suitable for modern farming tend to attract more interest and competition.”
The flooding has also caused buyers to look more carefully at drainage, he said.
“Free-draining land is generally preferred unless yields are severely affected by drier weather.
“Where productivity is dependent on underdrainage, data and the quality of this system becomes increasingly important and will be factored into offers given the cost of investing in new systems.
“Similarly, the security of water supply for irrigation of specialty crops in the summer months is also coming under increased scrutiny.”