Key messages:

• Farmers need strategy to survive tough five years after Brexit
• Forestry and woodland are major investment opportunity
• English farmland market variable, but no significant falls in prices anticipated
• Demand for rental properties likely to remain strong

Speaking about the prospects for UK agriculture at the 2017 Strutt & Parker Rural Land Briefing, George Chichester, a partner in the farming department, said that the past two years had been very tough for UK agriculture, but the next two looked a “little more rosy”, due to better commodity prices.

“This gives farmers two years to get their house in order and set their strategy for the prospect of a tougher five years thereafter, during which subsidy support will be less and trade tariffs may well apply, and even if not, then our markets are at risk of being undermined by cheap imports from elsewhere in the world.”

Mr Chichester said Brexit would also bring opportunities, but said farmers had to be proactive in spotting impending changes before they arrived.

“Where practical, farmers should look to local outlets for their produce and to identify alternative income streams,” he said. “Where farmers continue producing for the mass market, they must slash costs further. This means carefully reviewing their cropping strategy, staffing, machinery profiles, automation, precision farming and opportunities for co-operation.”

Mr Chichester said he believed that the unique nature of the agriculture industry meant that some form of ongoing subsidy support would remain, but it would probably be channeled into environmental stewardship schemes, or require greater environmental accountability of farmers if existing payments were to continue.

It would therefore be wise to assume that the Basic Payment would fall by 20% in 2020 and is likely to continue to decline after that, he added.

The Strutt & Parker Rural Land Briefing was held on Thursday, 2 February 2017 at the IET London with attendees hearing the firm’s specialists offer their thoughts on future prospects for the land market, forestry sector and rural property.

Farmland market:

Mark McAndrew, head of the national estate and farm agency department, said that prices for farmland had become more variable than in living memory, which was good news for buyers, but more challenging for some sellers.

“Supply is no longer the driver of the market – it is demand, which has become very localised. It is strong in some places, but weak in others. This means more land is remaining unsold, but what is selling is selling well.

“It is possible we are moving into a different market due to Brexit, but we don’t think this is the case for a number of reasons. Firstly, demand from non-farmer buyers should remain if the tax regime remains supportive and secondly, if we look back at previous farm policy reforms, while we saw a fall in the amount of land for sale, there were not falls in price. Assuming the new UK farm policy offers some support to help farming profits, we do not expect a significant fall in farmland prices in the medium term to 2023.”

Forestry:

Jon Lambert, partner with John Clegg & Co, Strutt & Parker’s independent forestry arm, said the forestry sector offered an attractive investment opportunity in uncertain times.

"The forestry sector is relatively unaffected by the uncertainties of Brexit, making it a solid investment opportunity for anyone looking to diversify their portfolios. Forestry has been the top performing asset type in the UK over the last 15 years – with commercial conifer forests showing annual capital growth of around 15%.

“Returns were lower in 2016, but that is probably more a reflection of the quality of properties which came to the market, compared with those sold in 2015. Good quality, well-located forests in 2016 continued to increase in value by 7-12%.

“Looking to the future, a fall in commercial plantings during the early 1990s means that the UK is facing a shortfall in timber by 2030. Given we currently import 70% of the timber we use, prices for home-grown timber should increase over the long-term, underpinning continued growth in the sector. We have already seen prices strengthen over the past six months, as a result of a weakening in the value of sterling.”

Residential property:

Stephanie McMahon, head of research, explained there was potential in the residential lettings market as demand was not going to reduce. However, she warned competition was growing from institutional developers and investors so providing high-quality homes and excellent levels of service would be vital.

“Institutional investors and developers are becoming more active in the burgeoning Build to Rent sector and the number of units completed, under construction, or with planning, have increased 267% over the past 18 months. Although still relatively small in relation to the industry as a whole, new rental development will make knowing your customer more important than ever before.”