There is a bright long-term future for agriculture, despite the challenges faced by farmers last year, and land will continue to be a strong asset in which to invest, said a farm agent at a conference today.

The farmland market is likely to stabilise but demand will still outstrip supply and premiums will be paid for land able to cope with a deluge of rain after last year’s weather brought the quality of land into sharp focus, around 150 delegates heard at Strutt & Parker’s Scottish Property Seminar in Edinburgh’s Physicians’ Hall on Tuesday.

James Butler, associate in Strutt & Parker’s Edinburgh office, said: “2012 will certainly not be regarded as a vintage year for Scottish farming, with income down £111m – or 15% - due to incessant rain and a subsequent reduction in yields, rising input costs and a currency exchange rate that was against us. However, farmers tend to be a resilient bunch and even with such a tough year, it wasn’t enough to convince them all to start selling up.”

He said many farmers were reluctant to sell because of historically low bank borrowing rates, fairly robust farmgate prices, with some exceptions, uncertainty over CAP reform and the lack of attractive options for reinvestment.

“Supply remained low with 23,000 arable and pasture acres entering the market,” said Mr Butler. “This equates to 40% less than the average since 2000. Specifically, only 15 farms in excess of 500 acres were launched and six of these were upland farms. Also, only four dairy farms were marketed publicly.”

However, for all that, it was not a flat year. Mr Butler said: “Our team had a particularly busy 2012, selling 42% more farms than the previous year. Margins in farming are becoming tighter but land values remain strong – in fact, in the last half a dozen years, the value of farmland has doubled – how many assets can you say that about?”

He pointed to the example of Chapel Mains Farm, an arable and stock-rearing farm in Lauderdale offered for sale in seven lots or as a whole for offers over £3.8 million, which generated 33 viewings before an English agri-businessman pre-emptively offered a significant premium to secure the whole.

He said there was demand for good arable land “often seen as a sound investment” as well as for hill units with potential for tree planting or renewable energy which can provide substantial and steady income as well as tax benefits. He added: “For the out and out farmers, economies of scale are key today, resulting in demand for both extensive units and blocks of bare land next to their existing holding. A lack of subsidies available for constructing farm buildings has made well-equipped farms more popular.

“Active farmers still dominate the market, with upsizers benefitting from economies of scale, to the fore. They often come from outwith Scotland, in particular from England and Ireland, as they can get more land for their money.”

Mr Butler said there will still challenges, from bad weather, high input costs and endless red tape to uncertainty over CAP reform and the independence debate. However, he added: “The agricultural industry is volatile but I do believe that there is a brighter future for agriculture in the long run. The rise in the global population will increase the demand for food and the global land mass will decrease due to climate change, industrialisation and pollution. There is no sign of a glut of land coming to the market, which will keep land prices firm; there are still tax benefits from owning land; renewable energy can provide a lucrative income if it can be produced on the farm; and while Scottish farmland remains cheaper than many other EU countries, demand will prevail.”

Meanwhile, Robert McCulloch, one of the partners handling estate sales in Strutt & Parker’s Edinburgh office, said more estates changed hands in 2012 than in 2011. He added that, whereas, in 2011, 43% were in the Highland mixed sporting estate category, the tables turned in 2012 with 48% of sales in the lowland residential, agricultural and sporting category.

He said: “The perception that circulated in 2012 was that the ‘froth had come off’ the estate market and it had weakened following a strong 2011. In fact, the number of transactions to have taken place has increased from 21 to 23 sales. Although the total sum of money invested has dropped by 5% from £81.5m in 2011 to £77.2m last year, it is still substantially higher than in each year between 2008 and 2010. It is interesting to note that the average sale price of estates has been consistent over the last three years at between £3.4m and £3.9m. So, as we predicted this time last year, the market has remained open for business.”

Mr McCulloch added that, contrary to popular opinion, the market is dominated by UK-based purchasers with just 26% sold to buyers based overseas in countries including China, the USA, Switzerland and Scandinavia.

He said: “Last year, we made the point that while the question of Scottish independence loomed large and was triggering fevered debate about its potential impact on the Scottish estate market, the fact of an impending and radical ‘movement of the goalposts’ for existing and potential estate owners was nothing new – with previous examples such as the accession of the Labour government in 1997 and the introduction of Land Reform legislation being cited.

“In the face of those major question marks of the past, the market ploughed on regardless as buyers assessed the risks for themselves and found in favour of following their ambition. The same can be said of the position today. In Scotland last year, 23 people were aware of the potential change in political direction which Scotland faces and proceeded with their investment nonetheless. This is because buyers of estates in the modern era, as in yesteryear, are people of wealth and people of action. They have an ambition to buy an estate today, can afford to do so and therefore they press on with the realisation of their ambitions.”

Mr McCulloch concluded: “We may or may not be heading towards independence, the UK, European and worldwide economies may or may not improve over the year ahead and the sun may or may not come out this summer, but regardless of these factors and many more, the estates offered for sale over the next 12 months will attract interest and find buyers if they properly marketed and correctly priced.”