Outlook for rural property remains strong despite Brexit uncertainty

This year looks set to be a busy year in the farm and estate offices of the UK. Brexit uncertainty persists but there are other areas that also need our attention in rural property, says Charles Cowap, rural practice chartered surveyor. Government Environment Plan First, landowners, farmers, estate managers and their advisers must take a close interest in the 25-year Environment Plan published in January. Public funding is likely to focus exclusively on the provision of public goods – a clear signal for the future of government agricultural support. The “polluter pays” principle will continue and is likely to be strengthened. Environmental outcomes will be achieved by a combination of stick and carrot with the regulatory bar rising ever higher. The plan is strong on ideas but thin on how they will be achieved. Relevant points for property interests include: An environmental net gain principle for development, housing and infrastructure; More use of natural flood management; More sustainable drainage systems; Flood risk properties to be made more resilient; A new environmental land management system; More green infrastructure and more trees in towns and cities; Improved management of “residual” waste and wastewater; Larger-scale woodland creation and the appointment of a national “tree champion”; New approaches to water abstraction, greater efficiency in water use, less personal use of water; and Potentially more national parks and areas of outstanding natural beauty. These highlights are no more than a selection from a list that also includes new farming rules for water, better use of fertilisers and pesticides, a renewed focus on soil health, an end to the use of peat in horticulture by 2030, a crackdown on fly tipping and opportunities for the reintroduction of native species. Clearly these may affect a far wider range of property interests than just rural, especially property development and mineral working interests. The 25-year plan has been widely anticipated. Speeches at the CLA’s Rural Business Conference in November and the Oxford Farming Conference by DEFRA secretary Michael Gove highlighted the need to only pay public money for public goods, along with encouraging the take up of the many technological developments that are making their way into farming. Robotic milking is well-established, but 2017 saw a team at Harper Adams University produce the first hands-free hectare of winter barley, using remotely controlled tractors, drones and combine harvesters. “Fitbits for cows” also promise to revolutionise the supervision and management of dairy herds. Trade and profits The spectre of Brexit will continue to hover with its continuing uncertainty about the future of agricultural trade itself. Much has been made of the loss of common agricultural policy direct payments, but the real influence on farm profits and rental values will come from our future agricultural trading relationship with the EU27 and the rest of the world. Transitional agreements and treasury guarantees may provide short-term relief, and businesses could be forgiven for thinking there is little they can do other than wait and see. However, the results of the National Farm Business Survey continue to say otherwise. For most farm types there is a yawning gap between average economic performance and the results obtained by the top 25%. In many cases this gap is greater than the direct subsidies being received on the farms concerned; in other words the top farms would still be better off without subsidy than the average farms are with it. The message is clear. Irrespective of the state of Brexit negotiations, there is plenty that can be done on a lot of farms to close this gap. Attention must be paid to husbandry practices certainly, but also to overheads such as machinery costs, labour costs, and finance. The national survey results make it clear that there is no single magic solution. The large bottom-line differences are the result of lots of small differences in revenue and costs in every part of the business. Attention and innovation in these areas are likely to yield quicker and surer results for most farm businesses than rushing to buy the latest technological innovation. Also, expect some keenly negotiated rent reviews. Prices and rents How will this all feed through to land prices and rents? 2017 saw land to buy in short supply, and although prices dropped from the earlier peaks of £10,000-£12,000 per acre for good arable land there were still plenty of willing takers a little shy of £10,000. High rents are still also being offered, but with some evidence that the more thoughtful farmers are holding back when it comes to bare land offered on short-term agreements. Professor Dieter Helm, who chairs the government’s Natural Capital Committee, told the Oxford Farming Conference that farmland prices must fall when we no longer have the common agricultural policy because subsidies must translate into higher prices for land. Industry commentators are not so sure, noting much of the demand for land is driven by other factors. Helm’s argument stacks up as far as likely future rentals are concerned, but the evidence for much of a link between agricultural profits and land prices in the UK has always been sketchy at best. Rural taxation has also been under scrutiny. HMRC research showed agricultural property relief does not distort rural property decision-making, and the Central Association of Agricultural Valuers has published some proposals for alterations to the tax system which may help farming to adapt. Nevertheless, high-profile commentators such as Professor Helm continue to question agricultural property relief, the use of red diesel by farmers and the exemption of farmland from rating. Rural property owners must look closely at the structure and performance of their rural investments if they are to make sure they are not only ready but also fit for the future.