spring/summer 2011 the farmland market farmland remains a popular way to invest
the farming sector
extraordinary rise in commodity prices are still being felt
the value of woodland
the issue of woodland ownership is in sharp focus
Inside this issueâ€Ś The Farming Sector pg 7
The Farmland Market
New Renewable Energy Options
The Value of Woodland pg 11
Contributors David Hebditch, FRICS FAAV Head of Rural Division
Edward Dyke, FRICS FAAV Chesterton Humberts Blandford
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Andrew Pearce, MRICS Head of Rural Agency Country Department
Craig Horton, BSc Hons MRICS FAAV
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Chesterton Humberts Marlborough E: email@example.com
Neil Gladwin, MRICS FAAV Chesterton Humberts Taunton;Member of Royal Institution of Chartered Surveyorsâ€™ Sustainability Working Group Tel: 01823 331234 E: firstname.lastname@example.org
Introduction David Hebditch
Like many who attended this year’s Oxford Farming Conference, I have found my thoughts drawn again and again to how agriculture is to respond to growing world populations, food and energy shortages and the effects of climate change. Professor John Beddington, the government’s chief scientist, coined the expression a “perfect storm” in this context some two years ago. But there was a palpable sense at this year’s Oxford Conference, which Chesterton Humberts supports, that big steps could be make in food production – if the debate became more practical, more grown up and less dramatic. One speaker in particular was not afraid to stand up to the prevailing orthodoxy. Irish farmer and entrepreneur Jim McCarthy, who has farming interests in Argentina, Australia and the USA, told politicians that they had abdicated responsibility and that Europe would be left behind if it did not adopt geneticallymodified crops. It is certainly difficult to imagine the massive gains in food production that must be made – to feed 8.5 billion people by 2030 – without GM technology playing a crucial part. It’s time to take this science seriously and explore in a responsible way what it could really deliver. But it’s not just about feeding hungry people in the years to come. A new era of higher commodity values, while welcome news for British arable farmers, causes upward pressure on food prices in poorer regions. This, coupled with a shortage of clean water, is part of the chilling picture Professor Beddington painted. We only have to see how recent conflict in Libya and natural disasters in New Zealand chestertonhumberts.com
and Japan have pushed commodity markets higher again – just when some had begun to say that they had peaked. It’s also important to remember that just because wheat prices exceeded £200/t in February, this doesn’t mean every farmer sold all their grain at the top of the market. And this has important implications for rent reviews. Higher fertiliser and fuel costs continue to squeeze farmers’ margins. As always, sensible, considered discussion between both parties is the best recipe for success. The Single Payment Scheme affords most farmers some protection from the extremes of market forces. But the current system is due for review in 2014 and EU Commissioner Dacian Ciolos has already hinted at how the Common Agricultural Policy may change. Ciolos seems to favour “greening” of Pillar One support which could mean some obligatory environmental bolt-ons to a payment system similar to SPS. But he has also talked of capping payments to larger farmers and landowners – a shocking possibility for which larger rural estates must prepare. Our own government’s position on CAP reform seems less clear. DEFRA secretary Caroline Spelman has recently clarified the statements she made at the Oxford Conference – that direct payments to farmers could be axed in the short term. Instead, Mrs Spelman has now urged Brussels to seek an eventual end to direct support – in the interests of building a stronger, more resilient, more competitive agriculture. That, at least, is something we all want to see.
Farmland Market Update Andrew Pearce
2010 was an excellent year for rural property sales, and values continue to climb, as Andrew Pearce explores. During 2010, Chesterton Humberts dealt with more than 10,000 acres of farms and farm-related property, worth an estimated ÂŁ100m. This covered the full range of rural property, from farmhouses with a few acres to fully equipped farms of 1000 acres or more. Demand was especially keen in the South West and East Midlands. One notable sale was the Ilsington Estate at Puddletown in Dorset, on the open market for the first time since 1861. The 2368 acres included three let farms, two vacant residential properties and plenty of sporting woodland, as well as former farm buildings converted into 15 business units and eight cottages. The estate was guided in excess of ÂŁ12m and is now under offer in lots rather than as a whole. Into 2011, and we have witnessed the land market moving up a few more gears in a very short time.
Demand for commercial farmland, with or without houses has increased, driven partly by improving commodity prices and lack of supply. Not surprisingly, farmers remain in the majority when it comes to buying commercial farmland. Our experience reflects the recent RICS Rural Land Market Survey findings, which show farmers accounted for 65% of purchases in the second half of 2010, a rise of about 10% over the year. Furthermore, both private individuals and trusts are seeking a broader spectrum of investments; they view land as a stable asset that earns its place in their portfolios. Braemar, an investment fund client, recently brought the 800-acre Bunkers Hill Farm near Gainsborough in Lincolnshire, and is keen to purchase more. Typically, these institutions look for vacant possession land, and let it out on FBTs for five-year terms with the aim of securing both capital gain and a dividend.
Hamatethy (left, above) An historic Cornish estate with just under 550 acres and fishing rights on the River Camel, which is coming to the market with offers in excess of £4 million
Bunkers Hill Farm- 800 acre estate in Lincolnshire bought by Braemar
Lifestyle buyers are also more visible in the market in the south, with bank bonuses no doubt playing a big part. The range of values for Grade 3 arable land has never been greater. A small block with no neighbour interest might fetch £5000/acre, while a big area surrounded by commercial farmers keen to expand could be worth up to £12,000/acre. Location is now the most important factor, rather than quality – Grade 1 silts are still very expensive, but no longer command the premium they once did over Grade 3 soils. However, given the lack of land coming forward, we predict that we might see prices rising by as much as 5% this year. 2011 could be the year for private deals, as individuals keen to buy approach people who would not normally consider selling and tempt them to do business.
Hamatethy, St Breward includes a lovely nine bedroom manor house, a pair of semi-detached cottages, a courtyard of traditional stables, 462 acres of pasture and grazing and 72 acres of woodland. It also has fishing rights along the River Camel and is guided at offers in excess of £4m. For many landowners/farmers now is a good time to sell to lock into these high values, particularly if considering retirement or downsizing. We are currently actively involved in a number of sales and acquisitions on behalf of retained clients, and are able to offer our clients national, regional and local exposure through our network of offices throughout the country. We are offering a free market appraisal to owners who are considering that they might want to sell. Please feel free to contact us for an in-confidence discussion.
Nevertheless, new instructions continue to come forward, including a traditional rural estate in north Cornwall.
The Farming Sector David Hebditch
Reports of record wheat prices have grabbed the headlines. But other farming sectors continue to struggle, as David Hebditch writes. The effects of last summer’s extraordinary rise in commodity prices are still being felt and not just by arable farmers. Any farming business which depends on grain proteins – and that includes most beef, dairy, pig and poultry operations – will have seen massive increases in one of its principal costs. But for many sectors, this just hasn’t been reciprocated by better returns. Nor do arable farmers have any chance to relax their scrutiny on ever-more volatile grain markets.
quickly fell to just over £180/t. There was no more or no less grain in the world than the day before – it simply revealed the current sensitivity speculator and fund involvement in soft commodity markets. At least the recent recovery in wheat prices - currently around £200/t for the rest of this season – have given those with grain left to sell another opportunity. But future prices for contracts in November 2011 and 2012 have so far failed to regain the levels seen earlier this spring.
The conflict in Libya and the sudden panic in the world’s financial markets which followed the devastating events in Japan and New Zealand saw grain markets tumble.
However, in the context of the last 10 years they still represent attractive prices – giving progressive arable operators a chance to protect a proportion of their crop against the risk of further price falls.
What looked like steady levels of up to £210/t
Arable farmers will be placing as much focus
on energy prices are they will on grain values. Efficient arable farms will be seeking ways to protect themselves against volatility in input prices as much as managing exposure to grain markets.
The Nocton Dairies project to create a 4000 - cow “super-dairy” in Lincolnshire may have failed, but it seems that the tide may have begun to turn for other dairy farmers. Price increases by most of the major processors suggest that the improvement in dairy commodities like butter and milk powder is starting to move liquid milk values. Some commentators have suggested that this round of milk price rises could be more sustained than in 2007-2008. Dairy farmers are of course caught between higher cereal prices and higher soya costs – both essential ingredients in most modern dairy rations. So while farmgate prices in the high twenties are welcome news, they will still leave little room for reinvestment.
beef & sheep
Prices for finished stock may have improved recently, but over the medium or long term it is harder to envisage sustained profitability for the sector. Consumer behaviour holds the key and it remains to be seen how serious an impact on beef consumption the recent report linking red meat consumption and some forms of cancer may have. Consumer behaviour must also be key to any further price increases for beef farmers. It is alarming that beef finishers continue to pay such high prices for store stock. This fosters a reliance on higher finished prices to leave them a margin – but any increase is sure to be passed on by retailers. So the question remains: At what price will consumers stop paying for beef ? Too many businesses in the beef and sheep sectors are still relying on their Single Farm Payment to turn a profit. There are, however, some real technical opportunities for beef producers to improve returns, partly through better feeding efficiency and less reliance on cereals, and in breeding consistently better carcasses. Research from the English Beef
& Lamb Executive shows that only about half of prime cattle in 2009 met the target R4L carcass grade.
pigs & poultry
Both pig and poultry farmers, more than many other producers, will be feeling the squeeze of lower market returns and a 70% increase in raw feed costs. This is unsustainable – recent industry reports suggest some pig producers could be losing £20/head on each finished animal. Poultry farmers, particularly egg producers, have seen prices fall sharply in the last year. These events underline just how important it is for producers to do all they can to take the risk out of their businesses – whether this is fixing interest rates on borrowings or hedging single payment income against currency movements.
Two significant announcements in recent weeks will have a far-reaching impact on rural renewable energy projects. The £860m Renewable Heat Incentive, which runs until 2020, will provide a significant boost for on-farm anaerobic digestion. Until now the relatively high capital costs of establishing a plant, coupled with the energy lost as heat, have made it less attractive to investors. The government’s review of Feed-In Tariffs – the mechanism designed to encourage small-scale green energy generation – has dramatically affected many large-scale solar energy projects which in some cases were quite advanced. My colleague Neil Gladwin will explore this particular area in more detail later in this issue.
It is hugely encouraging that many of the farm businesses and estates that we deal with as a firm are looking to expand. And this isn’t just about chasing more acres to spread costs. The catalyst for this is a greater confidence about prospects for farming – and that is certainly to be welcomed.
We can help you to uncover the value of your land.
Take advantage of the current buoyant market and please get in touch to talk to us in confidence for a free market appraisal
years, with sales of bare land fetching between ÂŁ5,000 to
in the industry, and we are farm specialists and are able
ÂŁ12,000 per acre.
to co-ordinate the sale, purchase and valuation of sporting
Farmland prices have increased dramatically over recent
The shortage of farms available for sale has resulted in demand outstripping supply.
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LANDPLAN bulletin 9 chestertonhumberts.com
The value of woodland Edward Dyke
The government’s U-turn over the sale of Forestry Commission land has brought the issue of woodland ownership into sharp focus, as Edward Dyke explains. DEFRA secretary Caroline Spelman’s plans to sell off 255,000 hectares of Forestry Commission woodland in a bid to raise £100m generated such a significant public outcry that David Cameron was forced to intervene, costing the government a very public and embarrassing U-turn. To many people, the thought that some of our national heritage woodlands could be sold off to commercial speculators was abhorrent – and government soon realised it was on a losing wicket to try to proceed with the sale. The strength of public feeling revealed just how emotive the theme of woodland ownership and woodland access can be. But historically, the FC has sold off some areas of woodland and sold the leases of smaller, noncommercial areas back to the landowner. It will be interesting to see if it continues to do this or if the recent decision puts a stop to everything. A lot of Forestry Commission woodland is managed for non-commercial, amenity purposes. For instance, at part of Wareham Forest in Dorset, there is a management policy to clear-fell commercial, conifer woodland and re-establish native, deciduous species through natural regeneration.
Recent years have also seen a specialist market develop for smaller blocks of woodland for private amenity use. Parcels of five to twenty acres which, just five years ago, would have been valued at £1500-£2000/acre are now achieving £5000-£6000/acre – almost on a par with bare farmland values. This reflects not only a desire among some people to own a little corner of England, but awareness of the potential significant tax advantages in owning woodland. For instance, 100% inheritance tax relief may be available which has led many to realise it can be a very useful vehicle to transfer wealth to the next generation. Gaining expert advice is essential not just for large-scale timber investments or smaller woodland hideaways – even small groups of trees can cause landowners severe headaches. Last year the Department for Communities and Local Government led a consultation on the current system of Tree Preservation Orders. TPOs are imposed by the local planning authority to protect specific trees – or an area of woodland – from felling, uprooting, lopping or wilful destruction. There is a plethora of pieces of legislation which affect the TPO system, and these can lead to confusion – particularly when a TPO is about to be imposed. If you’re about to carry out work on a tree without knowing its status for certain, it is easy to end up in serious trouble.
Chesterton Humberts has been involved in the sale of the Ilsington Estate, which included 650 acres of woodland, let to the Forestry Commission on a 125-year lease.
The government’s proposals, in principle, should afford some clarity as they seek to streamline the existing legislation into one set of regulations.
This includes large areas of coniferous plantations which also has a lot of public access through rides, cycle routes and other tracks. Nevertheless, it has attracted significant interest.
This has to be welcome – particularly at a time when the government’s own actions have raised the profile of woodland.
2 poultry houses for 44,000 “Freedom Food” birds at Frogmary Green Farm which are heated by the Biomass Woodchip Boiler
New Renewable Energy Options Neil Gladwin
While the recently announced review of Feed-In Tariffs will be a challenge to Solar Photovotaics (PV) over 50 kW, it’s not all bad news - and the new Renewable Heat Incentive could open up more renewable energy opportunities for farmers and landowners The Government’s announcement of a comprehensive review of Feed-In Tariffs was, undoubtedly, bad news for large-scale investors in the emerging solar photo-voltaic sector. Now that the Department of Energy and Climate Change (DECC) has confirmed its proposals for new FIT bandings and rates, which will impact on schemes of only 50kW and above, the potential damage for this fledgling industry could be catastrophic. The anticipated silver lining to this rather ominous cloud was the expected improvement in FIT rates for Anaerobic Digester (AD) plants and while some improvement is proposed by DECC as detailed below, there must still be concerns as to whether this tinkering with the rates will really be sufficient to transform schemes which were previously viewed as unviable under the old rates. The review was justified on the grounds that government was looking to save some 10% of FIT expenditure in
2014-15. But it has also been driven by rising concerns over the number of large-scale, standalone farm-based solar-farms being planned, both in terms of their environmental effect and the disproportionate amount of FIT funding they could have soaked up. FITs, paid from energy companies for electricity fed into the grid from renewable schemes, were intended to stimulate small-scale generation, and the Government aims to reinforce that intent by including all solar PV projects above 50kW in the current fast track review. This has the unfortunate consequence that the latest proposals will now encompass most commercial-scale projects, including many of the roof top solar proposals that were being considered for larger farm buildings. Energy Secretary Chris Huhne has said he will prioritise the review of PV and AD FITs, under the Fast Track consultation, which is now open for responses until 6 May 2011. Any PV schemes of under 50kW will be unaffected as will any schemes that can be completed ahead of the 1 August review date, as these proposals are not to be retrospective. However, to qualify any schemes would need to be completed and actually connected to the grid by the end of July, which probably rules out all schemes except those which are well advanced and already have the necessary planning consent.
300 kW Biomass Woodchip Boiler at Frogmary Green Farm in Somerset commissioned in January 2010 which will now qualify for the RHI tariffs from July 2011
In confirming the proposals to increase the FIT payments to AD schemes, the Government recognises that previous payments were too low. Only two accredited AD projects have started up, because the perceived risks in investing in such expensive new technology were not covered by the potential reward, particularly given that performance is dependent upon the management of the plant and the quality of the feedstock put in the plant.
range of technologies and fuel uses applicable to farmscale situations including biomass, solar thermal, ground source heat-pumps and biogas. The combined prospects of a low-cost heat source, reduced emissions and a ready outlet for low-grade timber will undoubtedly strike a chord with farms and rural estates with a need to heat more than one dwelling or possibly buildings such as poultry enterprises.
However, whether the proposed increases in FIT rates for AD plants up to 500kW will be sufficient to encourage investment must be in doubt. Certainly the banks are very cautious about investing in such developments, and this review will do little to encourage them, and in many family farming situations the prospect of obtaining funding through a venture capital partner is not generally viewed as a suitable alternative source of funds.
Solar-thermal projects - using tried and trusted technology in the form of roof-mounted panels - can also be envisaged, perhaps on dairy farms to supplement hot water requirements.
The good news is that the Government has now published its long-awaited proposals for the Renewable Heat Incentive (RHI), an £860m government scheme that is expected to increase green capital investment by £4.5bn up to 2020, stimulating a new market in renewable heat. This has been introduced for non-domestic users - the industrial, business and public sector – which contributes 38% of the UK’s carbon emissions, and will support a
It is anticipated that Parliamentary approval for the RHI scheme will be received in July. Eligible non-domestic installations completed after 15 July 2009, but before the start of the RHI, will be eligible for support. These are indeed interesting times in the fast moving renewable sector, but alongside the opportunities there are undoubted pitfalls which will require careful consideration of the market, availability of funding and the likely implications of future Government policy.
Shooting Season Craig Horton
that the disruption to the farming operation is minimised. Deer stalking rights should not be included in the general sporting rights as they are particularly valuable, especially in the south of England where roe deer are common.
keeping the shoot in-hand
Many of the principles discussed above apply if a landowner decides to run the shoot. While this option is likely to be less rewarding financially, it can be a lot more satisfying, generate a valuable diversified source of income and enhance the capital value of the property.
Sporting rights can be a valuable asset to any farm or estate, but they need to be carefully managed to maximise their potential. Pheasant and partridge shooting remains as popular as ever despite the economic downturn, so a farm or estate that has sporting rights is sitting on a potentially valuable source of income. The shooting rights can either be let, or the farm or estate can run the shoot itself. Whichever route is chosen, careful planning is crucial for the venture to succeed.
letting the shoot out
This option carries the least risk. Sporting values range from ÂŁ8 to ÂŁ18/acre depending on topography, the number of drives and the positioning and size of woodland. Rental agreements generally run for between three and five years. For a successful shoot, the shooting tenant will need to grow game cover crops in strategic areas. Payment for these is in addition to the sporting rent paid. Where the land is let under an Agricultural Holdings Act agreement, the farm tenant may need to be recompensed for income foregone and provision for this can be incorporated into the Farm Business Tenancy. The amount must be agreed at the outset, and both parties should decide where to position the crop during the summer before it is planted, so
An in-hand shoot will need the services of a full-time keeper, who will need a vehicle and accommodation. Experienced beaters and pickers-up are required. The birds themselves represent a considerable outlay before the season starts. They can be bought in as day old chicks, or as less risky but more expensive poults. Be prepared to pay for top-class veterinary advice as well as routine treatments to keep worms and disease at bay. Let days can be sold for typically ÂŁ34/bird plus VAT. Remember when letting days that you are in the hospitality business and good hospitality is a must, which should include elevenses and a good lunch. Try to sell 300-350 bird days - smaller days are less profitable as the same number of beaters will be needed. Fortunately, this size of bag tends to be the most popular as it guarantees enjoyable shooting without resorting to the excessive numbers that give the sport a bad name. If you are going to let just a few days to help cover the cost of a private shoot, let them early in the season when the birds are more plentiful. This puts less pressure on the keeper. Finally, you will need to carry out a thorough risk assessment, be aware of potential crosscompliance issues, and pay full regard to accounting and tax issues. Chesterton Humberts has broad experience in all these areas and can provide advice and information to shoot owners and tenants. chestertonhumberts.com
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LANDPLAN bulletin 15 chestertonhumberts.com
Shows in 2011 Chesterton Humberts Rural Team will be attending:
• 15th to 16th June - Cereals at Boothby Graffoe, Lincolnshire • 9th to 11th June - Royal Cornwall Show at Wadebridge, Cornwall • 22nd to 24th July - CLA Game Fair at Blenheim Palace, Oxfordshire • 4th August - Honiton Show at Stockers Farm, Honiton • 17th August - Shaftesbury and Gillingham Show, Turnpike Showground, North Dorset
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