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The future of farming, during and post-COVID
15th July 2020
Many farmers will suffer from lower prices this harvest or from livestock sales as a result of Covid 19. I also suspect there will be an impact on land prices, but probably not downwards.
The Highland Show is traditionally the week that many farms were launched on to the market, with a flurry of activity from the land agents. The impact of Covid 19 has stopped the marketing of most farms, but there are still a number of private deals concluding and the market has started to open up again. It will be interesting to see over the next few years if there is an impact from Covid 19 on who is buying and what they are buying.
We act for hundreds of landowners, the majority are traditional family farms. We also have many clients who are non-farmers such as non-resident owners, family trusts, institutional investors, and lifestyle owners. The economic impact on other areas of the economy will increase the interest in agricultural land, forestry, and renewable assets from non-farming buyers. Pension funds and investors who own commercial, retail and office space will have seen values of their properties plummet and little hope of recovery over the short to medium term. Landlords of retail property are seeing tenants going into liquidation or negotiating reduced rents. The high street retail property valuations have been dropping, but the crisis has caused values to collapse in most areas. Companies are also considering how much office space they will require. This is a result of the sea of change in the attitude to home or flexi-working which I do not see altering. The pandemic has accelerated a move to flexi-working and it will undoubtedly become the norm for employees to work at home some or all the time. Employers will subsequently benefit from reduced costs due to less office floor space being required. With an over-supply of office space, rents and returns will drop for landlords.
Agricultural land, forestry and existing renewable assets will increasingly be seen as a safe haven for investors and wealthy individuals looking for a home for their money. Farmland offers a secure investment, but with a relatively low return of capital. Renewable assets such as wind turbines make great assets for pensions funds looking for a good yield from a green investment. The demand for forestry will fuel the interest in some upland farms which might be difficult to sell as commercial farms. Forestry has offered an excellent capital growth, which is tax free and again deemed to be a safe green investment.
For the individual purchaser, if nothing else, Covid-19 has been a reminder that many of us are lucky where we stay given the easy access to the countryside. With remote working there will be High Net Worth individuals looking to relocate and move from cities to rural locations.
Whether it is investors realigning their property portfolios or wealthy individuals relocating to the countryside, it seems to me the number of possible purchasers will have increased as a result of Covid-19. Is this all bad for the farmers? I do not think so. For decades land values have been influenced by many non-agricultural factors and tax. New investors into the industry spend money. Non-farming owners often provide opportunities to lease land, offer contracting options, improve fences and drainage and build and generate economic activity in the local community. Every buyer needs a seller and there are many farms with no succession in place who will be looking to sell and retire. Lifestyle or investors might provide the only option for exit and retirement.
Ironically, the only area that is not pointing to an increase in land prices is the future profitability of farming, especially livestock farming. Threats of an increase in competition from world trade deals, pressure on household incomes, labour shortages and changing consumer habits all point to a difficult few years. It is going to be a tough time for agriculture, but I do not see land prices collapsing like many office and retail property in the UK.
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