UK faces rise in 'distressed sales' of farmland

The UK faces the risk of an increase in "distressed sales" of land by farmers facing hits from last year's poor crops, but this will not prove sufficient to derail the rally in prices, Savills said.

The property consultancy said that the hangover of what was a "very difficult year" for agriculture in 2012 - when wheat yields fell to their lowest in 20 years, and the potato harvest to its smallest since the 1970s - "will be felt for some time".

The weak harvest had caught out some arable farmers who sold ahead to levels based on better historic crops, leaving them with contracts they were unable to fulfil.

Growers also faced higher bills from raised fungicide costs, spray volumes, and crop drying needs, with the harvest collected during the wettest UK summer in 100 years.

All farmers faced the potential of a high tax bill to pay in 2013 relating to "previous good years".

'Difficult cash flow situation'

However, the biggest pressure will be felt by livestock farmers who had not enjoyed the compensation to arable producers in the form of elevated crop prices.

"The livestock sector has not fared so well, as the high commodity prices impact directly on feed costs," Savills said.

Indeed, while farmers in general faced the threat of "a difficult cash flow situation in 2013 - leading to increased debts", and the potential for "an increase in the number of distressed sales" of land - the livestock industry appeared at greatest risk.

The trend of rising supply "may be more pronounced in the livestock sectors", the company said.

"There may be debt pressures in the livestock sectors due to rising costs, which may increase [land] supply in a market where demand is relatively weak."

Farms in demand

The tight supply of farmland has been a key factor in its string appreciation over recent years, including a 10.7% rise to £7,594 an acre for prime arable land in 2012, despite the poor weather.

And the supply of farms coming to market this year "will be crucial" to price performance.

However, Savills restated a forecast of price growth of 40% over the next five years, led by higher quality sites.

"Average farmland values will continue to grow in the short to medium-term, driven by competition for top quality farmland," the group said, restating a forecast of growth of 40% over the next five years.

"However, we expect weaker demand and slower growth in values for smaller farms with a significant residential weighting, at least until the mainstream residential market revives."

While buyers with more than £6bn to spend on land were registered with the group, "this demand is focused towards the good commercial arable farms, where investment returns and tax benefits are the key drivers".

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