This article is part of our collection on Agriculture
Brexit, political uncertainty and climate change are prompting landed estates to innovate to stay profitable and relevant into the future.
Last updated: 21 Jul 2020 8 min read
Brexit has been front of mind for the owners UK landed estates and the impact it might have on farm incomes. When the UK leaves the EU, the £3.2bn of subsidies currently being received via the EU’s Basic Payments Scheme (BPS) will disappear by around 2028.
The government’s proposed Agriculture Bill will replace the BPS with a system of paying farmers for public goods such as improving air and water quality, soil health and better public access to the countryside.
Source: YouGov/Saffery Champness
According to Knight Frank’s annual Rural Report, 60% of rural landowners and businesses feel Brexit has been an “annoying aggravation” but has had no real economic impact. Meanwhile, 17% report having lost business due to the uncertainty, and 8% have suffered financially by putting plans on hold.
Scottish land reform
A recent report from the Scottish Land Commission stated that landowners have an “irresponsible exercise of power”, which causes harm to communities. It recommended that public-interest tests be held for any future land purchases to look at economic opportunities, housing and community development.
Other key challenges
In Knight Frank’s Rural Report, estate owners and businesses identified five areas as being the biggest barriers to greater business efficiency: restrictive planning policy; poor broadband, internet and mobile-phone coverage; flytipping; commodity prices; and succession.
In 2018, gross income at rural estates in England rose by 1.2% to £242 per acre. However, it cost £105 per acre, or 43% of gross income, to run the average estate, which was 2.5% higher than in 2017.
In Scotland, gross income climbed 10.4% to £164 per acre. It cost £80 per acre or 49% of gross income to run the average estate, up 10.4% on 2017.
Residential and agricultural assets continue to provide the main bulk of income at around 70%.
In England, £92 per acre, or 38% of gross income, came from agriculture, which was up by 9.6% on 2017. Farm Business Tenancy (FBT) rents rose by 6.3% to £125 per acre. In Wales, it was £92 per acre.
In Scotland, £62 per acre or 38% of gross income came from agriculture, up 32% on 2017. Rent from Limited Duration Tenancies (LDTs) rose 21% to £66 per acre.
In England income grew by 1.3% to £98 per acre or 40% of gross income. Assured Shorthold Tenancy (AST) rents climbed 0.3% to £9,800 per dwelling.
In Scotland, income also grew, this time by 10% to £63 per acre, 40% of gross income. Rents rose 7% to £7,400 per dwelling. This continued the trend of recent years, which has seen income from tenancies in Scotland climb 8% since 2013.
Alternative income sources
Estates are becoming increasingly diversified. According to the most recent Farm Business Survey, 38% of Welsh farms have some form of diversification, while in England, commercial and leisure such as tourism contributed 18% of gross income in 2018. In total, rural tourism in England and Wales is estimated to be worth more than £18.5bn a year to the UK economy.
In England, woodlands and minerals brought in 4% and renewable energy such as turbines added £5.57 per acre or 2.3% of gross income.
In Scotland, commercial and leisure contributed 17% of gross income. Over the past six years, leisure income in Scotland has soared by 56%, mainly through tourism and rural sports such as shooting. Renewable energy was worth £4.35 per acre or 2.6% of the overall total.
Source: Farmers Weekly/Carter Jonas
Also in Scotland, a third of estates have holiday accommodation. A similar proportion have opened their house or garden to the public, while 25% host weddings and more than 10% have a farm shop.
Estates are also tapping into the growth of the ‘experience’ economy. Savills says 17% of managed estates in the UK host events such as Halloween fright nights and even ghost tours.
Most estates – 70% – now have trading incomes of below £100,000, with 20% between that mark and £500,000.
Landed estates are taking advantage of record low interest rates to invest in diversification projects and even buy back land and property that was previously sold.
The most recent figures from the Country Land & Business Association (CLA), the membership organisation for owners of land, property and business in rural England and Wales, showed that investment by land-owning rural businesses stood at £13bn per year.
“You can get some very long-term borrowing deals at extremely attractive rates,” says Henry Cecil, partner at law firm Forsters. “It helps estates to invest in new streams and do up existing properties or rebuild houses fit for the 21st and 22nd century. They have wonderful assets and should sensibly leverage up against them. It’s a new way of thinking for estates.”
The average price for bare agricultural land in England and Wales is just over £7,000 per acre, 5% lower than five years ago, according to the Knight Frank Farmland Index.
Long-term farmland performance was £6,979 per acre in 2019, down 3% on 2018, but up 49% since in 2009.
To date, according to Savills, 111,674 acres of land have been put up for sale this year, down from 180,361 in 2018.
“The market has been very short of supply given the political backdrop,” says Alex Lawson, director, national farms & estates, at Savills. “Sellers have a lack of confidence in market conditions. So much so, that there has been less farmland up for sale this year than for the last 25 years. The country-house market is also thin and has left a glut of very frustrated buyers whose wealth has largely been insulated by uncertainty.”
New income opportunities
New revenue streams on landed estates could come from a variety of diversified activities, including:
“Landowners and rural businesses are looking at how they can replace and supplant the income lost from EU agricultural support,” says Cecil. “They are also facing pressure on residential income as it becomes more expensive to make their properties, which are often Victorian-built cottages, more environmentally and energy friendly. Estates have never been run or managed as a business before but, with a younger generation coming in, that is changing. They have to, and want to, make a return to ensure it survives.”
According to Savills, ‘natural capital’ encompasses the sequestration of carbon by trees, filtering of water by rocks, and flood prevention provided by flood plains. Savills believes woodland on rural estates has been underutilised, “barely breaking even” in the past five years, and that it could open the gates to funding from the private sector.
In Scotland, says Sarah-Jane Laing, executive director at Scottish Land & Estates, the government’s ambitions to ramp up the amount of woodland can only be met through the help of landowners.
Source: Savills’ 2018 Estate Benchmarking Survey
At present, the national target is 10,000 new hectares per year but this is set to rise to 15,000 a year from 2024. “The government’s woodland creation grants are very generous, and you also have the potential to sell the carbon that’s stored in your trees. Companies need to offset their emissions,” she says.
“On the commercial side, you have a market for your timber. More estates are getting into this, particularly those looking at the marginality of some of the farmland. It is easier to be green when you’re not in the red. Carbon and natural capital is the game changer for estates in the new decade.”
Set for price growth
Lawson of Savills believes that when there is more political certainty, primarily following a Brexit resolution, the number of estate and farmland transactions will increase. “Certainty will get the market moving again,” he says.
Rural investment boost
At present the rural economy is 18% less productive than urban areas, contributing £250bn to UK plc each year, according to the CLA.
The CLA has launched a Rural Powerhouse campaign to “unleash the potential of the rural economy” by an annual £200m investment in productivity, advice and agri-skills, government support and reducing red tape.