The Longer View

Smart Farming is the process of using modern technology such as automation and agricultural robots, to increase the quantity and quality of agricultural products. So, how long do you think it will be before an automated, mechanic workforce is farming your fields, rather than humans? If you think driverless tractors are 30 years away, think again. It’s already possible, and a leading UK agricultural university has proved it.

Read the full article here.

DEFRA recently announced that £15 million will be available to fund The Countryside Productivity Small Grant Scheme in 2019. The scheme exists to fund projects which improve productivity in the farming sector and boost the rural economy.

Grants can cover up to 40% of the cost of equipment needed to boost productivity and increase yields, with a minimum claim of £3,000 and a maximum of £12,000. A wide range of items can be applied for, including mobile and fixed cattle and sheep handling systems and grain dryer humidity controls.

The claim window is now open and closes 3rd September 2019. For help with your application, please contact your local Carter Jonas office.

In recent weeks, DEFRA has been consulting with industry stakeholders on proposals for agricultural tenancy reform in England and Wales, arising from the draft Agriculture Bill and recommendations made by the Tenancy Reform Group (TRIG). The proposals primarily impact farm tenancies held under the provisions of the Agricultural Holdings Act 1986.

The key drivers to policy change are the phased withdrawal of direct production support (the Basic Payment scheme) from 2021 with a transition to environmental support representing “public goods for public money” and improving agricultural productivity in anticipation of Brexit and new trade arrangements.

Agricultural tenancy legislation has, since 1947, been reviewed approximately every ten years to react to market changes, the most significant being the Agricultural Tenancies Act 1995 which introduced flexible Farm Business Tenancies which sought to free up a market paralysed by security of tenure granted to existing tenants under the old Agricultural Holdings Act.

The tenanted sector still represents 1/3rd of the total agricultural area of England and Wales so it is essential that this should continue to thrive for the benefit of landlords, tenants and the industry as a whole. Tenancies under the Agricultural Holdings legislation with security of tenure potentially for two generations still account for approximately 15% of agricultural land, with over 20,000 individual holdings.

One of the most controversial proposals is to allow assignment of Agricultural Holdings Act tenancies on the basis that the rent under the new tenancy would be market rent, rather than a regulated rent as exists under the Agricultural Holdings Act.

The concept of introducing assignable tenancies has been greeted with concern by landlords, who see this as a further restriction on their opportunity to secure vacant possession when a tenant dies. However, this may be an overreaction, particularly for long-term landowners, whether those are private estates or institutional landowners. They do not necessarily want to gain vacant possession to sell the property, but they are very often seeking a secure and growing income from their investment.

The proposals provide for a market rent to be paid – effectively a Farm Business Tenancy rent – and to limit the term of the tenancy to 25 years, without further succession or assignment opportunities. Alternatively, a landlord will have an opportunity to buy the tenant’s interest, providing the tenant with some funding towards retirement. Whilst the prospect of a landlord paying a capital sum to achieve possession may not be welcomed by landlords, the resulting valuation may not be as high as first envisaged.

The basis of assessment is a capitalisation of the “profit rent” for the length of the new tenancy. However, with an “open market”, rather than an old Agricultural Holdings Act rent, the “profit rent” may well be limited. The charging of a market rent will also drive efficiency and productivity from the new tenant.

The consultation closed on 2 July 2019, and a summary of responses will be published before the end of the year, with an intention to seek parliamentary time for debate and legislation within the next three years. I suspect, however, that this timescale may be somewhat dependent on what happens on 31st October.

For further information, contact James Stephen, Partner (james.stephen@carterjonas.co.uk / 01823 428860), or your local Carter Jonas office.

Investment partner Stephen Hall picks four key market influences which could affect investor confidence and acquisitions in UK farmland.

Political uncertainty has done little to inspire confidence in the individuals and businesses looking to invest in UK farmland.

Throughout the final quarter of 2018, and the first quarter of this year, most have kept a watching brief while have taken place.

This has led to a quieter than usual period and, at the time of writing, placing a timescale on how long the uncertainty will last would be pure speculation.

However, there are a number of political and economic influences which we know from experience will impact decisions made in the investments and acquisitions arena.

Each of these will stimulate activity or dampen enthusiasm from purchasers to a greater or lesser degree.

TRADE DEALS
As of Spring 2019, we do not have clarity over what trade deals will be done and what tariffs will be applied to goods entering and leaving the UK.

However, this is an area which will have a significant impact on investment – it remains to be seen whether that impact is positive or negative.

Whatever happens, we are going to see changes to trade. We have been dealing in a market where trade tariffs have been set centrally by the EU, and they have broadly focused on ensuring the protection of member states’ agricultural industries.

Post Brexit, the terms of trading agreements will be determined by the political will of the UK government at any given time, and the position taken by our potential trade partners.

SUBSIDY
The Government has stated in the Agriculture Bill that it intends to move away from an acreage payment to occupiers of land, towards a system that targets public money at public goods – so payments will largely depend on farmers and landowners protecting and enhancing the environment.

Most farms and estates are dependent – to some degree – on the income they have historically received from Europe via the Common Agricultural Policy.

This change of direction from the Government is a significant shift away from large-scale, pro-rata income and, despite the proposed transition period, the move will have an impact on decisions to invest in, or divest money from, farmland.

TAX
It’s fair to say that agriculture has enjoyed a relatively benign tax regime for a number of years, and this could be the focus of any government’s attention going forward, regardless of whether it’s Labour or Conservative led.

There is a question as to whether the current tax system is sustainable – there has been talk for some time of a different approach, but we simply don’t know at this stage what that will be.

A left-leaning government is almost certainly going to consider changes to Agricultural Property Relief, and the Conservative Party has been making noises about changing the tax system too.

It would be a popular policy in Whitehall – the number of people who benefit from agricultural property relief is relatively few in number, so supporters lack collective political power.

CURRENCY
Overseas investors in the UK will see a strengthening of their position if the pound devalues.

However, shortly after the Brexit referendum vote, we saw the pound fall by 15%, which was favourable to overseas buyers of UK property, but this failed to be a significant factor in the farmland market because, from a policy point of view, agriculture was still left in a state of uncertainty.

The increased buying power didn’t solve the fundamental concern over issues such as the future of subsidies and agricultural policy.

A further decline in the value of sterling, twinned with clarity from a trade and subsidy perspective, could see currency fluctuation become a bigger driver and have a positive impact on the land market.

For further information, contact Stephen Hall, Partner (stephen.hall@carterjonas.co.uk / 020 7518 3264), or your local Carter Jonas office.