Scottish agricultural market struggles due to uncertainties over payments and Brexit

Scottish agriculture's ontribution to Scottish economy fell from £837m in 2013 to £777m in 2014
Scottish agriculture's ontribution to Scottish economy fell from £837m in 2013 to £777m in 2014

The Scottish Rural Affairs Minister, Richard Lochhead, has found a spare £20 million from the budget last month (February) to fund loans for farmers who have been hit by delays in the new Basic Payments Scheme.

It will be a considerable relief for the 10,500 farmers and crofters who are still waiting for payments which should have been made weeks ago.

It is also a welcome piece of good news for the agricultural sector as a whole, which has not had its troubles to seek at the start of 2016 as a number of factors combined to create unease and impinge on farmer confidence.

To put this recent bump in the road into perspective, farming in Scotland has exhibited vigorous health for several years and remained robust throughout 2014 and into 2015.

Last year, however, grain prices - traditionally buoyed by the indigenous whisky industry and overseas demand - faltered. The beef market declined, though sheep farming held up to a certain extent.

Overall, agriculture's contribution to the Scottish economy fell from £837 million in 2013 to £777 million in 2014 and best current estimates for last year are showing a further decline in the region of 15%.

All this, inevitably, has a marked effect on the market for farms and farm land, with assets for sale taking significantly longer to attract a willing buyer and with a consequent softening of price expectation.

In the longer term, though, it has to be remembered that there is a limited supply of land, particularly good quality arable land. As the old saying has it, "they aren't making any more of it". As a result, there will always be a certain level of demand.

The current wavering in confidence stems as much from quarters outside the farming sector's immediate sphere of influence. Just as the Scottish independence referendum had a drag effect on the residential housing market, the upcoming Brexit referendum in Europe is affecting activity.

While such a momentous decision is still being wrangled over in the corridors of Brussels, international investors are playing their cards close to their chests and domestic projects are being put in abeyance or even stopped until the air is clearer.

BPS delay

Of more immediate impact on individual farm businesses has been the current delay in receiving their new Basic Payments Scheme (BPS), which succeeded the Single Farm Payment (SFP) in January last year.

The delays have stemmed from the decision to extend the BPS application process to the middle of June last year, following a number of issues with implementation, including mapping technology.

The effect on the ground is that some farmers, who had been depending on the vital payment in November and December, still have not, as we go through February, received it - with obvious cash flow implications. Holyrood's loan scheme will undoubtedly help.

But even immediate payment may not fully ease concerns about the future direction of subsidy. It is generally recognised that subsidy is a mainstream element of farm income, and many agricultural businesses would teeter on the edge of viability in its absence

However, the current UK government is politically disposed to a subsidy-free, or subsidy-lite agricultural business environment, with competition providing alternative incentives for the sector. In the event of Brexit, a push towards this situation would almost certainly gain momentum.

There are a number of environmental, political and economic factors which can influence the agricultural industry and ultimately impact upon the demand for, and value of, farmland in Scotland.

Until recently, there has been a lack of good quality farms and available land, which has had a significant impact on the price of land. And there are now several issues affecting the profitability of farming generally which appear to be impacting on demand and prices.

Against this must be set the latent demand for farmland and the general lack of supply to the market over a number of years. Generally, interest in farms appears to be significantly influenced by the level of hunger and ambition of farmers in a particular locality.