Slow economic growth and high inflation have emphasised the continuing importance of diversification for farms and rural estates, a new report says.
The report, by property consultancy Carter Jonas, has tracked various asset classes over a 12-month period to demonstrate how a managed mixed enterprise would perform.
For a number of years, it has shown that income diversity has been the key to positive financial performance, especially in the face of political uncertainty, the pandemic and, most recently, economic turbulence.
This has been echoed in the report as, when the latest figures are applied to a notional 3,168-acre mixed estate, the results clearly show that non-farming income is integral.
For the year to December 2023, the report's 'Model Estate' was valued at £51.54m – a 2.8% annual increase, but more modest growth than the previous three years.
Diversification has played a leading role in maintaining economic stability with its renewable energy assets recording the strongest growth.
The solar farm saw an 18.6% year-on-year value increase and a new 100MW battery storage system was installed to store electricity and discharge it during peak demand.
Agricultural land, which accounts for 56% of the estate’s value, also saw healthy gains over the year, reflected in the performance of the in-hand and let farmland.
Tim Jones, Carter Jonas’ head of rural, said that while growth had decelerated year-on-year, the trend remained positive.
“Annually, average arable land values have risen by 1.6% and average pasture land by 2%," he explained.
"This compares to 6.4% annual growth for arable land and 4.4% for pasture land a year earlier, a period defined by a particularly tight market with very limited supply.”
Carter Jonas's report believes this deceleration in growth is indicative of a well-balanced market.
While greater supply is creating more choice for buyers, and so tempering price growth, there is still a healthy level of interest driving activity.
Sophie Davidson, senior research analyst at the consultancy, said: “Commercial farming businesses, especially those who are largely cash-rich with less need for finance, remain a driving force in the market.
"This is complemented by a growing presence of natural capital buyers and the continued presence of rollover buyers who have used Business Asset Rollover Relief and are yet to reinvest in another asset.”
The election was a key talking point in the second quarter, but it did not disrupt market dynamics, according to the report.
With a Labour victory, it says the industry is hoping for a period of stability after months of election speculation and prolonged political instability.
Ms Davidson said: “The Labour party, despite its relative lack of specific policy initiatives for farming, has pledged its commitment to making the Environment Land Management scheme (ELMs) work.
"[It] has not stated immediate intentions to change the tax regime, although key tax reliefs affecting those with rural businesses and property are anticipated to come under scrutiny in time."
She added: “While some economic concerns remain, positive signs are emerging. Inflation, as measured by CPI, aligned with the Bank of England’s 2% target rate in May, suggesting a more optimistic outlook.
"Although current interest rates continue to be a factor in business decisions about buying or selling, inflation is forecast to remain close to the 2%, paving the way for interest rate cuts in the near future.”
