After the manic rush as always leading up to Christmas, spurred on by Black Friday and Cyber Monday, thoughts traditionally now turn to looking back over the year and forward to 2015. Setting ones thoughts in the framework of agriculture which dramatically improved from 2008 onwards following a 16 year recession, and we are looking at land prices now having increased by over 50% in the last six years, with FBT rental values (with entitlements) now at an average on arable land in England and Wales of over £160 per acre, with many still achieving over £250 per acre even with low grain prices and a slightly reduced Single Payment. Compared with 2008 when rents for the same were at £100, the “mood music” persists at a high tempo, borne up by the continually increasing sale value of land. Demand for food continues to rise and prices have increased by 17% since 2008 according to the Consumer Price Index Food.
In 2014 the majority of CAP reform details were finally revealed, and, after some anxious moments, it has not been as bad as it could have been. The payment rate, whilst slightly reduced, is still a major subsidy to the industry, and whilst greening obligations have increased, it was worse when Set Aside was required to be 10-15%. Whilst the greening area marginally increases over the next few years, we are looking at 5-7% going forward. Therefore on balance the CAP reform now being settled will add confidence to the rental and sale market, giving more certainty when planning for the future.
Another bonus in 2014 has been the expansion of the General Permitted Development Rights (Class MB), and whilst this is not the answer for every under-used modern farm building, it has made development of this type of building that much easier. This will be a great help with the farm balance sheet and also provides the opportunity for releasing capital for reinvestment.
2014 has seen the last dying days of trading milk quota, which although with minimal risk of over production in England, is still being traded as an insurance, or to ensure that, if the EU changes their mind in the next few years, there is a marrying up of quota held and milk produced by the 31st March 2015 deadline/end of quota. The dairy industry will be one to watch over the next few years, however, with dramatic increases in production expected across the EU.
Certainly 2015 is not all sunshine, with the stalling effect of a general election on markets and necessary new legislation, combined with what may be one of the best but also worst factors now impacting globally; the shift from the dominance of Saudi Arabia in oil production with the USA increasing their production from fracking. Prices have already tumbled and the current policy being taken by producers is not to cut production, but to increase it and close down their competitors. This will have an effect on the sustainability of alternative and renewable energies, if the price remains low. It also could have some dramatic effects on countries that are reliant on oil income, the most obvious now feeling the effects is Russia. Whilst a low oil price will reduce the costs of most things, how Russia responds may ultimately have a wide-spread negative impact. There are always surprises, and one can never quite understand how time appears to heal economic problems and catastrophe is avoided, or what world event will next impact on food prices and subsequently land and rental prices in the UK. However the upswing since 2008 seems set to run a little longer.
