Agricultural Rent Levels

    Setting an agricultural rent level in today’s market can be extremely challenging, given the huge volatility we are seeing in commodity markets.

    For many years, selling wheat and agreeing rents were fairly predictable transactions. But the alterations to agricultural support over the past 20 years have removed any commodity price stability. These days, arable farmers are far more likely to focus on the latest news from the Chicago Board of Trade, or Russian exports of wheat through the Black Sea, than they are to talk about European subsidies. 

    Grain markets now follow the ebb and flow of world supply and demand, with extreme weather events causing global wheat prices to rocket over the past year. Prices have become, and will remain, volatile, unpredictable and in many ways frightening.

    Of course, grain prices are inextricably linked to arable rent levels, so rental discussions with farm tenants are as animated as the world commodity market. World food prices are the trigger points behind revolutions, and have contributed to the surge in farmland value.  At present, rents are also subject to an inexorable rise. Bids for farmland under modern tenancies in a competitive and highly charged market are exceeding £150/acre and sometimes considerably more.

    But what about traditional Agricultural Holdings (Scotland) Act tenancies? These are also seeing an increase in rent, albeit steadied by the rental governance of the Act itself. They are therefore considerably less volatile than Short Limited and Limited Duration Tenancies, but agreements lack a certain commercial edge.

    In the midst of all of this, farmers have enhanced the conservation benefit of their holdings, invested in new buildings and equipment and co-operated to streamline their businesses. The free market and liberalisation of trade, with its advantages and disadvantages, is no longer the exception to the rule. What is the exception is the old Second World War legislation that we continue to live with. Its benefits now are more clearly seen in social and environmental gains rather than food security.

     
     

    Key contacts

    Jonathan Dymock

    Jonathan Dymock

    Director
    Rural Aberdeen

    Savills Aberdeen

    +44 (0) 1224 971111

    +44 (0) 1224 971111