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It wasn't that long ago that owning a farm seemed a really bad idea. Incomes were low, politicians weren't interested (who needs farms when you've got banks?) and there seemed little prospect of major change.
No longer. Farming is all the rage. It brings status – everyone knows you have to be rich to buy farmland at £7,500 an acre. Owning is now almost compulsory for the smart set, as is having a few expensive-looking rare-breed cows knocking around. The "loveable Longhorn" is the "perfect accessory for the stately pile", says Country Life magazine.
But farming also very often brings in money. A hill used to be just a hill and a wood just a wood. Now every bit of scrappy woodland is a biomass project; every barren hill a windfarm site (potential income per turbine around £20,000); and every river a mini hydro plant in the making. Better still, the government has suddenly started displaying an interest with mutterings about food security and, for now at least, grain prices are picking up again. Indeed, the only farms that are still losing money by the tractor load are hill farms (which probably always will) and small dairy farms (you need scale to make real money in milk).
Yet even loss-making farms may have their uses: they can offer safe homes for capital gains, they can offset tax on other income and they can be passed on tax free. Not paying inheritance tax at 40% or using farm losses to keep his total income below the new upper limit of £150,000 means a farmer with other income can stomach quite a few annual losses.
Add it all up and it is no wonder money is pouring into the market. Graham Birch, one-time manager of our all-time favourite fund, the Blackrock Gold and General Fund, has just announced he will be taking time out to run his 2,300-acre dairy farm in Dorset, while in our cover story on page 24 Jonathan Compton explains why he's a fan too. They aren't alone. According to Savills, more than £7.5bn of cash has been "lined up to buy farms and rural estates" this year. I imagine a bit more has been added to the pile this week. Why? Land has long been seen as one of the better long-term hedges against inflation. This week inflation hysteria hit Britain as consumer price index inflation reached 2.9%.
We aren't much worried about this yet. Even with the number this high we don't expect interest rates to rise yet. Mervyn King appeared to suggest this week that he would keep interest rates low as long as he saw clear evidence that the government would take serious action on the public finances. He won't know if they will until after the election – something that suggests there will be no rate movement for some months to come. Interest rates will rise eventually. Just not yet.
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Merryn Somerset Webb
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