The Farmer, the Bank and the Developer - where next?

When I trained as a solicitor in Skipton in 1970, when a farmer client was asked about business, it was either “middlin’, nobbut middlin’ or nobbut vary middlin”.  It would seem that there has been no seismic change in the attitude of the farmer.

I have sympathy for our farmers.  I understand from speaking to John Atkinson at Dee Atkinson & Harrison in Driffield that whilst farmers have not changed as radically as bankers, the climate in the arable farming industry has changed.  In spring, there was considerable optimism.  By autumn this had changed.  Whilst yields have generally been high, the quality of the crops is poor after a wet summer.  The harvest has been late and the wet weather has made it difficult to establish crops for 2009.  Wheat was £170 - £180 per tonne in spring and now it is £85 per tonne, mainly due to the poor quality.  Nitrogen last year was £158 per tonne and is now £425 per tonne.  Compound fertilizer was £176 per tonne last year and is now £550 per tonne.  Anyone preparing a budget for next year is having great difficulty to show any profit.  We are all aware of the soaring costs of fuel.  Subsidies have gone and there is no possibility of a government bale out.

As Lord Mandelson would tell us (probably from an exotic marine location shared with influential people) nobody is making land.  Over the last few years, those farmers owning land with development potential have been considering disposals with a view to reducing bank borrowings or generating capital.

In the early 1990’s, I was working on Options for farmers where developers would, with the grant of a satisfactory planning permission, purchase land at 85% of open market value.  The discount was the developer’s reward for securing planning permission.  Planning permissions became notoriously difficult to obtain.   The rate of discount narrowed in the late 1990’s so that the developer would pay 95% of open market value in certain cases.

In the last few months, those developers who have the benefit of Options have made large numbers of staff redundant.  The ones who are left to pick up the pieces have little money available to promote planning applications.  Even with planning permission, some developers may not wish to take up their Option as nobody can find the funds to buy houses, offices or factory units.  Lawyers who were being pressed by developer clients to finalise Option documents are now being invited to find ways to wriggle out of them.  The wheel has gone full circle.

Ian Cox of Dacre Son and Hartley in Otley tells me that at the end of 2006 the average cost of agricultural land was in the region of £3,300 per acre.  At the start of 2008, the average price rose to £5,500 - £6,000 per acre.  Things have now settled back to between £4,500 and £5,000 per acre.

Farm land is still selling but the buyers tend to be adjoining farmers trying to enlarge or consolidate their land holdings, or institutional buyers with a view to long-term growth.

Earlier in the year, I was involved in the disposal of some farmland in Lancashire for a dairy farmer. My client farmer had been loyal to his bank for many years.  Farming is a long-term business.  It is a pity that many farmers are being affected by poor short-term lending decisions elsewhere in the economy.  A long-retired Yorkshire Bank manager once told me in the last recession, ‘I spent my career lending the bank’s money in amounts and to people where I knew the bank had the best chance of being repaid.  Two years ago, I was effectively told to stand on the bank steps with a bucket full of brass and lend it to anybody who walked past.  Now they are asking me to get it back again.‘

It will be interesting to see how matters develop over the next six to twelve months.  My thoughts are with the farmers.

Ian Shuttleworth is a partner at Raworths LLP Solicitors of Harrogate and specialises in Commercial Property. Telephone: 01423 566666; email ian.shuttleworth@raworths.co.uk