City bonuses fuel farmland boom

City workers searching for a rural retreat and a buying frenzy by Irish farmers are pushing up the price of farmland in Britain at its fastest rate for at least 12 years, according to the Royal Institution of Chartered Surveyors.

The latest quarterly Rural Land Market Survey, released yesterday, also showed farm sales volumes at their highest for four years. Sales were spurred on by the resolution of the Single Farm Payment scheme, a key reform to the European Union's Common Agricultural policy, on January 1 last year.

The weighted average price of agricultural land reached a high of £7,389 a hectare in the April to June period, 9% higher than in the same quarter last year. This was the biggest increase the RICS has recorded since its survey began in 1994.

The National Farmers Union welcomed the rise in land values as an injection of money into an industry which has suffered falling incomes for several years. Two-thirds of farmers in England and Wales own the land they farm. "This is good news if you are looking to retire from farming but it is also good news for tenant farmers as these City guys buying a farm will need skilled people to farm the land for them," said policy expert Robert Sheesby.

He said City bankers were attracted by the tax advantages of buying agricultural land as well as the dream of a rural idyll. High earners can avoid income tax on their bonuses by buying farmland.

"A lot of them like to buy the surrounding land to safeguard the view from the bay window," he said.

The largest price rises were recorded in Scotland, the south-east, Wales and the Midlands, while prices fell moderately in the north-east.

RICS spokeswoman Sue Steer said that with land in Ireland being sold for residential development, Irish farmers were taking advantage of relatively cheap farmland in the UK, which is less than half the price of equivalent Irish land.

"Residential farmland is still, however, attracting lifestyle buyers as town dwellers attempt to escape from the madding crowd, pricing locals out of the market," she said.

Surveyors said the rural land market had been supported by the renewed strength of the housing market more generally in the first half of the year.

"The interest from non-farmers is extremely strong. Not just horse-owners but all types who just want to own a 'piece of England'," said Tony Rimmer, of Carver Knowles surveyors in Chester. While demand from City bankers remained firm, it was matched by demand from farmers. The share of farmland bought by non-farm buyers fell slightly to 44% in the second quarter while the share bought by farmers rose to 44% from 41%. Farmers had been looking for extra land to expand production, the RICS said.

"The spring market has seen an increase of land, farms and estates coming up for sale. Demand has also increased and we have seen very strong prices on both commercial and residential holdings," said Richard Binning of Savills in Oxford.

The Department for the Environment, Food and Rural Affairs cautioned, however, that the rise in land values did not represent a bonanza for farmers.

Its latest report on farming incomes showed a near 9% fall in total farming incomes in 2005, to £2.52bn. The total income per full-time farmer fell 8% to £12,531, a figure that has halved over the past decade. The drop in income last year largely represented falling prices for agricultural produce, particularly cereals, which outweighed strong rises in fruit and vegetable prices.

Farmers, particularly in the dairy sector, which uses a lot of energy, have been hit by the surge in oil prices in the past couple of years. Rising fertiliser prices have also added to their costs.

The number of farmers in Britain has been falling for years, especially dairy farmers, due to growing international competition. Many are diversifying into other businesses and converting farm buildings into workshops or holiday accommodation to boost their incomes as the amount of subsidy they get declines.