Reap what you sow: how to ensure an agricultural investment is responsible

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The Guardian | 29 August 2014

Reap what you sow: how to ensure an agricultural investment is responsible

by Michael Aubrey

The Wellcome Trust’s recent acquisition of the Co-operative Group’s farm business for £249m has turned the spotlight on investment in agricultural land in the UK.

While the number of traditional landed estates declined during the last century, the role of the patrician landowner has often been taken up by wealthy educational investors such as the Oxbridge colleges. As land supplies diminish, profitable estates can be hard to find – as Mark Twain aptly noted: “Buy land, they’re not making it any more.”

The Wellcome Trust has seized upon the opportunity to acquire one of the most significant farming businesses to come on the market. It acquired 16,000 hectares of freehold and third-party owned land, 15 farms including three pack houses, more than 100 residential properties, 27 commercial properties and 255 employees.

Although opportunities to invest on such a significant scale are rare, what can cash-rich organisations hope to gain from smaller strategic investments in agricultural land and how can they ensure it is maintained in a responsible way?

1. Harvesting profits

The value of other asset types tumbled during the recession, while that of agricultural land rose steadily. This increase is continuing even as other markets begin to rebound. Rural assets let to tenants under a range of tenancy agreements delivered total returns of 18.5% in 2013 according to the Bidwells Agri-Investment Index. This out-paces commercial property, at 10.7% and residential property, at 14.7%.

Although capital growth is clearly attractive, rural land does not necessarily operate in a traditional model and the true benefits of agricultural investment come from holding the land long-term. Whereas 10 years ago values for quality farmland were hovering around £3,500 per acre, in 2014 this is anywhere upwards of £10,000 per acre (pdf).

2. Responsible stewardship

In order to maximise this return and reap the true benefits of agricultural investment, the land must be well-managed. It can either be farmed “in hand” or let to tenants, sometimes on tenancies that can last for generations. Such a relationship requires responsible stewardship, towards both the land and those who work and live on it.

In the case of the Wellcome Trust, it has acquired a business, its employees and, in many cases, the homes in which those employees live. With that comes a responsibility to invest in and support those workers and their families, as well as the land.

3. Sustainable farming

Responsible stewardship means farming sustainably so as to ensure the land is kept in good heart and not intensively cropped in the short-term without allowing fertility levels to replenish. It also involves inward investment, including keeping farm buildings in good condition so that they are fit for purpose and not a visual blight, and renovating farm cottages so that they are pleasant places to live.

This level of investment can often not be funded from agricultural income alone, and so a well-managed estate will identify appropriate opportunities to provide funds for reinvestment.

4. Renewables

For some estates, development opportunities – most notably for housing – will over time be one key way to maximise profitability from the estate. The interest in the renewable sector can be another opportunity to make medium to long-term gains on the investment. Subject to obtaining planning permission, wind farms, anaerobic digester plants or solar farms can sometimes provide higher returns on investment than using the land to grow agricultural crops.

However laudable arguments for diversifying the land may be, such developments can bring local opposition and so any investor will also have to manage local politics carefully. No rural investor should embark on rural management without their eyes wide open and a strong team of professional advisers around them.

Successful stewardship will not be measured by the increase in soft fruit, apples and potatoes on the supermarket shelves, but by the success of the local communities who support and derive their living from the estate.

Michael Aubrey is partner and agriculture and estates lawyer at national law firm Mills & Reeve who represented The Wellcome Trust in its acquisition of the Co-operative farms
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