News reports scream deflation. Metals at 6 year lows, mining output mothballed, oil price halved, China on the skids; we all know the tune. But deflation, like most things, can be both good and bad. Take UK farming. Year on year UK wheat prices are down by -21%, UK lamb by -18% and UK milk by -22%. Real assets should be a bad idea at such times, except to super rich Botox survivors buying megalopolis trophies in Chelsea or The Upper East Side. So no one should expect sedentary assets like land in Scotland to trounce the performance of global equities. Yet good Scottish arable land is up by about 4 times in 10 years and boggy Highlands hill land by nearly 3 times. Not only does farmland, unlike bonds, have a decent yield but also, if part of a family farm, tax advantages too complex to go into here. Generous subsidies from Brussels are a big part of the equation. So, indirectly, are planning regs. But a major factor is that input prices -oil, diesel, fertilizers- are also down, spurring profitability in an industry that likes fighting costs as keenly as it hates battling Brussels bureaucrats. Sure, Black Earth in the Ukraine may be higher yielding, more fertile and better suited to large scale agro-industry. But it could also turn into a tank park; and I don’t mean water tanks. When it comes to owning immoveable assets, location matters. Despite the promise, or threat, of an independent Scotland, and a Land Reform Act copy pasted from "Das Kapital", buyers of land don't seem worried. But wait. Farms for sale are up by a third y-o-y in 2015. Will excess supply crimp land prices? Hardly. The number of farms over GBP1mn now on the market? 42. The biggest fish often lie in dark, forgotten pools. Potential buyers of Greek islands should take note. 

David Fuller's view

It is an old cliché but they are no longer making farmland, at least not in the developed world.  Moreover, the demand for food continues to increase, thanks to the rise in middleclass populations around the world.

Please note: Iain Little and I will be speaking at our next Markets Now seminar, held in London’s East India Club, on Monday September 21^st.  We may also have a guest speaker.  A brochure will be posted closer to that date but as space may be limited, you can now reserve seats for you and your guests by contacting Sarah Barnes at: [email protected] .