Mar 22 2017
Scottish Tenant Farmers Association
22 March 2017
STFA urges tenants to factor Brexit into rent reviews
The Scottish Tenant Farmers Association is urging landlords and tenants to take account of the Brexit factor in negotiating rent reviews. With the Spring rent review season underway STFA is reminding all those engaged in rent reviews that, although farm commodity prices have improved in the short term following the EU Referendum result, the real challenges lie ahead. The rent review period is 3 years, so rents set in 2017 cannot be reviewed until 2020, by which time the UK may have left the EU and the Single Market if Article 50 is triggered as planned in 2017.
Writing in the STFA Spring Newsletter, STFA chairman Christopher Nicholson said: “The UK is facing huge uncertainty over the next few years as we head out of the EU. At the moment we are enjoying a short-term boost in commodity prices on the back of the drop in Sterling, but this is likely to be negated by rising input costs. Land prices appear to levelling or even falling due to Brexit uncertainties, both north and south of the border, and the devaluation of sterling could create a period of higher inflation when the profitability of agriculture, and land prices, are heading in the opposite direction. Rents in England seem to be falling and we would expect to see the same thing happening in Scotland.
“Tenant farmers should understand where the main markets for their produce are, and the likely exposure to price changes if the UK has restricted access to the Single Market. For commodities that rely on an export market, the risks are greater if new trade agreements are not in place by 2019. Of the main commodities produced by tenant farmers in Scotland, lamb is most reliant on export markets, and there is the further uncertainty over the future level of New Zealand lamb imports. Already STFA are hearing from some tenant members who are cutting back their flock numbers to reduce their market exposure post 2019.
“Prior to rent reviews, tenants should look at the types of commodity produced on their farms, how reliant they are on export markets, and realise the risks involved post 2019. In short, lamb is most at risk, cereals and milk the least at risk, and beef somewhere in between.
“Brexit will also impact on Pillar 1 and Pillar 2 support payments. While the Basic Payment Scheme and Greening Payments have been guaranteed to 2020, LFASS payments are likely to see a big reduction in value from 2018, and there is no guarantee that funding will be available for new agri-environment schemes or schemes due for renewal.
“We are all in for a difficult time, and landlords should not be expecting rent increases in the next few years. Given that rent reviews are conducted with a view to the 3 years ahead, tenants need to factor in rising input costs when negotiating rents, particularly imported goods such as nitrogen and phosphate fertilisers, and animal feed proteins which will be affected by the fall in Sterling. The bottom line is that tenants should be careful not to sign up to a rent increase which could jeopardize the viability of their business.”