The baseline forecasts generated by our Farmland Value Model at the beginning of the year have proved to be a good indication of the market. Average values for all types of farmland across Great Britain increased 8% during the first three quarters of this year compared with our forecast for the year of around 7%.

2011 will be an interesting year. Whilst demand is not expected to falter it will remain price sensitive especially where future income generating opportunities are limited. Our main baseline forecast for the short to medium term remains unchanged at around 6% per annum, although, we expect growth in values to be diverse and largely related to quality.

We believe a fall in values is highly unlikely given the fundamentals of growing populations, food security, increased wealth, renewable energy and land being a finite resource.

Our 2011 forecasts are set out below and illustrated in Graph 3:

• Lower range: Growth is likely to be weak and to be well below 5%. This scenario could play out where the market is dominated by grassland farms, which have no real residential or amenity appeal or where small blocks of land are not in prime locations. The former may reflect a reasonable proportion of the market in Scotland.
• Average: Our baseline forecast which we believe to be a realistic base forecast for average values across Great Britain, stands at 6%.
• Upper range: Strong demand for good quality commercial farms, predominantly arable, may give value growth well in excess of 10%. This likelihood strengthens if the current uplift in commodity prices remains robust. We expect the value of top quality estates to also show growth in this range.