Our 2011 Estate Benchmarking Survey results demonstrate that gross incomes continued to rise on Scottish rural estates. However, the growth in net income has been dampened by higher costs.

In a year of global economic uncertainty, performance was broadly positive but the challenge, going forward, is to balance the pursuit of growth in turnover with the management of the ever-increasing cost base. Agriculture and the rural economy have often proved to be relatively recession proof, and our outlook, detailed at the end of the bulletin, considers the threat to this position.

Income

The average gross income on ‘All Estates’ totalled £90 per acre (£222 per ha) in 2011, up 13% on the previous year’s figure of £80 per acre (£198 per ha) (see Graph 1).

This report demonstrates that income from the residential and agricultural sectors has grown. Together they contributed 84% of the total income across estates. In 2010 the contribution was 79%. This in part reflects the growth in rents in both sectors but also reflects the downturn in other sources of income such as leisure and commercial, which jointly dropped their contribution from 16% to 11%.

As agricultural commodity prices have become more volatile, estates with a diversified income will be best placed to retain a more balanced annual income flow.

On this basis, the commercial and leisure sectors should continue to be encouraged to take advantage of the current trend for UK-based outdoor activities. In the future, an over-reliance on the agricultural sector might be considered a potential risk.

While high commodity prices prevail there is a risk of being lulled into a false sense of security about the performance of estates. With forthcoming CAP reform, eurozone turmoil and a more volatile global climate, the peaks and troughs in these prices will become more pronounced.

Agriculture

In these recessionary times, the agricultural sector, supported by buoyant livestock and crop prices, continues to underpin income on rural estates.

Our research shows that in 2011 agriculture contributed 44% of gross income or £40 per acre (£99 per ha).

Our survey records average agricultural rents in 2011 as listed below:

• Traditional Tenancy: £47 per acre (£116 per ha), up 1% on 2010.
• Limited Partnership Tenancy (LPT): £44 per acre (£108 per ha), up 2% on 2010.
• Limited Duration Tenancy (LDT): £53 per acre (£131 per ha), similar to 2010.
• Short Limited Duration Tenancy (SLDT): £63 per acre (£156 per ha), up 12% on 2010.

Traditional agricultural tenancy rents continue to increase, albeit at a slow rate, with the average rent at £47 per acre (£116 per ha) up almost 10% since 2009 (in line only with inflation). Many landlords are clearly cautious about undertaking rent reviews, given the current politics associated with secure 1991 Act tenancies.

Notwithstanding the above, landlords continue to invest substantial sums into the agricultural portfolio, with the benchmark indicating that 22% of the income from the let agricultural portfolio being ploughed back into these farms.

It is interesting to note that rents for Short and Limited Duration Tenancies, which are agreed under negotiation, on modern terms, have increased by up to 30% over the same period.

This suggests we now have a two-tier rental market akin to the residential sector, with similar disparities to those between short assured market rents and regulated or protected fair rents. However, the Moonzie decision may well result in a narrowing of this disparity in the agricultural sector.

Between 2009 and 2011 the number of Secure Agricultural Tenancies has remained static. There has however been a shift away from the shorter-term arrangements such as seasonal grazings and SLDTs towards LDTs and contract farming arrangements. The shorter-term lettings have declined, while LDTs and contract farming have increased (see Graph 2).

Taken from
Scottish Estate Benchmarking Survey 2011