FARMLAND in Dorset which lends itself to environmental uses is expected to soar in value amid a wider rise in prices this year.

The latest farmland price index from Savills shows land trading at an average of £7,560 per acre last year – the third highest of any region in the UK.

That was an eight per cent increase on 2020, representing the highest increase across all land types in England and Wales.

Poor livestock land saw the largest increase in value at 13.3 per cent, while grade three livestock land increased by an average of 8.6 per cent, prime dairy 7.8 per cent and prime arable 6.6 per cent.

Agents said a lack of supply and high demand would continue to fuel the market, but price growth would vary depending on land type, geography and quality.

Savills predicts the value of prime arable will rise 2.5 per cent a year on average for the next five years – but poorer livestock land which could lend itself to environmental uses is set to rise by an average of six per cent a year.

Fred Cook, director in the rural agency team at Savills Salisbury, said: “The lower quality land perhaps has greater capacity for price growth – so I think the predicted rises have to be seen within that context. But overall I think it paints a positive picture.

“Farmland historically has acted as a good hedge against inflation and in the continuing low interest environment it has increased appeal as an asset class in a mixed portfolio. More recently its new value as a tangible store of authentic carbon and important environmental credentials has only added to its investor appeal, and we see no reason for this to change.

“Demand for farms with a strong amenity or lifestyle appeal is also expected to remain as a result of the pandemic’s long lasting impact on working practices.”

He said rising costs and the phasing out of direct payments to farmers could lead to some “under-diversified” businesses leaving the industry, “but we’re not expecting to see a flood of land come to the market”.

He added: “The government’s lump sum exit scheme – designed to assist farmers in England with retirement – has also been met with a lukewarm response, suggesting that supply levels are unlikely to recover to those seen historically in the short to medium term.

“As a result prices should stay strong. We anticipate that real values for poorer quality grassland will climb as the ability for pasture land to provide valuable carbon and water management services is increasing its demand over other land types. Also woodland planting projects for carbon offsets are targeting grassland, seeking sites which do not have any limiting factors for tree planting.

“For prime arable land, commodity prices in the short term look set to hold and an increasing interest in energy crops and renewables may continue to support profit from production and consolidation of the most productive businesses will drive competition for the best land.”