Cooperative Group to exit farming – look out for cheaper land?

Cooperative Group has announced that it is planning to withdraw from its farming business.  The precise wording of the announcement is interesting because it does not say that the Coop is going to sell its farms.  What it does say is, “The Co-operative Group has decided that its Farms are non-core and has started a process that is expected to lead to a sale of the business”.  On the face of it this could mean a simple sell-off of the farms.  But dig a little deeper and it might mean something else.  A contract farming arrangement with one of the bigger farming companies perhaps?  A series of tenancies or other joint ventures?  Management buy outs?

However the catalyst for this move has been the disastrous losses built up by the Cooperative Bank, standing at £2 billion plus according to the BBC’s Robert Peston.  So it seems likely that the need for cash must be an attractive part of the sale.

According to the same BBC report the Coop farms 17,200 hectares (42,500 acres), mainly growing cereals and fruit.  Only 2% of its produce goes to its retail stores, and Coop Farms got out of milking many years ago.  Despite today’s announcement the Coop Farms website is still advertising the agricultural apprentice scheme for which it was lauded last autumn.

So what might all this land be worth?  Average GB land prices last year were £8,500 according to Savills so that might put it at £361.25 million.  A handy sum but not very much against a £2 billion loss.  But would the Coop’s land achieve these values?  On the one hand most of it is far better than ‘average’ land but on the other hand it tends to be the smaller blocks which command the higher prices per acre.

Much comment on the agricultural land market recently has commented on the shortage of supply against strong demand.  Viewing this in a simplistic way, Savills also reported that 144,000 acres of farmland was marketed publicly last year, probably representing about 70% of all land sold last year.  Say therefore that 200,000 acres of land changed hands last year for an average price of £8,500/acre.  The total value of the market was therefore in the order of £1.7 billion.

Now suppose that the Coop land had been added to the market last year, taking the availability up to 242,500 acres but still being chased by £1.7 billion – that brings average prices down to £7,000 per acre, and a mere £297.5 million for the Coop to set against its £2 billion deficit.

Of course the economics of land prices are not quite as simple as this, but the point remains that a simple sell-off over a short period would add considerably to the availability of agricultural land in a market where high prices have been characterised by limited supply.  So taken together, perhaps this all means that the Coop will indeed need to look at more imaginative options than a simple sell-off – opportunities for a new entrant anyone?  And just think of the transitional problems as we enter a new CAP regime …….

 

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