Jeremy's Blog 18th August 2023: High Investment Farming
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 17th August 2023
News of planning permission for a prawn farm in Crowland, Lincolnshire draws attention to high investment agricultural projects in a number of UK farming sectors where the business, rather than the property, will be the driver of value. This is still agriculture, further testing farming’s spectrum from food production to land management. According to the proposition, agricultural planning rights may be available and such an enterprise might be let on or developed within an agricultural tenancy.
From the £480m reported as invested in the UK vineyard and wine sector over the last five years to the development of controlled environment farming facilities costing tens of millions each, enterprise and money are seeking opportunities in agriculture where the investment will be greater (sometimes much greater) than the value of land used.
This is not novel. Investment in orchards and packhouses, intensive pig and poultry buildings and some dairy enterprises has been followed by large glasshouse operations and now controlled environment farming, often focused on leafy herbs. The enterprise value lies in the business of production and the contracts for produce. If the next occupier could not get a contract, those buildings might have little value.
FloGro Systems aims to start production of 250 tonnes of prawns in 2026 in the UK’s first large-scale recirculating aquaculture system. It now seeks to raise £45 million, having had £5m from DEFRA for the first stage, including hatchery, processing, despatch, water treatment, solar and ground source heat pumps. The target is 2,500 tonnes.
The common themes include technology, power and water. Technologies such as managed LED lighting and robotics may be joined by experimental management techniques such as NIAB’s testing of water stress to make strawberries more resilient and ensure flavour. Securing cheap energy is critical, typically requiring land for solar and other generation. Multi-acre glasshouses may seek convenient access to waste heat while Harvest London’s proposed Beddington site would rely on a power-generating waste incinerator. Together with water and perhaps access to market, these factors could bring value to relevant land.
They need not be large: self-supply for farm shops and restaurants might be in container units, again showing the interface between buildings and machinery. There may be lessons for more conventional systems.
It is farming, not just technology. Just as AD plants require close management of bacteria, so good and continuous care, husbandry, is needed to ensure the success of growing crops indoors. It cannot simply be left to automation.
Production is reaching markets: GrowUp Farms’ “Unbeleafable” leaves are now in Tescos, promoted for their freshness. Once established, the low unit cost of production still carries enormous overhead costs. The challenge may be holding margin in the face of supermarkets, leading to the search for where value might be best protected.
The scale of finance and private equity models bring new risks. Rising interest rates are testing businesses reliant on debt while energy prices led Infarm to close its European operations.
Some risk lies in the entrepreneur’s itch for growth but the typical cycle for new and rapidly expanding sectors sees businesses winnowed out or cut back as risks are met, markets understood and lessons learnt. Old outdoor crayfish beds can be seen from earlier cycles. Scottish-based Great British Prawns failed with the pandemic’s restaurant closures that also stalled plant-based meat substitutes. Vertical farms in France and the US have gone into receivership but others will come through.
Just as in advising a client reviewing a more conventional farming business, the valuer looking at such a business will need to understand it, with its opportunities and risks, reviewing its accounts and markets in answering the purpose for which a valuation is required – one focus of the CAAV’s Future Skills work and aided by the publication, Reviewing a Business – An Introduction for Agricultural Valuers.