FARMLAND prices have continued to increase dramatically over the last 12 months, fuelled by soaring commodity prices and a persistent shortage of land.

According to new figures from Strutt & Parker’s Farmland Database arable land in England over the last six months has averaged £4,262 per acre and pasture land £4,003. This compares with £3,182 per acre for arable land and £3,231 per acre for grassland a year ago, price increases of 33.9 per cent and 23.8 per cent.

There are two main reasons for this steeply rising market. First, buoyant commodity prices have increased the confidence of farmers, who are once again a major force in a market previously dominated by foreign investors and wealthy lifestyle farmers.

The price of wheat is now £140 per ton, compared with £65 in 2005. These high prices have also prompted a divergence between the value of arable land and pasture for the first time in several years, exacerbated by the effects on livestock farmers of the recent outbreaks of foot-and-mouth and blue tongue disease.

Furthermore, the supply of land coming onto the market remains meagre. At the end of September, 77,000 acres of land in England were available on the open market.

On the face of it this represents only a marginal decrease on the acreage available at the end of September, 2006, but the statistics are bolstered by the inclusion of a few very substantial land sales in northern England, where available land increased from 13,000 acres in September 2006 to 33,000 acres a year later.

The amount of land available in all areas of England, other than the North, is actually 31 per cent lower than the same period last year.

About 4,000 acres more land entered the market in the first nine months of 2007 than in the same period last year; if the handful of major northern sales is excluded, a small market has shrunk even further.

The lack of available land is due primarily to healthy commodity prices, which are encouraging farmers to hold on to their land.

But the Government’s planned changes to Capital Gains Tax (CGT), announced in last month’s Pre-Budget Statement, is likely to exacerbate the situation. Currently CGT stands at £100 per acre sold; under the plans, it could rise to an estimated £450 from April, 2008.

There are two possible effects of these plans. There could be a rush of land coming onto the market before April but a more likely scenario is that after April the supply of land will dwindle even more, pushing values up further.

"Land prices have roared ahead in the past year," says Ralph Crathorne at Strutt & Parker.

"I don’t think values will continue to rise at the same pace, but neither do I think this trend is a blip. There’s every indication that the rise will continue, albeit at a slower rate. Values of £5,000 an acre are not too far away."