Sowing the seeds: agricultural investment and charities

The Wellcome Trust's recent acquisition of the Co-operative Group's farm business shows that this type of investment can be lucrative, writes agriculture and estates lawyer Nichola Ross

Nichola Ross
Nichola Ross

Investment in agricultural land is an arena traditionally dominated by wealthy educational investors such as the Oxbridge colleges, but the Wellcome Trust’s recent acquisition of the Co-operative Group's farm business has brought it to the attention of charities in general. 

The trust acquired the business for £249m, one of the largest deals in recent history. Included in the acquisition are 16,000 hectares of freehold and third party-owned land; 15 farms, including three packing houses; more than 100 residential properties; 27 commercial properties; and 255 employees.

Both the size and the quality of the land make this deal an exceptional one for the agriculture sector, but many smaller charities are buying parcels of land to support their financial objectives, seizing opportunities to invest in agriculture and build up their investment profiles. 

Harvesting profits 

The value of agricultural land is currently at a premium and the evidence suggests that good land investment not only offers capital growth over the long-term, but can also support a mixed portfolio through the bad times. Land can be a good long-term strategic investment for many charities.

Many investment funds are driven by short-term returns – but, if minimum income is not the main driver, charities could do much worse than consider investing in farmable land.

Cream of the crop 

Ten years ago, the price of good farmland hovered at about £3,500 an acre. In 2014, each acre can be valued at more than £10,000; indeed, the Wellcome Trust paid the Co-operative Group £10,500 per acre.

A charity that already manages a rural estate should have achieved good return on its investment during the recession. While the value of other assets tumbled, the core value of agricultural land rose steadily, and continues to do so. Purchasing a rural estate might be a very attractive option to a charity with some millions to spend. 

Common ground

The ownership of land can bring with it a competing set of investment purposes other than simple wealth creation, and different charities will have different requirements.

For example, a charity that houses dogs might buy land because it needs space to exercise the animals, not just as a source of investment for their future protection. Another charity might buy a rural estate to manage or enhance the natural landscape and protect the various species that live there. 

Giving nature a hand 

The Wellcome Trust’s acquisition includes various type of land, raising many questions for charity professionals about how to manage complex portfolios.

The ownership of land brings the responsibility of farming and managing it for the benefit of the natural inhabitants (in European Union speak, this is called "greening" and brings with it the payment of a subsidy). Farming should be carried out in a sustainable fashion and should not involve intensive cropping in the short term that diminishes the fertility of the soil. 

The Wellcome Trust has pledged to maintain existing services for local communities, including the educational programme for children known as Farm to Fork.

If returns are to be maximised in terms of crops and capital value, the land must be well managed, but how this is done provokes debate from a spectrum of vested interests, some who advocate organic farming methods, and others who would use science and genome technology to improve farming efficiency and yields.  

Good management inevitably requires inward investment to protect or enhance the built environment. This includes keeping farm buildings in good condition so that they are fit for purpose and not a visual blight, and renovating farm cottages so that they are pleasant places to live. 

Providing for the future 

Inward investment cannot be funded from agricultural income alone; the owner will need to identify development and sales opportunities that could provide appropriate funds. Opportunities such as housing and renewable energy, including wind farms, will become key to maximising the profitability of a newly acquired estate. 

Any charity thinking of buying a rural estate needs to consider carefully the potential tensions between different organisations and the reputational risks. It must also ask itself if it has the structure and expertise to manage the asset in the long term. Issues will certainly arise from being an employer and a residential landlord, and the owner will also be expected to make decisions on development that will affect the local community. Owning rural land is not for the faint-hearted, but should not be dismissed out of hand by the right potential buyer. 

Nichola Ross is an agriculture and estates lawyer at the national law firm Mills & Reeve and member of the team that represented the Wellcome Trust

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