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Price of farmland in England now falling but expected to do better in 2009

The Knight Frank Farmland Index shows that overall values rose 16% last year but prices began falling towards the end of the year and analysts expect to see a further fall of 6% this year.

The drop in rural land prices is the largest in the history of the Knight Frank Farmland Index.

'Values rose sharply earlier last year because there was not enough farmland available to satisfy the pool of eager buyers, which included investors and UK and foreign farmers,' explained Andrew Shirley, Knight Frank's head of rural property research.

'That imbalance, however, has now shifted with the number of active purchasers significantly reduced. It would have been amazing if farmland had been able to buck the worsening economic climate that has affected all other property sectors,' he added.

Economic problems in Ireland and Scandanavia have meant that investors from these countries who were robust buyers have dwindled and an expected drop in profitability this year is making UK farmers more cautious about buying more land.

There had also been a reversal of all the factors that helped fuel the land price rise. The credit crunch had cut the numbers of so-called lifestyle buyers, typically City workers buying second and holiday homes in the countryside.

But prices are expected to stabilise towards the end of the year and the average value of agricultural land is currently £4,796 per acre compared with £4,129 per acre at the start of 2008.

'Despite an increase in volumes last year, the availability of land remains historically low and there is little evidence to suggest a flood of forced sales that could pull prices down dramatically,' added Shirley.