By Matthew Legg, Business Editor

Last updated 15:03, Friday, 04 July 2008

The average cost of farmland has broken through the £5,000-an-acre barrier following a 38 per cent jump in prices during the past year.

Land of milk and honey... that’s what buyers seem to think. Even at prices up to £7,000 an acre, farmers, investors and lifestyle buyers are competing to buy the limited amount of British farmland up for grabs

Agricultural land prices rose by 10 per cent during the three months to the end of June alone, to average £5,100 an acre, according to estate agents Knight Frank.

The group said despite the credit crunch and massive increases in the costs associated with farming, lifestyle buyers, investors and farmers were still competing for the “extremely limited” supply of farmland on the market.

It said blocks of farmland were now selling for well over £7,000 an acre, with the size of a plot more important than the quality.

The sale of large parcels of land is currently so rare that even average quality land is fetching premium prices.

Land agent Savills claimed an even larger rise

It said the price of English farmland has risen by 30 per cent since December, and is now nearly 50 per cent higher than in June last year. It is double what it was three years ago.

According to Savills, the average price of land in Britain is now £4,400 an acre – up from £3,000 a year ago and £2,200 three years ago.

Prime land goes for a lot more, over £10,000 an acre, but the average price is less than half what it is in Denmark and Ireland and considerably less than in the Netherlands, Belgium and Germany, the firm added.

Knight Frank predicted that while the price of farmland would continue to increase, the strongest period of growth was already over.

Andrew Shirley, head of rural land research at Knight Frank, said: “Improved farmer optimism on the back of strong commodity prices is now being tempered by massive cost increases – some types of fertiliser have trebled in price in the past 12 months – and these hikes will soon start to be felt on the bottom line, especially as wheat prices have fallen back significantly.

“Falling confidence in the housing market and mounting worries about the economy in general will also dampen the enthusiasm of lifestyle buyers – who still account for 30 per cent of the farmland market – looking for a slice of the English countryside.”

But he added that there were few signs that the amount of farmland for sale would increase dramatically, and this limited supply would continue to force prices up, although at a more modest rate.

The group is predicting that farmland prices will rise by 14 per cent during the coming 12 months.