The Royal Institution of Chartered Surveyors said the cost of farmland rose by 16% during the past year as demand continued to outstrip supply.

According to rural property chartered surveyors, farmland prices averaged £8630 per hectare in the twelve months to the second quarter of this year, the highest level ever recorded.

And some of the price increase is due to non-farmers who are snapping up farming property as other investments slow.

RICS said the rise in farmland prices continues to be exacerbated by a decline in the amount of land coming onto the market. The survey has recorded a consistent reduction in supply of land over the last five quarters.

Much of this can be explained by a lack of certainty amongst farmers and landowners regarding the mid-term review of the Common Agricultural Policy. This covers issues such as the continuing entitlement of farm support payments when land changes hands.

The split between farmer buyers and non-farmer buyers remains fairly equal, as non-farmers continue to play an active role in the farmland market. They account for 43 percent of purchases over the last quarter, unchanged from the first quarter of 2004.

RICS rural spokesman and chartered surveyor, Julian Sayers, said: “The high demand, which is particularly evident in the West Midlands and Wales, is in part driven by relatively poor investment returns in other asset classes.”

“There is also the common dream of owning part of the British countryside. So far interest rate rises do not seem to be affecting buyer activity.”

The volume of sales reported in the second quarter of 2004 is 23 percent down on the same time last year, although up 7 percent on the first quarter of this year on a seasonally adjusted basis.

Surveyors remain confident in their outlook for both commercial farmland and farmland with residential buildings.