The Victorian Farmland Values Index 2013, prepared by Rural Finance, tracked the results of almost 45,000 land sales across Victoria since 1990. The 44,268 transactions, totalling 5.8 million hectares of land, generated sales of $15.2 billion.

The best performing region in the state was West and South Gippsland, where the average annual growth rate was 4.96 per cent – a 20 per cent premium to the index’s average performance.

This was closely followed by the Western District, where farm values had an average annual growth rate of 4.85 per cent.

Average figures for some of the other regions were: the Mallee (mainly cropping) 4.2 per cent; the Wimmera (mixed farming) 4.31 per cent, and the north-east 4.24 per cent.

The north-east, which included grazing, cropping and irrigation, took in the area from Seymour to Shepparton, the Goulburn Valley, Echuca, Cobram, Yarrawonga, Benalla, Mansfield and Wodonga.

Rural Finance chief executive Rob Goudswaard said the report showed that over the long term, rural value had increased over inflation.

“It demonstrates the value of farmland as part of an investment portfolio,” he said. “It is also important to remember that growth in land value comes on top of the returns these farms made.”

The index took two years to prepare. A similar study had not been done for more than 25 years, the last being by the Valuer-General’s Department in 1989.

The index found three distinct trends in the past 23 years. Between 1990-2000, farmland values were stagnant, with capitalised annual growth of 1.8 per cent. From 2000, values rose rapidly over the next eight years to a peak in 2008. The capitalised annual growth rate was 11.6 per cent.

A decline in farmland values occurred in 2008, before stabilising in 2010 and 2011. Values began increasing again in 2012 and 2013, giving the 2008-2013 period a capitalised annual growth rate of 0.1 per cent.

Key features of the report were:

*10 per cent of rural land sales are between family members, with the largest in the Mallee (21.4 per cent) and the lowest in East Gippsland (7.9 per cent).

*Between 2000 and 2010, the value of grazing land in Victoria at least doubled.

*The median value of farmland rose last year, up 5 per cent on 2012. This followed an increase of 8 per cent in 2012.

In the best performing area – West and South Gippsland -  5603 farm sales totalled $2431 million. The median parcel size was 52 hectares.

Rural Finance general manager of agribusiness, Andrew Smith, said key factors in the region’s top performance were high rainfall, good soil, good growing conditions, and lifestyle values - the proximity to Melbourne, the mountains and the beach.

However, the importance of hobby farms should not be overstated. The index removed sales under 30 hectares to get a judgment on farmland value. “Excluding small acreages takes away a bit of the hobby farm influence from the index,” he said.

The sales manager of Landmark Harcourt in Warragul, John Rowe, told The Age that a 120-hectare farm at Trafalgar in West Gippsland with no house recently sold for $1.27 million.

Another sale was a 48-hectare property at Jindivick, near Drouin, which went for $1 million. “At that size, it’s almost a lifestyle property,” he said.

Mr Rowe said two quality farms were coming up for sale – one for about 90 hectares (226 acres) at Drouin South, and the other, more than 310 hectares (776 acres), at Poowong.

These were expected to sell for $8000-9000 an acre, possible $10,000 an acre. Lesser quality West Gippsland farms sold for $5000 an acre, he said.

The index, which costs $880 to buy, will be updated every six months. Rural Finance also consults to do localised work.