Author: Caroline Ingamells

Spotlight on the Transition to the Environmental Land Management Scheme (ELM)

Defra Secretary, George Eustice, has given more details of the transition to the Environmental Land Management scheme (ELMs) in interviews and at the virtual Conservative Party Conference.  However, some of his statements have done more to muddy-the-waters rather than provide clarity.

It is clear ELM will have three tiers, with the recently announced Sustainable Farming Incentive (SFI) scheme (see last month’s Spotlight) being the prototype for Tier 1.  This scheme will not be available until 2022 but will be one which most farmers should be able enter.  Mr Eustice outlined this as a way of being able to recoup some of the BPS money which will be lost as we go through the Agricultural Transition.  No details are available regarding the SFI scheme yet.

Also, in 2022 and 2023, the aim is to ‘drive-up participation in the Countryside Stewardship’.  The scheme will be simplified, and will be the ‘steppingstone’ to Tier 2 of ELMs; commitments are likely to be for 3, 5 and 10 years.  Ultimately Tier 2 of ELMs will depend on having a Land Management Plan for the farm which is expected be drawn-up between the land manager and an accredited advisor with a menu of options and payment rates.  It is this element which will be tested under the ELM pilots in 2021.

In addition, the intention is also to roll out more bespoke schemes, again in 2022/23, which require more complex change of land use, such as woodland creation and peatland restoration.  These would form the prototype for Tier 3.

The slightly confusing element is that Mr Eustice referred to a full launch of ELM in 2027 when these ‘prototype’ schemes would be consolidated.  This is at odds with previous statements that ELM would launch in ‘late 2024’.  It has been indicated in the past that not all elements of ELM would be ready until 2027, even if the scheme launched earlier (although it has never been clear what wouldn’t be ready and how you could launch an incomplete scheme).   It is not clear whether this is what Mr Eustice is referring to, or whether the timetable for ELM really has slipped to 2027.  The consultations on future policy due next month may provide more clarity.

We are conscious that the details of future farm support have been released rather piecemeal by the Government and have therefore put together a two page summary, outlining how BPS will be phased out over the next seven years and the funding streams which will be available during and after this transition.  This will be a ‘living’ document and will be updated when more information is released in the upcoming consultation.   The summary can be found at https://theandersonscentre.co.uk/wp-content/uploads/2020/11/Ag-Policy-Summary-Oct-20-TAC.pdf  

If you are interested in getting a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, click on the link below for a 90-day free trial of Andersons’ AgriBrief Bulletin:

https://agribrief.co.uk/

 

 

 

Farming in Focus InBrief – November 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected].
  • The House of Commons removed the amendments to the Agriculture Bill proposed in the House of Lords that would have enshrined protection of UK food standards in law.   Other amendments on incorporating climate change requirements into policy and restricting the use of pesticides in certain locations were also rejected.  The Bill returned to the Lords.  Initially it was expected, as their amendments had been rejected once, the current version would be accepted, but this has not been the case and the Lords have put forward a (similar) amendment (16B), which seeks to ensure ‘equivalence of standards’ for imported agri-food products under any future trade deals.   The Bill has returned to Parliament.  In the meantime, Lizz Truss, International Trade Secretary, announced the newly formed Trade & Agricultural Commission will be put on a statutory footing, with its reports on future trade deals put before Parliament.   This doesn’t exactly incorporate the Lords’ amendment(s), but the Government is probably hoping it’s enough of a concession that they stop trying to amend the Bill.  But many fear this doesn’t go far enough, MPs would still not have the right to vote on such deals and intense lobbying of MPs to try and get them to support the amendment is taking place.  A vote by Parliament is expected at the beginning of November. 
  • The Environment Bill has restarted its journey through the Parliamentary process, after being dormant since mid-March.  The aim would be for the Bill to become law in the early part of 2021.  There are several proposals in the legislation that will influence agriculture.  One is the setting-up of the Office of Environmental Protection (OEP) which will hold the Government to account on environmental matters.  It also sets out the broad principles of environmental protection such as ‘polluter pays’ and hazard versus risk-based regulatory approaches, which could have relevance in pesticides regulation and fertiliser use.
  • Brexit talks are at last getting down to the real detail.  Compromises are still required on the difficult topics of the Level Playing Field and Fisheries. The October European Council was widely seen as a ‘deadline’ but it will be into November now before an agreement might be reached, leaving very little time for the ratification process.  With the Transition Period ending on 31st December; last minute glitches could also result in a No Deal situation on 1st January.
  • Boris Johnson, has pledged that 30% of the UK’s land area will be ‘protected’ by 2030.  This is part of an international ’30 by 30′ campaign.  In terms of England, around 26% of its land area is currently either protected as being part of a National Park or Area of Outstanding Natural Beauty (AONB).  The extra 4% equates to around 400,000 hectares.  This might come from an extension of existing areas, or completely new designations.
  • Provisional results from the June 2020 Survey of Agriculture and Horticulture have been released by Defra showing planted areas in the UK for main crops and estimates for crop production.  Not surprisingly, the weather has had a significant affect. Wheat plantings were down by 22% and, with yields also significantly reduced, production is provisionally reduced to just over 10mt.  Spring barley area was up 55% on 2019 levels.  But reduced yields means, although the total barley planted area was 22% higher, total production was just 3.9% more than last year.  The oat area increased by 16%, but again yields were poor, resulting in a 5.5% reduction in production compared to 2019.  OSR continues to struggle with cabbage stem flea beetle; the result being a 39% year-on-year reduction in production.  The wet weather and failed OSR fields resulted in an increase in the fallow and maize area by 57% and 6% respectively.  The field bean and combining pea areas have also risen by 38% and 27% respectively. 
  • The dramatic change in crop areas (see above) means production available for marketing is equally unusual. The price of wheat has risen by over £20 pert since harvest.  But barley has not followed suit, instead, a price spread over £40 has emerged. Demand for malting barley is poor due to Covid restrictions reducing the requirement for beer.  Therefore, the large spring barley harvest is mainly being bought for feed.  The new crop price spread is smaller but still £15 to £20 pert  The OSR market is poor, the lack of OSR in the UK has very little impact on prices; the OSR market is led by the soy and palm oil markets. 
  • The results of the provisional June 2020 Survey show all the main categories of UK livestock have declined in number over the past year underlining the uncertainties facing the sector.   The total number of cattle and calves has continued to fall and is at its lowest level since the basis of data collection changed in 2009.  Both the dairy and beef breeding herds continue their historic decline. The sheep breeding flock has also recorded a year-on-year drop, with all categories showing a fall in numbers.  This may be due to uncertainty ahead of Brexit.  However, autumn sales of breeding sheep and store lambs have been strong, which would indicate otherwise.  Total pig numbers have decreased slightly from 2019, although they are still higher than any other year since 2004.  But the breeding herd has declined by a relatively large amount; on the back of good margins this is rather puzzling. 
  • On 30th September the first shipment for 24 years of UK beef departed for the US. Access was granted back in March for a deal worth an estimated £66m over the next five years.  At £66m over five years, this would equate to a simple average of £13.2m per year.  To put this into context, exports to Ireland averaged £135.6m p.a. for the years 2017-2019.  However, market access to the US could provide a valuable opportunity in the long-term as, per capita, meat consumption in the US is three times the global average.  There will be severe competition for any UK exports though, as other beef producing nations around the world also regard the US as a prize market.

This month’s Spotlight gives more detail on the transition to the new Environmental Land Management scheme in England. Click Here for further information.

If you would like more detail on the topics covered above, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

 

Farming in Focus InBrief – October 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • The Chancellor has announced a further package of measures to support employment as the original ‘Furlough’ scheme is phased-out. A new Jobs Support Scheme (JSS) will top-up the wages of those who are working reduced hours, commencing on 1st November. The Self-Employed Income Support Scheme (SEISS) will also be extended for the period from November to the end of January to those eligible for the current SEISS.  This will be reduced to 20% of average monthly profits, up to a total of £1,875.  The temporary VAT cut for tourism and hospitality will be extended to the end of March.  There will also be more time to pay deferred VAT payments, income tax, Bounce Back Loans and Coronavirus Business Interruption Loans.  Full details are available at – https://www.gov.uk/government/news/chancellor-outlines-winter-economy-plan.
  • It seems increasingly likely that the BPS in Wales will continue relatively unchanged for the next three years. With regards to other schemes, the Welsh Government has announced £106m worth of funding for the rural economy over the next three years.  This will allow some of the current Rural Development Programme (RDP) schemes to open for new rounds.  Dates for EOIs for a number schemes have been announced including;
    • Farm Business Grant Scheme – 9th Nov-18th Dec 2020 & 18th May-25th June 2021, for yard coverings. 1st Mar-9th Apr 2021 for other items
    • Sustainable Production Grant – 1st Feb-12th March 2021
    • Glastir Small Grant Scheme – Carbon, 11th Jan-19th Feb; Landscape & Pollinators, 18th May-25th June 2021
  • Controversy sparked in the UK-EU Brexit trade talks with the publication of the UK Internal Markets (UKIM) Bill as this would, by the UK Government’s own admission, break international law. There has been some signs of light, but the next month is crucial in the talks, as most commentators believe a Deal (or at least the outline of one) needs to be in place at the end of October, if it is to be ratified by the end of the Transition Period on 31st December
  • The UK has secured an agreement ‘in principle’ with Japan; its first as a newly independent trading nation. However, it is unlikely to have a great effect on UK agriculture.  Of far more importance are the ongoing talks with the USA, Australia and New Zealand.  All of these are progressing, but no deal looks likely this year in any of them.
  • Defra has announced the outdoor use of Metaldehyde will be banned in GB from the end of March 2022. The pesticide, which is used to control slugs on farms and in gardens was the subject of a ban announcement back in 2018, but this was subsequently overturned in the High Court.
  • The AHDB estimates a British potato area of 119,000ha, down 1.0% on last year.  Average yields would deliver a crop of 5.4mt; slightly more than the flood-impacted crop of last year. National yields are likely to be average at best. Prices have started the season on a weak note with little expectation for better returns later in coming months.  The AHDB free-buy price is below £100 per tonne for the first time since the 2017/18 season.  The market continues to be affected by Covid-19 restrictions.
  • UK finished pig prices have been on a steady increase since March 2019, but the period of buoyancy may now be coming to an end.  Falling prices across the EU are now influencing the British market. In addition, on 10th September Germany announced its first case of African Swine Fever (ASF). Germany is the largest European pork producer and exporter.  But the spread of ASF into Germany may have less severe consequences on the market than it once would have had.  Due to ASF in China, there has been a sharp rise in import demand and other countries in the EU have been sending significant quantities of pork to China, so that if Germany is unable to export and the volumes are retained in the EU, the market is unlikely to be swamped.  Prices are still likely to decline, but probably not by as much as once feared.

This month’s Spotlight gives an update on future agricultural support in England. Click Here for further information.

If you would like more detail on the topics covered above, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

Spot Light: Update on Future Agricultural Support in England

Future Agricultural Support in England

The farming industry in England will have to wait a little longer to get more details on the Agricultural Transition.  A Defra consultation has been expected that will cover the ‘delinking’ of the BPS, lump sum payments, and deductions beyond 2021.  This was always billed as coming ‘in the autumn’ and we had hoped for September (it was originally planned before the end of 2019).  It now seems that it could be late October or November before it emerges.  This is unhelpful for those trying to plan future land occupation arrangements.  

The reason for the delay is that agricultural policy has become entangled in the Comprehensive Spending Review (CSR). Until there is certainty over the farm support budget, Defra is unable to make key decisions on the Agricultural Transition – such as what deductions will apply to the BPS after 2021.

Further consultations may come as part of a ‘package’ later in the autumn.  One seems set to be on Regulation and Enforcement.  A new regime will be required to replace Cross-compliance, which becomes ineffective once the BPS is delinked from land.  This is unlikely to see much of a reduction in the red-tape burden on farming as much of Cross-compliance is already law.  However, the way it is enforced and the administration will be different.  It also has linkages to ELM and animal welfare payments.  These will only pay farmers for going beyond the ‘regulatory baseline’.  Where that baseline is set is therefore quite important.

The final area that could be consulted on is the support schemes that aren’t either ELM or BPS.  This would cover programmes in areas such as productivity, animal health & welfare and farmer advice & training.  One new idea that seems to be gaining ground in Government is a new scheme called the ‘Sustainable Farming Incentive’.  Details are sketchy at present, but the idea appears to be for an interim scheme to run alongside Countryside Stewardship (CS) until such time as ELM is fully launched (2024).   The SFI would cover areas that will be included in ELM, such as soil health and emissions, that are not well supported under CS.  It would seem logical that the SFI would close when ELM is fully operational, although some reports have suggested it would continue to operate ‘alongside’ ELM.  There may be more detail in the upcoming consultations. 

In terms of ELM itself, the national Pilot Scheme is meant to open for Expressions of Interest (EOI) in March 2021 with applications commencing in April.  Presumably, in order to express an interest, some details of the pilot scheme will need to be published beforehand – perhaps February?  Whilst it is always possible for the scheme to alter between the Pilot stage and its full roll-out in 2024, this will at least give some indication of what ELM will look like in areas such as options, management requirements and payment levels.

If you are interested in getting a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, click on the link below for a 90-day free trial of Andersons’ AgriBrief Bulletin:

https://agribrief.co.uk/

 

 

Farming in Focus InBrief – September 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact them, their details can be found at the end of this Briefing.
  • The biggest reform of the Planning system in England since 1947 is being promised by the Government.  It released a Planning White Paper and Consultation, ‘Planning for the Future’, in August looking to free-up constraints on development in order to drive economic growth whilst, at the same time, protecting important areas and delivering ‘sustainable, beautiful, safe and useful development’. The full consultation can be found at – https://www.gov.uk/government/consultations/planning-for-the-future.  The closing date for consultation responses is October 29th.   
  • Agreement between the UK and the EU on a Free Trade Agreement seems as far away as ever.  Speaking after the latest round of talks from 18th to 21st August, the EU’s chief negotiator was notably downbeat.  From the UK side, there were similar sentiments.  David Frost, the UK’s negotiator stated that “agreement is still possible, and it is still our goal, but it is clear that it will not be easy to achieve.”  The sticking points have not changed.  There remains a wide divergence on fisheries, the ‘level-playing field’ provisions and the role of the European Court of Justice.
  • Defra has released a ‘Countryside Stewardship Greening Amendment Form’.  This relates to Mid and Higher Tier applications for agreements which are due to commence 1st January 2021.  Because the Greening requirements have been abolished in England under the BPS for 2021 onwards, the RPA has recognised applicants may now want to use some of their previous EFA land as part of their CS application.  From 2019, there were 19 CS options for Higher Tier and 18 for Mid Tier which fell under the ‘double funding’ rules and it was not possible to overlap these CS options with EFAs on the BPS application.  The form can be found via https://www.gov.uk/government/publications/greening-amendment-form-countryside-stewardship.
  • The Welsh Government has announced there will be a Basic Payment Support Scheme in operation again for 2020 BPS payments.  This will make payments of up to 90% of an individual business’s anticipated 2020 BPS claim value.  Loans will be made to those whose claims have not been fully validated in time to make the BPS payment on 1st December; Support Scheme monies will be made during the second week of December.  The online application process will be open from 1st September and all claimants are advised to apply as there is no way of telling which claims will be ready for payment on 1st December or whether the Support Scheme will be required.
  • The Government has announced the ban on evictions from residential properties will be extended for a further four weeks. It has also said, for England only, the notice period to evict a residential Tenant will be increased to six months.  Both measures have been introduced to give Tenants more protection from eviction due to the effects of Coronavirus, with the longer notice period designed to give them certainty over the winter.  
  • The 3rd Woodland Carbon Guarantee (WCaG) auction will take place online between 26th October and 1st November.  The WCaG provides owners of new woodland projects the option to sell their captured carbon in the form of carbon credits, called Woodland Carbon Units to the Government for a guaranteed price, protected against inflation, every 5 to 10 years for 35 years.  A further £10m, from the scheme’s £50m budget is available.  Applications to the scheme must be made by 11th October.
  • The sugar beet base price for next year has been set at £20.30 per tonne, compared with the current £19.60 per tonne.  Both these prices have no crown-tare deduction. From 2021 there will be a new sugar scale which will see farmers paid directly based on the sugar content of their beet.  The market-related bonuses will be retained.  There will also be a three-year contracting option for 2021 – 2023, at a fixed price of £21.18 per tonne.  A pilot scheme, linked to the sugar futures market, will also be available for 100 growers in the first year who can allocate up to 10% of their contract to this mechanism.  Producers will be able to fix a price based on prevailing values on the sugar market. For the first time in 2021, there will be a virus yellows disease compensation fund.  Contract packs and offers should be received by growers shortly.
  • The deadline for applications to the Dairy Response Fund has been extended until midnight on 11th September.  Further details can be found at https://www.gov.uk/government/publications/dairy-response-fund-2020

This month’s Spotlight looks at harvest progress and autumn plantings. Click Here for further information.

If you would like more detail on the topics covered above, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

Spot Light on Harvest Progress & Autumn Plantings

Harvest Progress

Normally at this time of year, the lion’s share of harvest is completed.  But with intermittent rain preventing significant progress in many parts and a considerable proportion of crops being spring sown, there is still ample to do.  Rather inevitably, it has been uneven, more so than usual.  In parts of the South and East some might have all-but finished.  Further into the Midlands, West, North and Scotland, it is only just starting.

Growers on lighter soils appear to have experienced greater yield reductions, suggesting the spring drought was more damaging to crops than the winter rains were; at least for those that made it through to harvest at all.  On the whole, many growers have a higher winter wheat yield than they thought likely back in February before the rain stopped, but many fields are patchy.  Most still agree yields will not reach the 5-year average.

Oilseed rape has been overwhelmingly poor and most opinions canvassed suggest a national yield of perhaps 2.5t per Ha will be as good as it gets.  The official yield will be affected by how much land farmers decided to re-classify as fallow or was re-drilled in the spring.  Plenty of farms drilled 120% of their farm this year; their failed OSR area eventually harvesting a crop of beans or spring oats.

Autumn Drilling

So, what are growers going to do this Autumn?  Most people are expecting a serious decline in the OSR cropped area.  However, the harvested area of OSR might actually increase next year.  We estimate a 25% write-off from this year’s OSR crop that did not reach harvest.  If next year, the percentage written off falls to a more typical 7%, then a decline in planted area from our estimate of 495,000 hectares in 2019 to a possible 410,000 this autumn would still leave more harvested winter OSR.

 

Simply replacing OSR with another break crop may not solve the problem.  Whilst crops such as pulses provide a break from cereals and offer soil and following-crop benefits, they might not demonstrate such high potential gross margins and could also become squashed in the rotation, affecting their long-term yields.

Some farmers are increasingly collaborating with nearby dairy or AD farmers to offer wholecrop rye, grass fields, as well as other cereals.  Interestingly, the harsh winter of 2012 led many cereal farmers to grow (spring) oats.  Their positive outcome meant the oat area has been higher than pre-2012 every year apart from one.  A surge in oat area this year too, might see something similar happen – depending on market demand.  Spring barley area has also been on an upwards trend with possibly a million hectares being harvested in the current year.  The gradual rise of spring crops can also be seen by a slow decline in winter cropping including wheat which, until 2008, topped 2 million hectares on a few occasions, and now averages 1.8 million.

If you are interested in getting a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, click on the link below for a 90-day free trial of Andersons’ AgriBrief Bulletin:

https://agribrief.co.uk/

 

Farming in Focus InBrief – August 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • Defra has confirmed Greening under the Basic Payment Scheme (BPS) will no longer be a requirement in England from 2021.  This will mean for 2021 BPS applications, Crop Diversification (two and three crop rule) and Ecological Focus Areas (EFAs) will no longer be needed.  There has been no announcement yet from Wales and Scotland, but these administrations will be under pressure to follow suit.  There will be no change to the overall payment as the ‘Greening’ element of the payment will be added to the main BPS payment.
  • Those who made a BPS claim in 2019 of more than €2,000 should receive a reimbursement from RPA via the Financial Discipline Mechanism (FDM).  The rate being used for 2019 is 1.371% (1.346% in 2018).  Payments commenced from 1st July.
  • The Welsh Government has confirmed its intention to press ahead with the Sustainable Farming Scheme as the centre-piece of its post-CAP farm support.  However, the new system will be designed and introduced only slowly over the next few years. There will be a transition period from the current BPS to the new arrangements.   There is no indication of when the transition will start and how long it will take.  Although the Government has already stated that the BPS will continue in its present form for the 2021 claim year.
  • The Glastir Small Grants scheme will open for a further round of applications in Wales between the 27th July and 4th September 2020.  The theme for this round is water.  Grants will be available for capital works to carry out projects which will improve the water quality and reduce the risk of flooding.
  • The Government has agreed to set-up a Trade and Agriculture Commission to protect UK food standards under future trade deals. Whilst seen as a lobbying success for the farming sector, it must be noted that its findings will be advisory only.  Also, the Commission’s six-month remit means it is highly unlikely that any Free Trade Agreement will emerge with the US before the Commission is wound-up.
  • Dairy processor Medina has announced it will be closing its Watson’s Dairy in Hampshire, to try and consolidate its processing operations in a bid to save money.  The fresh liquid processing site had facilities for 200 million litres, although it has not been operating at full capacity.  This will now be diverted to Buckleys (Huddersfield), Severnside (Gloucestershire) and Freshways (London).   There could be a potential loss of 144 jobs, but the closure, according to Medina, should not have an impact on its 156 farmer suppliers.
  • Defra has confirmed bovine TB vaccination trials are to start in England and Wales.  This follows a major breakthrough by Government scientists and could see the vaccine for cattle rolled out in 2025.  The field trials will take place over the next four years on behalf of Defra, the Welsh and the Scottish Governments.  The deployment of a cattle bTB vaccine was one of the key priorities in the Government’s response to an independent review of its 25-year bTB strategy conducted by Professor Charles Godfray, which set out the goal to phase out intensive culling in the next few years.
  • The UK will be able to import an extra 260,000 tonnes of raw sugar without tariff from the start of 2021.  This could have significant impacts on the price of home-grown sugar beet.  This is the only such volume-based tariff reduction yet announced.  It might make sense if the UK does not do a trade deal with the EU – the new cane volume can replace imports of beet sugar from Europe which would then be subject to the UKGT tariff.  However, should a deal be done, then EU imports will continue to be tariff-free, and the additional cane volume offered will simply increase volumes and drive down prices on the UK market.
  • The wet weather in autumn caused a huge swing to spring plantings. According to the AHDB’s 2020 Planting and Variety Survey, GB winter wheat plantings recorded a year-on-year decline of 25% to 1,363K hectares.  The winter barley area has fallen by 34% to 296K hectares. Consequently, spring barley plantings have increased 52% on the year to 1,063K hectares.  The area of oats has declined by 2% in Scotland, but in England as an alternative to winter drilling and a replacement for OSR, has increased by 26%.  The OSR crop in England has decreased by 28% to just 355K hectares, the lowest since 2002.  Dry drilling conditions and then persistent rain, coupled with CSFB, particularly in the East and East Midlands caused significant reductions.  Yield is also expected to be low and production could be the lowest recorded this millennium.

This month’s Spotlight looks at how autumn lettings could affect support payments (BPS) through the Agricultural Transition and who might receive them. Click here for further information.

If you would like more detail on the topics covered above, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

Spot Light on BPS Transition and Autumn Lettings

Farmers and their advisors in England need to be particularly careful this autumn, as the way agreements are structured could have implications for who gets support (BPS) for the whole Agricultural Transition period through to 2027.

Agricultural Transition

We do know direct support (the BPS) will be phased-out from 2021 to 2027 (Agricultural Transition) and replaced by the Environmental Land Management (ELM) scheme, together with other schemes to help increase farm productivity, animal welfare and support for Producer Organisations.  There has been quite a lot of lobbying to delay the start of the Transition by one year, but Defra appear to be resisting this.  This will mean in 2021 we expect to have a direct payment scheme similar to the current BPS (without Greening) but payments will be reduced as follows;

Currently we only know the deductions for 2021.  It is hoped the consultation later in the year may shed some light on future % reductions.  Our view is that as the ELM scheme is not due to be launched until late 2024, the deductions in the first few years could be relatively low.  These could then increase more sharply as funds are redirected/required for the ELM scheme later in the Agricultural Transition.

De-Linking

This is a mechanism that breaks the link between receiving support and occupying agricultural land.  Once support is de-linked a farmer could double the size of their holding or stop farming completely – they would still get the same future stream of income tapering-off to 2027.  It effectively gives the claiming business a right to the future support.  The key point is that it will be based on what the claimant received in a ‘reference year’ (or years).  The reference year is not yet known and this will determine who gets the support through to 2027.  De-linking is an option in the Ag Bill, but the indications are that it will happen (Ministers seem keen).  However, the legislation states that it cannot happen before the 2022 claim year.  So we are expecting the 2021 scheme structure to be similar (or the same) as the 2020 scheme year with entitlements, which presumably can be traded.  

The closer the reference year is to de-linking the less ‘problems’ there will be due to changes in business structures or land occupation.  It would therefore seem logical for it to be 2021, but earlier dates or even a range of dates is possible.  There is likely to be force majeure and business change provisions similar to those which operated when the Basic Payment was introduced – but details of these are also unknown.  Any Tenancy Agreements written pre-2019 are unlikely to have any clauses in them which deal with de-linked payments.  If a Tenant has made a BPS claim which included the reference year, the right to the future income stream could become vested in the Tenant.  If the Agreement is brought to an end during the Agricultural Transition the Tenant could still have the right to receive the de-linked income stream and the land may not have any ‘support’ for the incoming Tenant.  Of course the incoming Tenant may have some ‘support’ to ‘bring’ with him, and so we can already see the problems with what rent level can be asked or what price Tenant’s will be prepared to pay – every situation could be different.

New Agreements this autumn will need to ensure they contain clauses to try and protect the Landlord’s position in case 2021 is the reference year, so that he/she can offer the right to receive future support along with the land for incoming Tenants.  If 2019 or 2020 turns out to be the reference year, then it may already be too late.

Lump-Sum

This must not be confused or ‘bundled-up’ with de-linking.  It is the idea that the future stream of income from de-linked payments is rolled-up into one single payment.  But it is separate from de-linking and is only an option in the Agriculture Bill; it may not be introduced in 2022, it may not be available to everyone, it may not even be introduced at all.  More information is (again) expected in the upcoming consultation.  The idea is that it could be used as a retirement sum or allows for investments to be made.  If it is introduced, it may not be available to everyone at the same time, but there might be an age threshold for example.  For those Agreements which come to an end within the Agricultural Transition, the Tenant could potentially leave with a de-linked lump-sum.

Environmental Land Management

Once the BPS has been phased out, the main support for farmers will be the Environmental Land Management (ELM) scheme. But in a Landlord and Tenant situation or Contract Farming Agreement how is it going to be dealt with? This looks like an area where there will have to be a lot of ‘sorting out’ over the next 5-10 years as a new normal gets established.  It certainly does not look like it is going to be as simple as the BPS.

For AHAs and existing long-term (whole farm?) FBTs it will likely be down to the tenant to decide whether to enter or not.  But the ability to pick up ELM payments will presumably be part of the earnings potential of the holding and would therefore come into consideration of the rent.  This might become a contentious area in rent reviews in the future – what if the Tenant had entered into a low-level, low income, ELM agreement, but the Landlord thought that he/she should have gone for a higher-paying one and be paying more rent?

For new/short term FBTs, we might well see situations where the Landlord wants to be the claimant, both so that they are in control of what happens and so they are guaranteed the income.  Of course, it depends on the detailed ELM rules – will Landlords even be able to apply if the land is let out?   The land would therefore be let ‘naked’ without any support and the rent would reflect this.

Any tenancy agreement would have to bind the Tenant to adhere to the ELM requirements – as has been done in the past for ES / CS agreements etc.  But this is not always the best approach, as the Tenant (the actual land manager) has not got any financial stake in the ELM agreement.  This might become more of an issue if the payment methods become more sophisticated over time – e.g. payment by results, reverse auctions etc.  Perhaps some revenue-sharing model would be the answer – but with the Landlord remaining the agreement holder?

There are also Contract Farming Agreements (CFAs) to consider.  There have been differing opinions in the past on whether BPS has been included in the ‘pot’ or not.  Often agri-environmental payments have been kept out of agreements and remain with the farmer (land provider).  Will ELM payments go in the pot or not?  Perhaps not – which might have an effect on first charges and divisible surpluses in some cases.  But where the ELM scheme requires a sophisticated on-the-ground management, it might have to go into the agreement to get buy-in from the contractor.

Unfortunately, we are posing more questions than answers, but hopefully this article highlights key areas which will need to be kept abreast of over the coming months, especially ahead of autumn lettings.  The consultation in the autumn should help to answer a few questions as we adjust to the new arrangements over the next 5-10 years.

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