Author: Michael Haverty

Farming Focus – June 2022

In the June 2022 edition of Farming Focus we examine the latest Total Income from Farming (TIFF) figures released by Defra. We report on Defra’s announcements that English farmers will get a 50% BPS advanced payment this year as well as guidance on the next round of the Farming Transformation Fund. The Welsh Government’s announcement on funding available to Welsh farmers over the next 3 years to assist during the transition to the Sustainable Farming Scheme is also covered.

In addition, we look at new season fertiliser prices for nitrogen and what the EU regulators’ decision on extending glyphosate approval until 2026 means for British farmers. Detail is also provided on the latest postponement to border controls on imports as well as a 25% advanced payment to sugar beet growers on their 2022 crop.

Our Spotlight article looks at the latest budgetary figures for Andersons Meadow Farm Model which is a mixed lowland farm based in England.

Click Here to access our June 2022 edition of Farming Focus.

If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  Their contact details can be obtained by clicking here. Alternatively, your can also contact our office on 01664 503200 or email [email protected]

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, 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/

 

April Agflation Surpasses 30%

Since the turn of the year UK ‘Agflation’ has been soaring driven by primarily by the Russia-Ukraine conflict. The latest estimates for April shows that it now stands at 30.6% – levels not seen in decades. All the while, general inflation, as measured by the consumer prices index (CPI) and food prices (CPI Food) have been rising at a much slower rate (circa 6%). This means that many farm businesses are now feeling a severe squeeze on margins and this is set to continue for the foreseeable future.

Andersons ‘Agflation’ and UK Consumer Prices Index (CPI) – 2015 to 2023

Sources: ONS and Andersons

Notes: Andersons’ Agflation index builds upon on Defra price indices for agricultural inputs and weights each input cost (e.g., animal feed) by the overall spend by UK farmers. Andersons then provides a more up-to-date estimate of the price index for each input cost category.
* represents the % change versus the same month a year earlier.

The Russia-Ukraine conflict has had most effect on feed, fuel, and fertiliser prices. However, as these underpin most agricultural inputs in some form, cost increases are also showing elsewhere (e.g., contracting costs, crop protection products and building materials).
Several livestock sectors are showing signs of stress. The pressure is most pronounced in the pig and poultry sectors where feed traditionally accounts for 65-80% of production cost. Dairying and grazing livestock are also feeling the strain, particularly for those farms that have not bought forward their fertiliser.

The arable sector is less affected for 2022 as most farmers have bought forward their fertiliser and output prices have hit record levels recently (contributing to the feed cost rises mentioned above). For many farmers in this position, 2022 is shaping up to be a stellar year – the value of the unharvested wheat crop has risen by more than 50% since it went in the ground. That said, significant challenges loom for 2023. High input costs and taxation on 2022 profits will stretch working capital requirements.

These severe inflationary pressures are happening at a time when all farms in England will be facing cuts in BPS payments, which will reach 35% during 2023.

Without significant price increases to cover elevated production costs, many farms will struggle. In such times, it is especially crucial to demonstrate competent cost management, particularly for farm advisors which many farm businesses are depending on to steer them through the current crisis.

The Agricultural Budgeting and Costing Book contains all the farm and rural business information you need in one publication. It is concise, clear, and easy-to-use. The information is updated every six months, so you are always using the most relevant data, something which is especially vital during inflationary periods.

The contents include;

  • Fully updated gross margins for all farming sectors, crops, and livestock, including net margins for key enterprises.
  • Sensitivity analysis and discussion of market prospects.
  • The widest range of information on alternative enterprises, diversification, and non-farming income sources available in any UK publication.
  • Explanation of the support systems and grants across GB, including BPS rules and rural grants. An outline of post-Brexit farm policy.
  • Farming costs including forage, feed, fertiliser, and pesticides.
  • Overhead cost data covering machinery, labour, contracting, building costs, and rents.
  • An overview of taxation and the legislation affecting agriculture.
  • A vast array of general reference information for the farming sector.

For nearly 50 years, The Agricultural Budgeting and Costing Book has been providing industry leading farm management and costings information to agricultural advisors across the UK and is the leading publication of its kind in the industry. The 94th Edition, or an annual subscription (2 editions) can be ordered via The Andersons Centre website – https://theandersonscentre.co.uk/shop/

Ends.

Notes:

No. of Words: 619

Author: Michael Haverty

Date: 16th May 2022

This news release has been sent from The Andersons Centre, 3rd Floor, The Tower, Pera Office Park, Melton Mowbray, Leicestershire LE13 0PB. For further information please contact Michael Haverty on +44 (0)7900 907 902.  

Farming Focus InBrief – May 2022

  • If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  If you do not have their details please contact the office on 01664 503200 or email [email protected]
  • The Lump Sum Exit Scheme is now open for applications. The Scheme is open until 30th September 2022 and is not expected to be available for applications in future years. It allows English farmers to take their future BPS payments through to 2027 in a single Lump Sum. In return, farmers will have to transfer out (rent, sell or surrender their tenancy) the agricultural land that was at their disposal on 17th May 2021. Up to 5 hectares of agricultural land can be retained, also any non-agricultural land and buildings including the farmhouse. The payment will be based on the average BPS payment received by the business for the three years 2019-2021 (the reference period). This will be capped at £42,500 and multiplied by 2.35, meaning the maximum payment will be just under £100,000. The full scheme guidance and application forms can be found via https://www.gov.uk/government/collections/lump-sum-exit-scheme. For further information please go to our article published in February.
  • In response to rocketing prices of fertiliser, Defra has announced three measures to help farmers with their nutrient management.
    • Urea: The planned ban on the use of urea fertiliser has been scrapped. Instead, an industry-run voluntary scheme will aim to reduce the ammonia emissions from solid urea fertiliser, commencing in 2023. This will be delivered through the Red Tractor farm assurance scheme and FACTS advisers.
    • Farming Rules for Water: Defra has released ‘revised and improved’ statutory guidance on applying the Farming Rules for Water. The de facto ban on autumn manure spreading, based on how the rules were being enforced, has been removed. The Farming Rules for Water have not been amended. Instead, the new guidance tells the Environment Agency about criteria that they should consider when assessing if enforcement action should be taken under the regulations. It also provides some clarity for farmers as to how to manage the use of slurry and other manures during autumn and winter.‎
    • Slurry Storage: The final Defra announcement was a confirmation that grants for slurry stores will be available in England. This will come under the Farming Investment Fund. Little detail is currently known, but grants between £25K and £250K at a 50% rate are expected to be available to fund up to 6 months of slurry storage. Stores will need to be covered and it may be possible to cover existing stores. The scheme is expected to be competitive. If you need any advice on increasing or updating your storage, please get in touch.
  • The Welsh Government has announced it is making £227m of funding available over the next three years (2022-2024) to support Wales’ rural economy. This funding is in response to the ending of the EU Rural Development Programme (RDP), which will completely close in 2023. It will ensure continued support for the areas previously funded under the RDP such as environmental land management, capital equipment to improve productivity, nutrient management and on-farm storage. It will also provide support for organic farming and woodlands. Scheme details are still being drawn-up, but for 2022 £100m is being made available further details can be found at https://gov.wales/written-statement-funding-support-rural-economy-and-transition-sustainable-farming-scheme
  • Field trials of a genetically modified barley have been approved by Defra. The study will use gene-editing techniques to investigate the role of existing barley plant genes that interact with soil microbes. The aim is to make the plants more efficient users of soil nutrients and reduce the need for artificial fertilisers. The trials will take place over the next 5- years at 3 sites of the Crop Science Centre; a partnership between the National Institute of Agricultural Botany and the University of Cambridge.
  • The war in Ukraine has been the key driver of grain markets over the last two months and in the short-term it will continue to drive commodities and inputs. However, there are other factors also driving prices. Severe drought in parts of the US wheat belt has lowered US wheat crop condition ratings. In addition, the US maize crop is smaller as growers are opting for soyabeans over maize. The latest International Grains Council (IGC) supply and demand estimates, support the view of tight markets. World grain closing stocks are forecast to fall by 26.5 million tonnes from 2021/22 to 2022/23. But with the situation in Ukraine, all forecasts should be treated with caution.
  • The Bank of England increased the Base Rate by a further 0.25% on the 5th of May.  This takes the cost of borrowing from 0.75% to 1%.  This is another attempt to respond to increasing inflation which is being exacerbated by the Russia-Ukraine conflict.  The Bank is tasked with keeping inflation at 2% but, according to the Bank’s own forecast, increases in prices would rise above 10% this year.  The rise in interest rates is meant to bring inflation back towards the target over the medium term.  Many forecasters believe that there will be at least another 0.25% price rise before the end of 2022, taking rates to 1.25%.

This month’s Spotlight looks at the recent Defra announcement on the Sustainable Farming Incentive (SFI). Click Here for further information.

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, 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/

 

Spotlight on the Sustainable Farming Incentive

Defra has released further information on the Sustainable Farming Incentive (SFI) for 2022. It is now expected to open for applications in June and then remain open with no closing date. This is to allow those interested to apply at a time to suit. However, Defra has stated that, if it is necessary to close applications, it will give six weeks’ notice. The information is included in a ‘collection’ of webpages which can be found at https://www.gov.uk/government/collections/sustainable-farming-incentive-guidance.

Below is a summary of the key points:

  • Agreements will be for three years. Initially it will only be open those businesses which are eligible for the BPS – the business (SBI) must have at least 5 Ha of eligible land and 5 or more BPS entitlements on 16th May 2022 – but there is no requirement to have made a claim.
  • The applicant must have ‘management’ control of the land for three years e.g. own the land or have a tenancy over it
  • Payment will be made quarterly in arrears i.e. the first payment will be made three months after the agreement commences
  • The Standards will not include funding for capital items in 2022. But it is possible to apply for existing funding for capital items for parcels included in an agreement, such as Countryside Stewardship capital grants.
  • In the future, SFI will include capital items funding to help complete the actions in the standards
  • Applications will be online via the Rural Payments Service. Prospective applicants are encouraged to ensure their digital maps are up-to-date, including land cover (certain land covers will be eligible for each standard) and available area. With the application window opening after BPS, in most cases these should already have been checked
  • Certain changes can be requested to an agreement. It will be possible to upgrade an agreement annually to:
    • add more Standards as they become available
    • add more land, including land coming out of Countryside Stewardship
    • increase Levels within Standards already in an SFI agreement
    • it will not be possible to reduce the Levels or land area, except under very limited and specific circumstances
    • it will not usually be possible to transfer an SFI agreement to another person
  • You do not need to have an SFI Standards agreement to be eligible to apply for the SFI Annual Health and Welfare Review.

Below is a summary of payments. The Moorland Standard payment has been increased, fairly significantly, since the previous announcements. Those with common land entered into an SFI agreement will receive an additional £6.15 per Ha. Payments for the other standards, remain the same:

Sustainable Farming Incentive (SFI) 2022 

Source: Defra (as at March 2022)

 

 

 

 

 

 

 

 

 

 

 

Andersons Agflation Update

Surging Costs Causing Serious Concern

Even before the conflict in Ukraine, inflation had become a hot topic both in the general economy and in farming. Events since the 24th of February have exacerbated the inflationary pressures, particularly at the farm-gate level, and will cause input costs to rise sharply in the year ahead. This is one of the key messages from the recent Andersons Spring Seminars.

Andersons’ Agflation index builds upon on Defra price indices for agricultural inputs and weights each input cost (e.g., animal feed) by the overall spend by UK farmers. Andersons then provides a more up-to-date estimate of the price index for each input cost category; the March 2022 estimates are now available. Agflation is currently running at 28.8% per annum, dwarfing the UK Government’s Consumer Price Index (CPI) which itself has accelerated to 6.2% in February.

Andersons ‘Agflation’ and Consumer Prices Index (CPI) – 2015 to 2023

Sources: ONS and Andersons

Note: * represents the % change versus the same month a year earlier.

Andersons’ Agflation index is much more variable than general inflation. This is due to the linkages to commodity prices for such things as fuel, fertiliser, and animal feed (feed is almost a quarter of the index). Whilst Agflation surged to nearly 30% in March 2022 (versus March 2021), it had been at 10% even before the invasion of Ukraine. Given recent developments, it is likely to remain high for the rest of 2022 at least.

The value of ammonium nitrate has exceeded £900 per tonne, up from £645 per tonne in January. The value of tractor fuel has also risen substantially. In 2021, the price of red diesel averaged almost 66 pence per litre according to the AHDB. Whilst price discovery for inputs is challenging presently, with terms changing frequently, red diesel prices have been quoted by some publications in excess of 130 pence per litre. Russia’s importance in energy markets, especially natural gas and crude oil, will pose significant challenges for the industries relying on these commodities. Natural gas is a key input into ammonium nitrate production and fertiliser prices will remain elevated as a result.

At the farm-level, the high cost of inputs will challenge many businesses in the next 12 months and beyond. The working capital of farms will be under serious pressure. While output prices have risen in some sectors (e.g., cereals), these have of course, created additional pressure on feed costs in the livestock sectors. Across all sectors, the level of cash required to operate has also been increasing considerably.

These issues were examined during Andersons Spring Seminars and an Online version is now available. Andersons Online Seminars contain a full recording of the Spring Seminar held at Harper Adams University in March. It covers the Russia-Ukraine conflict and a range of other issues affecting the profitability of UK agriculture (including policy reform and land use change) in greater detail. To learn more and access your copy today, please go to https://theandersonscentre.co.uk/shop/andersons-2022-seminar-online/

 

Ends.

Notes:

No. of Words: 497

Author: Michael Haverty

Date: 7th April 2022

This news release has been sent from The Andersons Centre, 3rd Floor, The Tower, Pera Office Park, Melton Mowbray, Leicestershire LE13 0PB. For further information please contact Michael Haverty on +44 (0)7900 907 902.  

Land Use Change Opportunities for Farmers

The coming years will see ever-greater competition for the use of land in the UK. As the main occupiers of such a scarce resource, farmers will be presented with new opportunities to generate revenue. This is one of the messages from Andersons Spring Seminars that will be taking place in March.

Although it may not seem like it, the majority of the UK’s land area of just over 24m hectares (Ha) is still primarily used for agriculture. As the graphic below shows, over threequarters of the country (18.6 mHa) is still comprised of ‘farmland’.

Farmers have been using their land for more than food production for many years. This includes diversification and managing land for the environment – either as part of a scheme or simply because that is what they choose to do. However, new demands on land bring a wider range of options. Issues include;

  • Rough Grazing: this has relatively low productivity in terms of agriculture and there will be pressure on this land to help address climate change – notably through increased tree planting and the regeneration of peatland. However, this land is often the most valued in terms of landscape and public access and balancing this with alternative land uses may be difficult.
  • Carbon Farming: many people in agriculture are hoping that they can be paid for carbon reductions that they can generate through existing commercial farming. However, to demonstrate a permanent reduction in CO2, a permanent change in land use may be required. Again, this could be tree planting (e.g. Woodland Carbon Guarantee Scheme), or a shift from arable to grassland for example. There is also the question of the wisdom in selling ‘carbon credits’ when farming may need them itself to reach its net zero targets. Further land use change may come from areas being devoted to producing clean energy solar panels, energy crops etc.
  • Nutrients: the amount of nitrates and phosphates in water is of concern in many catchments. Developments that might add to the nutrient load are often blocked by Planners. Farmers who reduce their own emissions can unlock these developments – for a price.
  • Biodiversity: the Environment Act brings into law (in England) the concept of Biodiversity Net Gain. Developers may be looking for off-site biodiversity to meet their new legal requirements. Alongside this is the long-standing suite of agri-environmental schemes operated by the various UK Governments to improve the farmed environment. Lastly, at the extreme, we are increasingly seeing wealthy individuals or groups looking to access agricultural land to ‘re-wild’ it.
  • Public Access: the Covid outbreak has reconnected many people with the British countryside. There may be opportunities for landowners to exploit this – perhaps not through the access itself, but supply services to those enjoying the countryside.

The difficult part for farmers is turning these opportunities (many of which are still in their infancy) into cash. The Government will be the buyer-of-last-resort for many of them through schemes such as Environmental Land Management. However, this may not be lucrative enough to replace declining income streams like the BPS. Private buyers of ‘land management’ may have deeper pockets and be more flexible in their requirements. Farmers may have to work harder to satisfy these customers than they would with Government schemes however.

Overall, farmers will need to adopt a more entrepreneurial mindset and see their land as a resource that can be maximised in a number of ways, rather than just through farming.

Andersons Spring Seminars are running at thirteen venues around Great Britain in March, looking at the prospects for UK agriculture in greater detail. For more information please go to www.theandersonscentre.co.uk/Seminars

Future Farming Resilience Fund – Free Advice

The Andersons Centre is delighted to be supporting Defra and Ricardo in providing advice to farmers and land managers as they prepare for the agricultural transition. This project, managed by Ricardo, is available to farming businesses in England that are in receipt of the Basic Payment Scheme (BPS) payments.

The challenges caused by Coronavirus (COVID-19), extreme weather events and the forthcoming changes to agricultural support as a result of the UK leaving the EU may result in many farmers and land managers in England needing to adapt their business models and carefully consider options for the future. This project will provide information, tools, advice, and support for farming businesses throughout this period of change.

All the advice provided will be completely free of charge! The programme starts on 18 August 2021 and will run until 28 February 2022. Places are limited. Further information on how to apply is available by clicking here.

Andersons Business Matters

Andersons Business Matters is our new publication which is designed to complement Andersons annual Outlook publication. Each edition focuses in detail on a selection of topics at the farm-level. The current edition focuses on;

  • Arable profitability and long-term trends on our Loam Farm model
  • Beef costs of production
  • Depreciation
  • Is there an optimal dairy system?

To access our latest edition, please click here.

 

 

Farming Focus InBrief – June 2021

  • 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].
  • UK farm profits fell by 20% in real terms between 2019 and 2020 based on latest Defra Total Income from Farming (TIFF) data. TIFF measures aggregate profitability of all UK farming businesses for the calendar year. The main reason for this decline was a 15% fall in the value of crop output. Income from diversification declined by almost 25%. Livestock sector output was broadly flat whilst costs declined in real terms. Looking to 2021, there are good prospects for a recovery with crops looking in good condition and prices, for crops and livestock, looking generally good (with 1-2 exceptions).
  • The Queen’s Speech which sets out the Government’s legislative agenda for the forthcoming Parliamentary session included a number of bills of relevance to the farming and rural sector. The most notable is the Environment Bill which is planned to be passed before the end of the year. Three Animal Welfare Bills are also planned which will include provisions to ban live animal exports for slaughter or fattening. A Planning Bill is set to include provisions for the ‘zoning’ of sites for development and plans to increase the numbers of homes built.
  • The farming industry has come together to call on the Government to protect the agricultural sector under any Free-Trade Agreement (FTA) with Australia. The farming sector is asking that some tariff and tariff rate quota restrictions remain whilst UK standards (environment, labour, food safety and animal welfare) are maintained. Some within Government are pushing for tariff-free and quota-free trade. Whilst imports from Australia are currently small in many cases, the deal sets an important precedent for future trade deals with the likes of the US and Brazil.
  • Plans for nature restoration and woodland creation have been unveiled as part of the Government’s plans to tackle climate change, address biodiversity challenges and help to deliver its net-zero commitment. The England Wood Creation Offer (EWCO) is due to open for applications shortly and replaces the Woodland Carbon Fund. It will be administered by the Forestry Commission and support will be available for diverse woodland types, from a minimum of 1 Ha per application. Payment rates are not yet published. From 2024, EWCO will transition into ELM and EWCO agreement holders will be able to transfer across to ELM at agreed points without penalty. 
  • The UK organic farming land area grew marginally in 2020. Latest Defra estimates put the organic land area at 489,000 Ha, up 0.8% on 2019. This accounts for 2.8% of the UK farmed area on agricultural holdings. It is mostly permanent pasture (62%) and temporary grassland (20%) with cereals accounting for 9% of area. Grazing livestock numbers on organic farms are down with sheep 13% lower and cattle numbers down by 9%. Pig numbers were down marginally (-0.6%) whilst poultry numbers rose by 2%. 
  • AHDB restructuring, due to the votes by the horticultural and potato sectors to end their levies, means that it is seeking to make around 140 staff redundant (30% of workforce). The majority will be in the two sectors concerned but it is also looking to make wider efficiency savings.
  • Wheat prices have fallen by £20/t since their highs of early May and currently stand at around £172/t. This is driven by improved weather conditions globally and projected records for cereals yields in the US. Feed barley has also slipped in line with the wheat price. Malting barley premiums are mixed. Growing and ripening conditions are ideal for barley across Europe. 
  • Chinese imports of maize look set to continue at high levels for 2021/22 marketing year. Historically, it has imported 5-6 million tonnes annually. In 2020-21, it imported 25 million tonnes. Some analysts believe it has already booked a similar amount for the year ahead. This could tighten global supply in 2021/22 and push the whole grain price matrix higher. 
  • UK farmgate milk prices remain good with further rises reported in May. Arla has announced a further 0.44ppl rise for member suppliers from 1st June. Several other suppliers have also increased their prices including: Muller (+1ppl for non-aligned suppliers); First Milk (+0.5ppl); Meadow Foods (+1.25ppl); Yew Tree Dairy (+2ppl); Freshways (+2.5ppl from July) and; Medina Dairy (+2.7ppl from 1st July). 
  • Finished beef and lamb prices have cooled somewhat in recent weeks. In early May, the deadweight beef price passed the 400 p/kg price for the first time.  For week ending 29th May, the GB all prime average price stood at 394 p/kg, returning to early April levels. These prices are still strong however. Whilst the orders from the catering sector have risen there is some evidence that retail orders have dropped slightly. Deadweight pig prices have continued to increase, with EU-spec SPP currently at nearly 152.8 p/kg.

This month’s Spotlight looks at Defra’s consultation on Lump Sum and Delinking of BPS in England. Click Here for further information.

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, 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/

 

Spotlight on Lump Sum and Delinking of BPS

The long-awaited Defra consultation on Lump Sum payments and Delinking of the BPS has finally been published.  The consultation seeks views on who should be eligible for the Lump Sum payments and how these and Delinked payments should be calculated.

Lump Sum Payments

These will be offered to those who wish to exit the industry.  Defra’s intention is that there will be a one-off application window in 2022 with no scope to apply after that.  Proposed conditions and eligibility rules include:

  • Only those who claim the BPS will be eligible, it is an exit scheme and therefore there will be no age restrictions.  To prevent recent entrants from leaving with a lump sum, Defra is proposing that applicants must have made their first Direct Payment (BPS) claim in 2015 or earlier.
  • The BPS applicant would have to give up their land in England.
    • An owner/occupier would have to sell and/or rent out their land, or transfer by gift.  The proposal is if an owner/occupier decides to rent out their land this must be via an FBT and for a minimum of five years.
    • A Tenant must surrender their tenancy, this can be a Farm Business Tenancy (FBT) or An Agricultural Holdings Act (AHA) tenancy.  AHA tenants will also be eligible if they pass on their tenancy under a succession.
    • Those receiving a Lump Sum would be able to retain occupation of their residential and commercial property and up to 5% or 5ha (whichever is the smaller) of their land.
  • All English BPS entitlements held by the applicant would be cancelled, including any that have been leased-in from another farmer.  Those that have been leased-out would be cancelled at the end of the lease.  This could present a problem where a Landlord has leased or Transferred entitlements to a Tenant with an obligation to return to the Landlord – will the Landlord accept the Surrender if he will be left with land without any entitlements? 
  • It will be an all-or-nothing scheme – it will not be possible for applicants to keep some entitlements and take a partial Lump Sum payment.
  • If a Lump Sum payment is received, the farm business cannot claim any further direct payments (BPS).  This includes any Directors of a Limited Company and all Partners of a Partnership.  If any recipient enters into a new land management agreements (or adds land to an existing agreement) such as Countryside Stewardship or ELM, during the Agricultural Transition, the Lump Sum payment will have to be repaid.
  • The tax treatment of Lump Sum (and Delinked) payments is currently being discussed with HMRC and guidance is expected shortly.  This will be crucial to how attractive the ‘offer’ is to many farmers – i.e. will the payment be taxed as capital or income.

With regard to the actual payments, Defra expects to be able to fund all the eligible applications it receives and therefore it will not be a competitive scheme.  There will be no rules on what the lump sum can be spent on.  The amount a claimant will receive will be;

Lump sum Reference Amount   X   2.35

A 2.35 multiplier means the payment will be approximately equivalent to the amount a farmer could have received in Direct Payments for 2022 to 2027 under the phasing out of the BPS.  The Reference Amount will be the average value (if more than one year is used) of BPS received (for English entitlements) before any penalties or progressive reductions have been applied in a Reference Period.   Defra is asking for views on the Reference Period, but is proposing a three-year average based on 2018, 2019 and 2020 BPS years.

There is a proposed payment cap of £100,000, meaning a maximum Reference Amount (average BPS claim) of about £42,500 would not be affected by the cap.  There will be measures put in place to deal with changes to farm businesses since the start of the reference period (‘mergers and scissions’) and also to prevent artificial changes to businesses to claim payment.

Full rules for the Lump Sum scheme are promised by the end of October this year.  This is to allow time for farmers to consider the merits of the scheme (and potentially Tenants to negotiate with Landlords) before applications are invited in ‘early 2022’.

Defra has clearly said exiting farmers will have to give up their entitlements.  It has also stated that it intends to end the New and Young Farmers National Reserve scheme (offering free entitlements) from 2022, meaning from next year we could already see land which will not have any entitlements over it.  On the face of it, it looks like new entrants will be losing out, which seems strange as part of the reason for the Lump Sum encourage new and young entrants by freeing-up land.  Defra has said the proposal will create ‘more lasting opportunities for new entrants to access land’ and in the press release it has said it is working on a scheme with industry leaders, local councils, land owners and new entrants on a New Entrants Scheme.  This will be available in 2022 with details expected to be published later this year.

Delinked Payments

These are expected to be introduced in 2024 and will mean businesses can reduce the area they farm or even cease farming and they will still receive payments for the rest of the Transition Period.  Delinking will not be optional.  Delinked payments will be made to those who were receiving a BPS payment in a Reference Period (see below) and in 2023 (if the Reference Period is earlier than this).   Defra has said Tenants who received BPS during the Reference Period, and still farm at the end of it should be eligible to receive the delinked payment. Again, this throws up questions about Tenancies which end during the Agricultural Transition; it seems to suggest that the Tenant will receive the Delinked payment and the Landlord will not have a payment to ‘give’ to a new Tenant.

The actual payments will be calculated for each year from 2024 to 2027 based on the BPS payments made to the applicant in the Reference Period less the progressive reductions for each year.  Defra is asking for views on the Reference Period.  It is proposing the average of 2018 to 2020 (the same as the Lump Sum) for ease, but acknowledges a longer period, which includes 2021 and 2022 would take account of more business changes.

Defra acknowledges that Delinking payments means there will no longer be an annual BPS claim, meaning it loses data on land use.  Having no link between payments and land also means  cross-compliance will no longer operate.  These points are not part of this consultation, indicating there will be another consultation later.

The consultation is open from 19th May until 11th August.  The  full consultation document can be found at https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/supporting_documents/lumpsumexitschemedelinkedpaymentsconsultation.pdf.  Responses can be made online via https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/

Whilst the detailed scheme rules for the Lump Sum will not be known until October, those potentially wanting to take advantage of it should be having discussions with the relevant parties (bankers, advisors, landlords, etc.) sooner rather than later.  

Impact of Brexit on Scottish and UK Agriculture

We recently completed a study on behalf of the Scottish Government to assess the impacts of different potential Brexit outcomes beyond the end of the EU transition period on key Scottish agricultural sectors. The work combines trade-model and farm-level analysis supplemented by industry interviews and desk-based research. The report is available by clicking here.

The study has quantified the impact of Brexit on selected Scottish and UK agricultural sectors namely: cereals (wheat and barley); livestock (dairy, beef and sheep); and horticulture (potatoes, cauliflower/broccoli and strawberries). This has been done using two scenarios, a Free Trade Agreement (FTA) and a No Trade Deal (No Deal) versus the Baseline of the UK continuing as an EU Member State. The research has been undertaken using a combination of Agmemod, a partial equilibrium economic model, desk-based research and industry interviews.

Assessments were also undertaken on the impact of tariffs, non-tariff measures (NTMs) and tariff rate quotas (TRQs) on future UK-EU trade patterns. These served as inputs to the Agmemod modelling which was undertaken with support from Wageningen University and Research (WUR) to assess Brexit impacts on wheat, barley, beef, sheepmeat and the dairy sector. These modelling results were then used in conjunction with additional analyses on horticulture to ascertain the impact of Brexit on UK and Scottish agricultural output and farm-level performance in Scotland.

A PDF version of the Summary Report is available via: https://www.gov.scot/publications/analysis-brexit-scenario-impacts-scottish-agricultural-sectors/