Author: Michael Haverty

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/

 

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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/

Outlook 2021 – A Landmark Year Ahead

The coming year will see a step-change for UK agriculture. Farms will have to adjust quickly to a new business environment which is likely to be more testing. This is the overall message from Andersons Outlook 2021 which has recently been published.

The hope is that 2021 will see life return to the ‘old normal’ after the upheavals of Covid-19. However, the farming sector faces a further set of challenges. The end of the Transition Period marks the start of the real Brexit. The ‘friction’ in trade between ourselves and our largest trading partner will be much greater – leading to higher costs which may well be passed back down the supply chain. Maybe as early as next year the UK will start to conclude independent trade deals with other countries. The danger here is that access to our agricultural market is granted in return for concessions elsewhere. UK farmers could be faced with low-cost competition, possibly producing to different standards.

2021 will also see the first year of the truly ‘renationalised’ farm policy outside of the Common Agricultural Policy. Although each part of the UK is doing its own thing and progressing at different speeds, the overall direction of travel is clear. In the future, there will be less support ‘as of right’, and land managers will be expected to deliver something to society in return for the funds they receive.

Andersons’ consultants experience is that this should not necessarily be something to be feared. There are still great opportunities to improve financial performance in all sectors of our industry. Without the distorting effects of direct support, there can be a greater focus on the areas of activity on farm that actually make a profit. Over time a stronger, more resilient industry should result, able to meet many of the other challenges that lie ahead.

With Brexit and (hopefully) Covid-19 moving down the political agenda, the environment will move back up. Especially with the UK hosting the COP26 climate conference in Glasgow in November 2021. The farming sector will be expected to play its part in meeting the country’s net zero aspirations. This will require a change in practices and systems. Whilst this will be process over many years, 2021 may be seen, in hindsight, as the year when concerted efforts to address climate change really began in earnest.

Covid itself will continue to present challenges to the farming sector. The UK is likely to suffer from an ‘economic long-Covid’ – the lasting financial effects of the massive spending that has been incurred to support the economy during the crisis. The Government will be looking to balance the books and this could mean tax increases. There may also be pressure on areas of spending deemed not to be a priority – for example farm support, despite earlier promises.

With such challenges in the year ahead, and longer term, farm businesses will need to be both resilient and adaptable. Andersons has been working ‘at the coal face’ with farmers and the allied industries for over 40 years assisting them to make the right decisions, whatever the business environment.

Outlook 2021 is sent to all Andersons’ clients and contacts. Additional copies can be obtained free of charge by calling 01664 503200. The publication is available to download from the Andersons Centre’s website and is accessible by clicking here.

Andersons will be running a series of webinars and seminars in the spring looking at the prospects for UK agriculture in greater depth. This includes two webinars taking place on 11th February which provide updates on profitability, trade and future farm policy. For more information,  please go to the respective weblinks below;

Spot Light on Brexit & Trade Negotiations

Brexit

Whilst multiple rounds of negotiations have taken place, talks with the EU have been stalling due to impasses on several key issues.  These include governance (role of the European Court of Justice), ‘level playing-field’ issues, fisheries, criminal and judicial cooperation as well as the implementation of the Irish Protocol.  On 15th June, the Prime Minister and the EU Commission President, Ursula von der Leyen, held talks where they agreed to intensify negotiations (to be held on a weekly rather than fortnightly basis) in a bid to secure an agreement.  Most analysts now believe that it will be October before a deal is likely to emerge. Due to the time required for EU members to ratify any deal, negotiations cannot really continue right up to the December deadline.

Transition Period Extension

The deadline for extending the Transition Period beyond 31st December this year has passed with a whimper rather than a bang.  The UK Government made it clear it would not ask for an extension before the 1st July cut-off.  The EU saw little point in asking for one from its side as it simply provides an opportunity for the UK to say ‘no’.

Other Trade Deals

The Department for International Trade (DIT) is also conducting talks on Free-Trade Agreements (FTAs) with a number of other countries;

  • talks with the US have already started. There is little substantive to report as yet. The key issue in terms of agri-food is threat posed by permitting imports from the US which do not meet the standards that British farmers currently adhere to.
  • negotiations with Japan have commenced and, given that Japan recently concluded an FTA with the EU (which at the time included the UK), it is anticipated that talks should be wrapped up quickly.  The UK already exports significant volumes of wheat and barley to Japan.  Export opportunities also exist for products such as whisky.
  • the UK has formally announced its objectives for the upcoming trade negotiations with Australia and New Zealand.  Agriculture is likely to feature prominently, especially given the historical trading relationships which existed before the UK joined the EEC. Increased access for beef, lamb, dairy and horticultural products will be the key asks from Australia and New Zealand.
  • the UK has reaffirmed its interest in becoming a member of the Comprehensive and Progressive Agreement Trans-Pacific Partnership (CPTPP) which is one of the world’s largest free trade areas, accounting for 13% of global GDP in 2018.  The CPTPP includes Japan, Australia and New Zealand and deals with these countries are seen as a step towards joining this larger trade bloc, which also includes Canada, Chile, Malaysia, Mexico, Singapore and Vietnam.
  • with the UK leaving the EU, it is seeking to replace the FTAs which the EU had agreed with other countries whilst the UK was still a Member State.  To this end, it has been pursuing Continuity Agreements.  To date, agreements have been concluded with approximately 50 countries, including Switzerland, South Korea, Chile and South Africa.  Negotiations are ongoing with 16 others, including Canada, Mexico and the Ukraine.  Such rollover agreements are anticipated to have a limited impact on agri-food as they are largely seeking to replace existing FTAs.

Whilst pursuing trade deals around the world is a crucial aspect of the UK’s independent trade policy, one must not lose sight of the fact that exports to the EU (£300 billion) accounts for 43% of total UK exports.  Therefore, it is hoped that securing a comprehensive FTA with the EU remains the priority of the UK Government.

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 – July 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 Government has announced updates to some of the Covid business support schemes. For the self-employed, there will be a 2nd (and final) round of funding made available in August. The grant will be worth 70% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total. From the 1st July it will be possible to bring furloughed workers back on a part-time basis, with the Government’s contribution to the Coronavirus Job Retention Scheme being gradually tapered down.
  • Seasonal agricultural workers coming to England will be able to start work immediately.  Unlike other international travelers, those arriving to work on farms will not have to self-isolate for the first 14 days after they arrive as long as other rules are followed. The Government has produced strict guidelines; these can be found at https://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farms
  • Hopefully, all 2020 BPS claims will by now have been submitted.  But if this is not the case it is still possible to make a claim and to make amendments to an already submitted application until midnight on 10th July, but this will attract a 1% penalty for every working day after 15th  June. After the 10th July claims will not be accepted. It is also possible to make changes which do not increase the claim at any time, so long as notification of an inspection or non-compliance has not been received.
  • Defra has re-opened the ELM Policy Discussion Document for responses.  The discussion paper sets out Defra’s initial thinking for the design of the new ELM scheme (to replace BPS) and includes 17 questions. Due to Covid-19 the policy discussion was paused on 8th April. Those wishing to make a response, now have until 31st July.  Originally, the intention was to hold a number of regional workshops, these will now be in the form of interactive webinars, held throughout July.  For further information, go to https://consult.defra.gov.uk/elm/elmpolicyconsultation/
  • Tractor registrations, often the bellwether for UK agriculture, have shown a sharp decline in April and May according to the Agricultural Engineers Association.  Compared to the previous year, registrations for these two months fell by 50.6% & 41.9%.  However, April 2019 was a particularly high point for registrations as there was an increase in purchases before the original Brexit date.  Registrations for the year are down by 26.5%.
  • The Farming Recovery Fund has re-opened for those who were affected by Storm Dennis in February 2020.  Funding of £500 – £25,000 is available to cover non-insurable items and activities such as re-cultivation, re-seeding, reinstating field boundaries and removing debris from farmland.  Eligibility for the scheme has been pre-determined using satellite data showing the extent of the flooding in February.  It covers land in Herefordshire, Gloucestershire, Worcestershire, Shropshire, Staffordshire, Nottinghamshire, North and East Yorkshire.  Applications must be made by 1st September. Further guidance can be found at; https://www.gov.uk/guidance/farming-recovery-fund-extension-2020
  • The sugar beet market bonus has been triggered for the first time.  Concerns over poor yields for the forthcoming crop in the UK and the EU have pushed the average EU and UK white sugar price in April up to €379/t leading to a 0.7p/t monthly bonus on the 2019/20 one-year contract (triggered at €375/t).  This is the highest average monthly value reported by the EU Commission since December 2017.
  • Dairy farmers in England and Wales can apply for Coronavirus hardship funding. There will be a one-off payment of up to £10,000 to cover 70% of income losses during April and May.  Farmers have to show a reduction of 25% or more in their average milk price and are required to provide their Milk Statements covering February, April and May 2020.  Claims need to be made by 14th August. In England payments will be made from 6th July and Wales within 10 days of applying. For further information, please check the following links;
  • This month’s Spot Light gives a Brexit update and looks at the other Trade deals which are currently being negotiated. Click here for more 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 Farm Incomes

The profit of UK farming recovered in 2019 after the drought-affected 2018 year.  The latest estimates for Total Income from Farming (TIFF) released by Defra show an increase of 6% in real terms, leaving profit for the industry at £5,278m.

TIFF is the total profit from all UK farming businesses for the calendar year.  It shows the return to all entrepreneurs for their management, labour and capital invested.  The main reason for the rise in profitability was an increase in arable output.  The overall sales of arable crops rose by 6%, with wheat leading the way with a 16% increase in output value.  This was largely a ‘bounce-back’ from the lows of 2018. Overall livestock output was close to year-earlier levels, as were costs.  The chart shows the historic TIFF figures, plus our forecast for the current 2020 year and 2021.

Whilst we are only partway through the 2020 year it seems highly likely that the lack of autumn plantings will affect output from harvest 2020.  There are also likely to be some Covid-19 effects such as reduced beef prices and dairy farm incomes affected for certain producers.  Whilst this will be offset by lower costs, we currently forecast a decline in farm profitability for the year of 10%.  Towards the end of the year there may be market disruption as the Transition Period comes to an end – depending on whether a trade deal has been concluded with the EU or not.  Some of these trade effects may well linger into 2021 which is why there is a (tentative) forecast for another decline.

Productivity

Alongside the TIFF figures, Defra also published estimates of Total Factor Productivity (TFP) for 2019.  This measures how well inputs are converted into outputs and thus gives an indication of the efficiency and competitiveness of the farming industry.  It is one of the measures that Defra looks at closely, as it tries to improve the performance of UK agriculture.  The figures for 2019 show a significant uptick with TFP increasing by 4% between 2018 – 2019.  This was largely caused by an increase in the volume of outputs (up 3.8%) with a small decline in the amount of inputs used (-0.2%).
Although this is encouraging, any one year’s figures need to be viewed with some caution – the series tends to fluctuate on an annual basis, and it is the trend over a longer period that is more important.  UK agriculture shows an improvement in productivity, but the rate of increase is slow.  Since the figures began in 1973 the annual average increase is around 1%.  From 2000 to 2019 is has been at a lower level of 0.7% per year.