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/.

Consultants’ Contact Details

Below are the contact details of our Farm Business Consultancy team;

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk 
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk

If your organisation deals with the farming sector or you are interested in obtaining further insights on the key trends influencing the economic performance of UK agriculture, please contact a member of our Research Team;

  • Richard King – 07977 191427 rking@theandersonscentre.co.uk
  • Michael Haverty – 07900 907902 mhaverty@theandersonscentre.co.uk
  • Graham Redman – 07968 762390 gredman@theandersonscentre.co.uk
  • Caroline Ingamellscingamells@theandersonscentre.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 them, their details can be found at the end of this Briefing.
  • 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/.

Consultants’ Contact Details

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk
  • Jake Armstrong-Frost – 07931 610398 jarmstrongfrost@theandersonscentre.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. 

Consultants’ Contact Details

Below are the contact details of our Farm Business Consultancy team;

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk

If your organisation deals with the farming sector or you are interested in obtaining further insights on the key trends influencing the economic performance of UK agriculture, please contact a member of our Research Team;

  • Richard King – 07977 191427 rking@theandersonscentre.co.uk
  • Michael Haverty – 07900 907902 mhaverty@theandersonscentre.co.uk
  • Graham Redman – 07968 762390 gredman@theandersonscentre.co.uk
  • Caroline Ingamells – cingamells@theandersonscentre.co.uk

 

 

Farming in Focus InBrief – June 2020

  • With the unfortunate cancellation of the physical Cereals Event this year due to Covid-19 we are unable to invite you to our stand at the show.  However, we are still keen to share with you our thoughts on the prospects for UK arable farming and present the information we usually have on our boards.  Therefore, we will be conducting a virtual ‘tour of the stand’ on Monday 8th June.  The presentation will be led by Richard King and there will be an opportunity to post questions during the session.  The Briefing will commence at 4.00pm and will run until approximately 4.20pm.  To reserve your place please follow this link –  https://attendee.gotowebinar.com/register/2375741569447559436.  Please note that places are limited.  We hope that you will be able to join us.
  • The Government has added to the schemes available to help businesses cope with the effects of the Coronavirus outbreak.  The new Bounce Back Loan Scheme (BBLS) opened on 4th May.  Unlike the Coronavirus Business Interruption Loan Scheme (CBILS), the Government will guarantee 100% of the loan under BBLS, as opposed to 80%.  This means that the banks providing the loans have a much lower requirement to undertake due-diligence on the application.  Loans of between £2,000 and £50,000 are available.  The Self-Employed Income Support Scheme (SEISS) is now also available which will be of interest to many self-employed farmers, and the Coronarvirus Job Retention Scheme (Furlough) has been extended until the end of October.  However, from August the scheme will alter.  
  • Following intense lobbying, the Government has announced targeted support for dairy farmers affected by the Covid-19 outbreak.  Businesses in England and Wales which have seen their income drop by more than 25% during April and May will be able to claim under the scheme.  The support will be equal to 70% of the lost income for these months, up to a maximum of £10,000.  More details on the scheme, including how to apply, are still awaited.   Please speak to a consultant if you require advice on any of these schemes outlined.
  • The UK has set the tariffs that have to be paid on imports entering the UK after the end of the Brexit Transition Period when it will replace the EU Common External Tariff (CET).  If there is no trade deal in place with the EU by the end of the Transition, then these tariffs will also apply to imports from the EU as from 1st January 2021.  The new tariff regime represents somewhat of a U-turn from earlier Government policy as UK farming will continue to receive protection from cheaper global imports, differing substantially from the big reductions initially proposed in March 2019.  Most of the tariffs under the CET have been maintained at pretty much the same levels, but converted from Euros into Sterling.   Effectively, the protection around the UK market will be kept at the same level as it was around the EU Single Market.
  • The Agriculture Bill passed its remaining stages in the House of Commons in May.  An attempt by some Conservative MPs to get an amendment included in the legislation that would have made imports of food meet UK standards on animal welfare, the environment and food safety, was defeated by 328 votes to 277 and the Bill itself passed by 360 votes to 211.  It now passes to the House of Lords.
  • The Government has confirmed that the domestic Renewable Heat Incentive (RHI) scheme will remain open until 31st March 2022, however the non-domestic element will close on the 31st March 2021.  The Government has issued a consultation (closing date 7th July) on future support for low-carbon heating.
  • This month’s Spot Light feature examines the latest trends in the UK’s Total Income from Farming (TIFF). Click here for more information. 

Consultants’ Contact Details

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk
  • Jake Armstrong-Frost – 07931 610398 jarmstrongfrost@theandersonscentre.co.uk

Farming in Focus InBrief – May 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any support, please contact them, their details can be found at the end of this Briefing.
  • England has joined Wales in extending the 2020 BPS application deadline to 15th June.  However, in both countries, land must be at the claimant’s disposal on 15th May and the entitlement transfer deadline is also 15th May.  The period for amending claims without penalty moves to 30th June with an absolute deadline of final submission of applications and claims (but with penalties) of the 10th July.
  • In England, the annual revenue claim deadline date for Environmental Stewardship and Countryside Stewardship has also been extended by a month to 15th June.  However, new Countryside Stewardship applications for 1st January 2021 start date remain 1st May and 31st July for Higher and Mid-Tier respectively.
  • The next round of the Woodland Carbon Guarantee Scheme will open from 8th – 19th June in England.  This scheme allows those planting woodlands to sell carbon credits to the Government at a guaranteed price up to 2055.
  • The expression of interest window for Glastir Woodland Creation is now open and will close on 12th June.  Also in Wales, Farming Connect will be opening the next application round for accredited courses on 9th May, this will close on 26th June. The Welsh Government has also announced, the claim deadline for the Glastir Small Grants – Landscape and Pollinators 2019, has been extended until 30th September 2020. 
  • The Government has stated that there will be no extension to the end of the Brexit Transition Period beyond 31st December 2020.  Speaking on the 16th April a Government spokesman stated “we will not ask to extend the Transition.  And, if the EU asks, we will say no.  Extending the Transition would simply prolong the negotiations, prolong business uncertainty, and delay the moment of control of our borders.”  The negotiations themselves restarted on the 15th April by videoconference.  There is still wide divergence between the sides as the deadline for extending the Transition Period (30th June) looms.
  • The Government has launched a new website, ‘Pick for Britain’ aimed at recruiting British workers for harvesting and processing roles, mainly in the horticulture sector. The aim is to encourage workers on furlough, students and others to fill the estimated 80,000 seasonal fruit and veg vacancies through the summer months.  The site can be found at – https://pickforbritain.org.uk/.  Although there has been significant initial interest from potential workers, this seems not to have yet translated into large numbers of people on farm.  The expectations of employees and employers appear to be mismatched.  Workers are often discouraged by the location of jobs, conditions and pay.  Employers seem dubious about the skills and motivation of UK staff and would prefer their traditional East-European workers. 
  • The Government has produced its key findings from the review of the AHDB.  Its response suggests the levy board’s activities should be structured around ‘market development’ and ‘improving farm performance’.  Levy payers should also be allowed to vote on a 5 year plan for each sector.
  • The Welsh Government has published draft legislation that would make the whole country a Nitrate Vulnerable Zone (NVZ).  This would impose new restrictions on the storage and spreading of slurry, manure and nitrogen fertiliser, including closed periods for applications.
  • Sales of fungicides containing the active ingredient epoxiconazole will end on 31st October 2020.  Product already on farm can continue to be used until 31st October 2021.

Consultants’ Contact Details

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk
  • Jake Armstrong-Frost – 07931 610398 jarmstrongfrost@theandersonscentre.co.uk

Impact of the Covid Crisis on Livestock Farming

The pandemic has illustrated that ‘Black Swan’ events do exist.  It highlights the importance of being prepared for events that have a small chance of occurring but a large effect when they do happen – they are more abundant than most people accept.  The progress of the disease in the UK has now slowed and thoughts are turning to how to loosen some of the lockdown rules in order that things can begin to return to ‘normal’ – especially getting the economy restarted.

The world has a lot to learn about how it has, and has not, coped over the last few months and continues to adapt now.  Some supply chains have demonstrated remarkable resilience and adaptability, others less so.  What would we do differently next time?  Early reports suggest congestion in Beijing now exceeds that of the same time last year.  Have we learnt much?  The UK food and farming industry needs to repair, mend and raise its resilience.  Farms, it transpires have greater resilience than most other businesses, but food supply chains are more fragile it seems.

Impact on the Dairy Sector

Covid-19 has seen some producers having to discard their milk as increased demand from the retail sector has not made up for volumes usually consumed in the food service sector.  But you cannot turn a dairy cow ‘off and on’ and production is expected to continue to rise as we head towards the spring peak.  According to the AHDB, GB average daily milk deliveries to processors for the week ending 11th April, were up 1.4% on the previous week’s average.  This is, however, 2.3% below the average deliveries for the same week in 2019, but remains in-line with the AHDB’s forecast for this year. Some farmers will be trying to dry cows off early, but this will be a small adjustment nationally.
These figures include an estimated 800,000-900,000 litres of milk which was not collected during the week ending 11th April and had to be thrown away by producers.  This volume is about 0.4% of the total milk delivered for the week.  Since then, according to the AHDB, there have been no further reports of milk not being collected.  However, in some cases, only the fat content has been utilised, with the skim reportedly ending up in anaerobic digesters.  As a result of the over-supply, producers have seen some processors introduce new pricing measures.  This has led to calls for a specific support scheme for the sector.
At the beginning of April, all Muller suppliers were asked to reduce their supply by 3% until the end of May.  It is unclear what action will be taken if a producer fails to cooperate.  Perhaps the most notable actions have been those of Medina and Freshways – both of which have a significant share of their business in the food service sector.  Suppliers to Medina will see their milk price cut by 5ppl as from the 1st May after the processor announced a further 3ppl drop, after having already said the price would fall by 2ppl.  This will see its standard litre down to 20.75ppl.  In addition, payments will also be deferred by 21 days.
Freshways has back-dated its price cut by 13 days and is also extending its payment terms.  Freshways has restricted its A pricing to 60% of a producer’s current A quota, with milk delivered in March being paid 50% at the end of April and 50% by 15th May.  On top of this, the processor is reported to have actually increased its prices to supply Nursing Homes, something which has not gone un-noticed by the national press or some of its customers in the food service, who are looking to distance themselves from the processor’s negative publicity.
Not all processors are cutting their prices though, some of the supermarket aligned contracts have seen rises. For example, Belton Farm (cheese), Barbers (cheese) and First Milk (cheese) have all announced they will retain their current price until at least June.  Before it announced the 3% supply reduction, Muller (see earlier) told suppliers they would receive a 1ppl rise from May 1st, this was rather surprising at the time and will probably be short-lived.
It is estimated around 550 farmers, predominantly those supplying Freshways and Medina are under serious financial pressure.  The RABDF has launched a survey and is asking all those affected by the Covid-19 milk crisis to submit an online daily account of their losses so that it can supply Defra with ‘accurate and credible supportive data’.  The survey can be accessed at www.rabdf.co.uk/survey. Further comments are provided below on what support is available and what industry is calling for.

Meat Sector Impacts

The beef sector has experienced price declines recently, primarily due to the loss of the food services trade.  In the UK, about one-third of beef product sales in monetary terms are to the food service sector.  Such sales consist of the highest value products (e.g. fillet steaks).  With the implosion of demand, this has a much more pronounced impact on carcase value, which some have estimated to have declined by around £200 per head (or 15-20%) at the processing level.  Increases in retail sales which have taken place are primarily for mince and burgers, which are of lower value, thus only partially compensating for steak sales losses.  At the farm level, price declines have remained relatively small with GB steer prices on 18th April (324 ppkg) approximately 4% lower than prices on 21st March (336 ppkg).  If the Covid crisis continues for a sustained period, further farmgate declines are likely.

The lamb trade has also experienced issues, although the Easter holiday and the recent commencement of Ramadan have mitigated the problem.  That said, major concerns remain due to the closure of the food services sector in continental Europe, most notably France.  As more UK lamb comes onto the market later in the year, any oversupply at that point will have a much more pronounced effect on prices.  If restaurants do open, they are unlikely to be operating at capacity, due to social distancing measures.  As most lamb is eaten outside of the home, this will present difficulties.

Similar trends have taken place in the pig meat sector with convenience products (e.g. bacon and sausages) seeing sales increase significantly but demand for roasting cuts has decreased markedly.  There are additional complexities at play more globally in pig meat.  Processing capacity in the US has been hit by coronavirus cases amongst workers in meat plants, meaning that production lines have shut down.  Whilst Europe has not witnessed processing disruption on the scale of the US, food services demand has lowered, meaning price declines have resulted.  Imports of pig products have slowed, meaning a relatively buoyant closed market for the UK producer in the short-term.  Some items remain scarce in the shops.

Much of what will happen in the pig meat sector will be governed by the recovery in the Chinese market which has been hit by both the Covid crisis and African Swine Fever (ASF).  China has started to re-open again after a lockdown in some regions, and some analysts have predicted that Chinese demand will be back to 90% of normal levels by the end of the year.  On the supply-side, it has had to deal with ASF which has almost halved its breeding sow herd and is only in the early stages of recovery.  Short-term, the deficit of pork in China should help European prices recover from Covid.  It could also provide some support in other protein categories but will not compensate for the losses in carcase value seen in beef, nor the potential oversupply in lamb as the UK production season progresses.

Support

In reaction to the Covid crisis, various forms of support have been instigated across Europe.  Some mechanisms have been aimed at the wider economy, whilst more recently, specific measures to support the farming sector have been announced by the EU-27.

Looking at the economy generally, whilst the UK has opted for a furlough system, this scheme is of limited use to the food sector as it necessitates workers being off work for that period.  This has created difficulties for processors who have to continue operations whilst also coping with price declines.  The wage subsidy systems in place elsewhere in countries such as the Netherlands, Ireland and New Zealand, arguably offer more support to sectors such as agri-food where turnover declines are projected, but production must continue.  In the Netherlands for example, if a 25% decrease in turnover is projected, the State will subsidise approximately 22.5% of wages for a 12-week period.

As regards the farming sector, the EU-27 recently announced a range of measures to support agricultural commodities, including the re-opening of Private Storage Aid (PSA) for several commodities including beef (25,000 tonnes) and lamb (36,000 tonnes).  Pig meat will not be supported by this scheme. For dairy this will see the opening of PSA for SMP, butter and all cheeses that are suitable for storage.  The volume allocations for each country have not been set yet.

PSA will allow the temporary withdrawal of products from the market for a minimum of 2 to 3 months, and a maximum period of 5 to 6 months.  It has been initiated to reduce supply and rebalance the market.  There are shortcomings though.  In beef, storing product means freezing it, thus value deterioration versus fresh.  Also, when the storage period ends, that product will need to be released onto the market thus increasing supply and lowering prices at that point.  The EU plans to formally agree the scheme by the end of April.  Previously, the EU also announced plans to offer increased flexibility to CAP and Rural Development funding, including larger BPS advances to farmers.

In the UK, there has not been any announcement of support specifically directed towards the agri-food sector.  Whilst many of the more generic support measures (e.g. Coronavirus Business Loan Interruption Scheme (CBILS)) will offer some assistance, there have been many industry calls for targeted support. The response from the Government so far has been to relax some elements of competition law to make it easier for processors (e.g. in dairying) to be able to come together and work out how to temporarily reduce production to create space in the market. For the dairy sector, the Government has asked the AHDB and Dairy UK to co-ordinate a proposal.  But the industry is claiming this is too late, particularly for those 550 dairy farmers who need urgent support now to help with their cashflow.  A letter has been sent to Defra calling for a targeted grant scheme similar to those being offered to the retail, hospitality and leisure sectors.

Given the extent of the price declines and impact on turnover have affected many agricultural sectors, it is evident that more targeted support from Government is required.  Otherwise, many businesses will come under severe pressure in the weeks ahead, with many likely to cease trading.  If this happens, it will take the sector much longer to recover.

Footnote:

Image source: Imperial College London

Source: Imperial College London

Spot Light on: Covid-19 Impacts on Farming

There has, of course, been only one topic that has dominated everything else over the past few weeks.  This article provides some initial thoughts on how the pandemic might affect agriculture and the wider economy. 

Short Term

  • The Consumer:  Supermarket shelf-stripping has been a consequence of both panic buying and a requirement to replace the food usually purchased via food service, restaurants, coffee shops etc.  Consequently, the demand from retailers for most goods including milling wheat for bread and biscuits has rocketed; the broiler kill rate has gone up sharply and the demand for other meats has also increased.  Total food requirements should not change overall, but it is taking a while for these supply lines to re-route to where the food is needed.
    However, eating habits in the home differ from the restaurant or food service.  With no eating out, consumption of expensive cuts of beef and lamb and ‘top-end’ cheeses such as Stilton have fallen sharply.  We would expect more demand for chicken and lower priced pig and beef meat for burgers and sausage style foods. 
  • Prices: Commodity prices move when demand and supply are not aligned.  Expect some volatility.  Overall trends may take some time to establish according to how the supply chain manages the flow of goods and how the consumer changes their habits. However, an added challenge for the UK agri-food sector is the near disappearance of the food services segment due to the lockdown. This has meant that demand for some products (e.g. steak meat) has imploded and whilst retail demand has increased for some products (e.g. mince), this does not adequately compensate for the loss of value in steak meat. As a result, beef prices have been falling. Similar trends are also affecting the dairy sector where the loss of food services and catering trade is having a major negative impact on spot prices, with prices as low as 15ppl reported. 

Medium Term

  • The Farmer:  Farmers are relatively good ‘self-isolators’ already.  Most should be able to ‘carry on farming’ with the majority of farms operating as usual as long as supplies get through.  However, staff absences could lead to livestock welfare issues and diversified business’ dependent on general public foot fall could be hard hit.
  • Farm Workers:  Access to casual migrant labour is going to become a big issue if travel bans remain in place over the summer.  Appeals have started to go out for British workers to work on farms, both locally and nationally. 
  • Supply Chain:  Many food processing operations are labour intensive and cannot be done at home.  The flow of cash has also already slowed, with many firms hoarding cash and not paying each other.  Expenditures that are not short-term-critical are also being postponed.  Profitable businesses unable to turn their profits into cash will struggle in coming weeks and months.  Some supermarkets have committed to pay small manufacturers more quickly than usual.
  • Trade:  Cross-border restrictions do not apply to goods.  However, some supply-chain glitches are already emerging, people going into self-isolation, shipping containers not where they are supposed to be etc.  Whilst bulk imports are still available, smaller items such as minerals and medicines are showing signs of delays.

Long Term

  • Policy:  The severe shortages of food availability in the shops, and the images of desperate panic-buying shoppers might encourage Defra, and Government more widely, to rethink its policies on food security.  Might Defra consider that more home-produced goods could be a strategic benefit?
  • Supply Chains:  Following the horsemeat scandal of 2013, some food supply chains decided to shorten their linkages, sourcing from fewer and more local outlets.  Perhaps this will do the same. 
  • Wider Economy:  The Bank of England has cut the interest rate down to an all-time low of 0.1%.  It will also embark on another round of quantitative easing.  These measures, along with the rising Government debt, and a flight to the ‘safe haven’ of the Dollar have all seen the Pound weaken.  In the short-term, weak Sterling is good for farming.  Longer-term, it tends to be inflationary across the whole economy.  Industries will also look towards Government to support the rebuilding of the UK economy when this calms down.  This could be a huge cost, and hinder investment.

Consultants’ Contact Details

For further support in determining what Covid-19 could mean for your farm business, please contact a member of our Farm Business Consultancy team;

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk

If your organisation deals with the farming sector or you are interested in obtaining further insights on what the Covid-19 outbreak could mean for UK agriculture generally, please contact a member of our Research Team;

  • Richard King – 07977 191427 rking@theandersonscentre.co.uk
  • Michael Haverty – 07900 907902 mhaverty@theandersonscentre.co.uk
  • Graham Redman – 07968 762390 gredman@theandersonscentre.co.uk
  • Caroline Ingamells – cingamells@theandersonscentre.co.uk

 

 

A Monthly Briefing for UK Farmers – April 2020

  • During the ‘lockdown’ measures introduced by the Government to help combat COVID- 19 Andersons’ consultants are continuing to work and assist their clients as normal whilst following Government guidelines on social distancing.  Consultants are working remotely, if you wish to contact one of them their details can be found at the end of this Briefing.
  • The Government has introduced a number of initiatives to support businesses as a result of COVID-19, these include;
    • Business Interruption Loan Scheme to provide loans of up to £5m, with no interest payable for the first 12 months.  Applications are made through the banks.
    • One-off cash grant of £10,000 to all businesses qualifying for the Small Business Rate Relief.  This will be made automatic, through Local Authorities.  Useful for farming enterprises which have diversified into the leisure sector and pay business rate
    • The Coronavirus Job Retention Scheme is open to any employer and covers the wage cost of any worker ‘furloughed’ – sent home due to there being no work for them.  Up to 80% of their wages are paid by the Government, up to a monthly limit of £2,500.
    • The self-employed scheme to pay 80% of the average monthly trading profits over the last 3 years.  It is only open to those with a trading profit of less than £50,000 per year.  Funds will be in one single payment in June covering the three months of the scheme (March-May). 
    • VAT payments due between 20th March and 30th June are deferred.  Businesses have until the end of the 2020/21 tax year to pay.  The return still needs to be made though.
    • Self-Assessment Tax payments due in July will be deferred until 31st January 2021.

Please call one of our consultants if you wish to discuss any of the above initiatives or require a farm budget to approach your bank.  Contact details for consultants can be found at the end of this Briefing.

  • The 2020 Basic Payment Scheme claim window is now open. In England the deadline for submissions without penalties remains 15th May 2020 (there is strong pressure mounting to have this extended by a month).  Wales has recently announced it has extended the deadline for SAFs to be submitted by one month until 15th June 2020.  Consequently the entitlement transfer deadline has also been extended in Wales from 30th April to 15th May 2020.  Entitlement transfers in England remain 15th May deadline.
  • England, (Scotland) and Wales have all now confirmed that the Crop Diversification rule (two and three crop rule) will not apply for the BPS 2020.  Ecological Focus Area (EFA) requirements remain.
  • All 2020 BPS payments will be made in Sterling, there will not be an option to be paid in Euros this year.  The exchange rate to convert Euro denominated entitlements to Sterling is expected to be the same rate as in 2019; €1=0.89092.  There seems a strong chance that the 2020 payment will also set the ‘start point’ for payments during the Agricultural Transition.
  • In England, the Countryside Productivity Small Grants Scheme (CPSG) Round 2 claim deadline has been extended to mid-night on 31st July 2020.  Due to COVID-19 issues, suppliers are finding it difficult to deliver equipment by the original 31st May deadline.
  • In Wales, the BPS 2019 Support Scheme and the Glastir 2019 Support scheme have re-opened.  These are available to those who have not received either a full payment under the 2019 BPS and/or the 2019 Glastir Entry or Advance, or a payment under the previous Support Schemes.  Eligible claimants will receive 70% of their estimated BPS payment or 50% of their expected Glastir payment.  These are opt-in schemes and applications must be submitted by 17th April 2020 via RPWales online.  A reminder that the Farm Business Grant in Wales closes on 10th April 2020.

Consultants’ Contact Details

  • Joe Scarratt – 07956 870263 jscarratt@theandersonscentre.co.uk
  • George Cook – 07836 707360 gcook@theandersonscentre.co.uk
  • Oliver Hall – 07815 881094 ohall@theandersonscentre.co.uk
  • Tony Evans – 07970 731643 tevans@theandersonscentre.co.uk
  • David Thomas (Wales) – 07850 224524 dthomas@theandersonscentre.co.uk
  • Edward Calcott – 07827 317672 ecalcott@theandersonscentre.co.uk
  • Jonathan Hughes – 07892 689544 jhughes@theandersonscentre.co.uk

COVID-19 Arrangements

COVID-19 Arrangements

In reaction to the ongoing COVID-19 situation, The Andersons Centre have put in place policies to enable our staff to work from home. All our consultants continue to work and be at the service of existing and new clients.

Our office hours continue to be from 9am to 5pm Monday to Friday and all our staff are available on their direct mobile contact numbers and via email. Please access these by clicking on “Our People” under the “About” section of the menu above.

Please do not hesitate to get in touch with anybody as required.

Spot Light on: Future Farm Policy

Defra has published a policy statement outlining its plans for farm support in England.  This is to accompany the Agriculture Bill as it enters the Committee stage in Parliament.  A summary is given below.


The plans for the ‘Agricultural Transition’ as set out in the original Statement of September 2018 remain unchanged.  Direct payments (i.e. BPS) will be phased-out starting in the 2021 year, with 2027 being the last year any will be made.  The phasing process is still unknown with only the first year’s deductions being set (see table).  Again, these are unchanged from what has been announced previously.  A few new points emerge from the document;

  • deductions in future years will depend on the funding required for other elements of the Government’s plans.
  • delinking of payments from land will occur during the Transition.  This will happen from 2022 at the earliest.  Once this is done, there will be no link between land occupation and payments, and entitlements will disappear – there will just be a right to support for the business or individual claiming in a reference period.  There will be no requirement for that business to carry on farming.  A consultation is promised on the mechanics of delinking
  • when delinking occurs, there will be no link between land and subsidy, so the cross-compliance regime will end at this point.  Defra plans to bring in an alternative regulatory regime.
  • the option to allow the delinked payments to be capitalised into a one-off lump sum is still being considered.

As Direct Payments are phased-out, various new schemes will be introduced.  The main replacement for the BPS in England will be Environmental Land Management (ELM).  The shape of the new scheme is becoming clearer, it contains strong echoes of the previous Environmental Stewardship (ES) scheme with an entry level, broad-and-shallow, tier and higher level options.  Underpinning the scheme is the idea that land managers will only be paid for ‘public goods’.  Six key categories of public goods have been set out; clean air, clean & plentiful water, plants & wildlife, beauty heritage & engagement, hazard protection and climate change, with the latter two coming more to the fore than previous schemes.  The current plan is for ELMS to be based on a three-tier model;

  • Tier 1 – a broad (and shallow) offer available to all farms. Likely to have a menu of options and be managed online.
  • Tier 2 – this will require more intensive management from farmers. It is likely that a whole-farm plan will have to be drawn up (possibly by accredited advisors).  The focus will be on rewarding farmers for positive management such as biodiversity, flood management, carbon storage, landscape heritage etc.
  • Tier 3 – this aims to get groups of landowners to work together to deliver widespread change.

As well as annual payments there will also be capital grants available.  Payment rates are yet to be set.  However, unlike previous EU schemes they will not be limited to ‘income foregone’.  Therefore, payments may be set at more attractive levels.  Pilots will start in 2021 continuing through to 2024, the intention is for the scheme to be rolled out in full in 2025.

Aside from ELM, the policy Statement sets out other initiatives which may be available for farmers and foresters, these include; advice, a change to farm regulation, farm diversification via the UK Shared Prosperity Fund, animal health & welfare, and productivity support.

Just from this brief summary, it is hopefully clear that Defra has big plans now that it is free to set English farm policy.  Although it will not all happen overnight, there is still a large shopping list of initiatives.  There will be a question of whether Defra (and the wider Government) has the capacity to deliver them all, and deliver them well.  

A Monthly Briefing for UK Farmers – March 2020

  • The window for Countryside Stewardship (CS) applications in England opened on 11th February, for agreements which will commence on 1st January 2021.  This covers Higher Tier, Mid-Tier, Hedgerows & Boundaries Grants and the Wildlife Offers. The deadlines for each scheme are set out below.  The schemes are now being run under domestic legislation rather than EU rules, however there are no major changes, although the new UK regime should make record keeping and inspections less onerous.

  • Further information and the new manuals are available on the GOV.UK website at https://www.gov.uk/government/collections/countryside-stewardship-get-paid-for-environmental-land-management . With the BPS starting to be phased out from 2021 and the ELM not being fully rolled out until 2025 (see later article) is it worth having another look at what the CS can offer? * also includes Wildlife Offers paper application
  • The 2020 BPS application window in England is expected to open online on 12th March, with those who still wish to make a paper claim receiving their application forms shortly after this date.  The Land Use screen is already available for those who wish to check the information is correct ahead of their application. However, note that the mapping update work is expected to continue until around 10th  In Wales, the Single Application Form (SAF) 2020 was available from 2nd March, guidance and information is available online.  The deadline without penalties is the usual 15th May.  A reminder that RPWales must be notified of the transfer and lease of entitlements by 30th April (15th May in England), for them to be used for a 2020 claim.
  • The Government is consulting on what tariffs to impose once the Brexit Transition Period ends on the 31st This is key for UK farming, as it sets the level of protection the industry has from low-cost agricultural imports from the rest of the world.  For the past 40 years, UK farming has benefited from the EU Common External Tariff (CET), but after Brexit, the Government has to implement its own trade policy.  The consultation can be found at – https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/863880/Approach_to_MFN_Tariff_Policy.pdf.  
  • The Government’s plan for a post-Brexit immigration scheme look set to cause problems for farming and the wider food chain.  Free movement of labour for EU citizens will end on the 31st December 2020.  From that point, potential immigrants from the EU and the rest of the world will be treated in the same way.  There will be a points system that will require immigrants to speak English, have a job offer, and that job to pay more than £25,600 p.a. This threshold can be lowered in some cases i.e. if the job is in a ‘shortage occupation’.  It seems unlikely that any farming jobs will be included on this list.
  • George Eustice has been promoted to Secretary of State for Environment, Food and Rural Affairs.  Mr Eustice was previously a junior Minister (Minister of State) in Defra, responsible for agricultural matters.  Victoria Prentis has been appointed as the new Parliamentary Under Secretary of State for Defra and will take on Mr Eustice’s agricultural role within the department.
  • The AHDB has released its latest version of the Nutrient Management Guide; RB209. The main changes to the revision include new recommendations for the use of Phosphate in arable crops.
  • At the time of writing Defra had not announced any derogation to the three crop rule.  It is worth reiterating that fallow land is classed as a ‘crop’ and that spring and winter varieties are also treated as separate crops based on the variety grown and not the date when sown.  In addition where a crop has been planted but subsequently fails it can be counted as the original crop (field records will need to be kept if evidence is required on inspection).  Lastly, for those who will struggle to get anything or very little drilled, there are also exemptions to the Crop Diversification rules; where more than 75% of the arable area is left fallow (or is used for temporary grass or planted with leguminous crops) the three crop rule does not apply.

Farming News Update- February 2020

  • The Agriculture Bill returned to Parliament on 16th January. This will set the framework for agricultural policy in England for the foreseeable future. The legislation is largely the same as in the original Agriculture Bill published in September 2018 – which ‘fell’ with the end of the previous Parliament prior to the General Election. Generally, it gives Ministers broad powers to undertake certain activities, without necessarily setting out in any detail how those powers might be used. A Policy Statement, similar to that which was published alongside the original Bill, was expected this time too. It might have provided more information on matters of detail. However, it has not yet appeared – it may be published when the Bill enters the Committee stage in Parliament. One point that can be taken from the Bill is the Agricultural Transition will happen, and looks certain to begin in 2021 – the NFU had been calling for a year’s delay. Therefore, the BPS will start being reduced from next year.
  • The Government has announced the 2020 BPS will be fully-funded at 2019 levels. In addition, it has also reiterated its Election promise to ‘match the current budget available to farmers in every year of this Parliament’ (due to end in 2024). Importantly, this simply guarantees the ‘pot’ of money (presumably at current prices rather than in real terms). It does not mean the BPS will remain at the same level in England. Budgets for 2020 can use 2019 payment levels, but funds will gradually be diverted away from the BPS during the 7 year Transition (starting in 2021) to fund the Environmental Land Management (ELM) scheme. The funding guarantee applies across the UK, so the devolved administrations also know how much money they have when designing their support systems.
  • After 47 years and a month of being a Member State, the UK formally exited the European Union at 11pm (midnight CET) on the 31st January. Whether it actually signifies the delivery of the promise to ‘get Brexit done’ is another matter. There is much to be decided as the 2nd leg of the negotiations on the Future Relationship take centre stage. For agriculture, what we do know is that until the end of the year at least, the UK will enter a Transition Period where its trading relationship with the EU will remain effectively the same.
  • It is now possible for English farmers to transfer land and/or entitlements in preparation for this year’s BPS claim via the online system. In order for entitlements to be available for the 2020 BPS claim they must be transferred to the correct business by midnight on 15th May 2020.
  • The Countryside Stewardship (England) Regulations 2020 have been published. This will allow applications to be made to the scheme under our own domestic legislation now we have left the EU. The application window is expected to open in February. With the new Environmental Land Management (ELM) scheme not expected to be available for a few years yet, and the BPS transition period starting in 2021, land managers may want to look at what the Countryside Stewardship can offer.
  • Claims for Round 2 of the Countryside Productivity Small Grant can be submitted now, the deadline for submissions is 31st May 2020. Make sure claims include all the information and evidence required as detailed in the CPSG Round 2 Handbook otherwise payments will be delayed.
  • We have had a few inquiries whether the three crop rule under Greening will be relaxed because of the wet weather. It does not appear that there will be a ‘blanket’ relaxation. RPA has released guidance, see https://www.gov.uk/guidance/claiming-bps-2020-and-greening-payments-in-extreme-weather. In the main, it simply reiterates the different ways claimants can meet their crop diversification requirement. If you think you may have difficulty meeting the 3 crop rule contact one of our consultants.
  • The Glastir Entry and Advanced Support Scheme, is available to those whose 2019 claim will not be fully processed by the opening of the payment window (31st January). The scheme will pay up to 50% of the anticipated Glastir Entry & Advanced claim value (excluding capital works). This is an opt-in scheme which means claimants need to apply by 14th February 2020 if they wish to receive a support payment. Payments under the scheme are expected to start during the week commencing 24th February.
  • The application period to transfer or lease entitlements in Wales is now open. The deadline for applications is 30th April 2020 for entitlements to be in place for the 2020 BPS claim.
  • The Farm Business Grant in Wales will open from 2nd March to 10th April. Farmers can choose from about 80 items which have been deemed to improve the competitiveness of their business and also make it more environmentally friendly. Grants of between £3,000 and £12,000 are available.