Spotlight on Sustainable Farming Incentive (SFI)

Details have been published on the Pilot phase of the Sustainable Farming Initiative (SFI).  This gives a first indication of what this component of Environmental Land Management will look like in terms of payment rates and requirements.  However, this is just a stage in the development of the scheme and the final details may well alter.

Defra is looking for ‘several hundred’ farmers to take part in this Pilot phase.  The window to submit an Expression of Interest opened on 15th March and closes on 11th April.  Defra will select farms so that they get a representative sample across English agriculture.  Those selected will be notified by 24th May and will be asked to make a formal application from that date, with agreements set to begin in October.  Pilots are expected to run until 2024.  Details of how to register an Expression of Interest can be found via – https://www.gov.uk/government/publications/sustainable-farming-incentive-expression-of-interestThe EOI is submitted through the Rural Payments system.  It is a very simple process.  Those who want to be considered just have to select the farm type that covers the majority of their land and declare they are eligible (see below) to be considered.

Those looking to apply must be currently claiming the BPS and have management control of the land until 2024.  The land to be entered into the Pilot must not be in an existing agri-environmental scheme (i.e. Countryside Stewardship – CS).  The idea seems to be to test the scheme with farmers who are not used to being in a scheme.  It also means there is no overlap with existing CS provisions.  It is intended that, when the SFI is launched in 2022 (see below) it will be available on land in existing CS agreements but, presumably, won’t pay twice for the same actions.   

For the Pilot there will be eight ‘Standards’, each with three ‘Levels’ – Introductory, Intermediate and Advanced.  The payments rise for the higher levels, but a greater level of intervention is expected.  The tables below summarise payments and the actions required.  At present, payment levels are based on existing CS calculations.  These may change before the SFI 2022 is launched.  Payments will be monthly in arrears.  It is not known whether this will be carried into the ‘proper’ SFI. 

It is possible to have more than one Standard operating on the same parcel of land (e.g. the Grassland Standard and the Grassland Soils Standard).  Different Levels can be chosen for different Standards – i.e. it is possible to enter as Introductory in one, whilst going for Advanced in another.  Other Standards are likely to be introduced in future – Peat soils, Unenclosed uplands (i.e. Moorland), Common land and Animal Health & Welfare.

From looking at the actions in the table it will be seen that there is still a degree of uncertainty on what is required.  Many of the prescriptions are currently vague e.g. ‘provide resources for birds and insects’, without giving details of what exactly needs to be provided and in what quantities. 

Those entering the Pilot will be expected to provide Defra with information about how the scheme works.  It is estimated that this might take 10-15 hours per month.  There will be an expectation that a Land Management Plan will be drawn up over the lifetime of the agreement and that participants will take part in workshops, interviews surveys etc.  There will be additional payments (not yet disclosed) on top of the Standards payments to compensate for this.  There are also likely to be Capital payments under the scheme.  Although not stated, it seems likely that these will be similar to those seen under the present CS Capital Grants Scheme.  

What is learnt from the Pilots will help design the full Sustainable Farming Incentive scheme.  More information on the SFI 2022 is promised for summer 2021.  It should open for applications in ‘mid 2022’.

For more details see – https://www.gov.uk/government/publications/sustainable-farming-incentive-scheme-pilot-launch-overview/sustainable-farming-incentive-defras-plans-for-piloting-and-launching-the-scheme

Why Get Involved in the Pilot?

Taking part in the Pilot will mean getting involved in Environmental Land Management (ELM) at the earliest opportunity.   Although more detail is needed on the prescriptions, at first glance, they do not look too onerous and many businesses will already be undertaking some of these actions as a part of ‘good practice’ or will be able to with small changes to their farming practices.  With payments being made monthly in arrears, some income will be recouped almost immediately.  For a Countryside Stewardship application made this summer, no payment will be received until December 2022 at the very earliest.  Those taking part in the pilot, will also be able to give feedback and have some input in improving the scheme for the future.  Those making an EOI should know if they are successful or not in time to put in a Countryside Stewardship Mid-Tier if not selected.

How can Andersons Help?

Our consultants have up to date information on all the current farming support schemes and the new ones which are being introduced during the Agricultural Transition.  If you would like to discuss the SFI Pilot or any of the other schemes which are being introduced as we transition away from BPS payments to ELM, please contact one of our consultants.  All contact details can be found in the ‘Our People’ section on The Andersons Centre Website or call the office on 01664 503200 or email [email protected].

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/

 

 

 

English Farm Support

Now the UK is no longer part of the EU, the Common Agricultural Policy (CAP) no longer applies.  Each of the Devolved nations are free to set their own agricultural support.  In England this will see a period of radical change in support – known as the Agricultural Transition.  Over the next 7 years the Basic Payment will be phased out, so that by 2028 there will be no direct payments.  This will be replaced mainly via a new Environmental Land Management (ELM) scheme but their will be other funding available to help increase agricultural productivity, animal welfare, skills & training.  Andersons has produced a concise guide to the changes in English Farm Support as a result of the Agricultural Transition. This can be found via Future Farm Support

 

 

Spotlight on Farm Business Incomes

Defra has released its revised Farm Business Income (FBI) figures for 2019/20.  Taken from the English Farm Business Survey (FBS), the data shows FBI for various standard farm types.  FBI can be thought of as equivalent to the ‘Net Profit’ measure widely used in accountancy.  These results update the provisional ones released earlier in the year.  The FBS works on Feb/March year ends so the period being reported covers harvest 2019 and the 2019 BPS.  The full release can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/944352/fbs-businessincome-statsnotice-16dec20.pdf   In the chart below, the first column for each sector shows the average FBI from 2011/12 to 2015/16.  The next four columns show the FBI for the subsequent years, broken down into four ‘profit centres’.  The final, light blue column is Andersons’ estimate for the current 2020/21 year.  As can be seen, only Dairy, LFA Grazing and Specialist Pigs and Poultry farms saw an increase in returns in 2019/20 compared to the year before.

Source:Defra

When looking at the breakdown of where the profit comes from for the years 2016/17 to 2019/20, red is profit from farming, orange represents the returns from the BPS, green is agri-environment scheme profit, and purple represents diversification.  For all the land based enterprises (Cereals, General Cropping, Dairy and Grazing Livestock) it can clearly be seen what a high percentage of profit currently comes from the BPS.   For the two Grazing Livestock farm types the return from agriculture is consistently negative; it takes part (or all) of the Basic Payment to return these farms to profit.  This is of real concern when looking ahead to the removal of direct support which is commencing this year.  Of course, FBI is only an average for the sector.  The range in performance across farms is vast, and the more efficient units are likely to have made a much better return than these average values show.  Unfortunately, the opposite is also true. 

Have you got a plan to ensure your farm business will remain profitable as the BPS reduces over the next seven years?  Or do you need help and advice on what may be available, whether that is through capital investment to improve the productivity on your farm or are you looking to replace some of the ‘lost’ BPS money by entering into a Countryside Stewardship or ELM agreement.  All our consultants have access to the most up-to-date information on all the future schemes and are experienced in making good quality applications. If you would like some advice  please contact your usual consultant, or the office on 01664 503200 or email [email protected].

Finally, we have made some initial estimates of 2020/21 FBI, shown in light blue on the chart.  These show the Grazing Livestock farm types seeing significant improvement mainly due to the better livestock prices experienced since spring 2020, but these are from a pretty low base.  Dairy farms are also forecast to see a further increase on the back of solid milk prices and a decline in costs.  Lower cereal and other crop output from harvest 2020 are forecast to impact on Cereal and General Cropping farm profits.

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/

 

 

 

Spotlight on the UK-EU Post Brexit Trade Deal and Implications for UK Agriculture

On 24th December, the UK farming industry received an early Christmas present as a Free-Trade Agreement (FTA) was agreed with the EU, meaning that agricultural goods traded with the EU will not be subject to tariffs or quotas.  This Trade and Cooperation Agreement should minimise the disruption following the ending of the Transition Period on 31st December 2020.  However, with a whole range of Non-Tariff Measures (NTMs) (checks, paperwork etc.) being imposed from that point, there will be added friction. 

The negotiations culminated in a frantic final haggle on fish quotas.  When a breakthrough was achieved on this issue, the remaining level playing field (LPF) and governance issues were quickly addressed.  The key provisions of the FTA are:

  • Trade in goods: will be tariff-free and quota-free on all goods trade between the UK and the EU.  This includes agri-food products.
  • NTMs: will be applicable on UK exports to the EU from January.  For EU imports to the UK new rules will become applicable on a phased basis between January and June 2021, based on the provisions of the UK Border Operating Model.  Linked with NTMs, additional provisions of the Deal include;
    • Rules of Origin (RoO): have been relaxed for up to 1 year so that companies have more time to gather the information necessary to meet RoO requirements.  These are basically local content rules which need to be met to ensure that goods traded between the UK and the EU are eligible for tariff-free treatment.  As a rule of thumb for agri-food products, 90% or more of the goods’ contents needs to be eligible (i.e. is UK produced and not originating from another ineligible third country).  This relaxation is important and helpful to traders as it goes some way to providing an implementation period to permit companies to adapt to the changed trading environment. 
    • Sanitary and Phytosanitary (SPS) checks: will become applicable immediately on UK exports to the EU.  This means that lamb exports to the EU will be subject to 15% physical checks whilst there will be a 30% physical check rate for dairy products for human consumption.  In the SPS area generally, it is arguable that the UK-EU FTA is lacking in ambition.  There will be a Specialised Committee set-up for SPS within the Governance structure of the agreement, which might bring some further easements in the future.  However, for now, the treatment of UK exports to the EU will not be much better than that of a standard third country, and certainly significantly worse than the level of access that New Zealand enjoys on its exports to the EU.
  • Fisheries: the quotas for EU fishing vessels’ access to UK waters will be reduced by 25% over a five and a half year transition period.  This quota will be repatriated to UK flagged vessels over this same period. Thereafter, annual negotiations would take place on the level of access that EU fishing vessels would have to British waters.  This arrangement has been met with criticism from the UK fishing industry which was anticipating a greater Brexit dividend. 
  • LPF: the EU pushed very hard on this issue which relates to upholding existing standards on the environment and labour laws so that the UK for instance cannot gain a competitive advantage in the future by undercutting EU rules.  The agreement includes mechanisms to enable one side to retaliate against the other if it is found that there is a breach of the LPF provisions.  Theoretically, this could mean that retaliatory tariffs could be introduced on agri-food trade in the event of such a breach, even if this violation occurs in another sector. 
  • State Aid: importantly, from a UK perspective, Britain can have its own independent system of subsidy control and neither party is bound to follow the rules of the other.  However, LPF provisions apply to prevent one side from gaining a significant competitive advantage over the other.
  • Ratification: in the UK, Parliament was recalled on 30th December to vote and as Labour had announced its intention to vote for the deal, its passing was a formality in the UK.  In the EU27, the process is somewhat more complicated.  Given the limited time available, the EU has decided to “provisionally apply” the deal from January.  However, it will be scrutinised further by both the European Parliament and at Member State level. This process is set to be undertaken during January and February.

Implications for UK Agri-Food

The announcement of a UK-EU trade deal was greeted with a sense of relief by the UK food and farming industry as it provides much greater certainty for the sector.  The major exception to this is the seed potatoes sector as exports from the UK to the EU will become prohibited.  This is a significant loss as the EU is a major export market for the British seed potatoes’ sector, particularly Scotland, which has amongst the highest product standards for seed potatoes globally.

Overall, the anticipated impacts on UK agricultural output and trade are expected to be limited.  The Andersons Centre has done some recent modelling work for the Scottish Government and the changes under the Deal are primarily due to the imposition of NTM costs.  These which generally range from just 0.1% (wheat, barley) up to 3% (beef) under a Free Trade Deal.  These findings are corroborated by recent comments from the Tesco Chairman (John Allan) who believes that the Brexit Deal will not lead to any significant effects on consumer prices.

Other key issues to watch out for include;

  • Exchange rates: these have a major bearing on the competitiveness of UK agri-food produce on international markets.  On the announcement of the UK-EU FTA, Sterling rose by 0.5% against the Dollar.  Generally speaking, a stronger Sterling is bad for UK farming as the prices of British agri-food produce become more expensive on global markets, whilst imports become cheaper.  In June 2016, following the referendum, Sterling weakened by 15-20% against the Euro and has not recovered since.  Where Sterling goes from here will have a major bearing on the UK agri-food sector’s financial performance.
  • Other FTAs: the UK has already made significant progress in negotiations with Australia and New Zealand, as well as the US to a lesser extent.  Some anticipate deals to be struck with Australia and New Zealand in 2021.  Given the extent to which these countries trade in beef, lamb and dairy products, they could exert significant competitive pressure on British producers if they get better access to the UK market.
  • Allocation of EU28 Tariff Rate Quotas (TRQs): now that a UK-EU FTA has been reached, the likes of New Zealand are already highlighting issues with the proposed allocation of EU28 TRQs by the UK and the EU27, who essentially suggested in December 2018 to split the existing TRQs on the basis of historic trade.  New Zealand amongst others objected to this at the time and are now bringing this topic back to the agenda. This will need to be addressed at the WTO level in the coming months.

Given the extremely limited timeframe during which the UK-EU FTA was agreed, it is inevitable that a whole myriad of other issues will emerge once experts have had time to parse through the 2,000 pages of legal text and annexes.  Overall, the trade deal is historic and marks the beginning of a new era in the UK’s relationship with Europe.  However, as with trading relationships between other close neighbours (e.g. the US and Canada), the UK’s trading relationship with the EU is going to evolve and this will necessitate further negotiations in the future, both on the implementation and governance of the existing agreement, but potentially on developing new accords.  In this respect, we’ve not reached the end of the road on Brexit.  Whilst the topic might (mercifully) move down the agenda as we move forward, it will not disappear from the news.

Further information on the UK-EU Trade and Cooperation Agreement, including the legal text, is available via: https://www.gov.uk/government/publications/agreements-reached-between-the-united-kingdom-of-great-britain-and-northern-ireland-and-the-european-union

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/

 

 

 

Spotlight on the Path to Sustainable Farming

Defra finally released more details on future farm support in England on the 30th November.  Although earlier billed as a consultation, the ‘Path to Sustainable Farming’ document is actually simply a policy statement, with more consultations promised later.  As such, it provides rather less detail on some areas of the Agricultural Transition than we might have hoped.  The 60-page document can be found at; https://www.gov.uk/government/publications/agricultural-transition-plan-2021-to-2024

BPS Phase-Out

Most English farmers will be primarily concerned with how far and how fast the BPS is to be cut.  Only the reductions for the first four years have been announced.  This is due to the budget after 2024 not being known as the ‘Funding Guarantee’ runs out after that.  The table below sets out the figures that are known, and also our predictions for the final years (based on a simple arithmetic progression). 

Note that the figures shown are the deductions rather than the percentage being paid.  Also, a reminder that the bands work like Income Tax, so all BPS claimants get the lower deductions on their first £30,000 of claim.

The headline point is that at least half of the BPS will be removed by 2024.  These deductions are larger than we had thought likely for the early years of the Transition.  We had thought that, without ELM launched, Defra would not have a huge need to generate funding.   However, it seems that other policy measures (see below) will require significant funding.  For those clients who would like to see what this will mean to their BPS payment over the transition period, contact your consultant and they will be able to calculate this for you.

A reminder that from 2021, under simplifying the BPS, ‘Greening’ ends, the requirement to use all entitlements at least once in every two years has also been removed and cross border claims will no longer be treated as one ‘holding’.  Those with land in more than one region of the UK will now make separate claims.

Delinking, Lump Sum & Cross Compliance

Delinking will not now happen until 2024 (it was originally intended for 2022).  This is the breaking of the link between the payment of direct support and the requirement to occupy land.  Presumably, with the link in place, the system of entitlements will continue to operate from 2021 to 2023.

Cross-compliance will also remain in place until payments are de-linked.  The consultation states ‘When we delink Direct Payments, we will stop using cross-compliance as the basis for deregulation . . . ).

Despite the delay in delinking, Defra is still looking to offer lump-sum payments in 2022 as an exit scheme.  There will be a consultation on both lump-sum payments and delinking in early 2021.

ELM

The document devotes 19 pages to ELM and provides a little more detail than what we knew already.  The three tier architecture is confirmed with amended tier names;

  • Sustainable Farming Incentive: this is broad (and shallow) offer that should be accessible to all farms.  It is likely to have a menu of options and be managed online.  It could look similar to the previous Entry-Level Stewardship.  
  • Local Nature Recovery:  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.  This will be the ‘core’ of ELM over the long-term.
  • Landscape Recovery:  this aims to get groups of landowners to work together to deliver widespread change.  The focus will be on large-scale woodland planting, peatland restoration and coastal habitats (e.g. salt marshes).

The Sustainable Farming Incentive (SFI) will open in 2022 – probably with only some elements.  It will focus on soils, IPM, and nutrient management.  What is learnt in 2022 and 2023 will inform the full launch in 2024 when further elements are added (including boundaries and tree management).  Initially it will only be available to those in receipt of BPS, including those already with a Countryside Stewardship agreement.  As it is piloted and then scaled up between 2021 and 2024, the aim is to expand the range of options on offer and explore making it available to a wider group of participants which could include smaller farms, horticulture and pig/poultry farms that do not currently receive Direct Payments.

The national pilot for ELM will be testing elements for both the first and second tiers but probably with a greater emphasis on the second – Local Nature Recovery (LNR).  Further details on this, and the ability to register an Expression of Interest in taking part in Pilots, should be available ‘early next year‘.   Applications to take part in the SFI pilot will be by June 2021 with agreements starting in October 2021.  The pilots for the LNR are due to commence in mid-2022.  In total, the Pilots are expected to involve 5,500 farmers.

The naming of the second tier as ‘Local Nature Recovery’ clearly points to the importance being given to Local Nature Recovery Strategies that are to be introduced under the Environment Act.  These need to be closely watched over the coming years.

The third tier, Landscape Recovery will be tested with 10 large-scale projects due to commence in 2022.  Invitations to take part in this will be made later in 2021.

Whilst all this piloting is going on the Countryside Stewardship CS) scheme will remain open to new applications.  The last application window will be in 2023 for a 1st January 2024 start date.  The scheme will be ‘simplified for 2021’.  Existing HLS and CS agreements that are coming to an end can be rolled-over until ELM begins.

Other Support

Various other new schemes are set out in the document;

Farming Investment Fund:  (from 2021 to 2026)  This is the ‘son of Countryside Productivity’.  This is due to open in ‘autumn 2021’.  Like the CPS there will be two tiers;

  • Farming Equipment and Technology Find: a fixed rate of grant for specified items with application online
  • Farming Transformation Fund: for high-value items.  A two-stage process with an EOI then full application

Farm Resilience Scheme: (from 2021 to 2024)   A pilot scheme is already running offering advice to farmers on how to cope with the changes ahead.  This will be built on.  The pilot ends in March and details of the new advice and support scheme will be published after that.

Farming In Protected Landscapes: (from 2021 to 2024)  This is effectively a scheme for upland areas.  It covers National Parks but also Areas of Outstanding Natural Beauty (AONBs).  There will be both farm-level projects including environmental payments and business support, and projects at community scale.  More details are promised in early 2021.

Slurry Investment Scheme: (from 2022 to 2025)  Grants will be available to help farmers invest in stores that must have at least 6-months of capacity and an impermeable cover.  Rates of grant are not yet set.

New Entrants Scheme: (from 2022 to 2024)  The scheme is still being designed, but it looks like funding is more likely to be for things such as matching services rather than direct grants to new entrants themselves.

Skills and Training: (from 2022 onwards)   Firstly, this will see an Institute for Agriculture and Horticulture set up that will be the professional body for farming.  Also, a set of standardised Key Performance Indicators for each sector will be produced, in conjunction with the AHDB to facilitate benchmarking.  In addition, there will be funding for Research and Development in agriculture under an Innovation and Research programme.

Animal Welfare: (from 2022 onwards)  Details of this funding stream are still being worked on.   However, the ‘Animal Health and Welfare Pathway’ will be designed during the course of 2021.  It will offer support for disease eradication programmes, capital grants to farmers for measures to increase animal welfare above the statutory baseline, and a new payment-by-results scheme (to be piloted in 2023)

Tree Health Scheme: (piloted from 2021, fully launched in 2024)  This will build on the Tree health grants under CS.

All in all, there is quite a lot to digest from the document.  We will be providing further information as it becomes available.  

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

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

https://agribrief.co.uk/

 

 

 

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

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

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

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

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

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

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

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

https://agribrief.co.uk/

 

 

 

Spot Light: Update on Future Agricultural Support in England

Future Agricultural Support in England

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

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

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

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

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

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

https://agribrief.co.uk/

 

 

Spot Light on Harvest Progress & Autumn Plantings

Harvest Progress

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

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

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

Autumn Drilling

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

 

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

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

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

https://agribrief.co.uk/

 

Spot Light on BPS Transition and Autumn Lettings

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

Agricultural Transition

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

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

De-Linking

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

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

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

Lump-Sum

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

Environmental Land Management

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

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

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

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

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

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

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/

 

 

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/.

 

 

 

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. 

 

 

 

Farming in Focus InBrief – May 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]
  • 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.