How Has Farming Changed Since the UK was Last Outside the EU?

UK farming will soon be operating outside the European Union for the first time since we joined the, then, EEC in 1973. In preparation for its round of Spring Seminars, Andersons the Farm Business Consultants have looked into the archives to compare UK farming 46 years ago with today’s sector. The table below shows some key indicators for the agricultural sector. (All financial figures are in real terms at 2017 prices.)

At the farm level, the industry is smaller in monetary terms and less profitable (although land values are much higher). However, the wider food chain has done an impressive job in boosting food exports and feeding households cheaply. Food self-sufficiency has not changed greatly. For those advocating a completely free-trade approach to food after Brexit, it is interesting that food self-sufficiency was close to 30% in the 1930s – the last time it was tried. The industry is also doing ‘more with less’, in terms of people, land and animals.

Clearly, UK farming is a very different industry to that of the early 1970’s. However, there is also an argument that being part of the Common Agricultural Policy for 40 plus years has held the sector back from what it might have achieved. The next decade or two seems set to unleash even greater change.

There is some trepidation about what the future might hold for farming. One of the ways to reduce uncertainty is to gain the best understanding of the current situation and possible future direction. Andersons are running a series of Seminars at thirteen venues around Great Britain in March, looking at the prospects for UK agriculture in greater detail. This includes the opportunities post-Brexit and the issues the sector needs to tackle, whatever sort of Brexit emerges. For more information please go to www.theandersonscentre.co.uk/Seminars

Ends

No. of words: 444

Author: Richard King

Date: 13th February 2019

This news release has been sent from Andersons, the Farm Business Consultants Ltd, Old Bell House, 2 Nottingham Street, Melton Mowbray, Leicestershire LE13 1NW. For further information please contact Michelle Turnbull on +44 (0) 1362 688761 or +44 (0) 7904 436288.

Enigmatic Russia continues to set records

Guest article by Brendan Dunleavy, Russia and Ukraine expert

At the outset of World War II, Winston Churchill observed that “Russia is an enigma, wrapped in a puzzle, enclosed in a maze. But there is a key: That key is Russia’s national interest.” He could just as easily have been speaking about Russia today, particularly as far as its agricultural and food markets are concerned.

As recently as five years ago, Russia was still importing the vast bulk of the country’s food & agricultural commodity requirements. However, next year (2018), Russia looks set to produce a record grain crop for the fifth year in-a-row. Precisely how Russian farmers can reach this target on a national wheat yield that tends to be in the region of 3 tonnes per hectare, is a puzzle for many.

 

That said, farming in Russia is a very high-risk and unprofita-ble occupation. Climate extremes mean a very short growing season in most regions. Specifically, over most of the country, soil temperatures do not support agricultural seed germination and plant growth until mid-May to early June.

Current reports suggest that the country is again on-track to surpass last year’s record grain harvest. Total wheat area is pro-jected to be 25.2 million hectares with 12 million hectares of this being winter wheat. In autumn 2017, Russian grain crop sowings were estimated projected to produce up to 130 million tonnes from the 2017/2018 crop. That is well above this year’s (2016/17) record harvest of 114.2 million tonnes. Wheat is fore-cast to account for 80Mt of this total, a 10% increase on this year’s harvest (72.5Mt). However, it needs to be emphasised that statistics which estimate Russian grain production have fre-quently been unreliable and there is a cultural tendency to over-estimate.
That said, on the above basis, Russia is expected to have 41.8Mt of grain available to export next year, a new record. This will be well up from the 2017 Russian grain export of 36.2Mt. Feed wheat accounts for almost 77% of total grain exports.

Russian grain exports are boosted by four main factors:

1. low Russian land prices & land rental rates
2. weakness of Russian Rouble
3. low farm management & labour rates
4. low prices & applications of fertilisers & agrochemicals These factors combine to ensure that Russia’s has the lowest costs of producing grains in the world; the current cost of Russian grain production is as low $80 per tonne.

This extraordinarily low cost of production is likely to hold for many years to come. It will also continue to put enormous pressure on American, Cana-dian, British, and other European grain producers, particularly in animal feed markets.

10-year license renewal for glyphosate?

The EU Commission stated that it will propose extending its approval for glyphosate by 10 years, having taken into account the recent ECHA study’s view that glyphosate should not be classified as a cancer-causing substance.

The Commission decision has drawn criticism from both environmental groups and crop protection companies which were seeking a longer approval. No date has been set for when discussions with Member States will start. It also remains to be seen how the new French government will react to the proposal as green activist, Nicolas Hulot, has been appointed as environment minister. From a UK standpoint, although EU decisions will become less important from March 2019 onwards, any decisions taken before that date will be transposed into UK law via the Great Repeal Bill. Therefore, the renewal agreed at EU level will also be applicable to the UK, assuming a decision is made before 2019 of course…

RICS/RAU Rural Land Market Survey

The latest survey results covering H2 2016 indicate a further softening in farmland demand, a trend which started to emerge in the latter half of 2015. The RICS/RAU report also suggests that anecdotal evidence from survey respondents highlight Brexit and future farm support uncertainties as well as declining agricultural profitability due to poor commodity prices as key headwinds.

The report also forecasts a further price declines over the next twelve months although it notes that respondents’ sentiments are less negative than the last survey, conducted at the time of the referendum.

The survey uses a combination of transaction based measure of farmland prices (which includes a residential component where its value is estimated to be less than 50% of the total) and an opinion-based measure (a hypothetical estimate by surveyors of bare land prices). The transaction-based measure suggests an average price of £10,233 per acre which is 7% lower than a year ago. The opinion-based measure, although 3% lower than last year, was broadly flat in comparison with H1.

RICS/RAU Rural Land Market Survey H2 2016 – Key Results

(£ per acre unless specified) H2-2015 H1-2016 H2-2016 (p) % change
Farmland: transaction based1
Weighted average price 11,049 10,952 10,233 -7%
Bare land: opinion based
Weighted price 8,306 7,975 8,062 -3%
Arable 9,304 8,911 8,982 -3%
Pasture 7,308 7,040 7,143 -2%
Rents: weighted average per acre
Arable – AHA 86 79 78 75 -5%
Arable – ATA 95 (FBT) 151 142 135 -11%
Pasture – AHA 86 56 60 53 -5%
Pasture – ATA 95 (FBT) 103 96 94 -9%
Yields (%) 1.8 1.6 1.5 -17%

(p) provisional subject to revision; includes residential component (less than 50% of value) Source: RICS/RAU

The report also estimates that average arable FBT rents are 11% lower than a year ago whilst pasture rents are down by 9% on a year-on-year basis. AHA rents have also declined although as one might expect this is not as pronounced given they are set at a lower level to reflect their longer term duration.

Average land prices since 2003 (£ per acre)

Source: RICS/RAU

Yields on investment land are also lower. During H2-2016, it is estimated that 63% of buyers were individual farmers whilst lifestyle buyers accounted for just under 25%.

In Ireland, the Irish Farmers’ Journal Land Price Report estimates that average land values decreased by 1.6% on 2015, a second consecutive fall. The average value of Irish farmland is estimated at €8,771 per acre (£7,455).

Looking ahead, with UK farm profitability and incomes picking up and Sterling likely to remain weak in the foreseeable future, it is possible that farmland prices could stabilise and possibly even rise during 2017/18, especially given the low interest rates and potential effect of inflation which has driven land prices upwards in the past. Longer term, Brexit remains the big unknown and the period of relatively robust land prices over the last 15 years could end if the exit terms and future farm support are unfavourable. Brexit will also become more of an issue for rents, particularly FBTs as 2019 draws closer. It is likely that ‘Brexit clauses’ or clauses to review rental values in the light of a significant change in support for example will become a more common feature of rental agreements.

Precision farming

Last month, Defra published statistics on the utilisation of precision farming techniques (i.e. soil mapping and use of satellite technology to guide fertiliser application) by farm businesses in England.

The results show that usage on cereal and general cropping farms have increased steadily with uptake by farm businesses estimated at 44% and 50% respectively. Uptake is less prevalent in dairy and mixed farms where uptake is gauged at 20% or less. Defra noted that usage was more common on very large farms. It also tends to be greater for higher economically performing farms, although after allowing for other factors such as farm type and size, the difference between performance groups is not significant.

Defra also estimated that the usage of soil nutrient software packages (soil mapping) for fertiliser applications stands at 23% across all farms, uptake is substantially higher amongst cereals farms (43%) and general cropping farms (60%).

Uptake of precision farming techniques by farm type, England, 2012/13 to 2015/16

Source: Defra

The fact that precision farming techniques are becoming increasingly common is no surprise. Much of the new machinery coming on to the market (e.g. tractors, combines etc.) now comes with these technologies installed as standard. Recent research for The Andersons Centre concurs with the Defra findings and shows the uptake of auto-steering has grown strongly since 2012, although the uptake of variable rate application and telematics lags. There is little doubt that some precision farming techniques are becoming mainstream. The trickier question is whether all precision techniques are worthwhile. By its very nature, precision farming will vary from farm-to-farm and it is seen by many of the larger farms especially as an effective means to manage scale and capture key information, such as historic applications, land capability etc., thus assisting farm managers to conduct operations more effectively. It is also essential that the fundamentals of good farming practices remain paramount as it is easy to become engulfed by a torrent of data which can waste precious time and cloud decision-making.

Uptake of specific precision farming technologies in UK farming

Technology

2012*

2016

Approximate cost

GPS (incl auto-steering)

22%

~55%

up to £10K

Soil mapping

20%

~25%

£15 – £30 per ha

Variable rate application

16%

~20%

built into equipment

Yield mapping

11%

~20%

£5 – £7 per ha

Telematics

2%

~5%

circa £1k + yearly cost

*Defra 2012 estimate – Source: Defra

Fertiliser prices – selected products

On-Farm Fertiliser Prices – w/c 19th June 2017

Fertiliser Type (all prices in £/tonne)

This month

Straights and Others

34.5% N (UK)

175

Urea – 46%N

190

Ammonium Sulphate and Ammonium Nitrate (granular)
(27%N:30%Sulphur)

200

Triple Superphosphate (46%P)

264

Muriate of Potash (60%K)

233

Source: InsideTrack

Prices are based on delivery during September/October 2017

Spray prices – selected products

On-Farm Spray Prices – w/c 19th June 2017

Active Ingredient (AI)

Example Brand(s)

Pack Size

(L; KG)

Price (£/pack)

Price (£/L)

Cereals – General Herbicides

Diflufenican

Hurricane

1

27

26.75

Flufenacet + diflufenican

Liberator

5

247

49.47

Flufenacet + Pendimethalin

Crystal

10

119

11.85

Flupyrsulfuron-methyl and thifensulfuron-methyl

Lexus Millennium

0.2

101

504.80

MCPA

10

40

3.97

Mesosulfuron iodosulfuron

Atlantis; Pacifica

2

174

86.77

Pinoxaden + Cloquintocet-mexyl

Axial

5

403

80.60

Source: InsideTrack

Spray prices refer to on-farm spot trade (ex. VAT) quoted across the Midlands, East Anglia and South East of England and do not include additional service costs (e.g. field walking etc.). Example brands are given for reference purposes only, alternative brands also available.

Brexit Bills in Queen’s Speech

On 21st June, the Queen launched the Government’s programme, devoid of its most controversial manifesto commitments, which included eight Brexit Bills on:

  • Agriculture – to replace the CAP
  • The Repeal – of the European Communities Act 1972 and copy and paste the contents into UK law
  • Customs – to replace EU customs rules and allow the UK to impose its own tariffs (significant for agricultural exports and imports)
  • Trade – to operate our own trade policy (this may face opposition from soft Brexit MPs wanting to keep the UK in the EU customs union)
  • Immigration – to allow the UK to set its own immigration policy (vitally important for the fruit & veg, poultry and processing sectors).
  • Fisheries – to take control of UK fishing waters and to set fishing quotas.
  • Nuclear safeguards – to set up a nuclear safety regime (currently regulated by Euratom)
  • International sanctions – to allow the UK to apply its own international sanctions

Of particular interest to InsideTrack readers is the Agriculture Bill.  This is the first chance for a British Government to design a wide-ranging reform of agriculture policy since 1947 (the last substantive Agriculture Act).  It presents a once in a generation opportunity to shape and sustain a profitable farming sector without (we assume) CAP levels of direct support and EU border protection arrangements.

The Government’s says that:

“The Bill will ensure that after we leave the EU we have an effective system in place to support UK farmers and protect our natural environment. The Bill will:

  • provide stability to farmers as we leave the EU;
  • protect our precious natural environment for future generations;

We will see.

Sugar beet – yield, prices and prospects

The dry weather has meant germination has been patchy in many spring crops, and sugar beet is no exception. Some crops have been re-planted, but the number of these is very small. Most growers have been hoping that some rain (which has now arrived) will be enough to recover the situation.

Whilst many beet crops are undoubtedly behind where they might normally be, there is still enough of the growing season left that overall yields will not necessarily be affected.  The final 2016 crop yield was 71.4 adjusted tonnes per Ha.

The contracted area for the 2017 has grown significantly.  After two years in 2015 and 2016 where the total area was down to 80,000 hectares, this year’s plantings are up to 105,000 hectares.  British Sugar has offered extra Contract Tonnage Entitlement (CTE) as its own stocks have reduced whilst EU and world markets have improved.

On the subject of markets, the EU sugar price was around €495 per tonne up to March this year (EU price reporting is a little slow).  This is above the €475 per tonne threshold level for bonuses to be paid under the new 2017 pricing mechanism.  However, since the start of the year world sugar markets has declined and this may soon start to impact the EU price.  The reference period for the calculation does not begin to operate until October this year, so none of the current market movements are actually affecting the price that growers will receive.

2016/17 world update 2017/18 forecast

The monthly USDA grain and oilseed world supply and demand estimates and forecasts are especially important in May as it is the first month of each year when they publish their entire thoughts on the forthcoming global grain crop.

For 2016/17, global grain production has, once again, been revised up by 14 Mt to almost 2,593 Mt. However, 2017/18 output is forecast to decline by nearly 62 Mt. Although this 2.7% decline may appear to be slight in percentage terms, it is almost three times that of UK cereals production (22 Mt). That said, it must be remembered that the 2017/18 forecast is nearly 64 Mt ahead of 2015/16.

Total global grains supply & demand at 10 May 2017 (Mt)

Output

Trade

Total use

Cl. stocks*

2015/16

2,467.12

377.07

2,439.19

606.93

2016/17 est April

2,578.58

413.12

2,555.41

628.36

2016/17 est May

2,592.72

416.95

2,566.25

633.40

2017/18 forecast

2,530.95

406.45

2,564.91

599.44

*closing stocks Source: USDA

World wheat production (737.8 Mt), although projected to be the second highest on record, is forecast to decline by 15 Mt in 2017/18. This estimate is heavily influenced by the US (down by 13 Mt to 49.5 Mt) and helped to rally the markets. Early US survey estimates suggest that winter wheat production is down sharply with the lowest harvested area in a century and lower yields. April snow storms affected large portions of the US winter wheat crop, especially in Kansas, and the US spring wheat area is also projected to decline. But, with global wheat consumption forecast to fall and stocks increasing, the outlook for prices remains rather bearish for 2017/18.

Wheat supply & demand at 10 May 2017 (Mt)

Output

Trade

Total use

Cl. stocks*

2015/16

737.00

172.85

712.08

242.42

2016/17 est April

751.36

180.68

740.84

252.26

2016/17 est May

753.09

179.74

740.16

255.35

2017/18 forecast

737.83

178.35

734.89

238.29

*closing stocks Source: USDA

Coarse grains (feed grains) output is more than double the total wheat crop around the world and 75% of them are maize. Coarse grains production (1,312 Mt) is projected to fall by 3.4% (46 Mt) in 2017/18 vis-à-vis 2016/17 (1,358 Mt). This decline is significant and leads to a 38 million tonne fall in stocks, a 15% decline which is also substantial. This is far more bullish news.

CSS “badly managed”

The Countryside Stewardship scheme was described as “badly managed, under-resourced and ineptly designed” by the Chairman of the Environment, Food and Rural Affairs (EFRA) Committee of the House of Commons at its inquiry on the 21st March

During robust exchanges with the EFRA Committee, Guy Thompson – Chief Operating Officer (COO) of Natural England (NE) – admitted that the scheme has got off to “an imperfect start” with “volumes that are still relatively low”.

Countryside Stewardship Scheme take-up

New agreements

15/16

16/17

17/18*

Mid-Tier

1,894

3,804*

4,000

Higher Tier

459

646*

735

Hedgerows and Boundary

0

782*

1,000

Existing agreements
Mid-Tier

0

1,894

5,594

Higher Tier

0

689

Hedgerows and Boundary

0

782

1,500

*estimated/predicted – Sources: EFRA Committee

Thompson defended NE’s ‘imperfect’ performance by blaming the onerous requirements of the EU but did not blame the RPA payment systems. But this did not satisfy Neil Parish, the Committee Chair “We are not entirely stupid in this committee. We know that the system is not working”. The Operations Director of the RPA, Jo Broomfield, was pressed to explain what the problem was with the mapping. After many minutes of prevarication, during which Parish said he might “explode”, Broomfield eventually recognised that “errors do occur in the mapping process. We need to continue to improve that”.

One aspect that came up time and again in the questioning of Broomfield was that the RPA lacked the resource to both meet the 90% BPS target and pay agri-environment schemes on time. Payments were prioritised and ‘sequenced’ so that BPS was paid first, Environmental Stewardship (ES) second, and the CSS was an afterthought at third.

Having blamed the EU for the RPA’s poor performance, the NE COO said that post-Brexit he would scrap the computer system and run a ‘light touch’ payment by results scheme.

No doubt that will solve all the RPA’s problems.

Pesticide and GM voting rules

Proposed changes to EU voting rules for approving products such as Genetically Modified (GM) crops and pesticides are aimed at making Member States more responsible for their actions. Under current rules, many Member States abstain from voting, particularly on politically sensitive topics.

This increases the likelihood of ‘no opinion’ outcomes, delays and shifting responsibility for such decisions to the Commission.

The new proposals being considered include classifying those who abstain or who are absent at the Appeal Committee vote (2nd stage of the voting process) being classified as ‘non-participating Member States’.  Such countries will be subsequently discounted when the double majority of votes (55% of Member States representing 65% of the population) is calculated.

Other proposals include making public Member States’ voting patterns and the introduction of a ‘quorum provision’ which would mean that a vote would be invalid if a simple majority of Member States did not participate in the Appeal Committee vote. In addition, where an initial vote results in a ‘no opinion’, a second referral to the Appeal Committee would take place and Member States would be represented at Ministerial level. There is also a proposal to have the right to refer the matter to Council to obtain a non-binding opinion, in a bid to give the Commission a political steer.

These proposals are unlikely to be popular amongst several Member States which have been content to permit the Commission to be criticised for authorising sensitive products.  However, such reforms are necessary, especially if the EU is serious about being more accountable to its citizens. Having unelected bureaucrats making contentious decisions is an abdication of responsibility and has contributed to the increasing ‘disconnect’ that voters feel regarding the EU.   

Some may feel that such proposals will not have much relevance to the UK as it prepares for Brexit.  However, EU regulation will remain important in the next two years and beyond. The Great Repeal Bill will transpose whatever EU regulation is in place upon formal Brexit directly into the UK statute and may not be amended for some time. Therefore, decisions such as whether glyphosate is reauthorized will continue to play a central role in UK arable farming.