Category: News

Farming Focus InBrief – April 2022

  • If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  If you do not have their details please contact the office on 01664 503200 or email [email protected]
  • Input prices were already high before the invasion of Ukraine but cost inflation has now been exacerbated. Between January 2021 and January 2022, the price of UK produced ammonium nitrate was up 145%, urea up 156%, and glyphosate up 307%.   Since the invasion, the value of ammonium nitrate has exceeded £900/t, up from £645/t in January.  The value of tractor diesel has also risen substantially, with some reports quoting 130p/l.  The high cost of inputs will challenge many businesses over the next 12 months and beyond.  The working capital of farms will be under significant pressure.  While the cost of outputs has risen, the level of cash required to operate has also increased rapidly.  Our Spotlight article looks how the rising costs are affecting our Model Farms.
  • The Chancellor, Rishi Sunak, used the Spring Statement on the 23rd March to announce a number of policies designed to mitigate the cost of living crisis.  The Statement came a day after the latest inflation figures were announced.  These showed year-on-year inflation in February (CPI measure) had risen to 6.8%. Even so, the 1.25% increase in National Insurance contributions will still be introduced in April, although the threshold at which it becomes payable will be increased to £12,570 (to come into force in July). The rate of fuel duty has been reduced by 5p/l and VAT on energy saving equipment (solar panels, heat pumps etc) has been cut to zero.  He also made the commitment to cut the basic rate of income tax by 1% to 19% by the end of the Parliament (2024).
  • Defra is consulting on binding environmental targets for England which could have a significant effect on agriculture over the coming years. These include water quality, the area planted to woodland, halting species decline and the creation of wildlife-rich habitats outside of protected sites.
  • The Bank of England increased the Base Rate by a further 0.25% on the 17th March.  This takes the cost of borrowing from 0.5% to 0.75%.  This is a response to increasing inflation.  The Bank is tasked with keeping inflation at 2% but, according to the Bank’s own forecast, increases in prices will hit 8% this spring.  The rise in interest rates is meant to bring inflation back towards the target over the medium term.  Many forecasters believe that there will be two further 0.25% rises before the end of 2022, taking rates to 1.25%.
  • The 5th  Woodland Carbon Guarantee auction will take place from midday on Monday 9th May to midday on Sunday 15th May 2022.  Applications to take part in the next auction can be submitted now and need to be made by midnight on Sunday 24th April.  Woodland creation projects accepted into the Woodland Carbon Guarantee scheme have the option to sell Woodland Carbon Units (WCUs) to the government every 5 or 10 years up to 2055/56.
  • It has been confirmed that Young Farmers and New Entrants will not be able to apply for entitlements from the National Reserve in England this year, except in respect of land which was leased, bought, or gifted prior to 17th May 2021. With De-linking of entitlements expected to take place in 2024 this is just another step in drawing the BPS to a close.
  • British Sugar has announced all contracts, irrespective of length, will receive at least £27 per tonne for the 2022/23 crop year.  The guaranteed £27 per tonne will apply to all beet for the crop which is about to be planted.  Any growers with a fixed contract price below this amount will have it raised to £27 per tonne.  Those whose contracts include a market bonus element will receive a guaranteed market bonus of £5.82, raising their price to £27 per tonne on delivery.  Any surplus beet for the 2022/23 crop will also be paid at £27 per tonne.
  • Defra has announced that the ’emergency’ authorisation of Syngenta’s Cruiser SB seed treatment for sugar beet has been granted for this year.  Used to control Yellow Virus, the use of the neonicotinoid is dependent on nine conditions being met.  This includes an initial threshold for use, meaning the seed treatment can only be used if the predicted Yellow Virus incidence is at or above 19% of the national crop on 1st March.  According to Defra, following what has been a relatively mild winter, modelling on 1st March predicted a 68% (!) level of virus incidence.  In 2018, 25% of the national sugar beet crop was lost to YV, with an estimated cost to processors and growers of £67 million.
  • A reminder that Countryside Stewardship (CS) is now open for applications (see https://theandersonscentre.co.uk/countryside-stewardship/). This includes the Higher-tier, Mid-Tier, Wildlife Offers and the stand-alone Capital Grant Scheme.  Many are having another look at CS, in part to try and retrieve some ‘lost’ BPS, but also because the domestic scheme has seen some improvements and flexibility.  Successful applications will commence 1st January 2023 and can be ended early where an ELM agreement has been approved.  Payments have been timelier and the penalty/inspection process less penal.  Most will have some areas on their holding that are less productive and could probably be entered into CS.  Please contact one of our consultants if you are considering CS, they can help you prepare and submit a cost-effective CS application but only if initial discussions conclude it is financially viable.
  • Our Special Edition in February also included details on the Lump Sum ‘retirement’ scheme which will be in operation this year only (see https://theandersonscentre.co.uk/lump-sum-payments/) Do not hesitate to contact one of our consultants if this is something that maybe of interest to your business and they can work through the details with you.
  • The Andersons Centre will be at Dairy Tech on Thursday 7th April.  Please join us on stand B50 where our consultants will be available to speak to. Please note that we will also be selling copies of the 52nd edition of the John Nix Pocketbook on the stand and there will be a 20% discount for purchases on the day.

This month’s Spotlight looks at the impact of cost inflation on two of our Model Farms Click Here for further information.

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

 

Spotlight on Impact of Cost Inflation

It is hugely difficult to budget in any farming sector with such large and sudden changes in prices and costs.  However, we have produced some updated figures for our Friesian Farm model ahead of the Dairy Tech show on the 7th April.  And with such significant rises in costs we have also revisited our Loam Farm model budget.  The figures are summarised in the tables below.

For Friesian Farm, it can be seen that the 2021/22 year just ending was profitable for the farm as milk prices increased and costs, whilst rising, had not yet hit current levels.  The upcoming 2022/23 year shows the massive increase in the cost of production.  Although the budgeted milk price is also moving up strongly, it results in a margin from production only just above break-even levels and the worst for a few years.

Friesian Farm is a notional 210 cow business.  It has been used to track the fortunes of British dairy farming for well over a decade.  It has a year-round calving system, like most of the UK industry, but it is trying to maximise yield from forage.  The farm comprises 130 hectares (of which 60 hectares are rented on an FBT).  The proprietor provides labour along with one full time worker (plus casual/relief).  The table above shows the farm’s actual results for the two previous milk years (April to March), an estimate for the current 2021/22 year then a forecast for 2022/23.  

The situation is similar for Loam Farm.  The table below shows the results for harvest years 2020 and 2021, a provisional figure for 2022 and a forecast for 2023.  For harvest 2022 fertiliser was purchased the previous summer, i.e. before the recent price hikes and therefore shows spectacular profits for the year.  For harvest 2023, the significant increase in variable costs can clearly be seen, together with fuel costs in the overheads.  Meaning the margin from production is negative.  The fall in BPS is mitigated by involvement in the Sustainable Farming Incentive (SFI).

Loam Farm is a notional 600 hectare business that has been used since 1991 to track the fortunes of British combinable cropping farms.  It is partly owned and partly rented and is based on real-life data. It has 1 full-time worker and a harvest casual labourer.

 

 

 

 

 

 

 

 

 

 

 

Farming Focus InBrief – March 2022

  • If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  If you do not have their details please contact the office on 01664 503200 or email [email protected]
  • The application window for the BPS in England will open on the 15th March and runs until the 16th May.  In the meantime, it is already possible to transfer land and entitlements online in England in readiness for this year’s BPS applications.  Claimants have until 16th May (the 15th is a Sunday) to complete the transactions.
  • For those who are taking place in the SFI Pilot, the payment rates have been revised.  Some of the payments have remained the same whilst others have increased.  Some Pilot agreements will have already started, others are still being agreed but the new payments will apply from the start of all agreements. The first batch of quarterly payments under the SFI Pilot have now been made to those participants whose agreements commenced on November 1st.    Not all applications had been processed by this initial start date but offers have been sent out on a regular basis since. 
  • The application window for the first round of Landscape Recovery pilot projects is now open and will close on 24th May 2022.  Landscape Recovery is the third component of ELM.  It is for farmers and land managers, including groups, who want to take a more radical and large-scale (500-5,000 Ha) approach to producing environment and climate goods on their land, such as establishing new nature reserves, restoring floodplains to help reduce the risks from flooding, or creating woodland and wetlands.  The first round will focus on species recovery and river restoration.
  • Defra has started to send out Agreements for the first round of the Farming Equipment and Technology Fund (FETF).  Agreements need to be accepted by midnight on 1st April (extended from 4th March), via the dedicated FETF acceptance portal.  Claimants then have until midnight on 31st October 2022 (also extended by one month) to buy and install the items and submit a claim for payment.
  • Defra has announced the new Slurry Investment Scheme will now be incorporated into the Farming Investment Fund and will not be a separate scheme. Further details should be available through the spring, but it is expected grants to help farmers achieve 6 months slurry storage will be available in the autumn.
  • The Bank of England increased UK base rates on Thursday 3rd February from 0.25% to 0.50%.  This is in response to rising inflation.  Further increases are expected.
  • A reminder that Countryside Stewardship is now open for applications (see https://theandersonscentre.co.uk/countryside-stewardship/ ). This includes the Higher-tier, Mid-Tier, Wildlife Offers and the stand-alone Capital Grant Scheme.  Many are having another look at CS, in part to try and retrieve some ‘lost’ BPS, but also because the domestic scheme has seen some improvements and flexibility.  Successful applications will commence 1st January 2023 and can be ended early where an ELM agreement has been approved.  Payments have been timelier and the penalty/inspection process less penal.  Most will have some areas on their holding that are less productive and could probably be entered into CS.  Do not hesitate to contact one of our consultants if you are considering CS, they can help you prepare and submit a cost-effective CS application but only if initial discussions conclude it is financially viable.
  • Our Special Edition in February also included details on the Lump Sum ‘retirement’ scheme which will be in operation this year only (see https://theandersonscentre.co.uk/lump-sum-payments/) Do not hesitate to contact one of our consultants if this is something that maybe of interest to your business and they can work through the details with you.
  • Trade patterns for farm goods on the island of Ireland have changed significantly as a result of Brexit. Latest data from the Irish Central Statistics Office (CSO) show that total agri-food trade between Northern Ireland (NI) and the Republic of Ireland (ROI) has increased significantly (by 42%) in 2021 versus 2020.  NI agri-food imports from ROI have increased by 47% with regulatory controls imposed on GB to NI trade as a result of the NI Protocol being the primary driver. Corresponding NI exports to ROI have also risen by 38% over the same period, showing that increased all-island agri-food trade is happening in both directions.

This month’s Spotlight looks at the impact Russia’s invasion of Ukraine is having on the arable market Click Here for further information.

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

 

Spotlight on Markets Following Russia’s Invasion

World politics have been balancing on a knife edge throughout February.  On the morning of 24th February 2022, that balance was firmly tipped.  Russia’s invasion of Ukraine represents the biggest political shock to markets in a long time. The ramification for world agricultural markets is significant.

Russia and Ukraine account for more than 28% of world wheat exports, as such developments in the conflict will have large ramifications for prices.  Furthermore, Ukrainian crop production (wheat, barley, and sunflowers) is largely focused in the East of Ukraine, the current epicentre of the conflict.  The conflict in Ukraine will be the biggest shock to prices, outweighing all other fundamentals.  As the conflict in Ukraine continues, the value of commodities has risen considerably. On Monday 7th March UK feed wheat futures (May-22) closed at £303 per tonne, a rise of almost £68 from 23rd February, the day before the invasion began. While prices have risen, daily movements have been volatile.

It is not just wheat, Ukraine and Russia account for 10% of global oilseed production (rapeseed, soybeans, sunflower).  The main oilseed grown in the Black Sea region is sunflowers; Ukraine accounts for about 30% of global sunflower seed production with the optimal sowing season about 8-9 weeks from now.  If this is compromised, this will have an impact on global vegetable oil prices and in turn rapeseed into the 2022/23 marketing year.

As well as the large rises in output prices as a result of the conflict, input prices are equally inflated. Russia is a key producer of fertiliser and exporter of fuels. The price of fuel is likely to stay inflated with the UK and US governments announcing, on 8th March, their intention to ban Russian oil imports. The UK ban will be phased; Russian supplies of fossil fuels account for 8% of UK imports.

Countryside Stewardship

The Countryside Stewardship scheme is now open for applications in England.  This includes;

  • Mid-tier – Open from 8th February to 29th July 2022 for agreements to commence on 1st January 2023.  This year, it is possible to apply online for Mid-tier via the Rural Payments service, meaning it is no longer necessary to request a pack.  But for those who prefer not to, or are unable to apply online, packs can be requested via Rural Payments by 5th July.  If it is not possible to go online, requests for packs by telephone or email must be made by the earlier date of 27th May.  The last date to request Catchment Sensitive Farming Approval or Natural England approval (required for certain options) is 20th May.  For more information go to https://www.gov.uk/guidance/mid-tier-and-wildlife-offers-manual-countryside-stewardship
  • Wildlife Offers – These are also open for applications from 8th February to 29th July 2022.  As previously, online applications are preferred, but where this is not possible, packs must be requested by 5th July.  The Wildlife Offers are meant to be quicker and simpler to apply for.  Unlike the Mid-tier, they are not scored, meaning all eligible applications will get an agreement.  There are no capital items included in the Wildlife Offers, but it is possible to apply for a standalone Capital Grant (see below) alongside a Wildlife Offer. For more information go to https://www.gov.uk/guidance/wildlife-offers-countryside-stewardship
  • Higher-tier – The application period commences on 8th February.  The deadline for submitting a Higher-tier initial application is 29th April with the final application to be submitted by 31st August.   The deadline for requesting an application pack (online, email or post) is 31st March.  Higher-tier includes woodlands, commons and environmentally significant sites (eg.SSSIs).  For more information go to https://www.gov.uk/guidance/higher-tier-manual-countryside-stewardship
  • Capital Grants – From the 8th February 2022, Capital Grant applications are now open all year round.  Further information can be found at https://www.gov.uk/guidance/countryside-stewardship-capital-grants-manual.  Readers will recall the Capital Grants offer was expanded last year so it now offers standalone capital items within three areas;
    • Boundaries, trees and orchards
    • Water quality
    • Air quality
  • SFI Pilot Capital Grants – It is now possible to make a Capital Grants application to support SFI Pilot Standards.  Those wishing to make an application need to read the Countryside Stewardship Capital Grants (SFI) supplement first (https://www.gov.uk/guidance/countryside-stewardship-capital-grants-manual-from-8-february-2022-sustainable-farming-incentive-pilot-supplement).  This will direct them to the relevant sections in the 2022 Capital Grants Manual.
  • Protection and Infrastructure Grant – This is a new standalone capital grant open all year round from 8th February 2022.  It is a two year capital grant for support to create Woodland Infrastructure (FY2).  Further information can be obtained via https://www.gov.uk/guidance/protection-and-infrastructure-countryside-stewardship
  • Other CS grants remain open all year round, these include;
    • Woodland Management Plan grant
    • Woodland Tree Health grant
    • Implementation Plan (PA1) and Feasibility Study (PA2) grants – funding for more complex projects – speak to a NE advisor first

Andersons’ consultants are experienced at drawing up CS applications.   We work with our clients to prepare and submit cost effective CS applications but only if initial discussions conclude it is financially viable.  Please contact one of our consultants for further advice.

Lump Sum Payments

English farmers will be able to take their future BPS payments in a ‘lump sum’ retirement payment this year.  Defra has (finally) released its response to the consultation undertaken last year.  This was originally expected in the autumn, but has been repeatedly delayed.  The response re-affirms the option will be available this spring and sets out the rules in more detail.  Precise scheme rules will only be known when the secondary legislation to enact the scheme is passed.  But we probably now know enough for sensible business decisions to be made.  More details have also been released on the ‘decoupling’ of BPS payments which was consulted on at the same time.

Lump Sum Payments

A summary of the scheme is as follows;

  • The Lump Sum scheme will open in April 2022 and run until 30th September 2022.  More detail will be provided at this time, including how businesses that have changed through mergers and splits will be treated.  It will not be a competitive scheme – anyone who meets the criteria will get the payment.  It is envisaged that the Lump Sum is only going to be available in 2022 – if it is not applied for this year, the opportunity will be lost.   BPS claimants will be able to request a statement setting out how how much Lump Sum they are eligible for.
  • Lump Sum payments would be made in November 2022 (or as soon as the requirements of the scheme on land transfers – see below – have been met).
  • To qualify, applicants must have made a BPS claim in May 2018.  There will be exemptions for those that have inherited a farm or succeeded to an AHA tenancy since 2018 as well as rules on mergers and splits of businesses between 2018 and now.
  • The payment will be based on the average BPS paid in the three years 2019, 2020 and 2021 (the reference period).  The figure for 2021 will be before any Agricultural Transition deductions.  This average sets the ‘reference amount’.  This will be capped at £42,500 (this is equivalent to around 185 hectares or 460 acres).  There will be a standard multiplier of 2.35 to arrive at the value of the lump sum.  Therefore the payment will be limited to £100,000.
  • If the applicant has already reduced their entitlements compared to the reference period, their lump sum will be reduced proportionally
  • Those who take up the Lump Sum will not be able to apply for any new agreements under other support schemes such as the SFI or CS.  The Lump Sum will need to be paid back if these schemes are entered into.
  • Applicants must give up their farmland if they apply to the scheme.  They can keep residential and commercial property, non-agricultural land and up to 5 hectares of agricultural land.  The land that must be transferred is that which was held on the 17th May 2021.  If some of this has already been transferred, the transfer meets scheme rules, and the applicant has kept the entitlements, this would be eligible for the lump sum payment.
  • The transfer of land includes sale, granting a tenancy (which must be for more than 5 years), gifting it, or relinquishing a tenancy.  Where there is an AHA with succession rights, the transfer to a successor will be eligible for the scheme.  It will also be possible to put land held at the 17th May 2021 into woodland planting and claim the Lump Sum.  Sole traders will not be able to transfer to a spouse or civil partner.
  • Applicants will have until 31st May 2024 to complete their transfer (useful if notices have to be given on tenancies or sales negotiated).  It will be possible to apply for the Lump Sum this year and still claim the BPS in 2022 or 2023 if the transfer is not complete.  Any BPS payments made in 2022 or 2023 would be deducted from the Lump Sum – it would be treated as a ‘prepayment’ on the Lump Sum.  
  • The rules on Partnerships and Limited Companies have been made more flexible since the original proposal.  Where Partners or Shareholders (either singly or jointly) have at last a 50% interest in a business they will be able to apply for the Lump Sum.  All entitlements held by the business would be cancelled.  However, any remaining Partners or Shareholders will be able to enter into new land management agreements.
  • The tax treatment of the Lump Sum payment has been clarified.  Legislation will be introduce to ensure that the payments are treated as capital rather than income.  Therefore, they will be taxed under Capital Gains Tax (or Corporation tax for companies) and be eligible for CGT reliefs.  This treatment will also apply to any ‘interim’ BPS payments still claimed in 2022 and 2023 whilst the transfer of land is being sorted-out.

To help with ‘generational renewal’, Defra is also planning a New Entrants scheme.  More details are promised later in the spring.

De-Linking

As previously outlined, this will not happen until 2024.  It appears that a claim (of some sort) will have to be made at May 2023.  This might mean some claimants keep hold of the minimum claim area of 5 Ha in 2023 just to preserve the right to De-Linked payments.  Defra has announced that the reference period for these payments will be the years 2020, 2021 and 2022 (a different reference period to the Lump Sum).  The average of these years will set the reference amount.  This amount will be simply multiplied by the annual deduction to get the payment for the years 2024, 2025, 2026 and 2027.   It can therefore be seen that, if a farmer made a claim in 2020 and 2021, but has subsequently given up (most of) the land, they will still get two-thirds of the payment relating to that land in the four years from 2024.  De-linked payments will be treated as revenue for taxation purposes.  Whether delinked payments can be inherited or transferred is not yet known.

With the delinking of payments, entitlements will have no further use – the 2023 year will be the last time they are used.  If entitlements have been purchased (or inherited) there may be a loss for Capital Gains Tax after 2023.

Also, the cross-compliance system will come to an end.  Defra promises an update shortly on the future regulation of the agricultural sector.

For further information and advice please do not hesitate to contact one of our consultants.

Land Use Change Opportunities for Farmers

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

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

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

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

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

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

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

Farming Focus InBrief – February 2022

  • If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  If you do not have their details please contact the office on 01664 503200 or email [email protected]
  • Defra has released two policy papers giving more information on the Local Nature Recovery (LNR) and the Landscape Recovery (LR).  These are the other two components of ELM, the first being the Sustainable Farming Incentive (SFI) scheme.  The LNR will pay for locally targeted actions to ‘make space for nature alongside food production’.  More details can be found at – https://www.gov.uk/government/publications/local-nature-recovery-more-information-on-how-the-scheme-will-work. The LR is for landowners and managers who want to take a more ‘radical and large-scale approach’ to producing environmental and climate goods on their land.  Agreements are expected to be long term; 20-years plus.  Defra will work with project managers to negotiate bespoke agreements.  See – https://www.gov.uk/government/publications/landscape-recovery-more-information-on-how-the-scheme-will-work. Piloting will take place over the next 2 years with both schemes due to be fully in place by late 2024.  These two schemes will not be for the majority of farmers, the SFI will be the component for most who continue to farm commercially. 
  • The Countryside Stewardship revenue payment rates have been revised.  Most (over 100) have been increased, although a few (less than ten) have been reduced.  All the new rates can be found at https://www.gov.uk/government/publications/countryside-stewardship-revenue-payment-rates-from-1-january-2022/countryside-stewardship-payment-rates-for-revenue-options-from-1-january-2022.
  • The Improving Farm Productivity grant is now open for applications.  It is the second theme under the Farming Transformation Fund (the first one was Water Management).  The grant will pay up to 40% of the costs for robotic or autonomous equipment and systems to aid crop and livestock production including the installation of slurry acidification equipment. The minimum grant is £35,000 and the maximum is £500,000.  There is a two-stage application process between 19th January and 1st March 2022.  For further information see https://www.gov.uk/guidance/farming-transformation-fund-improving-farm-productivity-grant.
  • Providers of the Future Farming Resilience Fund have been given until September to deliver support (originally March). The 19 providers have been given a six-month extension, although, not all have taken up all of this time and they can only take on a limited number of businesses so those interested should apply sooner rather than later.  The Andersons Centre (TAC), through Ricardo, will provide support until June. The advisors offer support in different ways.  Some are delivered via workshops or webinars; TAC offers free one-to-one business reviews and plans. We only have a few places left, please contact us to book a place or see https://www.eventbrite.co.uk/o/ricardo-future-farming-resilience-fund-29430290977
  • The Welsh Government is looking for farmers to take part in the co-design process of the new Sustainable Farming Scheme (SFS).  It will take place in the summer of 2022 and requires farmers to provide ‘opinions on the practicality of proposed actions underpinning the SFS and the wider scheme structure and processes’.  Details of the SFS are due to be published in the first half of 2022 alongside the Welsh Agriculture Bill.  Once the co-design process has been undertaken the final SFS will be announced in 2023.  More details can be found at – https://gov.wales/register-have-your-say-wales-future-farming-scheme.
  • The Seasonal Agricultural Workers Scheme (SAWS), now just called the Seasonal Workers Scheme, will continue for 2022 with the same number of places as last year (30,000), although this can be increased by 10,000 if necessary.  But it will then taper down in 2023 and 2024 and disappear completely by 2025.
  • Defra has granted an emergency authorisation (dependent on 9 conditions) of Syngenta’s Cruiser SB seed treatment on sugar beet crops, in England, for the control of Yellow Virus for 2022.
  • Defra is putting in place new legislation which should mean plant-based research and development using Gene Editing (GE) will be able to take place more easily. The legislation will apply to GE plants only (not animals).  GE is seen as a powerful tool to tackle food security, climate change and biodiversity loss through breeding plants that are resistant to diseases and climate change.  GE is different to GMO, it is used to create new varieties, similar to those which would have been produced more slowly through conventional breeding processes, by manipulating the coding to speed up the development of desirable traits, in contrast to GMO, where genes have been transferred between species (transgenic). 

This month’s Spotlight looks at the latest developments in Biodiversity Net Gain (BNG)  Click Here for further information.

If you would like more detail on the topics covered above as well as additional articles on UK farm business matters, why not subscribe to Andersons’ AgriBrief Bulletin? Over the course of each month, we give a concise and unbiased commentary on the key issues affecting business performance in the UK agri-food industry, and its implications for farming and food businesses. Please click on the link below for a 90-day free trial:

https://agribrief.co.uk/

 

Spotlight on Biodiversity Net Gain (BNG)

More details on the operation of Biodiversity Net Gain (BNG) have been released.  This may seem incidental to agriculture, but it potentially opens up a new income stream for land managers.  An impact assessment published by Defra alongside a consultation indicates that the annual market for BNG offsets may be in the region of £135m and require up to 10,000 Ha of land (see the market analysis here – http://randd.defra.gov.uk/Default.aspx?Menu=Menu&Module=More&Location=None&ProjectID=20608).

In summary, BNG is a new policy being introduced in England under the Environment Act.  It requires any development to deliver 10% more biodiversity after the development has been done than was present beforehand.  Whilst it is possible to deliver some of the ‘after’ biodiversity through measures on the site itself such as ponds and tree planting, in many cases compensating biodiversity will need to be sourced away from the development site – the concept of biodiversity offsets.  When Planning Permission is being applied for, the application will have to submit a biodiversity gain plan with the application.  There is a calculator (the Biodiversity Metric 3.0) that is used to work out the ‘before’ and ‘after’ biodiversity.  A market will develop in biodiversity offsets to meet developers’ needs.  Any biodiversity created must be guaranteed for 30 years.  Conservation covenants are seen as a keyway of ensuring this.

Whilst the Environment Act provides the overall legislative framework, the scheme details need to be filled-in by Secondary legislation.  This is what is being consulted on.  One important announcement is that BNG will not become mandatory until November 2023 – therefore the market for land owners will not be fully developed in the short term (although some firms are already active and trying to set up a ‘bank’ of BNG offsets).  Another important date is that only habitats created after 30th January 2020 can be used as offsets.

One unresolved issue is the interaction of all the various ‘land management’ initiatives.  For example, could a landowner create a habitat to sell the biodiversity offsets, but then also sell the carbon credits, nutrient balances or any other environmental ‘service’.   This also applies to land entering a Defra scheme under ELM – could this also pick up BNG credits?  The consultation indicates Defra is ‘minded’ to allow BNG offsets and other markets to co-exist as long as any outcomes paid for are ‘distinct and additional’.  This builds on Defra’s payments principles under ELM schemes where it seems ‘stacking’ of payments will be allowed as long as different agreements do not ‘pay for the same thing twice’.  Although this seems positive for landowners the precise interpretation of these rules is still not clear and may not become so until both ELM and BNG scheme rules are published.  

The consultation on BNG runs until 14th April 2022.  The documents can be found at https://www.gov.uk/government/consultations/consultation-on-biodiversity-net-gain-regulations-and-implementation.

Farming Focus InBrief – January 2022

  • If you require advice from one of our consultants, do not hesitate to contact them by email or phone.  If you do not have their details please contact the office on 01664 503200 or email [email protected]
  • A reminder that the first round of the Farming Equipment and Technology Fund (the small-scale Farming Investment Fund (FIF)) closes on 7th January.   In addition, the first theme of the larger scale scheme, the Farming Transformation Fund closes on 12th January for grants to fund Water Management.  However, Defra has now published the manual for the second theme, Improving Farm Productivity.  This can be found at https://www.gov.uk/guidance/about-the-improving-farm-productivity-grant.  The focus for this round is robotic or autonomous equipment and systems to aid crop and livestock production and also the installation of slurry acidification equipment.  The window to express an interest in this grant is due to open in mid-January.  The manual has been published now to give potential applicants time to consider their proposals.
  • Revised figures for Total Income from Farming (TIFF) for 2020 show total aggregate profits for farming were £5.121bn (real terms, 2020 prices).  This is an 8% drop from This is much better than initially reported.  The revision is largely down to farm diversification being less affected by Covid in 2020 than first estimated and the volume of seeds, fertilisers and sprays used in the year was lower than thought.  We had been forecasting that 2021 TIFF would be higher than 2020.  This is still the case, although the uplift in last year’s figures means the ‘rebound’ will be less pronounced.  Even so, it seems possible that aggregate UK farm profits for this year could reach the £6bn level which is at the upper end of the range of the recent decade.  With the large cost increases seen in recent months, it seems likely that 2022 will drop back again. 
  • The UK-Australia Free Trade Agreement (FTA) was signed in December.  It is the first trade agreement negotiated independently by the UK in nearly 50 years and will set a precedent for other agreements.  The UK farming sector, particularly grazing livestock and sugar beet will be more exposed to competitive pressure from Australian imports in the long-term. The deal will now go before both the UK and Australian Houses of Parliament for further scrutiny and ratification. It could come into force as soon as mid-2022, but the process might take longer. 
  • The Government has published a review of how secure the nation’s food supply is – the UK Food Security Report (UKFSR).  The Agriculture Act requires such a review at least every three years and this is the first comprehensive study of the topic since the UK Food Security Assessment in 2010.  As the report itself states, food security is ‘a complex and multi-faceted issue’.  As such, the UKFSR does not come up with a simple answer such as ‘we are fine’ or ‘there’s a problem here’.  It is arranged around five themes with broad conclusions drawn under each heading.  The report runs to over 300 pages and presents a wide range of statistics plus case studies and qualitative analysis.  Overall, however, it paints a picture of the UK’s food security being reasonably robust.  For more details see – https://www.gov.uk/government/statistics/united-kingdom-food-security-report-2021.
  • The English cross-compliance guidance for the 2022 scheme year has been published.  It can be found at https://www.gov.uk/guidance/guide-to-cross-compliance-in-england-2022.  In summary, there have been no changes for 2022 so the rules remain the same as in the past couple of years.   The Welsh Government has also published its cross-compliance rules for 2022 (see https://gov.wales/sites/default/files/publications/2021-12/cross-compliance-verifiable-standards-2022.pdf). Again, these effectively show no change.
  • The Bank of England raised UK Base Rates from 0.1% to 0.25% on the 16th December.  This is in response to rapidly rising inflation with the year-on-year increase in prices accelerating from 3.1% in September to 5.1% in November (CPI measure).  Even with the threat of the Omicron variant to economic activity, many economic forecasters are predicting further base rate increases in 2022 as inflation pressure continues.  Rates of 1% by the end of 2022 look possible.
  • The Government has confirmed exports of British lamb to the US will resume in 2022.  The ‘Small Ruminants Rule’ which has been in place in the US for over 20 years, bans the imports of lamb from countries where scrapie has been identified.  After extensive evaluations, the USDA has amended this rule, which effectively means UK processors will be able to ship lamb to the US as from next year.  The amended rule came into force as from 3rd January and paves the way for Defra, DIT, and the UK food safety authorities to work with their counterparts in the US to complete the final steps. This will be a welcome boost to sheep farmers in the UK, the US market is forecast to be worth £37m over the first five years.  The news comes after President Biden committed to lifting the ban on British lamb back in September.
  • A reminder that the Future Farm Resilience Fund is now open. If you would like a one-to-one farm resilience review and report carried out by one of our consultants and access to online skills and training, including resilience planning webinars all for free get in touch with one of our consultants. Places are limited.  More information can be found at https://www.eventbrite.co.uk/o/ricardo-future-farming-resilience-fund-29430290977.

This month’s Spotlight looks at the latest figures for our Friesian Farm Model  Click Here for further information.

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Spotlight on Friesian Farm

The latest figures for our Friesian Farm model illustrate the rapidly changing fortunes of dairy farming as milk prices and costs both move sharply upwards.

Friesian Farm is a notional dairy business milking a little over 200 cows.   It has been used to track the fortunes of British dairy farming for well over a decade.  It has a year-round calving system, like most of the UK industry, but it is trying to maximise yield from forage.  The farm comprises 130 hectares (of which 60 hectares are rented on an FBT).  The proprietor provides labour along with one full time worker (plus casual/relief).  The table below shows the farm’s actual results for the two previous milk years (April to March), a budget for the current 2021/22 year, then a forecast for 2022/23.  

The figures are averages for an entire milk year.  For the current 2021/22 year, this means milk prices are not as high as presently seen, as, for a large portion of the year values were lower.  By the same token, whilst costs have risen (winter concentrate feed being a big element) the biggest rises have only been over the last few months.  In particular, fertiliser for the year was bought last spring at far lower values.  This means the returns for the current milk year look likely, on average, to be good.

It is in the following year that cost increases are really seen.  This is not just in areas such as feed, fertiliser, fuel and electricity, but also in costs such as labour, property repairs and machinery purchase.  Even with a higher milk price, returns are much reduced.  The effect of the Agricultural Transition in England can also be clearly seen with the pence per litre value of the BPS declining.

Budgeting ahead is currently difficult due to the fast-moving situation with costs and prices.  However, it is fairly clear that more testing times for dairy profitability lie ahead unless the cost situation quickly turns around.

Spotlight on the Sustainable Farming Incentive 2022

Defra has announced more details on how the Sustainable Farming Incentive (SFI) will operate in 2022 and the years after.

Standards and Rates

The SFI 2022 will contain four Standards – Arable & Horticultural Soils, Improved Grassland Soils; Moorland & Rough Grazing and Animal Health and Welfare.  The payment rates and the actions required have been updated since the first announcement back in July 2021, the table below summarises these;

 

There will be no capital payments under SFI2022, but these will be added later.

Scheme Rules

The following general SFI rules will apply to all the 2022 Standards and any additional ones added later (see below);

  • applicants for the SFI must be current BPS claimants.  This restriction will be dropped in future to let other land managers enter.
  • SFI agreements will last for 3 years.  There will be a 12 monthly review of agreements at which point more land can be added, additional standards incorporated or the ambition level within standards raised.  During the 3 year agreement farmers will only be able to reduce ambition levels or coverage in exceptional circumstances – therefore the flexibility in agreements is only one way.
  • payment levels will be fixed for the three-year period at the prevailing level when the agreement starts.  They may be adjusted subsequently as more experience of the scheme develops.  Payment will be quarterly in arrears (i.e. more frequent than current schemes).
  • the SFI will operate on a land-parcel basis.  Standards can be signed-up for on a field-by-field basis rather than the whole farm having to be entered.  It appears that different fields can have different ambition levels under the same Standard.
  • land must be under the ‘management control’ of the applicant.  This is taken to be the the Tenant under let situations.  There will be no requirement for Tenants to gain Landlord’s permission to enter the SFI.  Where a tenancy has less than 2 years to run this land will not be allowed in the SFI.  As a transitional measure, land with 2-3 years remaining on its lease will be allowed in.
  • Land already in Countryside Stewardship (or other existing schemes) can also be entered into into the SFI as long as the prescriptions do not overlap or conflict.  This in unlikely for the Soils Standards as they are asking for different actions than CS.  It is also stated that land entered into the SFI can be used for biodiversity offsets or other private agreements.
  • Common land will be able to enter the SFI through group agreements.  A ‘single entity’ (e.g. the Commons Association) will be required to submit the application.
  • a 10-week application window for the SFI will open in 2022.  The precise timing of this will be given in the New Year (although it is stated it won’t clash with the BPS).  Given the statement from Defra that it would like to ‘make the first SFI payments before the end of the year’ this seems to indicate SFI applications after May.  In future years, probably from 2024 onwards, applications will be possible year-round
  • the monitoring of agreements is stated to be ‘simpler, fairer and more proportionate’ than previous EU schemes.

Future SFI

Whilst only indicative at present, Defra has set out when further Standards may be added to the SFI;

  • 2023:  Nutrient Management; Integrated Pest Management; Hedgerows.
  • 2024:  Agroforestry; Low & No Input Grassland; Moorland & Rough Grazing (all levels); Water Body Buffering; Farmland Biodiversity
  • 2025:  Organic; On-farm Woodland; Orchards & Specialist Horticulture; Heritage; Dry Stone Walls

It is possible other Standards will be included as well.  It is notable that in the list above there is no Arable Land Standard or Improved Grassland Standard – both of which were in the Pilot scheme.  Possibly they have been subsumed into ‘Farmland Biodiversity’ or they may have been deemed too unattractive.  

The full details can be found via the Defra website at https://www.gov.uk/government/publications/sustainable-farming-incentive-how-the-scheme-will-work-in-2022