Farming in Focus InBrief – April 2021

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected].
  • The application window for Basic Payment Scheme claims has now opened in all parts of Great Britain. The deadline for submission without incurring a penalty is 17th May this year, as 15th May falls on a Saturday.  The biggest change in the scheme is the removal of most of the Greening requirements (Ecological Focus Areas are still required in Scotland).  This should make the process of claiming somewhat easier.  The entitlement usage rule, which used to mean, at least once in every two years all entitlements needed to be used in a single claim, has also been abolished.  Meaning unused entitlements will not be removed from claimants. In England, the annual revenue claims under Countryside Stewardship and Environmental Stewardship are also open.   Again, the deadline is the 17th  If you need advice on completing your 2021 BPS application or an Agri-environment revenue claim, please contact your usual consultant or 01664 503200 or email [email protected].
  • Morrisons has pledged to be the first supermarket to be supplied by net-zero farms.  The supermarket has said it will work with its 3,000 suppliers to help them become zero carbon emitters by 2030.  Waitrose has also committed to be supplied by net zero farms by 2035.  Morrisons expects eggs will be the first products to reach this status and this could be as early as 2022.  Lamb, fruit, vegetables, pork and beef will then follow. The retailer’s Livestock and Produce Teams will initially work with a small number of their suppliers to create net zero carbon farm ‘models’.  Once these ‘blue prints’ have been established they will be rolled out across all of the retailer’s suppliers to enable all food to be produced in a climate friendly way.
  • The Farm Business Grant opened in Wales on 1st March.  This is the 8th Expression of Interest EoI) for the scheme which pays up to 40% towards the cost of specific capital items which have been pre-identified to improve the economic and environmental performance of the business.  Applications are made via RPW Online.  The deadline for EoI is 9th April 2021.  Further information is available via: https://gov.wales/farm-business-grant-rules-booklets
  • The Swedish company Oatly, that produces alternatives to dairy products from oats, plans to open its first UK factory in 2023.  The facilities which will be based in Peterborough, Cambridgeshire will initially produce 300 million litres of oat drinks per year, increasing to a capacity of 450 million litres.  According to the company it will use oats from across the UK which will be a boost for the domestic crop, which has seen a resurgence in recent years.
  • Cereals 2021 will now be held on June 30th – July 1st this year.  Under the Government’s lockdown exit strategy, restrictions are due to end on 21st June, organisers have therefore decided to move the event from the original June 9th -10th in order to accommodate the maximum number of visitors and exhibitors.  The event will continue to be held at Boothby Graffoe, Lincolnshire with the format remaining the same as in previous years.
  • The Budget, on the 3rd March continued support for the economy to cope with the effects of the Covid-19 pandemic whilst making the first, tentative, steps towards rebuilding the public finances. The economic outlook is set to improve later this year as lockdown measures are gradually unwound.  The UK economy is forecast to have shrunk by 9.9% in 2020 – the largest contraction for 300 years.  The latest forecast from the Office of Budget Responsibility (OBR) indicates that the economy will rebound with 4% growth in 2021 followed by an increase of 7.5% the year after.
  • The effect of Brexit can be seen in sharply reduced trade volumes with the EU. The Office for National Statistics (ONS) recently published UK trade data for January 2021.  Unsurprisingly this has revealed significant drops in food and live animals trade with the EU; there has been a 64% drop in exports to the EU, whilst imports from the EU have fallen by 24%.  More time is needed before definitive conclusions can be drawn, however.  The situation has improved since January and traders who are well-organised are getting through the EU border controls.  It will be mid-year before a definitive picture will emerge as agri-food trade is often lower during January to March.  Trade should recover somewhat but probably not to the same levels as before.  The significant decline in EU imports also presents opportunities for domestic suppliers to capture a greater proportion of the UK market, particularly in perishable agri-food products.  This will mean that there will be winners as well as losers as a result of Brexit.

This month’s Spotlight looks at the Sustainable Farming Incentive (SFI) pilot scheme, it gives details of the different ‘Standards’ and payment levels released by Defra; a first look at this component of ELM. Click Here for further information.

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

https://agribrief.co.uk/

 

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

 

 

Farming in Focus InBrief – February 2021

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected].
  • The Environment Bill has passed the Committee stage in the House of Commons.  It now moves on to the House of Lords.  However, due to a lack of Parliamentary time, the passage of the Bill will be delayed until the start of the next session in May. It is now expected to become law in the autumn.
  • All parts of Great Britain have published their cross-compliance guidance for 2021. In all countries the requirements are pretty-much identical to those for 2020.  The main change is how the rules and inspections are enforced – with Brexit there is now more flexibility on how the inspection regime operates.  The English guidance can be found at – https://www.gov.uk/guidance/cross-compliance-2021; the Welsh version at – https://gov.wales/cross-compliance-2021Defra has also published a useful list of what is required at a cross-compliance inspection this can be found at Cross compliance inspections: information needed for an inspection – GOV.UK (www.gov.uk)
  • The Seasonal Agricultural Workers Scheme (SAWS) will be extended to 30,000 places for 2021. The Government has announced the Pilot scheme, which ran with 2,500 places in 2019, and 10,000 in 2020 will be extended, and expanded, for the coming year, but the numbers still fall short of the estimated 80,000 seasonal workers required.
  • Defra has launched a consultation on the rules surrounding Gene Editing (GE) which could see approvals made easier. It is Defra’s view that organisms produced by GE or by other genetic technologies should not be regulated as GMOs (as is the case now under retained EU legislation) if they could have been produced by traditional breeding methods.  Brexit allows the UK to change this legislation.  The consultation can be found via https://consult.defra.gov.uk/agri-food-chain-directorate/the-regulation-of-genetic-technologies/. Responses by Wednesday 17th March 2021.
  • Defra has authorised the emergency use of neonicotinoids on sugar beet seed in 2021.  The authorisation is for the use of Syngenta’s Cruiser SB seed treatment in England only, once a threshold for virus levels has been reached.  The emergency authorisation has strict conditions attached including:
    • the application rate will be below the normal commercial rate
    • no flowering crop is to be planted within 22 months of the sugar beet crop, with no oilseed rape crop to be planted within 32 months  of the sugar beet crop
    • an industry-recommended herbicide programme must be followed to limit flowering weeds in and around the sugar beet crop.
  • The UK sugar industry faces increased competition after it was confirmed the Government’s proposed Autonomous Tariff Quota allowing imports of 260,000 tonnes of raw sugar per year without having to pay the UK’s import tariff of £280 per tonne will be enacted.  This is likely to increase price pressure in the UK market as low-cost cane sugar competes with UK beet.  The Government argues that this volume will merely replace sugar imports from the EU.  With the Brexit deal, however, then EU sugar can continue to come into the UK tariff-free too.
  • With the UK-EU Trade and Cooperation Agreement (TCA) (Brexit trade deal) in place, attention is shifting towards Free Trade Agreements (FTAs) with non-EU countries. The TCA was largely about protecting what was already in place – i.e. the significant trade between the UK and the EU. Therefore, the agreement largely preserves the status quo and has had little effect (so far) on markets.  Attention is now turning to the new deals the UK might sign with other countries.  This would see a change in the trading environment – and an effect on prices.  From an agricultural perspective, the most notable of these are the US, Australia and New Zealand. The negotiations which are most likely to conclude in 2021 are those with Australia and New Zealand.  Both countries are major exporters of beef and lamb, dairy products and wine.  Admittedly, imports of beef and lamb from both countries into the UK and EU have been below historic levels recently (supporting current strong prices).  This is mainly a function of a greater emphasis being placed on the Asia-Pacific region, particularly China which is struggling with African Swine Fever.  However, if the UK agrees an FTA with these countries it will lower trade barriers significantly and make the UK a more attractive destination.  Longer-term, it is inevitable that the UK will seek FTAs with other countries.  Chief amongst these would be Mercosur, which includes Brazil and Argentina – two farming powerhouses.
  • Vydate has not been re-authorised for use in the UK as from 31st December 2020.  The pesticide, can no longer be used, sold or distributed in the UK.  The decision was made just one week before authorisation ended and only gives until February 28th 2021 to dispose of any product.
  • Defra has announced the Countryside Productivity Small Grants Scheme Round 3 claim deadline has been extended by two months.  Applicants now have until midnight on the 31st May 2021 to buy and install all their items, and submit their claim for payment.
  • Country Stewardship (CS) applications are expected to open shortly. Whilst ELM is being piloted the CS scheme will remain open to new applications and those that go into CS will not be penalised if ELM is ‘better’. The RPA has stated ‘no-one in a CS agreement will be unfairly disadvantaged’ as the transition to ELM takes place.  Those who enter a CS agreement from 2021 onwards will be able to end their agreement, at agreed points, where they have secured a place in ELM.  A new objective for CS from 2021 will be air quality, with the aim to reduce ammonia emissions from agriculture.  Under a new Capital Grants offer, existing options that improve air quality such as slurry store covers or planting tree shelter belts are expected to be available as a stand-alone capital agreement, in priority areas, together with two new capital items – automatic floor scrapers and low emission flooring for livestock housing.  Further details are expected in the new CS 2021 manual, which is expected shortly and we hope to be able to feature this in next month’s Farming in Focus Spotlight.  With BPS payments starting their phase out this year, many are taking another look at CS.  Our consultants are experienced in drawing up applications which ‘work’ for their clients.  If you would like to discuss a CS application, please find the ways to contact us at the beginning of this briefing note.

This month’s Spotlight looks at the recently released Farm Business Income figures.  These are broken down by farming sector and for each one, into 4 profit areas, showing just how reliant the land based sectors are on the BPS money. Click Here for further information.

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

https://agribrief.co.uk/

 

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/

 

 

 

ANDERSONS NEWS RELEASE – WEBINARS 2021

ANDERSONS WEBINARS 2021

Brexit: It’s Just the Start

The farming industry breathed a collective sigh of relief when the UK and EU signed their 11th-hour trade agreement.  However, those in the agricultural sector who believe that trade issues have been put-to-bed for the foreseeable future are likely to be disappointed.  Now that the UK has left the EU, the industry will arguably have to keep a closer eye on trade policy, not least to ensure that the sector’s position is protected when deals are being done.  This is the message from Andersons the Farm Business Consultants.

Firstly, the UK/EU ‘Trade and Cooperation Agreement’ (TCA), even at 1,246 pages, is not the final word on trade with the European Union.  The next few months will see how the complex provisions of the deal in areas such as Rules of Origin, Customs and Checks impact on trade in practice.  Already problems have been seen, especially regarding Northern Ireland.  And this is when trade flows have been quieter than usual as a result of previous stockpiling.  The TCA does not cover services (around 80% of the UK economy), including the key sector of financial services.   There are also unresolved questions on data sharing, and some parts of the deal, such as fisheries, come up for review after five years.  Therefore, perhaps after a brief pause, there is likely to be continuous ongoing negotiations with the EU on these issues.  The danger for farming is that it might get drawn into these negotiations as ‘leverage’.

The TCA also includes Level-Playing-Field provisions to uphold existing standards in areas such as environmental standards and labour law.  Any significant undercutting by one side could lead to retaliatory tariffs by the other – with farm goods likely to be a key target for any such tariffs.  How the level-playing-field rules are going to work in practice is very unclear.  For example, if the UK were to authorise GM crops, or at least gene-edited crops, would the EU see this as a reduction in ‘environmental standards’.  The scope for arguments seems huge.

The second main area of concern is trade deals with other countries or trading blocks.  The TCA was largely about protecting what was already in place  –  i.e. the significant trade between the UK and the EU.  Therefore, the agreement largely preserves the status quo and has had little effect (so far) on markets.  Any new deals the UK signs with other countries will see a change in the trading environment – and an effect on prices.

Much of the focus in this area has been on the US and the potential clash of production standards with the famous chlorinated chicken and hormone beef.  A deal with the UK is unlikely to be top of Joe Biden’s to-do list in the short-term.  Deals with Australia and New Zealand are perhaps more likely in the short-term and, arguably, could have a bigger impact on our farm markets – especially in the livestock sectors.  Free trade agreements with these two nations are seen by the UK Government as a prelude to the UK joining the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP).  Further down the line, the UK is almost certain to explore deals with other agricultural ‘powerhouses’ such as Mercosur, which includes Brazil, and Argentina.

The danger for farming in all of these potential deals is that the UK Government may be willing to trade access to our agricultural markets for gains for our exporters elsewhere in areas such as aerospace, financial services, medicines etc.  The UK farming industry needs to ensure it is not made a sacrificial lamb.

The final area concerns tariffs on food imports generally.  For those countries we do not have a Free Trade Agreement (FTA) with, the level of tariff protection offered by the new UK Global Tariff (UKGT) is very similar to that which we enjoyed in the EU.  However, the UKGT is only ‘temporary’ and could be easily changed.  If the UK economy enters a post-Covid recession, might the Government be tempted to move to a ‘cheap food’ policy and lower some of these tariffs?

In summary, trade matters will continue to be important for the farming sector for years to come.

Andersons is running two Webinars on the 11th February looking at trade matters in more detail along with farm profitability and future agricultural policy.  For more information, please go to https://theandersonscentre.co.uk/webinars/

Ends

 

No of words 725
Author Richard King
Date 22nd January 2021

This news release has been sent from The Andersons Centre, Old Bell House, 2 Nottingham Street, Melton Mowbray, Leicestershire LE13 1NW.  For further information please contact Richard King on 07977 191 427.  

Farming in Focus InBrief – January 2021

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected].
  • The first forecast of Total Income from Farming (TIFF) by Defra shows farm profits in 2020 fell by over 20% to £4.151bn compared with £5.278bn in 2019. Crop output, in monetary terms, is down 13% compared to 2019.  Livestock output is forecast to rise slightly.  We had been predicting a 10% drop, so the level of decrease comes as a bit of a surprise.  However, the first Defra forecasts have a history of quite large revisions, so the figure could yet settle closer to our estimate (£4.7bn) when the ‘first estimate’ is published in May next year. 
  • The Agricultural and Horticultural Development Board (AHDB) has published a new 5-year strategy (see https://ahdb.org.uk/strategy) and is asking ley-payers to comment on the proposals by the end of January. The AHDB will focus on two main areas.  The first is assisting levy-payers on-farm.  This will be through using data and analysis to help them make better decisions, investing in R & D and promoting knowledge exchange to get best-practice out onto farms.  The second focus area is promoting produce – both in new markets abroad but also domestically.
  • The RPA paid 95% of English farmers their 2020 BPS on 1st December.  This equates to £1.671bn (up some 40% on the amount paid on the first day in 2019).  The Agency also started paying Countryside Stewardship and Environmental Stewardship revenue payments for 2020.  There will only be one payment under these schemes this year rather than split payments as in the past.  The Welsh Government paid 94.6% (93.5% in 2019) of farm businesses either their full BPS or the BPS Support Payment (estimated 90%) during the first week of the 2020 payment window.  This equates to over £219.3m being paid to more than 14,900 claimants.
  • The Welsh Government has set out plans to replace the BPS with its Sustainable Farming Scheme (SFS).  However, those eager for scheme details still have to wait. The Agriculture (Wales) White Paper sets out the intentions for primary legislation and provides the basis of the Agriculture (Wales) Bill.  The full White Paper can be found at https://gov.wales/sites/default/files/consultations/2020-12/agriculture-wales-bill-white-paper.pdf. A consultation will run until 25th March 2021.  The Agriculture (Wales) Bill is planned to be put before the Senedd in summer 2022.  It will provide the framework for future policy with secondary legislation providing the detail.  Included will be the provisions to establish Sustainable Land Management (SLM) as the ‘overarching principle’ for future agricultural policy.  The proposal is to replace the BPS and Glastir with the Sustainable Farming Scheme (SFS).  However, the White Paper does not offer a time-line for this transition, but the Welsh Government has requested a ‘sunset’ clause, so legacy CAP schemes will end in 2024.  No scheme details or payment rates have been included, but the aim is to make payments by ‘rewarding’ farmers for the delivery of outcomes rather than compensation for the costs of inputs.  A Farm Sustainability Review will be required for each farm.
  • The EU has extended the recognition of the UK’s organic standards and six organic certification bodies until the end of 2021.  Without this approval, UK produce would not have been able to be sold in the EU as ‘organic’ after 31st December 2020.  This is a short-term reprieve, so does not provide long-term certainty for UK organic exporters.  
  • The AHDB’s Early Bird cropping intentions survey shows the wheat area is forecast to bounce back by 28% to 1,815,000ha in 2021; similar to 2019 levels. Winter barley is also expected to increase by 24% to 394,000ha.  OSR continues its decline by another 18% to 318,000ha, the smallest since 1986.  The spring barley area is forecast to reduce back to more normal levels, by 30% to 767,000ha.  The pulse area may rise by 7% to 257,000ha as growers switch from OSR.
  • British Sugar now believes production this year will be 25% lower than last at 900,000 tonnes. It has also announced the one-year contract bonus has been triggered for 2019 and eligible growers should have received 2.6p/t in December from the processor.
  • The AHDB’s first production estimate for this 2020 year’s potato harvest is 5.318mt, up 3.1% on 2019. Average yields were 46.2t/ha, the highest since 2017.  The levy board is forecasting demand to be 4% higher in 2020 than 2019, with fresh sales outweighing the decline in out-of-home sales.
  • The English and Welsh Governments have issued a consultation on banning the export of live animals for slaughter and fattening.  The Governments are also consulting on wider proposals to improve animal welfare in transport.  The consultation can be found at; https://consult.defra.gov.uk/transforming-farm-animal-health-and-welfare-team/improvements-to-animal-welfare-in-transport/ It closes on 28th January 2021.

This month’s Spotlight looks at the recently agreed UK-EU Post Brexit Trade Deal and Implications for UK Agriculture. Click Here for further information.

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

https://agribrief.co.uk/

 

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/

 

 

 

Impact of Brexit on Scottish and UK Agriculture

We recently completed a study on behalf of the Scottish Government to assess the impacts of different potential Brexit outcomes beyond the end of the EU transition period on key Scottish agricultural sectors. The work combines trade-model and farm-level analysis supplemented by industry interviews and desk-based research. The report is available by clicking here.

The study has quantified the impact of Brexit on selected Scottish and UK agricultural sectors namely: cereals (wheat and barley); livestock (dairy, beef and sheep); and horticulture (potatoes, cauliflower/broccoli and strawberries). This has been done using two scenarios, a Free Trade Agreement (FTA) and a No Trade Deal (No Deal) versus the Baseline of the UK continuing as an EU Member State. The research has been undertaken using a combination of Agmemod, a partial equilibrium economic model, desk-based research and industry interviews.

Assessments were also undertaken on the impact of tariffs, non-tariff measures (NTMs) and tariff rate quotas (TRQs) on future UK-EU trade patterns. These served as inputs to the Agmemod modelling which was undertaken with support from Wageningen University and Research (WUR) to assess Brexit impacts on wheat, barley, beef, sheepmeat and the dairy sector. These modelling results were then used in conjunction with additional analyses on horticulture to ascertain the impact of Brexit on UK and Scottish agricultural output and farm-level performance in Scotland.

A PDF version of the Summary Report is available via: https://www.gov.scot/publications/analysis-brexit-scenario-impacts-scottish-agricultural-sectors/

Outlook 2021 – A Landmark Year Ahead

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

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

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

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

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

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

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

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

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

Farming in Focus InBrief – December2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected].
  • The payment window for BPS 2020 opened on 1st December.  However, Scotland has used a National Scheme to make 90% advance payments, starting back in September.  Wales has a good record for making payments on the first day, but those who do not receive payment in the first week, will hopefully have applied for a 90% advance; applications closed on 27thNovember.  England does not have any advance options, but anecdotal evidence shows more payments are expected in the first tranche.  The exchange rate is the same as in 2019, but payment rates are higher as no financial discipline has been deducted this year.
  • The Agriculture Act 2020 has received Royal Assent enshrining into law the phasing out of the BPS over the seven year ‘Agricultural Transition’ in England (more information has been published on this and is included in our Spotlight article – see below). There had been strong lobbying for the Act to also include minimum standards for food imports to the UK.  A compromise was reached between the House of Lords and House of Commons after the Government  tabled a new amendment, meaning the newly formed Trade & Agricultural Commission would be put on a statutory footing, with its reports on future trade deals put before Parliament. 
  • The Comprehensive Spending Review (CSR) delivered on the 25th November, painted a grim picture of the economy; with it set to shrink by 11.3% this year (2020-21) – the largest fall for 300 years.  A recovery is then forecast with 5.5% growth in 2021-22 and 6.6% the following year.  For farm businesses, total farm support in England will be £2.4 billion in 2021-22 to meet the government’s commitment to maintain the current annual budget to farmers in every year of this Parliament.
  • Brexit negotiations are at a crucial stage and, although the EU believes 95% of the text for the trade deal has been agreed, 3 sticking points remain.  These are the level playing field provisions, State Aid and fisheries.  Given that several deadlines have now passed and the Transition Period will end on 31st December, time is now the biggest threat.
  • The Scottish Government has announced payments under the Less Favoured Areas Support Scheme (LFASS) will continue in 2021 and will be increased back to the levels paid in 2018.  In addition, regulations are being put before Parliament to allow LFASS to continue to 2024, also fixing payments at (the higher) 2018 rate.  But there is frustration over the lack of progress on support post 2024.  NFU Scotland has said the Scottish Government needs to ‘stop dithering and start delivering’.
  • The first round of the new ‘Farm Business Grant – Yard Coverings’ scheme is open in Wales.  A General Rules Booklet with a list of the eligible items can be found at https://gov.wales/sites/default/files/publications/2020-11/farm-business-grant-yard-coverings-rules-booklet_0.pdfApplications have to be made via RPW Online and guidance on how to do this can be found via https://gov.wales/farm-business-grant-yard-coverings-using-rpw-online-apply The minimum grant threshold is £3,000 per application and the maximum £12,000.  This FBG – Yard Coverings Scheme is separate to the main FBG Scheme, meaning any funds received under the main scheme do not affect the Yard Covering scheme thresholds and vice-versa. The grant provides a maximum 40% contribution towards standard costed capital investments in equipment. The closing date for EOIs is 18th December.  A further round is expected to run from 18th May to 25th June 2021. 
  • The Government has announced an extension to the temporary increase in the Annual Investment Allowance (AIA).  In the 2018 Budget, the cap was increased from £200,000 per annum to £1 million.  It was due to revert back to £200,000 on 1st January 2021 but will have a year-long extension until 1st January 2022.  The AIA provides businesses with 100% same year tax relief on qualifying capital expenditure which includes plant and machinery. 
  • British Sugar is forecasting ‘well-over’ a 10% decline in sugar production compared to last year’s 1.19m tonnes. Dry conditions at planting and virus yellows have impacted the crop.  It is a similar picture in continental Europe.  In France, where yields are reported to be down between 25-50% there has been an easing of the neonicotinoid ban to try and reduce the prevalence of virus yellows and save the sector.
  • The use of Glyphosate could be extended until at least 15th December 2025. All active substances due to expire between 1st January 2021 and 31st December 2023 will be given a 3-year extension under the new GB pesticides regulations.
  • Defra has launched a consultation on reducing ammonia emissions from urea fertilisers. Defra’s preferred option is a ban on solid urea fertilisers.  The consultation closes on 26th January.

This month’s Spotlight looks at Defra’s ‘Path to Sustainable Farming’ publication which gives more detail on future farm support in England, including the deductions to BPS payments and the schemes which will be in operation in the future. Click Here for further information.

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

https://agribrief.co.uk/

 

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/