Category: The Andersons Centre

Farming in Focus InBrief – September 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact them, their details can be found at the end of this Briefing.
  • The biggest reform of the Planning system in England since 1947 is being promised by the Government.  It released a Planning White Paper and Consultation, ‘Planning for the Future’, in August looking to free-up constraints on development in order to drive economic growth whilst, at the same time, protecting important areas and delivering ‘sustainable, beautiful, safe and useful development’. The full consultation can be found at – https://www.gov.uk/government/consultations/planning-for-the-future.  The closing date for consultation responses is October 29th.   
  • Agreement between the UK and the EU on a Free Trade Agreement seems as far away as ever.  Speaking after the latest round of talks from 18th to 21st August, the EU’s chief negotiator was notably downbeat.  From the UK side, there were similar sentiments.  David Frost, the UK’s negotiator stated that “agreement is still possible, and it is still our goal, but it is clear that it will not be easy to achieve.”  The sticking points have not changed.  There remains a wide divergence on fisheries, the ‘level-playing field’ provisions and the role of the European Court of Justice.
  • Defra has released a ‘Countryside Stewardship Greening Amendment Form’.  This relates to Mid and Higher Tier applications for agreements which are due to commence 1st January 2021.  Because the Greening requirements have been abolished in England under the BPS for 2021 onwards, the RPA has recognised applicants may now want to use some of their previous EFA land as part of their CS application.  From 2019, there were 19 CS options for Higher Tier and 18 for Mid Tier which fell under the ‘double funding’ rules and it was not possible to overlap these CS options with EFAs on the BPS application.  The form can be found via https://www.gov.uk/government/publications/greening-amendment-form-countryside-stewardship.
  • The Welsh Government has announced there will be a Basic Payment Support Scheme in operation again for 2020 BPS payments.  This will make payments of up to 90% of an individual business’s anticipated 2020 BPS claim value.  Loans will be made to those whose claims have not been fully validated in time to make the BPS payment on 1st December; Support Scheme monies will be made during the second week of December.  The online application process will be open from 1st September and all claimants are advised to apply as there is no way of telling which claims will be ready for payment on 1st December or whether the Support Scheme will be required.
  • The Government has announced the ban on evictions from residential properties will be extended for a further four weeks. It has also said, for England only, the notice period to evict a residential Tenant will be increased to six months.  Both measures have been introduced to give Tenants more protection from eviction due to the effects of Coronavirus, with the longer notice period designed to give them certainty over the winter.  
  • The 3rd Woodland Carbon Guarantee (WCaG) auction will take place online between 26th October and 1st November.  The WCaG provides owners of new woodland projects the option to sell their captured carbon in the form of carbon credits, called Woodland Carbon Units to the Government for a guaranteed price, protected against inflation, every 5 to 10 years for 35 years.  A further £10m, from the scheme’s £50m budget is available.  Applications to the scheme must be made by 11th October.
  • The sugar beet base price for next year has been set at £20.30 per tonne, compared with the current £19.60 per tonne.  Both these prices have no crown-tare deduction. From 2021 there will be a new sugar scale which will see farmers paid directly based on the sugar content of their beet.  The market-related bonuses will be retained.  There will also be a three-year contracting option for 2021 – 2023, at a fixed price of £21.18 per tonne.  A pilot scheme, linked to the sugar futures market, will also be available for 100 growers in the first year who can allocate up to 10% of their contract to this mechanism.  Producers will be able to fix a price based on prevailing values on the sugar market. For the first time in 2021, there will be a virus yellows disease compensation fund.  Contract packs and offers should be received by growers shortly.
  • The deadline for applications to the Dairy Response Fund has been extended until midnight on 11th September.  Further details can be found at https://www.gov.uk/government/publications/dairy-response-fund-2020

This month’s Spotlight looks at harvest progress and autumn plantings. 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/

Spot Light on Harvest Progress & Autumn Plantings

Harvest Progress

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

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

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

Autumn Drilling

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

 

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

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

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

https://agribrief.co.uk/

 

Farming in Focus InBrief – August 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • Defra has confirmed Greening under the Basic Payment Scheme (BPS) will no longer be a requirement in England from 2021.  This will mean for 2021 BPS applications, Crop Diversification (two and three crop rule) and Ecological Focus Areas (EFAs) will no longer be needed.  There has been no announcement yet from Wales and Scotland, but these administrations will be under pressure to follow suit.  There will be no change to the overall payment as the ‘Greening’ element of the payment will be added to the main BPS payment.
  • Those who made a BPS claim in 2019 of more than €2,000 should receive a reimbursement from RPA via the Financial Discipline Mechanism (FDM).  The rate being used for 2019 is 1.371% (1.346% in 2018).  Payments commenced from 1st July.
  • The Welsh Government has confirmed its intention to press ahead with the Sustainable Farming Scheme as the centre-piece of its post-CAP farm support.  However, the new system will be designed and introduced only slowly over the next few years. There will be a transition period from the current BPS to the new arrangements.   There is no indication of when the transition will start and how long it will take.  Although the Government has already stated that the BPS will continue in its present form for the 2021 claim year.
  • The Glastir Small Grants scheme will open for a further round of applications in Wales between the 27th July and 4th September 2020.  The theme for this round is water.  Grants will be available for capital works to carry out projects which will improve the water quality and reduce the risk of flooding.
  • The Government has agreed to set-up a Trade and Agriculture Commission to protect UK food standards under future trade deals. Whilst seen as a lobbying success for the farming sector, it must be noted that its findings will be advisory only.  Also, the Commission’s six-month remit means it is highly unlikely that any Free Trade Agreement will emerge with the US before the Commission is wound-up.
  • Dairy processor Medina has announced it will be closing its Watson’s Dairy in Hampshire, to try and consolidate its processing operations in a bid to save money.  The fresh liquid processing site had facilities for 200 million litres, although it has not been operating at full capacity.  This will now be diverted to Buckleys (Huddersfield), Severnside (Gloucestershire) and Freshways (London).   There could be a potential loss of 144 jobs, but the closure, according to Medina, should not have an impact on its 156 farmer suppliers.
  • Defra has confirmed bovine TB vaccination trials are to start in England and Wales.  This follows a major breakthrough by Government scientists and could see the vaccine for cattle rolled out in 2025.  The field trials will take place over the next four years on behalf of Defra, the Welsh and the Scottish Governments.  The deployment of a cattle bTB vaccine was one of the key priorities in the Government’s response to an independent review of its 25-year bTB strategy conducted by Professor Charles Godfray, which set out the goal to phase out intensive culling in the next few years.
  • The UK will be able to import an extra 260,000 tonnes of raw sugar without tariff from the start of 2021.  This could have significant impacts on the price of home-grown sugar beet.  This is the only such volume-based tariff reduction yet announced.  It might make sense if the UK does not do a trade deal with the EU – the new cane volume can replace imports of beet sugar from Europe which would then be subject to the UKGT tariff.  However, should a deal be done, then EU imports will continue to be tariff-free, and the additional cane volume offered will simply increase volumes and drive down prices on the UK market.
  • The wet weather in autumn caused a huge swing to spring plantings. According to the AHDB’s 2020 Planting and Variety Survey, GB winter wheat plantings recorded a year-on-year decline of 25% to 1,363K hectares.  The winter barley area has fallen by 34% to 296K hectares. Consequently, spring barley plantings have increased 52% on the year to 1,063K hectares.  The area of oats has declined by 2% in Scotland, but in England as an alternative to winter drilling and a replacement for OSR, has increased by 26%.  The OSR crop in England has decreased by 28% to just 355K hectares, the lowest since 2002.  Dry drilling conditions and then persistent rain, coupled with CSFB, particularly in the East and East Midlands caused significant reductions.  Yield is also expected to be low and production could be the lowest recorded this millennium.

This month’s Spotlight looks at how autumn lettings could affect support payments (BPS) through the Agricultural Transition and who might receive them. 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/

Spot Light on BPS Transition and Autumn Lettings

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

Agricultural Transition

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

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

De-Linking

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

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

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

Lump-Sum

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

Environmental Land Management

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

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

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

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

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

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

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

https://agribrief.co.uk/

 

 

Spot Light on Brexit & Trade Negotiations

Brexit

Whilst multiple rounds of negotiations have taken place, talks with the EU have been stalling due to impasses on several key issues.  These include governance (role of the European Court of Justice), ‘level playing-field’ issues, fisheries, criminal and judicial cooperation as well as the implementation of the Irish Protocol.  On 15th June, the Prime Minister and the EU Commission President, Ursula von der Leyen, held talks where they agreed to intensify negotiations (to be held on a weekly rather than fortnightly basis) in a bid to secure an agreement.  Most analysts now believe that it will be October before a deal is likely to emerge. Due to the time required for EU members to ratify any deal, negotiations cannot really continue right up to the December deadline.

Transition Period Extension

The deadline for extending the Transition Period beyond 31st December this year has passed with a whimper rather than a bang.  The UK Government made it clear it would not ask for an extension before the 1st July cut-off.  The EU saw little point in asking for one from its side as it simply provides an opportunity for the UK to say ‘no’.

Other Trade Deals

The Department for International Trade (DIT) is also conducting talks on Free-Trade Agreements (FTAs) with a number of other countries;

  • talks with the US have already started. There is little substantive to report as yet. The key issue in terms of agri-food is threat posed by permitting imports from the US which do not meet the standards that British farmers currently adhere to.
  • negotiations with Japan have commenced and, given that Japan recently concluded an FTA with the EU (which at the time included the UK), it is anticipated that talks should be wrapped up quickly.  The UK already exports significant volumes of wheat and barley to Japan.  Export opportunities also exist for products such as whisky.
  • the UK has formally announced its objectives for the upcoming trade negotiations with Australia and New Zealand.  Agriculture is likely to feature prominently, especially given the historical trading relationships which existed before the UK joined the EEC. Increased access for beef, lamb, dairy and horticultural products will be the key asks from Australia and New Zealand.
  • the UK has reaffirmed its interest in becoming a member of the Comprehensive and Progressive Agreement Trans-Pacific Partnership (CPTPP) which is one of the world’s largest free trade areas, accounting for 13% of global GDP in 2018.  The CPTPP includes Japan, Australia and New Zealand and deals with these countries are seen as a step towards joining this larger trade bloc, which also includes Canada, Chile, Malaysia, Mexico, Singapore and Vietnam.
  • with the UK leaving the EU, it is seeking to replace the FTAs which the EU had agreed with other countries whilst the UK was still a Member State.  To this end, it has been pursuing Continuity Agreements.  To date, agreements have been concluded with approximately 50 countries, including Switzerland, South Korea, Chile and South Africa.  Negotiations are ongoing with 16 others, including Canada, Mexico and the Ukraine.  Such rollover agreements are anticipated to have a limited impact on agri-food as they are largely seeking to replace existing FTAs.

Whilst pursuing trade deals around the world is a crucial aspect of the UK’s independent trade policy, one must not lose sight of the fact that exports to the EU (£300 billion) accounts for 43% of total UK exports.  Therefore, it is hoped that securing a comprehensive FTA with the EU remains the priority of the UK Government.

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

https://agribrief.co.uk/.

 

 

 

Farming in Focus InBrief – July 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • The Government has announced updates to some of the Covid business support schemes. For the self-employed, there will be a 2nd (and final) round of funding made available in August. The grant will be worth 70% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total. From the 1st July it will be possible to bring furloughed workers back on a part-time basis, with the Government’s contribution to the Coronavirus Job Retention Scheme being gradually tapered down.
  • Seasonal agricultural workers coming to England will be able to start work immediately.  Unlike other international travelers, those arriving to work on farms will not have to self-isolate for the first 14 days after they arrive as long as other rules are followed. The Government has produced strict guidelines; these can be found at https://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farms
  • Hopefully, all 2020 BPS claims will by now have been submitted.  But if this is not the case it is still possible to make a claim and to make amendments to an already submitted application until midnight on 10th July, but this will attract a 1% penalty for every working day after 15th  June. After the 10th July claims will not be accepted. It is also possible to make changes which do not increase the claim at any time, so long as notification of an inspection or non-compliance has not been received.
  • Defra has re-opened the ELM Policy Discussion Document for responses.  The discussion paper sets out Defra’s initial thinking for the design of the new ELM scheme (to replace BPS) and includes 17 questions. Due to Covid-19 the policy discussion was paused on 8th April. Those wishing to make a response, now have until 31st July.  Originally, the intention was to hold a number of regional workshops, these will now be in the form of interactive webinars, held throughout July.  For further information, go to https://consult.defra.gov.uk/elm/elmpolicyconsultation/
  • Tractor registrations, often the bellwether for UK agriculture, have shown a sharp decline in April and May according to the Agricultural Engineers Association.  Compared to the previous year, registrations for these two months fell by 50.6% & 41.9%.  However, April 2019 was a particularly high point for registrations as there was an increase in purchases before the original Brexit date.  Registrations for the year are down by 26.5%.
  • The Farming Recovery Fund has re-opened for those who were affected by Storm Dennis in February 2020.  Funding of £500 – £25,000 is available to cover non-insurable items and activities such as re-cultivation, re-seeding, reinstating field boundaries and removing debris from farmland.  Eligibility for the scheme has been pre-determined using satellite data showing the extent of the flooding in February.  It covers land in Herefordshire, Gloucestershire, Worcestershire, Shropshire, Staffordshire, Nottinghamshire, North and East Yorkshire.  Applications must be made by 1st September. Further guidance can be found at; https://www.gov.uk/guidance/farming-recovery-fund-extension-2020
  • The sugar beet market bonus has been triggered for the first time.  Concerns over poor yields for the forthcoming crop in the UK and the EU have pushed the average EU and UK white sugar price in April up to €379/t leading to a 0.7p/t monthly bonus on the 2019/20 one-year contract (triggered at €375/t).  This is the highest average monthly value reported by the EU Commission since December 2017.
  • Dairy farmers in England and Wales can apply for Coronavirus hardship funding. There will be a one-off payment of up to £10,000 to cover 70% of income losses during April and May.  Farmers have to show a reduction of 25% or more in their average milk price and are required to provide their Milk Statements covering February, April and May 2020.  Claims need to be made by 14th August. In England payments will be made from 6th July and Wales within 10 days of applying. For further information, please check the following links;
  • This month’s Spot Light gives a Brexit update and looks at the other Trade deals which are currently being negotiated. Click here for more information. 

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

https://agribrief.co.uk/.

Spot Light on Farm Incomes

The profit of UK farming recovered in 2019 after the drought-affected 2018 year.  The latest estimates for Total Income from Farming (TIFF) released by Defra show an increase of 6% in real terms, leaving profit for the industry at £5,278m.

TIFF is the total profit from all UK farming businesses for the calendar year.  It shows the return to all entrepreneurs for their management, labour and capital invested.  The main reason for the rise in profitability was an increase in arable output.  The overall sales of arable crops rose by 6%, with wheat leading the way with a 16% increase in output value.  This was largely a ‘bounce-back’ from the lows of 2018. Overall livestock output was close to year-earlier levels, as were costs.  The chart shows the historic TIFF figures, plus our forecast for the current 2020 year and 2021.

Whilst we are only partway through the 2020 year it seems highly likely that the lack of autumn plantings will affect output from harvest 2020.  There are also likely to be some Covid-19 effects such as reduced beef prices and dairy farm incomes affected for certain producers.  Whilst this will be offset by lower costs, we currently forecast a decline in farm profitability for the year of 10%.  Towards the end of the year there may be market disruption as the Transition Period comes to an end – depending on whether a trade deal has been concluded with the EU or not.  Some of these trade effects may well linger into 2021 which is why there is a (tentative) forecast for another decline.

Productivity

Alongside the TIFF figures, Defra also published estimates of Total Factor Productivity (TFP) for 2019.  This measures how well inputs are converted into outputs and thus gives an indication of the efficiency and competitiveness of the farming industry.  It is one of the measures that Defra looks at closely, as it tries to improve the performance of UK agriculture.  The figures for 2019 show a significant uptick with TFP increasing by 4% between 2018 – 2019.  This was largely caused by an increase in the volume of outputs (up 3.8%) with a small decline in the amount of inputs used (-0.2%).
Although this is encouraging, any one year’s figures need to be viewed with some caution – the series tends to fluctuate on an annual basis, and it is the trend over a longer period that is more important.  UK agriculture shows an improvement in productivity, but the rate of increase is slow.  Since the figures began in 1973 the annual average increase is around 1%.  From 2000 to 2019 is has been at a lower level of 0.7% per year. 

 

 

 

Farming in Focus InBrief – June 2020

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

Farming in Focus InBrief – May 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • England has joined Wales in extending the 2020 BPS application deadline to 15th June.  However, in both countries, land must be at the claimant’s disposal on 15th May and the entitlement transfer deadline is also 15th May.  The period for amending claims without penalty moves to 30th June with an absolute deadline of final submission of applications and claims (but with penalties) of the 10th July.
  • In England, the annual revenue claim deadline date for Environmental Stewardship and Countryside Stewardship has also been extended by a month to 15th June.  However, new Countryside Stewardship applications for 1st January 2021 start date remain 1st May and 31st July for Higher and Mid-Tier respectively.
  • The next round of the Woodland Carbon Guarantee Scheme will open from 8th – 19th June in England.  This scheme allows those planting woodlands to sell carbon credits to the Government at a guaranteed price up to 2055.
  • The expression of interest window for Glastir Woodland Creation is now open and will close on 12th June.  Also in Wales, Farming Connect will be opening the next application round for accredited courses on 9th May, this will close on 26th June. The Welsh Government has also announced, the claim deadline for the Glastir Small Grants – Landscape and Pollinators 2019, has been extended until 30th September 2020. 
  • The Government has stated that there will be no extension to the end of the Brexit Transition Period beyond 31st December 2020.  Speaking on the 16th April a Government spokesman stated “we will not ask to extend the Transition.  And, if the EU asks, we will say no.  Extending the Transition would simply prolong the negotiations, prolong business uncertainty, and delay the moment of control of our borders.”  The negotiations themselves restarted on the 15th April by videoconference.  There is still wide divergence between the sides as the deadline for extending the Transition Period (30th June) looms.
  • The Government has launched a new website, ‘Pick for Britain’ aimed at recruiting British workers for harvesting and processing roles, mainly in the horticulture sector. The aim is to encourage workers on furlough, students and others to fill the estimated 80,000 seasonal fruit and veg vacancies through the summer months.  The site can be found at – https://pickforbritain.org.uk/.  Although there has been significant initial interest from potential workers, this seems not to have yet translated into large numbers of people on farm.  The expectations of employees and employers appear to be mismatched.  Workers are often discouraged by the location of jobs, conditions and pay.  Employers seem dubious about the skills and motivation of UK staff and would prefer their traditional East-European workers. 
  • The Government has produced its key findings from the review of the AHDB.  Its response suggests the levy board’s activities should be structured around ‘market development’ and ‘improving farm performance’.  Levy payers should also be allowed to vote on a 5 year plan for each sector.
  • The Welsh Government has published draft legislation that would make the whole country a Nitrate Vulnerable Zone (NVZ).  This would impose new restrictions on the storage and spreading of slurry, manure and nitrogen fertiliser, including closed periods for applications.
  • Sales of fungicides containing the active ingredient epoxiconazole will end on 31st October 2020.  Product already on farm can continue to be used until 31st October 2021.

Impact of the Covid Crisis on Livestock Farming

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

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

Impact on the Dairy Sector

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

Meat Sector Impacts

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

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

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

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

Support

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

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

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

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

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

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

Footnote:

Image source: Imperial College London

Source: Imperial College London

Spot Light on: Covid-19 Impacts on Farming

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

Short Term

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

Medium Term

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

Long Term

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

 

 

A Monthly Briefing for UK Farmers – April 2020

  • Andersons’ consultants are continuing to support their clients during the pandemic. If you require any advice, please contact your  usual consultant, or the office on 01664 503200 or email [email protected]
  • The Government has introduced a number of initiatives to support businesses as a result of COVID-19, these include;
    • Business Interruption Loan Scheme to provide loans of up to £5m, with no interest payable for the first 12 months.  Applications are made through the banks.
    • One-off cash grant of £10,000 to all businesses qualifying for the Small Business Rate Relief.  This will be made automatic, through Local Authorities.  Useful for farming enterprises which have diversified into the leisure sector and pay business rate
    • The Coronavirus Job Retention Scheme is open to any employer and covers the wage cost of any worker ‘furloughed’ – sent home due to there being no work for them.  Up to 80% of their wages are paid by the Government, up to a monthly limit of £2,500.
    • The self-employed scheme to pay 80% of the average monthly trading profits over the last 3 years.  It is only open to those with a trading profit of less than £50,000 per year.  Funds will be in one single payment in June covering the three months of the scheme (March-May). 
    • VAT payments due between 20th March and 30th June are deferred.  Businesses have until the end of the 2020/21 tax year to pay.  The return still needs to be made though.
    • Self-Assessment Tax payments due in July will be deferred until 31st January 2021.

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

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