Category: Policy & Business

SFI Uptake Data

Defra published the latest set of SFI uptake data in November.  The figures highlight the impact of the requirement for an Expression of Interest prior to application which was in place until 12th November.  Uptake of SFI 2024, from its opening on 22nd July, to the end of October was limited to just 900 agreements.  This is less than the increase in SFI 2023 (a scheme which was closed) between July 2024 and October 2024, at 2,000 agreements.  Taking into account the combined SFI 2023 and 2024 agreements there are now 26,100 SFI agreements in place.  Using the Soil Management Testing option as a proxy for overall coverage (as almost all those with an agreement have gone for SAM1), 2.94 million hectares are now in the scheme, up from 2.65 million hectares in July.

 

CBAM and Fertiliser Prices

One of the elements of the Budget which initially flew under the radar was the introduction of the Carbon Border Adjustment Mechanism, or CBAM, from 2027. Perhaps one of the reasons it has gone somewhat unnoticed is that it is an older policy than some of the other announcements.

CBAM was being introduced under the Convservative government, with the policy aligned to the introduction of a similar scheme in the EU.  Nevertheless it has garnered attention with talk of charges of up to £50 per tonne for fertiliser once it is introduced.

The scheme is based upon the current UK emissions trading scheme (ETS), and is designed to stop emissions leaks, whereby those industries which are subject to the cap and trade system of the ETS are unable to compete against imports with the same emissions footprint but a lower cost of carbon emissions.

How much extra fertiliser (and other products such as steel and cement) will cost depends on a calculation set out by HM Treasury and detailed below.

From this calculation, it is clear that some of the liability will depend on the carbon price in the economy the product is being imported from.  For a significant proportion of UK agricultural inputs subject to the CBAM levy, the EU is the primary import origin.  The EU has established its own CBAM, due to start in 2026, it operates through a different system to that proposed for the UK, but would negate some or all of the carbon charge.

There are, however, other nations where there is no carbon costing mechanism in place, or where the cost is comparatively low.  A prime example would be for Egyptian Urea. Where this is the case, the cost of urea would go up following the introduction of the CBAM in 2027.

To calculate this liability we need to look at the emissions embodied in Urea.  The total emissions embodied, according to the EU CBAM mechanism, are 1.9 tonnes of CO2e per tonne of product.  Of this 0.12 tonnes are indirect emissions (electricity) and 1.78 tonnes the direct emissions.

Using a second Treasury calculation we can work out the effective UK carbon price. The calculation for this is set out below.

The current UK carbon price in the ETS is around £35 per tonne of CO2e.  This price has been as high as £80 per tonne in the past twelve months.  We would expect this value to rise over time.  Crucially the carbon price used in the CBAM calculation will be an average of the values of sold carbon in the UK ETS auction.  This means that the value of the CBAM rate is liable to be different each month.

The UK also has a Carbon Price Cupport (CPS) in place to support decarbonisation in fossil fuel electricity generation; this is presently set at £18 per tonne.  We would expect this to fall as the electricity industry decarbonizes.

Finally, the fertiliser industry benefits from an 80% ‘free allocation’ adjustment.  The free allocation is an allowance for UK industry in support domestic production where the UK ETS may result in carbon leakage.

Taking all of these figures into account, then the UK CBAM rate for urea would be calculated as £9.91 per tonne of CO2e.  The true CBAM rate will not be known until it is published by UK government prior to the introduction of the CBAM.  Due to the complexity of such systems a single CBAM rate will apply to all fertiliser and ammonia imports.  However, as one of the more emission-intense products Urea is a useful proxy at this moment in time.

Applying the level of embodied emissions to the UK CBAM rate we can estimate the UK CBAM liability on Urea – the additional cost to the product, due to the CBAM – would be £18.83 per tonne of Urea imported.  This is around 5% of the current price of Urea.

Over time we would expect the carbon price to rise, the Office for Budgetary Responsibility currently forecast the carbon price at £44.50 per tonne from 2025 to 2029.  We would also expect the value of CPS to decline as will the level of the free allowance.  This would increase the UK CBAM liability.  The rate of change for these elements is unknown.  Using the OBR forecasted carbon cost the UK CBAM liability (with the present CPS and free allowances) would be £23.34 per tonne of Urea.

If all parts of the calculation move as expected, the cost of the CBAM liability would increase over time.  However, some of the headline fertiliser price increases being quoted look high to us.  We should also remember that a significant proportion of fertiliser is imported from the EU.  If there is a reliable reference value for the carbon emissions in the exporting nation, this can be used to offset the UK CBAM rate.  Therefore, a lot of imported fertilisers will have little or no CBAM levied on them. 

We must also consider behaviour change in this analysis.  Over the period of time that carbon prices increase, and so the price of fertiliser increases, we are likely to see a greater focus on nitrogen use efficiency or a shift towards less emission intense fertiliser.

 

UK Joins CPTPP

On 15th December, the UK formally joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  Before the UK joined, the CPTPP trade-bloc consisted of 11 members with a combined population of around 520 million people.  Many of these countries are in Asia and have been growing strongly to date.  That said, the UK already has trade deals in place with most of these countries with Malaysia being the only significant addition.  This means that the impact of the UK’s membership of the CPTPP will be limited from an agricultural perspective, as most agricultural trade between the UK and the CPTPP countries will continue to be conducted via these bilateral trade deals.

Our April 2024 article (see: https://abcbooks.co.uk/agreement-reached-on-uk-joining-the-cptpp/) provided further information on the extra market access for agricultural products that other countries would have to the UK.  This included:

  • Beef: a duty-free TRQ of 13Kt will be phased in over 10 years and will start at 2.6Kt.  It is only be available to Canada, Mexico, Chile, Peru, Malaysia and Brunei. Importantly, any beef imports will have to meet UK Sanitary and Phytosanitary (SPS) requirements.  Australia and New Zealand will not get any further access to the UK market under the CPTPP.
  • Pork: a 55Kt TRQ will be phased in over 10 years (starting at 10Kt).  Again, this will be available to the same countries listed above.  Vietnam and Singapore will also have access to this TRQ for an initial 3-5 year period before their duties are eliminated via a bilateral FTA with the UK.
  • Chicken: a TRQ of 10Kt will again be available to the countries listed above.  A 10-year phase-in period will again apply.  Vietnam and Singapore will again have access to this TRQ for an initial 3-5 year period before tariffs on imports from these countries are eliminated.

Whilst the UK’s accession to the CPTPP will have a small overall impact, it still presents export opportunities in a variety of areas including whisky and dairy products. It also sends a message that the UK is prepared to engage in international trade with like-minded partners.  Such deals might become less frequent with the onset of a Trump presidency in the US.  That said, the UK’s trading relationship with the EU will remain by far the most important from an agricultural perspective. 

Protected Landscapes

Defra has announced new powers to boost nature recovery and access to England’s Protected Landscapes.  Under new legislation and guidance – The Protected Landscapes Duty – the relevant authorities must now ‘seek to further’ the statutory purposes of protected landscapes.  Previously they just had to ‘have regard to’ their statutory purpose.  The changes should mean more trees will be planted, more peat restored and more habitat created, helping the Government to meet its Net Zero and Environment Act targets and the commitment to protect 30% of land by 2030 (30by30).  The measures also include a ‘general power of competence’ for National Park Authorities.  This will remove restrictions which prevent an ‘entrepreneurial approach’.  Furthermore there will be new regulation for public bodies, including water companies, to ensure they deliver better outcomes for nature, water and climate.  The annoucement comes amid the 75th anniversary of the Creation of Protected Landscapes through the 1949 National Parks and Access Countryside Act.  More information can be found via https://www.gov.uk/government/publications/the-protected-landscapes-duty.  Protected Landscapes refers to National Parks, the Norfolk and Suffolk Broads and National Landscapes (previously ANOBs) in England.

Food Security Report

Defra has released its latest Report on the UK’s Food Security.  This is done every three years and is a requirement under the Agriculture Act.  Between each Food Security Report an annual Food Security Index is now published.  The first of these, produced in July, can be found here – https://www.gov.uk/government/publications/uk-food-security-index-2024/uk-food-security-index-2024.

The Food Security Report 2024 is at pains to point out that food security is about more than just self-sufficiency.  It is structured around five ‘themes’ as set out below;

  • Global Food Availability – since the last report in 2021, there has been stable growth in world food production (despite a number of geo-political and climate shocks).  However, climate change, nature loss and water insecurity pose long-term threats to production.  This is amplified by low productivity growth in global agriculture.  The number of undernourished people in the world is increasing.
  • UK Food Supply – domestic production and balance of trade is broadly stable with self-sufficiency (production-to-supply ratio) at 62% for all foods and 75% for indigenous foods.  The UK remains very dependent on imports in certain food categories – fruit, vegetables and seafood.  Extreme weather is causing increasing problems for UK production
  • Food Supply Chain Resilience – Russia’s invasion of Ukraine highlighted the impact input prices can have (notably fertiliser and energy).  The food supply chain is also at risk from ‘single points of failure’ where key inputs come from a very small number of suppliers.  Labour shortages remain a signifcant problem for the sector.
  • Household Food Security – most households in the UK are food secure but there has been a rise in the number of food-insecure households.  This is largely due to rises in food prices since 2021.  This affects low income families disproportionately.  Most people in the UK do not meet Government dietary recommendations – especially on the consumption of fruit and vegetables
  • Consumer Confidence and Food Safety – most consumers are confident in food safety and regulation.  The statistics on food hygiene and food pathogens are broadly stable.

Given the complexity of the topic, the report does not reduce the analysis down to a single numercial score, a traffic-light colour, or even a summary paragraph (e.g. ‘we are doing OK….’).  However, reading between the lines, it can be concluded that the UK’s food security is relatively good, but with some areas of concern – especially around climate change.   

The full report is at – https://www.gov.uk/government/statistics/united-kingdom-food-security-report-2024.

Planning & Renewables

The Government has made further policy changes on Planning and Renewables as part of its aim to boost economic growth.

Planning

A new National Planning Policy Framework (NPPF) was issued for England on the 12th December.  This increases house-building targets for Local Authorities to help deliver the 1.5 million extra homes promised by Labour over the next 5 years.  The presumption will be to use brownfield sites if possible, but development on the Green Belt will be made easier through the re-classification of parts of it as ‘Grey Belt’.

The key mechanism will be Local Plans.  These will set out where development is to be permitted and must align with the house-building targets.  It is claimed that this will allow local views to be heard – however it seems largely a question of managing how development takes place rather than if it happens.  Many Local Authorities have been slow in producing Local Plans (or, if they are in place, they may now need revising).  Those with land they believe is suitable for development may have a window of opportunity for getting the land ‘zoned’ for development.  If land is included in the Local Plan for development there will be a strong presumption that Planning Permission will be granted.  If no Local Plan is put in place, Ministers may step in, and there could also be limited grounds for Local Authorities to refuse speculative Planning applications.

Details of the NPPF can be found at https://www.gov.uk/government/publications/national-planning-policy-framework–2 .  A Planning and Infrastructure Bill is also planned for next year.  Furthermore, the Government has published a White Paper proposing a shake-up of Local Government in England (see https://www.gov.uk/government/publications/english-devolution-white-paper-power-and-partnership-foundations-for-growth).  This would see District Councils disappear, as the ‘default’ model would become Unitary Authorities.  There would also be a drive towards more directly-elected Mayors who would have responsibility for some Planning matters.  All this would appear to take decisions on Planning further away from the local level. 

Renewables

The Clean Power 2030 Action Plan aims to decarbonise electricity production in Great Britain by 2030.  This foresees;

  • offshore wind capacity to rise to 43-50 GW
  • onshore wind to double from the current 14 GW to around 28 GW
  • solar to increase from around 17 GW currently to up to 47 GW in 2030.

An extra 30 GW of solar would require significant areas of land (some may be mounted on roofs, but it is likely to be a relatively small proportion).  The rule-of-thumb seems to be around 2,000 to 2,500 hectares per GW of solar PV.  This would suggest circa 65,000 hectares of farmland moving into this land use by 2030.  This may not be lost to farming completely – grazing would still be possible around the panels.  There is also a growing move towards ‘agri-PV’, where the installations are sited to allow more intensive farming to continue.  Whilst solar PV tends to be very noticeable in the landscape, the actual net loss of productive farmland is quite small in percentage terms.  Even if 65,000 hectares were used, this would be less than 0.4% of the UK’s utilisable agricultural area.        

The Plan also sees the growth of electricity storage capacity to deal with the intermitent supply from renewables.  There will also have to be significant upgrades in the transmission infrastructure – meaning new poles and pylons in the countryside.  The Government is streamlining the Planning process for these.  The NPPF (see above) also brings all onshore wind and solar developments over 0.1 GW into the Nationally Significant Infrastructure Projects (NSIP) regime.  This means that Ministers can intervene to over-ride local Planning objections.

The Clean Power Action Plan can be found at – https://www.gov.uk/government/publications/clean-power-2030-action-plan.

Welsh Budget

There will be an increase in the Rural Affairs budget for 2025/26 following the Welsh Government’s spending announcement on the 10th December.

The Department of Climate Change and Rural Affairs will see its revenue spending increase by 6.6% (£36.4m) in nominal terms, whilst capital spending will go up by 31% (£72.0m).  The amount allocated for the Basic Payment in 2025 will be maintained at the current level of £238m – although inflation will decrease the real-terms value of this compared to past years.

The full budget can be found at – https://www.gov.wales/draft-budget-2025-2026.

SFI Endorsed Actions

Defra has announced an additional fourteen ‘endorsed’ SFI actions that will be available from summer 2025.  Endorsed actions are ones which require written approval (‘endorsement’) to confirm the land is suitable from bodies such as Natural England or Historic England.  This is because these actions are targeted at certain priority habitats, species and heritage features.  Currently there is one endorsed SFI action available – GRH6: Manage priority habitat species-rich grassland.

The table below summarises the new actions.  Further information can be found at https://assets.publishing.service.gov.uk/media/67571a23f96f5424a4b87805/SFI24-endorsed-actions-v1.pdf .

These additional SFI actions were announced alongside the Countryside Stewardship Higher Tier update (see accompanying article).  Given that Defra seems to be showing what is going to be available across ELM in 2025, this would suggest that no other additional actions will be added to the SFI for next year.   Thus, the 102 existing actions under the SFI2024, plus these 14, will be the full offer for the short-term.  There seems a desire in Defra to see how the current scheme beds down before making any substantive changes.  However, this does not rule out short-notice alterations, as we have seen in the past, if there is perceived to be an issue with scheme options.  

If a farmer is attracted by any of these new options, and they are already in the SFI, then they would need to enter into a new agreement as there is no longer the ability to do an annual ‘upgrade’.  Those not yet entered into the scheme will have to guage whether it is worth waiting until the summer to do an application that covers everything, or to carry on and apply for what is available now.  

Countryside Stewardship Higher Tier

The revised Countryside Stewardship Higher Tier (CSHT) offering will not be available until next summer.  This news comes as part of a wider Defra announcement on the future of the scheme.  Readers may recall CSHT was supposed to have been opening in autumn 2024 to allow claimants to ‘draw-up’ applications ready for an early 2025 start date.

General

Countryside Stewardship is the second ‘tier’ of the Environmental Land Management (ELM) programme.  It provides payments for land managers who wish to do more intensive environmental work than under the SFI.  With the expanded SFI 2024 effectively taking over almost all previous CS Mid Tier options (see https://abcbooks.co.uk/expanded-sfi-offer-for-2024/), the CS is now Higher Tier only.  It is focused on the most environmentally significant sites (such as SSSIs) and woodlands which require more long-term and complex management.

The new CSHT offer includes 132 actions and 145 capital items (including 25 new options), plus a further 6 capital items to fund the preparation of plans that may be required to support an application (see below).  Defra is trying to improve the offer to encourage more people to apply with the aim of 1,200 new High Tier agreements by March 2026.

The details of all the actions, supplements and capital items, including payment rates can be found via https://www.gov.uk/government/publications/countryside-stewardship-higher-tier-get-ready-to-apply .  Note this is only ‘preview’ guidance; it sets out what can be done now to prepare and the funding available, the full guidance will be published before applications open in ‘summer 2025’.

Controlled Roll-Out

Similar to the SFI, CSHT will be rolled-out ‘gradually’.  The first applications will be by invitation only, these businesses will be contacted by RPA from 6th January 2025.  Natural England (NE) and the Forestry Commission (FC) will identify who is invited initially.  This will include;

  • those with an existing CSHT agreement that expires at the end of 2025
  • those with an approved woodland management plan already in place
  • those who want to apply for an agri-environment agreement and have an approved plan in place so are ready to develop an application.

‘Invitations’ will be sent out monthly, to those in the above criteria, to receive ‘pre-application’ advice.  Those that do not fall within the criteria above will be able to contact RPA to let them know they are interested in applying.  More details on this process will be available in February and RPA has asked that customers do not contact them until then (!).

Applications will be made online via Rural Payments.  However, whilst those that will be invited can start to prepare their application from January, it will not be possible to submit an application until ‘summer’ 2025.   Similar again to SFI, once an agreement has been offered and accepted, the first payment will be made 4 months after and then quarterly thereafter.  CSHT agreements will last for 5, 10, 15 or 20 years, depending on the length of the longest action in the agreement.  Once fully opened, RPA will introduce rolling applications, so it will be possible to apply all year round with monthly start dates.  From summer 2025 applications will open up to a wider range of customers who will be ‘identified and invited’ to prepare an application – further information on this will be provided at a later date.

Defra is also making more ‘tools’ available to applicants for planning their proposals.  These include Implementation Plans, Woodland Management Plans, Agroforestry Plans, Species Rich Management Plans and Feasibility Studies with the aim of reducing the need for intensive pre-application advice from ‘arm’s length bodies’ cutting down on lengthy negotiations.  Furthermore, advice will focus on the actions available under CSHT where previously advice from NE and FC covered the entire holding.

Higher Tier & HLS Extensions

Following news that the Countryside Stewardship Higher Tier scheme will not be open for applications until next summer Defra has confirmed it will be offering ‘Mirror agreements’ and ‘extensions’ for existing Countryside Stewardship Higher Tier (CSHT) agreements and Higher Level Stewardship (HLS) agreements which will be expiring in 2024.

This means for some CSHT agreement holders RPA will be contacting them to offer a duplicate (mirror) of their expiring agreement, this includes the length ie. 5 or 10 years and all the exisiting options.  Agreements which originally included woodland will not be offered an extension because landowners won’t be able to carry out a mirror agreement on that same land.

For those with an HLS which has expired or is due to expire by the end of December 2024, they will be offered a 2 year extension and RPA will contact them accordingly.  For HLS agreements expiring in 2025, Natural England is reviewing each case and will recommend either a 1-year or 2-year extension.

The delay in the opening of the Countryside Stewardship Higher Tier is very frustrating.  It could also pose a difficult decision for those with expiring agreements.  Applicants must decide whether to wait for the new scheme to open, and hope they will be invited and given an agreement, and there aren’t too many (further) delays.  Or they could accept an extension or mirror agreement now.  However, this could lock-them-in for an extended period.  And payment rates are generally not as good under ‘old’ agreements as they are under the new ones.  We have been assured for a long time that it will be possible to end agreements and Defra are even saying ‘If you choose to extend your HLS agreement or accept a CSHT mirror agreement, over time you’ll have the option to end your extended or mirror agreement early if you want to apply for the new CSHT scheme once it becomes available.’  But what does ‘over time’ mean?  Up to now, it has been a very difficult process to end any agreement to go into a new offer.  We were told more information would be made available in September; but nothing has arrived.  Defra is currently saying ‘under the terms and conditions of your HLS agreement it is possible for you to end your agreement early to apply for a new SFI agreement’. However it goes on to say ‘Due to the complexity of closing agreements early, it may take some time to end your agreement and could result in a period of some months between one agreement ending and a new agreement starting. We will provide more information about how to close your agreement soon‘.  It will be well worth those in this situation having a good look at the new offer and making a few calculations. 

Some with existing CS or HLS agreements may decide to let them expire and simply enter into the SFI.  This may result in the land having a ‘lower level’ of environmental management – the opposite of what Defra might desire.  But, from the appplicant’s perspective, it is a more certain, risk-free and flexible approach.