Category: Policy & Business

The organic food market in the UK has grown for the seventh consecutive year according to the latest report from the Soil Association.  The market increased by 5.3% in 2018 to £2.33 billion and the certification body is forecasting it to be worth £2.5 billion in 2020.  Sales of fresh fruit, salad and vegetables performed particularly well in 2018, rising by £15 million on the year.  According to the Association, organic now accounts for around 1.5% of food sales in the UK and almost £45m is spent on organic produce per week.  Home delivery of organic through box schemes and online accounts for 14% of all organic sales and is growing the fastest, by 14.2% per year.  Home delivery is forecast to make up a quarter of all sales of organic in the UK by 2023.  Supermarket sales and independent retailers saw sales increasing by 3.3% and 6.2% respectively.  Organic food sales into the food service sector saw an 8% increase to £90.9 million in 2018.

Latest statistics from Defra (2017 year) show the total area of organic land rose by 1.9%, the first increase since 2008.  In addition, the land in conversion to organic increased by just under 30%.  The number of organic producers was up by 2% in 2017 and the number of organic processors increased by 6.2% in the same year

Below are some key dates for schemes in Wales:

• BPS – The Single Application Form (SAF) will be available from 4th March; guidance will be available online.  It is currently possible to transfer BPS Entitlements by sale or lease with or without land or via inheritance.  The Transfer of Entitlements online forms are available for completion using a claimant’s RPW Online account.  The deadline for transfers is midnight on 30th April 2019 in order for entitlements to be used in the 2019 scheme year.
• Sustainable Production Grant and the Farm Business Grant – The Expression of Interest window opens on 4th March and closes on 12th April 2019 for both of these schemes.
• Timber Investment Scheme – The Expression of Interest window for Round 4 is currently open. All applications must submitted by 28th April 2019.

RPWales is also reminding customers that after 28th February it will no longer be monitoring or replying to emails sent to [email protected] or [email protected].  All ‘digital’ communication needs to be sent by customer’s individual RPW Online account.  With most communication now from RPWonline it is important claimants access their accounts regularly.  Notification of application dates, reminders and progress of claims are all made available online.

Like many of our readers, we were expecting the second round of the Countryside Productivity Small Grants (CPSG) Scheme to have been open for applications by now.  Previously Defra had said it would be available from ‘early 2019’.  However, it is now looking like it might not be launched until May.  No reasons for the delay have been given and, whilst a second round is still expected, it is still subject to Ministerial agreement. 

The Scottish Government has announced it will again be offering a nationally-funded loan scheme to those eligible for LFASS 2018 payments.  The loan will be 90% of the estimated payment and will be made from 1st April onwards.  Offer letters will be sent out from 1st March in batches as claimants become eligible.  Once again, claims have not been processed in time to start making payments by 1st April from EU funds (as scheduled in the Scottish Government’s recent timetable see https://abcbooks.co.uk/scottish-cap-payments/).  It seems it is not even possible to make advanced payments from EU funds.  This requires claims to be at a certain stage of processing, once again this does not appear to have been reached, meaning national funds will be used. 

The RPA has confirmed the online Basic Payment Scheme (BPS) applications window will open on 13th March.  The announcement has been published in a timeline showing important dates in 2019 for the BPS, Countryside Stewardship (CS) Scheme and the Environmental Stewardship (ES) Scheme.  Other key dates include:

• 18th February – Application window for the CS Higher-Tier, Mid-Tier, Wildlife Offers and the Hedgerows & Boundaries Grant opens
• 31st March – Deadline for requesting Higher-Tier packs
• 15th May – Deadline for BPS 2019 applications (to avoid late penalties)
• 15th May – Deadline for land and entitlement Transfers.  This function is already available online
• 31st May – Deadline for requesting Mid-Tier packs
• 3rd May – Deadline for submitting Higher-Tier and Hedgerow & Boundaries applications
• 31st July – Deadline for Mid-Tier and Wildlife Offer applications

 

On 29th January, Parliament voted on a series of Brexit amendments which sought to give some clarity on the future direction of Brexit. What emerged was a vote to go back to Brussels to seek further negotiations, particularly on the Northern Ireland backstop, which in its current form, is deeply disliked by many within the Conservative Party. The key amendments put forward were;

•  Brady amendment: called for the Northern Ireland backstop to be replaced by “alternative arrangements” to avoid a hard border but is otherwise supportive of the Withdrawal Deal. This motion passed by 317 votes to 301 and crucially received support from the European Research Group (ERG) MPs and the DUP, whose support was questionable in the lead-up to the vote. Whilst there were some Conservative rebels, the passing of the vote was seen as a victory for the Government.
• Cooper amendment: called for the Government to postpone Brexit, if a deal was not ratified by Parliament by 26th February. This vote was rejected by 321 votes to 298. This result still keeps the prospect of a No Deal in play, at least for now. 
• Grieve amendment: sought for an opportunity for MPs to vote on several different options before the end of March – a so-called indicative vote to conduct a series of non-binding votes to see what there is a majority in the House of Commons for. Again, this motion was defeated by 321 votes to 301. This defeat, in conjunction with the Cooper amendment defeat, is seen as a blow for those calling for a soft-Brexit, or indeed no Brexit at all, as it makes the prospect of voting to have a ‘Norway plus’ option or a second referendum more difficult, but still not impossible. 
• Spelman and Dromey amendment: this was a non-binding motion which called for Parliament to reject the UK leaving the EU without a Withdrawal Agreement and a Framework for the Future Relationship. This motion was passed by 318 votes to 310. Whilst some are relieved that No Deal was rejected, it must be emphasised that the Government is not bound by this vote and the default position remains that the UK will leave the EU without a deal if a negotiated outcome with the EU does not pass Parliament by 29th March.

So, where does that leave us now? Although the Commons have finally given an indication of what it would be willing to vote for, it is frequently forgotten that there is also a ratification process in Brussels. Immediately following the vote, a spokesperson for European Council President Donald Tusk stated that there would be no re-opening of the Withdrawal Agreement legal text. This was closely followed by similar statements across European capitals whilst there previous statements by European Parliament groups overseeing Brexit that MEPs would not vote for an agreement that does not contain a backstop. Theresa May will shortly be back in Brussels to seek to renegotiate the aspects of the backstop that, in the Conservative Party’s view, bind the UK to the EU indefinitely and will instead seek some sort of time-limit. The prospects for achieving this remain limited because to many in Brussels, the integrity of the Single Market is sacrosanct, and in its view, the only way a hard border can be avoided on the island of Ireland, is if Northern Ireland at least, follows the rules of the Single Market for goods and is part of the ‘Single Customs Territory’. Some have gone as far as to say that a No Deal is seen as the lesser of two evils, if the integrity of the Single Market is compromised.

This has all the appearances of “groundhog day” as all of these issues have been discussed before at length in the negotiations. As this column has stated in the past, whilst technology has a role to play, it is years away from obviating the need for border controls, particularly as far as Sanitary and Phytosanitary (SPS) checks are concerned. What the renegotiation will do though, is give the PM cover to run down the clock some more and show to Brexiteer MPs that she has gone back to Brussels, sought to get further concessions, and that in the end in her view, if there is to be a Brexit, it will have to be on the basis of the Withdrawal Agreement and Political Declaration she negotiated, with perhaps a few tweaks.

All the while, there are now just 58 days until Brexit. Businesses will take little comfort in last night’s proceedings as we’re still no closer to knowing the outcome post 29th March. Organisations such as the CBI, have called for any renegotiations to be completed quickly. The PM is due back before the House of Commons, potentially in mid-February, as a meaningful vote will still be required on whatever deal she produces. Even if a deal passes at that point, with 6 Bills and approximately 600 pieces of Secondary Legislation which will need to be passed before the UK can Brexit, there simply will not be enough time. An extension to Article 50, by a few weeks, perhaps even 3 months, looks inevitable. At the same time, despite last night’s (non-binding) vote rejecting No Deal, its probability has also increased. The Brexit process is fast running out of road and the cliff-edge is clearly visible.

As the political chaos continues, we have had a few queries of what the practical effect of a ‘No-Deal Brexit’ might be.  The ramifications are potentially endless, but to keep it simple it’s worth focusing on two areas – tariffs and non-tariff barriers.

Tariffs provide a monetary ‘barrier’ to imports into the EU.  The tables below show a selection of the tariffs that the EU currently imposes, both for the arable sector and livestock sectors.  Not all are shown.  For example, two beef tariffs are given, but there are fourteen different ones in total for different products.

Simplistically, a tariff is the height of the ‘wall’ UK exporters will need to get over if there is no special trade deal.  When a good is being exported to the EU, the need to pay the tariff is likely to reduce the market price producers in the UK will receive.  It is not as simple as taking-off the tariff from current market values though, as there will be all sorts of dynamic effects.

Arable Sector Tariffs – source EU Commission/Andersons
Commodity	Standard Tariff (€ per t)	Tariff Rate Quotas‚~ (tonnes)	TRQ Available to UK (t)	In-TRQ Tariff (€ per t)
Feed Wheat	€95	3.1mt ƒ	2.38 mt#ƒ + 0.1 mt	€12
Quality Wheat	*	300,000	All	–
Feed Barley	€93	307,105	All	€16
Malting Barley	€93	50,890	All	€8
Oilseeds	none	n/a	n/a	n/a
Beans & Peas	3.2%	n/a	n/a	n/a
Sugar (raw cane)	€339	780,925	253,977	0
Potatoes	11.5%	4,295	All	0
* Complicated formula based on US price.  ~‚ TRQs are complex (EU has over 120 separate ones). Some are available to all countries ‘Erga Omnes’, some are for specific exporters (e.g. NZ 228,254t of lamb)  #ƒ 2.38mt TRQ available to ‘other countries’ (excl US & CA) plus 100,000 Erga Omnes.

 

Livestock Sector Tariffs – source EU Commission/Andersons
Commodity	Standard Tariff (€ per t)	Tariff Rate Quota (tonnes)	TRQ Available to UK (t)	In-TRQ Tariff (€ per t)
Skim Milk Powder	€1,254	68,537	All	0
Butter	€1,896	86,053	11,360	€958
Cheese: Cheddar	€1,671	29,716	15,005	€210
Beef: Carcases Fresh/chilled	12.8% + €1,768	188,354 (all beef)	117,503	various
Beef: Boneless Cuts, frozen	12.8% + €3,034
Lamb: Carcase, Fresh/chilled	12.8% + €1,713	281,190	200	0
Pig meat: Fresh/chill	€536	87,176	71,469	various
Poultry: Fresh/chill	€512	392,285	39,790	various

It can be seen that tariffs either comprise a fixed amount, a percentage levy, or, sometimes, a combination of the two.  Where the tariff is a fixed amount, the effect of the tariff becomes proportionally greater as market prices fall.

Tariffs can work in both directions though.  Due to time pressures, the UK is likely to simply ‘cut and paste’ EU tariffs into its own WTO schedule if there is No Deal.  This will serve to put up a new wall between imports from the EU and our market.  The UK’s new tariffs will be its ‘bound-tariffs’ – the upper limit of what it can apply.  There is nothing to stop the UK introducing an ‘applied’ (lower) tariff if it wants to, as long as this is offered to all WTO members (i.e. it couldn’t just be offered to the EU). 

Various deals allow certain quantities of goods in for low or no tariffs.  These ‘Tariff Rate Quotas’ (TRQs) punch a (limited) hole in the protected market.  They vary greatly between commodities without much underlying logic – they tend to be based on past trade deals or historic trading patterns.  Some are designated for particular countries, other quantities are ‘erga omnes’ – available for everyone.

As the name suggests, non-tariff barriers are rules and regulations put in place that don’t impose a fixed monetary cost, but still inhibit trade.  These cover things such as sanitary and phytosanitaty (SPS) measures are designed to protect humans, animals, and plants from diseases, pests, or contaminants.  There are also ‘technical barriers to trade (TBT) such as labelling rules, packaging, identity, age certification etc.  Gauging the impact of NTBs is not a precise science; they vary between products and countries.  However, as a very general rule-of thumb, under a No Deal outcome the effective cost of NTBs might be in the range of 5%-15%+ of their sale value for the majority of farm products.  These NTBs costs can be added to the tariffs to get an idea of the total trade effect.

 

 

It is now possible to transfer English entitlements and land ahead of the 2019 BPS claim.  The RPA has ‘switched on’ the functionality for this on the Rural Payments system.  The deadline for entitlement transfers is the same as the main BPS deadline – 15th May.  The online transfer of land is only available for whole parcels.  If changes to a field are needed, then a paper RLE1 form is again required.  The online transfer also allows land to be simply removed from a claim (without having to be passed to someone else).  The main online application system is expected to open in late February or early March.

Michael Gove’s speech at the Oxford Farming Conference at the start of January saw a subtle shift in the Government’s rhetoric around the farming industry.  Whilst the topics of the environment and the rural economy continue to be central to Defra’s thinking, the issue of food got equal billing.  This perhaps is a response to the criticism that the Agriculture Bill and the accompanying Policy Statement were notably silent on the issue of food production.

Defra had, rather quietly, already announced, back in the summer, that it would be looking to produce a Food Strategy.  This is being led by Defra’s lead non-executive director and food entrepreneur Henry Dimbleby (and member of the famous Dimbleby broadcasting family).  It seems the prominence of this initiative is being upgraded.  It is designed not just to look at the production side of food (i.e. farming) but the whole food chain and especially how food interacts with the wider health and well-being agenda.

From a food industry perspective, however, there will be a hope that there is enough focus within the Strategy on economic and business aspects, and what can be done to grow the food economy of the UK.  The Irish Government’s Food Harvest 2020 and Food Wise 2025 strategies might be regarded as benchmarks in this regard.  Rather than vague aspirations and warm words they included ambitious and challenging growth targets for the agri-food sector with a set of clear actions to help achieve this.  The strategy was produced and backed by the whole industry from primary producers through to government.  Hopefully the UK (or each devolved administration) can produce something similar.     

English farmers spent almost £2bn on machinery and equipment in the 2017/18 year.  This finding comes from Farm Business Survey figures released by Defra.

The term ‘machinery’ in the analysis is broad, covering everything from office equipment, through irrigation systems, to tractors and combines.  Any private use, say for cars, has been excluded; only the farm share is included.  The release shows total expenditure on machinery in 2017/18 was £1.98 billion.  In real terms there has actually been little change in the the trend since 2009/10.  In 2011/12, expenditure in real terms was a little over £2 billion and similar in 2013/14 after which there was a steady decline to about £1.6 billion in 2016/17 but expenditure bounced back in the latest year of results.  The results show about three quarters of expenditure each year is on new machinery, in 2017/18 it was 79%.

In 2017/18 74% of all farm businesses bought at least one piece of machinery; 61% purchased a piece of new machinery and 44% bought used.  Between 2015/16 and 2017/18 94% of farms had invested in one piece of machinery.  But there has been a gradual decrease in the proportion of farms purchasing machinery since 2009/10.  This is down to a reduction in the proportion of farms buying new machinery, the proportion buying used has remained pretty steady over the same period.  The net average spend (net of sales) in 2017/18 on all farms equates to £27,900, with dairy farmers on average spending the most (£51,500) and lowland grazing livestock farms the least (£10,800).

Wheeled tractors accounted for about 40% of gross expenditure on machinery in 2017/18, although the proportion of farms purchasing a wheeled tractor has seen a gradual decline since 2009/10.  Around a quarter of farms purchased a tractor in 2017/18 compared to about 30% in 2009/10.  The average spent on a new tractor in 2017/18 was £83,300.

The full release can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/766851/fbs_machinery_investment_20dec18.pdf