Category: Policy & Business

Strutt & Parker Farms for Sale

Strutt and Parker Farms has been put up for sale.  The business is diverse, generating income of about £21m a year, of which, it is said, about half comes from its agricultural operations.  It farms in excess of 12,000 hectares in Essex, Suffolk and Cambridgeshire.  Of this it owns the freehold of about 5,000 hectares; the remainder is farmed on a mixture of AHA tenancies, Farm Business Tenancies (FBTs) and contract farming agreements.  Non-agricultural income comes from a recently launched natural burial business and its involvement in renewable energy, having two anaerobic digestion plants together with wind and solar sites.  It also has over 120 residential properties and has converted two Essex farmsteads into 48 office units under its Whitbreads Business Centres label.  This is the largest farming sale since the Wellcome Trust bought the 16,000 hectare Co-operative Group’s farm business in 2014.  There has been no official guide price, but it is understood they are looking for a sum in excess of £200m.  Strutt and Parker Farms is entirely separate from the Land Agency business of the same name. 

Farm Policy – Further Thoughts

Now there has been further time to digest the contents of the Agriculture Bill, and the accompanying statements from Defra, we offer some further thoughts on future farm policy.  Readers will note that many of these take the form of questions – highlighting the uncertainties that still exist.

Direct Payments – Future Rates

The deductions in direct payments planned for 2021 were given in the Policy Statement that accompanied the Bill.  For the years 2019 to 2021 it is therefore possible to make a reasonable estimate of a farm’s future payments (currency notwithstanding – see below).  However, from 2022 through to 2027, the level of deductions is unknown.  The Government has not provided deduction percentages for these years, and probably will not do so any time soon.  There are a couple of reasons for this.

Firstly, the entire budget for the Domestic Agricultural policy (DAP) is not known for this period – the funding guarantee only runs until 2022.  If there is a squeeze on the pot of money available, the deductions will need to be greater.  The budget may not be known until the next Spending Review which is due to take place in 2019.  However this only covers the years from 2020/21 onwards and the review period is often for only three years – i.e. it will not set a budget right through to 2027/28.  The second reason for the uncertainty over the phasing of the BPS is that one of its purposes is to free up funds for the new Environmental Land Management Scheme (ELMS).  Depending on the success of ELMS, the call on funds from direct payments could be lesser or greater.

Those trying to forecast future direct payment levels will also need to consider currency conversions.  The 2019 scheme will retain Euro-denominated entitlements and still work on a September average exchange rate conversion.  Presumably payment in Euros will remain an option.  For 2020, although the scheme is going to look very much like the BPS, it will be ‘re-nationalised’ and will not be run under CAP rules. ( This would allow the promised simplification – the ending of the Crop Diversification rule seems an obvious target.  Perhaps the BPS would get a new name too?)  However, it does seem certain that there would have to be a permanent conversion of the scheme from Euros to Sterling.  The exchange rate used for this would be key.  There is no indication how this would be done.  A ‘spot’ rate sometime in 2020 or an average of rates over a longer, earlier, period?

Direct Payments – De-Linking

The de-linking of payments from the occupation of land is probably one of the most radical, and perhaps unexpected elements of the plans.  Reading the text it states that this ‘will’ happen rather than ‘may’.  It seems something that Defra is very keen on.  This seems driven by a strand of ‘pure’ economic thought within the Ministry that believes that, if the link between payments and land is broken, recipients will go and do lots of exciting things with the money (retire, invest etc.).  Experience of decoupling under the SPS would suggest that such ‘mindset’ shifts do not always happen – farmers seem just as likely to throw the delinked payment in the farming ‘pot’ and carry-on as previously.  Perhaps the opportunity to capitalise up the payment into a lump sum will provide a spur to change.

The mechanics of delinking are also worth thinking about.  Will it happen in 2021 or be delayed further into the agricultural transition?  Will a lump sum option be made available?, if so, when?, and what extra conditions might be imposed?  Once payments are not conditional on occupying land then the link to what happens on that land is broken.  Cross-compliance has been a relatively cheap way to enforce on-farm regulations.  A new regulatory baseline will be needed, plus ways to make land managers comply – see Regulation Review section below.

There would need to be a reference year on which de-linked payments are to be based.  Would this be historic, or some date in the future?  If the latter, there might be opportunity to ‘massage’ the payments to the right person – for example the older generation who might use it as a retirement fund.  Any reference period also brings the usual issues of mergers, scission and inheritance into play.

There is also the question of landlord and tenant relationships.  Consider the situation of a tenancy that expires in 2023, with clauses that require entitlement to support to be returned to the landlord.  What happens if the tenant has taken a delinked lump-sum payment?

ELMS – Summary

We wrote about the Environmental Land Management Scheme (ELMS) in August.  Building on that, and adding what we have found out since, the key points of the new scheme look like being as follows;

  • land managers (in the sense of anyone who manages land – not just farmers) will have a ‘whole-farm plan’ produced.  This will be drawn up and assessed by third parties, but the idea is that it is ‘owned’ by the land manager – so achieving greater engagement
  • the plan is likely to set out what is already in place in terms of public goods (or natural capital) and what the farmer will do to improve these
  • the plans will run on an annual basis, but it is not clear whether their will be a multi-annual commitment required.  It is sometimes stated that the five-year term of current agri-environment agreements are not long enough for meaningful improvement
  • land managers will effectively quote a ‘price’ for the work they plan to carry-out – based on a Defra price list’ or ‘ready-reckoner’.  Other payment methods such as reverse auctions and payment-by-results may well also form part of the mix (how this will all interact is not entirely clear)
  • applications will be possible year-round, rather than by a yearly deadline
  • there will be annual management payments as well as grants for capital works.  It seems certain that there will be incentives for land managers to work together to deliver landscape-scale agreements.

It should be noted that the aims of ELMS are rather wider than the traditional agri-environmental schemes such as ELS or CSS.  These tended to focus very much on biodiversity.  ELMS looks to bring in other areas such as soil and water health, flood prevention etc.  This may open up opportunities for those farms that have not had the landscape features to easily get into past schemes.  For examples those in the most intensive agricultural areas (e.g. the fens) may be able to access funding for soil management or flood work.  Public access seems likely to be given a higher priority under the new scheme than in the past.  There is an open question of what happens when two ‘public goods’ clash – i.e. public access versus the protection of rare species.  

Payment levels will not be constrained by the ‘income foregone’ calculation as under CAP agri-environmental schemes.  Therefore, if farmers require an element of ‘profit’ within the payments they request, this seems possible. 

One tension within agri-environmental schemes that the design of ELMS will need to address is around the issue of ‘additionality’.  The question has always been ‘should you reward those that have been doing the ‘right thing’ all along, or would you get better value for money by bringing new land into environmental management?’    Farmers ‘bidding’ different prices for delivering public goods may partly get around the problem.  Another approach is that different ‘tiers’ of management might be offered (like the past ESAs) to cater for different groups. 

The Policy Statement was notably brief on upland farming, having only one paragraph devoted to it.  To quote from that “We recognise that upland farmers are often more dependent than most on Basic Payments.  Upland farmers will be well placed to benefit from our new environmental land management system which will reward farmers for the public goods they provide”.  ELMS scheme design will have to be good to replace both BPS and, say, HLS income on a hill unit.

With respect to Whole Farm Plans, there is a danger, in our view, that this could turn into a missed opportunity.  It seems that these may be very public-good (environment) focussed.  But a Whole Farm Plan should look at the farm ‘in the round’.  This might include gauging whether the ELMS actually fits in well with the wider business and the proprietors’ objectives.  The change in support arrangements, and perhaps trade as well, will see a big shift in the business environment.  The Whole Farm Plan could be a mechanism to support businesses through this. 

Before anyone rushes to prepare their ELMS application, it should be noted that the scheme is in its very early design stages.  The timetable for its introduction is as follows;

  • 2019 and 2020 – tests of individual scheme elements
  • 2022 to 2024 – pilots of the scheme in selected areas
  • 2025 to 2028 – nationwide roll-out in 2025, but some elements may only be introduced later.  The full scheme will be in place by 2028

Given the fact that ELMS will not be fully ready across the country for over five years, existing agri-environmental schemes will continue.

Other Environmental Schemes

We wrote last month on the plans for the Countryside Stewardship Scheme (CSS) for 2019.  It seems that similar arrangements will be in place for 2020 too.  The policy papers suggest that a ‘simplified CSS’ will be available in 2021 to 2024.  It is not clear whether this is just an aspiration to make the application process simpler or if the scheme itself will be simplified (i.e. fewer options). 

Those thinking of entering the CSS over the next few years might be dissuaded from applying as ELMS might be better (this could be true if payments are not constrained by income foregone).  Defra has provided a guarantee that those signing-up for the CSS will not be disadvantaged when new schemes are brought in.  But it is not clear whether this will mean an automatic right to end an existing agreement. 

We also wrote last month about Defra’s plans to offer an extension to existing HLS agreement holders.  Around 11,500 HLS agreements (many in the uplands) are due to expire over the next five years and Natural England / RPA simply do not have the capacity to transfer these across to Higher-tier CSS.  Even if Defra gain EU approval to extend the scheme individual agreement holders will not automatically benefit form this – each agreement will be treated on its own merits.  Any extension will only be up to 2024 – it is expected that people will transfer to ELMS at this point (although this seems to be storing-up a lot of new agreements for a single year).

Regulation Review

We wrote about Farm Regulation Review, being carried out by Dame Glenys Stacey, in March and then July when the interim report was published.  This strand of policy may turn out to be more important than many in the industry recognise.

With the likely end to cross-compliance, Government will lose a cheap and effective way of ensuring farmers follow regulation.  The Policy Statement outlines that there will be a ‘new approach’ to monitoring compliance and enforcement.  It is widely recognised that taking farmers to court for breaches of regulations is not cost-effective. Defra’s statement highlights the need for ‘new enforcement powers such as Civil Sanctions’.  This could lead to something akin to a ‘parking fine’ system for those that breach the rules.  As laid out in Dame Glenys’ report measures such as a ‘licence to farm’ or compulsory CPD remain a possibility – none of which is likely to be universally welcomed in the sector.

Productivity Grants

During the early years of the agricultural transition, it looks like there will be a focus on funding productivity measures.  The aim of this will be to help the industry to reach a situation where there is no BPS.  The call for productivity funding may have an effect on the level of deductions in direct aid.

Any productivity schemes will probably look a lot like the current Countryside Productivity Scheme – with both a ‘main’ scheme to help fund larger investments and a version of the Small Grants scheme.  As an aside, it is expected that the next round of the Small Grants scheme is expected very soon.

Continuing support for agricultural Research and Development is also promised within the policy paper.  There are linkages here with the current review of the AHDB (see separate article) on how research get disseminated out onto farm.

Other Policy Areas

The Policy Statement that accompanied the Agriculture Bill also covered some other areas.

In terms of animal health and welfare it is stated that ‘we will develop publically-funded schemes for farmers to deliver animal welfare enhancements that go beyond the regulatory baseline, that are valued by the public but not sufficiently provided by the market’.

There is a mention of new entrants, but the only policy commitment is a pledge to help Local Authorities invest in county farms.

Overall, there was quite a lot of ground covered in the Policy Statement, but a much still remains vague.  It should be noted that the Statement has no legal force.  Therefore, if a new administration comes in, or even a new Farm Minister, with alternative ideas, then policy could be different from that outlined.

Migration Advisory Committee Report

The recently published Migration Advisory Committee (MAC) report calls for a radical shift in UK migration policy in a post-Brexit world.  Its findings could have major implications for UK agri-food if implemented.  Its key recommendations are listed below with some additional observations in italics;

  • Focus on high-skilled workers: the UK should adopt the general principle for migration policy that it should be easier for higher-skilled workers to migrate to the UK than lower-skilled workers. This potentially exposes the agri-food sector to the risk of significant shortfalls in labour as a substantial proportion of businesses rely heavily on migrant labour to fill operative positions.  Since Sterling’s decline from mid-2016, companies have been experiencing increased problems in sourcing labour.  A move towards focusing on higher-skilled positions will make this challenge more pronounced for food and farming companies.
  • No preference for EU/EEA migrants: this is based on the assumption that UK immigration policy is not included in the agreement with the EU.  This is an arguably unrealistic assumption given how important free-movement is to the EU and the UK’s desire to retain strong access to the Single Market.  Whilst it is perhaps understandable for the MAC to avoid getting embroiled in the current political debate, a report on future migration policy should at least consider a range of future scenarios, one of which is some form of linkage to the EU/EEA as enhanced Single Market access will almost inevitably come with conditions attached.  Note that the EEA is the European Economic Area and includes Norway and Iceland in addition to the EU-28.
  • Abolish the cap on the number of Tier 2 (highly skilled) migrants allowed into the UK: following on from the previous point, this scheme would be equally available to non-EU and EU/EEA migrants.
  • Tier 2 migration open to medium-skilled workers: this makes Tier 2 applications possible for all jobs from RQF 3 or above (RQF ‘ranks’ the skill level).  This means that some more medium skilled jobs (including some professional trades) would be potentially included.  In conjunction with this, the MAC also states that the Shortage Occupation List (SOL) will be reviewed in its next report in response to the SOL Commission.
  • Salary thresholds: maintain existing threshold (£30,000) for all Tier 2 migrants.  It also argues against having regional salary thresholds. When considering the average wage rates for manual/operative positions in agri-food, this threshold is prohibitive. 
  • Immigration skills charge: currently set at £1,000 for most employers.  This should be retained but reviewed.
  • Resident Labour Market Test: this is the requirement to advertise a job vacancy locally before employing migrant labour.  The MAC suggests consideration should be given to abolishing the test.  If it is not abolished, then it advocates extending the numbers of migrants who are exempt through lowering the salary required for exemption.
  • Sponsor licensing system: review how the current system works for small and medium-sized businesses. Any moves to decrease the bureaucratic burden required would be welcomed by most businesses.
  • Consult: engage more systematically with users of the visa system to ensure it works as smoothly as possible.
  • Avoid Sector-Based Schemes: the MAC states these should be avoided for lower skilled workers, with the potential exception of a Seasonal Agricultural Workers scheme.  Whilst some might view it as a positive that the MAC is arguing for a special status for agriculture, most industry professionals believe that a seasonal scheme is simply insufficient for the wider agri-food sector, particularly in year-round operations within the processing sector.  Without labour to process its produce, UK agriculture will struggle to find markets for its outputs.  It is important that this point is made strongly to Government as it appears that the MAC has given insufficient consideration to the wider agri-food industry which relies heavily on migrant labour and has severely struggled to meet its labour needs via indigenous workers.
  • Encourage agricultural productivity: by ensuring upward pressure on wages via an agricultural minimum wage if the SAWS is to be reintroduced. There is a general consensus in the industry that productivity needs to be increased.  But it is not just a question of raising wages, it also concerns issues such as good broadband connectivity, modern transportation infrastructure and better training. It therefore needs a holistic approach from Government working in close collaboration with industry. Focusing on wages alone will not make the UK workforce more productive and could end up generating poorer value for money if not managed properly. 
  • Addressing low-skilled labour gaps: calls for extending Tier 5 Youth Mobility Scheme to meet this need. It is important to point out here that whilst the UK Government may consider some tasks (e.g. fruit picking, meat deboning etc.) to be ‘low-skilled’), they do require specialist skills which sometimes can take several years to develop.  By focusing on youth only, there is a danger that UK businesses will miss out on such expertise.  The focus should surely be on securing the best workers possible for the task at hand that is not available indigenously, no matter what their age is or where they come from. 
  • Monitor and evaluate the impact of migration policies.
  • Local level impacts: pay more attention to managing the consequences of migration at local community level. This is crucial and has arguably been overlooked by policy-makers in the past decade or so.  In some areas, the influx of migrants coupled with austerity has exerted severe pressure on health and education services.  In future, if migration has a more pronounced impact on a given region, then it should be eligible for top-up funds to help cope with the additional burden placed on public services so that the indigenous population does not lose out. 

On Northern Ireland, the MAC report acknowledged that there are unique circumstances and complexities as a result of its land border with the Irish Republic and that the agri-food sector is particularly exposed.  However, it does not look favourably on advocating a separate migration scheme for Northern Ireland, nor a UK-wide scheme to deal with agri-food issues (with the exception of seasonal workers) as outlined above.  In this regard, the MAC is potentially concerned that Northern Ireland would be used as a precedent for the whole of the UK or for other devolved administrations in Scotland and Wales to have their own separate policies.  Given the politics at play in Westminster, it is likely that the DUP will have an influential role in all of this and are likely to push for a NI-specific scheme on fears that NI agri-food businesses could lose-out to companies south of the border. 

The MAC report is seen as an important milestone for the UK in setting its own migration policy post-Brexit.  It is perhaps unsurprising that given a topic as emotive and important as migration that the report’s publication has been met with a broad mixture of views from across the UK generally, but the response from the agri-food sector generally has been lukewarm.  The report is available to download via:  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/740991/Final_EEA_report_to_go_to_WEB.PDF

Environmental Stewardship Payments

We recently updated readers on Countryside Stewardship (CS) payments, but Environmental Stewardship (ELS & HLS) Agreement holders have been experiencing similar payment delays.  DEFRA has now announced that bridging payments will be made so that all who made an ES claim in 2016 and 2017 will have received at least 75% of their estimated payment by the end of September.  Where a claimant has already received their 50% advance payment, a 25% top up will be made when the bridging payment is made.  Letters and emails should be sent to those affected week commencing 17th September.  These payments are significantly delayed; 2017 balance payments should have been made in the spring, but many agreement holders will only be getting their first advance on 2017 now.   Advance payments for 2018 are due to be paid this autumn, but it is not clear when these will be made.  Stewardship payments are due to farmers to compensate them for income foregone – which will have been incurred months, if not years, before the payments are being received.  DEFRA has said that an ‘improvement plan’ to the delivery of ES and CS payments is underway with the RPA taking charge of delivery of both schemes from the start of October.   It is hoped that there is some significant improvement in the timeliness of payments going forward.

Agriculture Bill

The long-awaited Agriculture Bill was introduced into Parliament on the 12th September.   Most interest will be on how farm support will alter as the Basic Payment Scheme is phased out.  But the draft Act also contains details on many other elements of future UK farm policy.  Parts of the Bill are UK wide, but in the main the announcements build on the proposals set out in Defra’s Health and Harmony consultation on agricultural policy in England post Brexit.

Basic Payment – Phase-Out, Capping and Capitalisation

As already reported, the BPS will remain in place for 2019 with only minor amendments (if any).  It has also been confirmed that it will remain in place for the 2020, subject to simplifications where possible.  There will then be a seven year ‘agricultural transition’ period from 2021 to 2027.  This is longer than the 5-years outlined in Health And Harmony, presumably reflecting consultation responses asking for a longer phasing period.

From 2021 all farmers will see some reduction in their payments.  Defra’s consultation suggested that the largest recipients should initially be targeted for reductions, but feedback from the industry has persuaded Ministers that all businesses should start to be weaned-off direct payments at the same time.  However,  those who receive the highest payments will see bigger reductions initially.  The table below sets out the reductions for 2021.  The bands work like Income Tax;

% Reduction in Direct Payments in 2021
Payment Bands

% Reduction
Up to £30,000

5%
£30,000 to £50,000

10%
£50,000 to £150,000

20%
£150,000 or above

25%

From 2022 to 2027, BPS payments will continue to be phased out (the yearly reductions are not yet known), with 2027 being the last year of the scheme in England.  The money saved will be put towards piloting new schemes including the Environmental Land Management Scheme (see below).

One significant development is that payments made during the agricultural transition can be ‘delinked’ from the ‘requirement to farm land’.  This idea was put forward in the consultation and although the details are not yet available, it offers the prospect of a lump-sum or guaranteed future stream of income.  Amounts would be calculated according to the money received in a base year.  Such delinked payments could be used by some as a way of leaving the industry, a retirement fund; or to fund investment in farming businesses.  As such it is aimed at helping new entrants into the sector and giving farmers the flexibility to plan for the future.  If there is no requirement to farm land it seems logical that Greening and Cross-compliance would also be delinked from payment.

The details on de-linking are currently sparse.  This is true generally of the Bill which runs to a relatively concise 60 pages (full text can be found here – https://publications.parliament.uk/pa/bills/cbill/2017-2019/0266/18266.pdf).  Much of it concerns giving Ministers broad powers to undertake certain activities, without specifying in detail how such things are to work.  For example, the deductions for 2021 BPS outlined above do not actually appear in the text, but come from the accompanying Policy Statements by Defra (see https://www.gov.uk/government/publications/the-future-for-food-farming-and-the-environment-policy-statement-2018/health-and-harmony-the-future-for-food-farming-and-the-environment-in-a-green-brexit-policy-statement).  The detail of schemes and rules will be filled-in with secondary legislation – over a period of months if not years.    

Environmental Land Management Scheme

Replacing the current system of support will be the new Environmental Land Management Scheme.  Readers will recall, this is the idea that land managers will be paid for ‘public goods’ such as;

  • better air and water quality
  • improved soil health
  • higher animal welfare standards
  • public access to the countryside
  • measures to reduce flooding

From 2019 the government will work with farmers to ‘design, develop and trial’ the new approach.  Pilots are expected to start in 2021 continuing through to 2024, with the intention that the scheme be fully up and running for 2025.

Until the new scheme is fully rolled out, the current Countryside Stewardship scheme will remain open until 2024, although it is expected to be simplified and the number of agreements offered each year will be dependent on the development of the new ELMS.  It may also be possible to extend HLS agreements which are due to end between 2019 and 2024.

Other Issues

The Bill also includes investment in research and development with ‘transitional support’ available from 2021 to improve the sector’s ability to improve productivity, manage risk and deliver public goods.  The Bill also sets out that the government will ‘strengthen transparency’ within the supply chain to enable farmers to get a better deal.   Again, no detail is given on what these policies might look like in practice.

The Bill specifically includes clauses to allow Producer Organisations to continue to operate in England.  There are also powers for Ministers to intervene in markets under ‘exceptional market conditions’.  The ability to set marketing standards, carcass classification and require agricultural statistics to be provided are included in the Act as well.

Devolution

Most of the Agriculture Bill covers English policy.  However, Schedules in the Act are included that provide similar powers for the Welsh Government and Northern Irish Assembly.  Like England, the Welsh and Irish sections really only provide a legal framework without providing details of any schemes.  It appears, on first reading, that the level of devolution is quite high, with very few powers being reserved to ‘Westminster’ on a UK-basis – as the devolved administrations wanted.  Indeed the only UK-wide element of the Bill is the power to deal with the WTO on agricultural trade matters.

Scotland has not been included because apparently the Nationalist Government wants to set out its own legislation rather than be part of a ‘UK’ Bill.  In fact, both before and after the publication of the Bill, the Cabinet Secretary for Rural Affairs, Fergus Ewing, made a number of statements claiming the legislation was detrimental to Scotland’s interests.  This prompted the UK Government to publish a ‘myth buster’ refuting these claims (https://www.gov.uk/government/news/uk-government-agriculture-bill-scotland-myth-buster?utm_source=d52083e2-8500-46c2-a98d-e0454b6ea2b4&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate).  This sets out that nothing in the Agriculture Bill prevents a devolved Scottish policy paying coupled support or making hill payments, and that Scotland’s funding is guaranteed at current levels until 2022 – just like the rest of the UK.

The publication of the Agriculture Bill obviously marks a key step on the road to Brexit as far as farming is concerned.  It still has to make its way through the Parliamentary process of course, and could be amended during its passage.  But it is probably less contentious than many other Bills currently before Parliament so may emerge unscathed.  Many key operational points of the new support regime will only become clear when the secondary legislation puts some flesh on the bare bones contained in the Bill. 

On a wider point, the Bill that has emerged is rather ‘narrow’, only focusing on a few areas of policy.  It compares rather unfavourably with the ambition of the 1947 Agriculture Act that sought to refashion farming after the War.    

Defra’s Brexit Preparations

The National Audit Office (NAO) reports that Defra has been making good progress in its preparations for leaving the EU.  However, enormous challenges remain and it believes that it is no longer possible for Defra to deliver everything it originally intended for in a ‘No-Deal’ exit.  That said, Defra is working on contingencies to have what it believes are sufficient arrangements should a No-Deal scenario arise.

As readers will be aware, Defra is one of the Government Departments most affected by Brexit and the NAO reports that it is responsible for 55 of the 319 EU-related work streams across Government.  This covers agriculture, the agri-food industry, chemicals, fisheries and the environment.  The NAO report focuses on overall implementation of Defra’s EU Exit portfolio as well as work streams covering environmental regulations for chemicals, the import and exports of animals and animal products and control of English fishing waters.  Areas where significant progress has been made, despite the demanding timescale, include;

  • securing HM Treasury approval for £320 million spending in 2018-19
  • started to build new IT systems
  • recruitment of over 1,300 new staff by March 2018
  • strengthened its project management capability
  • published consultation documents on agriculture and fisheries (note Agriculture Bill was published on 12th September – see accompanying article).

Despite this notable progress, major challenges remain, particularly as the political environment is constantly changing, making it difficult to develop a robust plan and stick to intended timelines.  The main challenges include;

  1. No-Deal Scenario Planning for Agri-Food – as alluded to above, Defra will not have time to implement all the changes necessary by 29th March. Examples of areas where Defra will fall short are;
    • Export health certification for products of animal origin – estimated to be valued at £7.6 billion, Defra needs to negotiate and agree replacement export health certificates with 154 countries, necessitating the introduction of approximately 1,400 versions of the current EU export health certificates. As a mitigating measure, Defra is focusing on 15 countries which account for 90% of all exports. It accepts that under a No-Deal scenario, UK firms exporting to the other 139 countries may be unable to do so for a period after a no-deal Brexit.
    • Shortages of qualified veterinarians – with the prospect of having to issue health certificates to EU countries for the first time in many years, it is clear that there are not enough vets.  Estimates of the increase in certification required as a result of the UK trading with the EU as a third country range from 300% to 800%.  With veterinary shortages, there will be delays to consignments crossing the border. The NAO reports that Defra plans to launch an emergency recruitment campaign for vets in October to meet minimum requirements and plans to use non-veterinarians to check records and processes that do not require veterinary judgement. Whilst these steps are sensible and should be pursued without delay, with less than 200 days before ‘Brexit Day’ it remains a tall order to have new veterinary and non-veterinary sufficiently trained and up-to-speed to deal with the increased bureaucracy. 
    • Control and enforcement of fishing waters – whilst not of direct relevance to the agri-food sector, it highlights the fact that there is a significant shortage of patrolling vessels for border control. This echoes sentiments elsewhere and indicates concern regarding the potential for smuggling, particularly if there are major bottlenecks at Border Inspection Posts (BIPs). 
  2. Chemicals Regulations and Exports – the UK exports of chemicals to the EU are valued at £17 billion.  Whilst the UK is seeking continued participation on the European Chemicals Agency, this is subject to negotiations. Without this access, exports to the EU would cease as existing registrations would no longer be recognised by the EU and re-registration in another EU Member State is a lengthy process and cannot commence until the UK last left the EU.  This has the potential to affect sales of agri-chemicals from UK plants to other EU markets (e.g. Ireland) and could also give rise to issues concerning the import of chemicals from the EU.  However, based on the UK Government’s no-deal planning publications in August (see previous article), it is anticipated that the UK would continue to recognise existing EU certifications and registrations (at the UK’s ‘discretion’). 
  3. Parliamentary Time – there is a high risk that Defra will not be able to introduce all of the required legislation to transpose EU law into the UK statute by March 2019.  The NAO reports that Defra has “three new bills and 93 Statutory Instruments to convert EU law into UK law and is now having to prioritise.”
  4. Supporting Businesses to in Brexit Preparations – the Government has been unwilling, until recently, to allow Departments to discuss preparation for a No-Deal scenario with stakeholders.  This finding will be unsurprising to most readers as many business organisations have long been expressing concern at the lack of information available on how they can prepare for Brexit. Last month’s Technical Notices on no-deal planning are a start but substantial uncertainty remains and very little time to implement contingency plans.

Overall, the NAO report demonstrates that Defra is rising to the Brexit challenge.  But the scale of a No-Deal scenario is so substantial, that the Department’s best efforts will fall short in several key areas.  Another major issue for businesses which the NAO did not cover, is the potential deterioration on product value and the reputational damage to British Agri-Food Plc that will arise from not being able to adhere to just-in-time supply chain delivery requirements.  In sectors where profit margins are frequently less than 5%, any deterioration in product value will have the potential to cause severe damage.

Finally, one needs to be mindful that many of the issues pointed out above are related to a No-Deal scenario.  According to Michel Barnier this week, if both sides are realistic a Withdrawal Agreement could be reached in 6-8 weeks.  That said, in today’s political environment, realism appears to be in short supply and businesses must prepare for all scenarios, including No-Deal.

Seasonal Workers Pilot Scheme

A pilot scheme will operate next year which could see up to 2,500 workers allowed into the UK to undertake seasonal agricultural work.  The scheme, announced by the Home Office and Defra, will run between spring 2019 and December 2020 – i.e. the duration of the proposed Brexit ‘Transition Period’.  Workers from non-EU countries will be able to obtain a six-month visa.  It is been indicated that all visa applications will be channelled through two labour providing companies, rather than being simply open to any worker or employer.  The scheme will be closely monitored to ensure that the workers return home once their visas have expired.  If there is evidence that this is not happening, the scheme could be closed.

Although this is welcome news for farming, and particularly the fruit and vegetables sectors which rely most heavily on seasonal labour, it by no means solves the problem of access to workers in UK agriculture.  Firstly, the numbers covered, capped at 2,500, are relatively small given the demand for seasonal labour, and also compared to the 21,000 plus workers allowed in under the old SAWS scheme.  The Government will point to this being a ‘pilot’, and that, during the Transition Period, EU workers will still be free to travel to the UK to undertake such work.  However, the past couple of years has highlighted that the UK has become much less attractive, with many growers struggling to attract enough staff.  The ‘seasonal’ nature of the scheme is an issue in itself.  As we have written previously, many permanent positions in the farming and food processing sectors have been filled by ‘migrant’ labour over the past decade or more.  This type of scheme, even if expanded in numbers, would do nothing to address this area. 

AHDB Consultation

The farming industry is being asked its views on the future of the AHDB.  Defra and the devolved administrations have issued a joint consultation on the future operation of the levy board.  This can be found at – https://consult.defra.gov.uk/farming/views-on-ahdb/.  The consultation is open until the 9th November and asks for comments on the AHDB’s activities, governance and funding.  The Board, in its current form, was created a decade ago and the purpose of the review is to ensure that the organisation still meets the farming industry’s needs through a period of intense change. 

Agriculture in the English Regions

Statistics have been published by Defra focusing on the role of farming in the regional economies of England.  These show the contribution of agriculture as well as a regional TIFF (farm profit).  The data can be found at – https://www.gov.uk/government/statistics/agriculture-in-the-english-regions

Exchange Rate and Support

Most readers will be aware that the average £/€ exchange rate during September sets the BPS conversion rate for that year.  As we approach September, the Pound currently looks weak against the Euro.  It dropped to below €1 = 90p (or £1 = €1.11) in the last few days of August.  This would be favourable for UK farmers – each Euro buying more Pounds of BPS payment.  The conversion rate for the 2017 BPS was €1 = 89.47p.