Category: Policy & Business

Farm Rents: England

The latest agricultural rents data from Defra shows a mixed picture.  The ‘All Farms’ rent for Full Agricultural Tenancy (FAT) (i.e. Agricultural Holdings Act (AHA) agreements) in 2023/24 has increased by 5% from the previous year to £180 per hectare (£73 per acre).  This is driven mainly by an increase in rents for Cereals Farms, increasing by 7% on the year to £235 per hectare (£95 per acre).  For Farm Business Tenancy (FBT) agreements, average rent rose by 3% to £229 per hectare (£93/ per acre).  Again, Cereals farms had the largest percentage increase, rising by 8%.

However, all the rents shown are at current prices.  After adjusting for inflation, Cereals farms on Full Agricultural Tenancy agreements, experienced a real terms decrease of 1% at the farm level.  And in real terms, the average FBT rent fell by 3%, with only Cereal farms seeing an increase.

For all farm types, except (interestingly) Lowland Cattle and Sheep farms, FBT rents are higher that AHA.  The table below shows a summary of the last three years.

Defra’s Farm Rents publication uses data from the Farm Business Survey.  Due to the time taken to collect the data, it is somewhat historic.  The figures just published are for the 2023/24 year – March to February (shown as ‘2023’ in the table below).  The full statistical notice can be found at https://www.gov.uk/government/statistics/farm-rents/a7055667-5631-4172-a03d-7602db63904e

Environmental Targets

The Government is likley to miss its legally-binding environmental targets.  This is the finding of the latest annual assessment by the Office for Environmental Protection (OEP) – the Government’s independent environmental watchddog.  Various statutory targets are set out in the Environmental Improvement Plan (EIP) and elsewhere.  Of the 43 environmental targets identified, the OEP found that the Government is largely on track to achieve nine, partially on track to achieve twelve and largely off track to achieve 20.  The report goes on to state that, with key deadlines approaching, the window of opportunity to achieve the benchmarks is rapidly closing.  More details on the report can be found at – https://www.theoep.org.uk/report/government-has-chance-get-track-meet-legal-environmental-commitments-window-opportunity. 

Compulsory Purchase Consultation

Landowners could be faced with lower levels of compensation if they lose land to compulsory purchase.  The Government launched a consultation on 19th December (see https://www.gov.uk/government/consultations/compulsory-purchase-process-and-compensation-reforms/compulsory-purchase-process-and-compensation-reforms).  Where land is being compulsorily purchased for social or affordable housing, or for educational and NHS purposes, the proposals suggest that the landowner should only be compensated on the basis of existing use (i.e. agricultural value) .  Any ‘hope’ value – the uplift in price due to the fact that the land’s location makes it likely to be sold for development – would be discounted.  Thus landowners might be paid relatively little for prime development land.

 

Roadmaps and Strategies

The Government has re-committed itself to produce a ’25-Year Roadmap’ for English farming.  The idea was first raised by Defra Secretary, Steve Reed, at the CLA Conference before Christmas.  It was repeated when Mr Reed spoke at the Oxford Farming Conference in early January.

It is not totally clear what the Roadmap will encompass.  It is due to be published later this year and the idea is that ‘Government and farmers will work together to identify solutions to challenges, and ensure government support is in place to enable farmers to take the actions that will let their businesses succeed‘.  There is also the question of how the Roadmap will interact with the National Food Strategy.  This was also announced by Mr Reed in December.  It will be focused on four key areas of Food Security, Health, Environment, and Economy.  The Strategy is due to be published in the ‘first half of 2025’.  Although the Strategy is for England only, Defra promises it will consult with the devolved administrations to ensure a joined-up approach.

The Roadmap seems designed to get the farming industry back ‘on board’ and provide reassurance that it is being listened to.  Particularly after the Budget announcements – not just on Inheritance tax, but the cut in BPS for 2025, and employment cost changes.  However, it was notable that Mr Reed did not bring any major policy announcements to the conference as a ‘sweetener’ – as has been seen in the past.  The messaging from the Government seems to becomming clearer, in that it sees farming as a business, but just like any other business.  Therefore, as a sector, it shouldn’t expect special treatment.    

For more details on the announcement see – https://www.gov.uk/government/news/government-announces-reforms-to-boost-profits-for-farmers-with-a-cast-iron-commitment-to-food-production.

Farm Assurance Review

A review of the UK’s farm assurance schemes has been published.  The Review was commissioned by the UK’s farming unions and the AHDB in the wake of Red Tractor’s failed plans to introduce the Greener Farmers Commitment back in March 2024.  It was undertaken by Dr. David Llewellyn, Mark Suthern, Katrina Williams and James Withers.

The Review, which can be found at https://promar-international.com/wp-content/uploads/sites/6/2025/01/UK-Farm-Assurance-Review.pdf concludes ‘…Farm Assurance in the UK is a necessary and important componenent of the food production landscape and should be retained by the farming and food production sectors, of which and to which, it is a significant asset‘ but it also goes onto say ‘However, farm assurance can and must be improved’.

The Commissioners received 3,616 responses to its survey and a further 162 other responses.  From these replies it found that ‘in spite of the support for, and the benefits of, farm assurance in principle, there is much that is not right in practice‘ and this is the foundations on which the themes and recommendations in the report are bulit on.  The Review identified and explored in depth 11 key themes;

  • the audit process
  • environment and sustainability
  • technology
  • collaboration
  • governence and the voice of the farmer
  • cost
  • positioning of UK agriculture
  • communication
  • operational improvement
  • training and development
  • duplication and earned recognition

It also identified eight characteristics which UK assurance schemes needed to adopt within their culture and management practices if they are to be successful;

  • strong leadership
  • regular reviews
  • transparency
  • collaboration
  • focus on delivering value
  • consistency and continuity
  • effective enforcement
  • healthy competition

From the work exploring the key themes and the characteristics for success the Review identified nine strategic recommendations; a summary of which is included below.  Within each recommendation there are a number of ‘practical’ and ‘actionable’ recommendations (56 in total) – each has a rationale, who is responsible for delivering it, and a proposed deadline for delivery – with many recommendations expected to be acted upon within 6 months of the report.  The headline recommendations are;

  • On-farm audits must be reduced, simplified and delivered more consistently
  • There must be a transformational step forward in embracing technology and managing data to deliver more effective farm assurance with greater added value for all
  • Farm assurance schemes need to reset and/or restate their decision-making structures to establish farmers as the driving voice in standards development
  • A new industry-led initiative must set out the future environmental ambitions for farm assurance, establishing this as an area of competitive advantage for UK farming
  • The inclusion of regulatory requirements within farm assurance standards and audits should be conditional on government and regulators agreeing a form of ‘earned recognition’
  • There must be greater coordination in the way in which farm assurance operates across the UK nations
  • Farm assurance schemes must better position the UK farming industry in world food markets and in competition with imported food
  • All farm assurance schemes must review, and, where necessary, improve their methods of communication with the farming industry
  • The Red Tractor (RT) scheme must complete the implementation of recommendations in the Campbell Tickell report.

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 Support (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.