Category: Policy & Business

Natural England Chair to Retire

Natural England’s chair, Andrew Sells, has announced he will retire from his position in January 2019.  Mr Sells has been in the post since 2014 and has said as he approaches another significant birthday ‘it seems right to move on to new challenges’.  The length of notice, should enable a smooth succession and the process of recruiting a successor is expected to be announced shortly.  Natural England has not covered itself in glory in the eyes agricultural recently with delays in payments, agreement offers and delivering application packs (although, to be fair, most of the issues stem from RPA mapping problems).  Any successor will also, no doubt, have a large say in the new Environmental Land Management scheme (ELMs).

Agriculture Bill and Capping

In a surprise announcement, DEFRA Secretary, Michael Gove, has stated that the draft Agriculture Bill will be published before the Summer Recess.  With Parliament rising on the 20th July, this suggests the draft legislation will be issued within the next few weeks.  It seemed likely that the high volume of responses to the Health and Harmony consultation had pushed the publication back to the autumn, but Mr Gove seems keen to press forwards.

It is still not clear what level of detail on future policy the Bill will contain.  The fact that it is coming out so quickly might suggest that only a ‘framework’ will be put in place, with Ministers and/or Parliament given the powers to fill in the detail later.  As such, issues such as the length of the ‘agricultural transition’ and the timetable for phasing out direct payments may not be explicitly set out.  However, Mr Gove is being lobbied quite hard to make the future direction of policy clear, so that the industry can start to plan.

The announcement on the Bill came as Mr Gove was questioned by Parliament’s Environment Food and Rural Affairs Committee (EFRA) on the 13th June.  The Minister also had interesting comments on ‘capping’.  When questioned on whether the responses to the consultation were actually taken into consideration when setting policy, Mr Gove said that the views expressed had changed the position on capping.  Although no decision had yet been taken, it now seems far more likely that something will be taken from all claimants (perhaps exempting the very small) rather than initial deductions just focusing on the largest recipients of support.  This is to show clearly to all businesses that change is on its way.   There may still be some ‘weighting’ to take more from the largest claimants, but Mr Gove also stated he was keen not to over-complicate things.

The original plans were to see capping introduced in 2020, with the money raised being used to start piloting the new Environmental Land Management (ELMs) scheme (see our article this month for details).  To generate the same funding as capping, an across-the-board cut of 9% would be required.  In the table below, we have rounded it up to 10%.  Then, we could perhaps see the remainder of direct payments being phased-away over 5 years – as shown.  This is highly speculative, with different start dates, percentages and phasing periods all quite possible.  But it gives some idea of how things might progress in the years ahead.  We will, of course, report on the Agriculture Bill next month (assuming it is not delayed).

Possible Agricultural Transition in England – source Andersons
Year

2019

 2020 2021 2022 2023 2024

2025
% of BPS

100%

 90% 72% 54% 36% 18%

0%

 

Fertiliser Markets

New season nitrogen prices show a considerable increase on last year.  The cost of ammonium nitrate opened at £220-£230 per tonne for June and July delivery.  This compares with around £180 per tonne for the same period last year.  All the tonnage available for those months was soon committed.  Forward prices for the August September period show the usual increments, being in the range £230-£240 per tonne.

Countryside Productivity Small Grants Scheme

DEFRA has confirmed arrangements for those who are struggling to get their items delivered within the 150 day Countryside Productivity Small Grants Scheme deadline.  For claimants experiencing these problems, it is possible to purchase the equipment, submit the claim within the 150 day deadline, but take delivery of the equipment after the 150 days and then receive payment when the item has been delivered.

In the main, the problems appear to be with those that are purchasing livestock handling equipment and we understand some have withdrawn their application because of delivery problems.  DEFRA has said it will be contacting those affected to give them the option to either reinstate their application now or defer it to the next round which it says is due to open in the Autumn.

The first round of the scheme, proved popular, with more than 3,500 grants being awarded, totaling £23.5 million in funds.  Originally, a budget of £15m had been allocated, but DEFRA was so pleased with the response that extra funds were found.  The scheme, which has a simple application process, offers grants to purchase equipment from a set list of items that have been identified to help increase farm productivity.  We will post details of the second round once we receive the information.

Temporary Customs Arrangement

After a fraught discussions at Cabinet level, the UK Government has released a Technical Note setting out its proposals for a temporary customs arrangement.  The basic idea is that the UK will continue to be part of the EU Customs Union for a year after the end of the ‘transition period’.  This serves as a time-limited backstop to honour the commitment of avoiding a hard-border between Northern Ireland and Ireland, post-Brexit.  Key points include;

  • no imposition of tariffs, quotas, rules of origin and customs processes on all UK-EU trade.
  • the UK will be outside the scope of the Common Commercial Policy (CCP) except where it is required for the temporary customs arrangement to function.  This means the EU Common External Tariff (CET) will continue to be applied, alongside the Union Customs Code (USC). However, the UK is seeking the right to negotiate, sign and ratify new trade agreements with non-EU countries and to bring into force any provisions not covered by the terms of the temporary customs arrangement.
  • the temporary arrangement is to come into force at the end of the implementation (transition) period i.e. 31st December 2020 and would be replaced by an end-state customs arrangement which ideally would avoid a hard border under a wider UK-EU trading relationship.
  • time limit for the temporary customs arrangement: the UK Government expects this to be the end of December 2021 at the latest.
  • the is UK seeking to continue to benefit from all existing EU Free-trade Agreements (FTAs) or any new ones signed during this period, to ensure that it remains WTO compliant.
  • the UK to continue to participate in EU committees to have ability to develop and influence trade and customs policy during the temporary customs arrangement.
  • UK courts to respect the remit of the European Court of Justice (ECJ) with respect to laws underpinning the future UK-EU partnership.  This is where the UK appears most willing to compromise on its red lines.  Future oversight by the ECJ on trade-related matters in the UK-EU end-state relationship appears increasingly likely. 
  • the UK to reserve right to change the amount of customs duties it remits to the EU (currently 80% of collections).

The big talking point has been whether there would be a time limit on the backstop that the UK proposes.  Pro-Brexit MPs and Ministers fear that if there is no time limit, then the UK would be bound to the EU indefinitely.  However, the EU side claims that if the backstop has a time limit, then it is no longer a backstop.

At the time of writing, the EU has not officially responded but Michel Barnier has welcomed the proposals on the backstop and says that the EU will examine the document with three questions in mind;

  1. is it a workable solution to avoid a hard border?
  2. does it respect the integrity of the SM/CU?
  3. is it an ‘all-weather’ backstop?

Today’s Technical Note kicks the customs can down the road once again. Whilst the UK might ‘expect’ the temporary arrangement to terminate by December 2021, it might well be that this is not the case. What is clear is that it is time for the London-London negotiations to conclude and for serious discussions between the UK and the EU to accelerate.  Crucial decisions now need to be made and a path needs to be chosen. 

The Technical Paper is available via: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/714656/Technical_note_temporary_customs_arrangement.pdf

CAP Reform Proposals

After being widely leaked, as is usually the case, there were no surprises when plans for the next reform of the Common Agricultural Policy (CAP) were formally published on the 1st June.

The main elements of the plans are as follows;

  • direct payments (i.e. the BPS) will continue in the EU.  Payments will be ‘capped’.   Deductions will start at 25% above €60,000, with an absolute cap operating at €100,000.  However, claimants will be able to deduct labour costs from the amount to be capped (including unpaid family labour).  In many cases this will completely neutralise the effect of capping.
  • EU-wide Cross-compliance and Greening rules will be scrapped.  Instead each Member State will prepare ‘CAP Strategic Plans’ for 2021-2027 outlining how it intends to meet nine broad EU-wide economic, environmental and social objectives.  These plans will cover both direct payments and Rural Development.  They will include what ‘conditionality’ farmers face in order to receive payments.  The proposals mandate that 40% of total CAP funding must go towards actions that address climate change (although it is likely that the criteria for this will be drawn pretty widely).
  • There will be a mandatory Pillar 1 top-up scheme that will pay additional area payments to those farmers that go beyond the environmental ‘baseline’.
  • A Redistributive Payment will be required in every Member State.  This currently voluntary option, is already used in Wales and pays additional support on the first few hectares of a claim – thus helping smaller farmers.  Coupled payments will be more limited under the next round of CAP – at 10% of national funds rather than 13% as currently.
  • There is a focus on ‘generational renewal’ under the plans, but the measures are not hugely different from those already operating – a top-up to direct payments for young farmers and capital grants and loans.  An extra €10bn is promised for research and development in food and farming.

It is not easy to calculate how funding for the 2021-2027 period compares with the current CAP budget.  Most analysis indicates that there is around at 15% real-terms deduction (assuming a 2% inflation rate).  Budget cuts have fallen heaviest on Rural Development in order to protect the direct payments budget. 

The proposals have been greeted by a generally negative reaction.  Farm groups dislike the ‘renationalisation’ of farm policy, the fall in funding and the environmental conditions.  Conversely, environmental groups believe the plans do not go far enough on the environment and are merely ‘greenwash’.  Agreement on the reform is unlikely to be finalised until the EU budget for the period 2021-27 is set.  The aim is for this to be done in 2019, but the timetable could well slip. 

The draft legislative texts can be found via – https://ec.europa.eu/info/food-farming-fisheries/key-policies/common-agricultural-policy/future-cap_en#proposal

UK Goods Trade

Latest Department for International Trade statistics and shows that total UK trade encompassing goods and services is estimated at nearly £1,273 billion for 2017, which represents 62.5% of GDP.  Trade with the EU (£622.5 billion) accounted for 48.9% of this amount which equates to around £12 billion per week.

Although a breakdown was not provided for services trade between the EU and non-EU, as the chart below for goods trade illustrates, the value of UK imports from the EU (£262 billion) is substantially more than the corresponding value of exports (£167 billion), leaving a trade deficit of around £95 billion.  Whilst the UK also imports more from non-EU countries than it exports, the trade deficit is much smaller, standing at just under £41 billion.

From an agri-food perspective, the updated data show that the UK’s total Food, Beverage & Tobacco imports amounted to nearly £45bn last year.  Unsurprisingly, EU imports account for the majority (71%) of this total trade.  The UK’s Food & Beverage exports are estimated at £22.9 billion in 2017, with exports to the EU (£13.1 billion) accounting for 57%.  This is a £1.2bn increase on 2016 and, as previous articles have mentioned, a weaker Sterling has played a key role in this.  Exports to non-EU countries have also risen by £1.4 billion and are estimated at £9.8 billion in 2017.  This means that, in percentage terms, non-EU exports of Food & Beverage products now account for 43% of the UK total, which is up by about 3-4 percentage points on 2015 and 2016.  Again, the weaker Sterling is likely to have assisted the UK’s performance and the data also indicate that the proportional balance of UK’s exports between the EU and non-EU is beginning to shift.

For UK trade as a whole, the proportional balance between the EU and non-EU has remained consistent with previous years.  Indeed, with regards to goods trade, the EU’s share has risen by 1 percentage point versus 2016.  If there is a Hard Brexit, even a small decrease in trade with the EU will have a substantial impact, not just on agri-food trade but on the wider UK economy as well.

Further information is available via: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/709761/Pocketbook_21_May_accessible.pdf

New Environmental Land Management Scheme

The shape of new farm support arrangements in England after Brexit are starting to develop.  DEFRA has set out its ’emerging thinking’ on a new Environmental Land Management (ELM) scheme.  This will be the replacement for the BPS, as well as taking on the role of the present Countryside Stewardship, and possibly also being used as a vehicle to deliver other elements of Government policy too.

DEFRA’s preferred approach at present seems to be for a whole-farm plan-based system.  The plan is produced and ‘owned’ by the farmer, almost certainly in conjunction with third-party advice.  As well as environmental actions, the plan might also cover other aspects of the business – recreation, forestry and even measures to improve agricultural efficiency.

It appears that land managers will effectively quote a ‘price’ for the work they plan to carry-out – based on a DEFRA ‘price list’ or ‘ready-reckoner’.  Presumably, those plans offering the best value to the taxpayer will be accepted.  The proposed ELMs envisages a lot of work being ‘outsourced’ to third parties – both in the drawing up of the plan, and its ongoing assessment and auditing.  The funding for this work is not clear at present.  The graphic below sets out DEFRA’s summary of what is proposed.

Obviously, it is early days in the gestation of the new scheme, and the plans could alter significantly before 2020 when the new scheme is meant to be rolled-out.  However, what is being proposed does look like a significant departure on what has gone before.

Agriculture in the UK

DEFRA’s ‘flagship’ agricultural statistic publication has just been released.  ‘Agriculture in the UK 2017’ is a compendium of data about the farming (and food) sector.  It can be found via – https://www.gov.uk/government/statistics/agriculture-in-the-united-kingdom-2017