Category: Policy & Business

Welsh Support Post Brexit

The Welsh Government will consult on its plans for farm support after Brexit in July.  The Welsh Cabinet Secretary for Energy, Planning and Rural Affairs, Lesley Griffiths has confirmed that the BPS in Wales will continue to operate as under the current system for the 2019 year.  The plan is then to have a new domestic policy in place for 2020, with a five year transition to a new suite of schemes completed by 2025.  What those new schemes might look like should become clearer when the Welsh Government issues the consultation in July.

Red Tape Review

DEFRA has published the Terms of Reference for the Farm Inspection and Regulation Review.  This was announced by Michael Gove at the NFU Conference in February.  It is to be led by Dame Glenys Stacey and aims to opportunities to improve farming-related regulation and enforcement, including farm inspections, in England.  It is due to report in December 2018.  The Terms of Reference can be found at – https://www.gov.uk/government/publications/farm-inspection-and-regulation-review?utm_source=93e6868c-0f42-4320-a2ae-d056f139c559&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

 

Environment Bill Consultation

DEFRA is consulting on the contents of a new Environmental Principles and Governance Bill.  Currently much of UK environmental law is set by EU legislation, with the EU Commission holding the UK to account.  After Brexit, new legislation is required to set out the environmental principles to be followed by UK law (such as ‘polluter pays’) and also to set up a new body to oversee environmental policy.   The consultation can be found at – https://consult.defra.gov.uk/eu/environmental-principles-and-governance/

CSS Claim Extension

The deadline for claims under the Countryside Stewardship Scheme has been extended a month to the 15th June.  This is a result of the backlog of agreements that were meant to be in place from the 1st January 2018.  Natural England is still sending these out, and the annual revenue claim cannot be made until the agreement has been approved.  However, the extension applies to all CSS annual claims, not just those for agreements starting this year.  Claims under Environmental Stewardship (i.e. HLS) still need to be made by 15th May.

A reminder that anyone who is thinking of applying to enter the CSS Mid-tier for a 1st January 2019 start date has to request an application pack by the 31st May, with a deadline for submissions of 31st July.

Countryside Productivity Small Grants Scheme

All those who applied under the first round of the Countryside Productivity Small Grants Scheme should now have been contacted by the RPA to say whether they have been successful or not.  Those who have not received an e-mail should, firstly, check their junk mail folder and then contact the RPA.  Those that have been successful are reminded that items included in an application must be purchased and claimed within 150 days.  There are concerns that some (larger) items have significant lead-times for delivery, which may make this target hard to meet.  DEFRA is looking at possible solutions. 

DEFRA Consultation Responses

DEFRA has received 44,000 responses to it ‘Health and Harmony’ consultation which closed on the 8th May.  The Department will now consider the submissions before making a response.  The findings will also feed into the new Agriculture Bill which is expected to be published in the autumn.

2017 Profits Keep Getting Better

The 2017 calendar year was the most profitable year for UK farming since 1996 according to the latest Total Income From Farming (TIFF) figures released by DEFRA.  Revised estimates published on the 3rd May show aggregate profits for the year at £5,743m.  This is the best real-terms performance for over 20 years.  The 2017 figure has been increased substantially compared to the first estimate released in February, when TIFF for the year was put at £5,345m

The 2017 figure now shows a 41% real-terms increase on 2016 (up £1,683m).  This is actually down a bit compared to the earlier February estimate (+45%), but this is because the final figure for 2016 has also been revised upwards substantially as well (up from the previous £3,682m to £4,060m).

The reason behind the much-improved performance was largely higher sales.  Farm output rose 10% overall (a combination of both better prices and higher volumes).  This was made up of a 12% rise in crop revenue, a 7% increase in meat value, and a 24% surge in livestock products (mainly milk).  Whilst the cost of inputs (intermediate consumption) rose by 5%, this was not enough to dent the overall performance.  A higher level of Basic Payment (up 2%) also helped profits.

 

CAP Budget Cut by 5%

Proposals outlined for the next EU budget suggest funding for the Common Agricultural Policy (CAP) will fall by 5%.  The EU Commission set out its proposals for the next Multi-Annual Financial Framework (MFF) on the 2nd May for the period 2021-2027.  (This will pay for the 2020 BPS onwards.)  The budget suggests that overall spending on the CAP will drop by around 5%, with a cut in direct payments of just under 4%.  All the figures are expressed in current prices – the actual, real-terms, reductions will be much larger, depending on the inflation rate through to 2027. 

Funding for ‘cohesion’ (i.e. regional and structural funds) also takes a similar fall in the new budget.  Money is being diverted to new priority areas such as counter-terrorism, border security, research, defence, and social programmes.  Also a factor is Brexit, which leaves a €12bn per year hole in the EU budget.  The plan is for the budget to be adopted in early 2019, before the European Parliament elections.  However, with the subject of money being so contentious, the negotiations may well drag-on through 2019 and even beyond.  With indicative funding levels now set, the EU Farm Commissioner, Phil Hogan, is set to unveil legislative proposals on the detail of CAP reform in late May or early June this year. 

Although funding levels (and rules) of the CAP are no longer directly relevant to the UK, they are still of more than passing interest.  They show how our closest competitors’ farming sectors are being funded.  There is an argument that if the UK Government (i.e. Treasury) sees support levels in the EU dropping, this gives greater justification to drop UK funding. 

Supermarket Merger

The UK retail landscape is due for a major shake-up after it was announced that the country’s second and third largest supermarket groups were to merge.  Sainsbury’s will purchase Asda from its’ US owner Walmart for just under £3bn in cash, plus a 42% stake in the combined business.  This values Asda at £7.3bn.  The merged business would have over £50bn in annual sales and would overtake Tesco as Britain’s number one grocer with 31% market share (Tesco currently has 28%).  It is believed that both brands will continue in the short term, but operational efficiencies of £500m are being targeted.  Sainsbury’s has stated that customers would benefit, including promised price cuts of 10% on some regularly-purchased items.   The merger will have to pass the competition authorities and this could involve the forced sale of stores in areas where the two firms dominate.  However, the companies claim there is little geographic overlap, with Asda being stronger in the north and Sainsbury’s heartland being in the south.  The plan is for the deal to be concluded in the second half of 2019.  The concern for the food and farming sector will be the further concentration at the retail level and the huge market and pricing power such a merged business would wield. 

 

Brexit Committee Hearing

Speaking in front of the Commons Brexit committee on 25th April, Brexit secretary David Davis suggested that MPs would be allowed to vote to amend any Brexit deal in the autumn.  This means that the Prime Minister (PM) could be instructed by Parliament to seek changes.  This is an apparent U-turn on previous statements by the PM who said that Parliament would only get a take-it-or-leave-it choice.

Such comments are likely to give some hope to remain-leaning MPs that want, as a minimum, for the UK to remain in the Customs Union (but it should be noted that Mr Davis also stated that the expected Parliament to ‘uphold’ the Government’s policy of leaving the Customs Union).  The comment may also be an overture to remain-backing Conservatives who might vote against the Government in important House of Commons votes in the coming weeks. 

Mr Davis did point out that if MPs returned Theresa May to Brussels to renegotiate parts of the deal, then he was “not entirely sure how much force a government sent back with its tail between its legs by Parliament would have in such a negotiation.”

His comments come amidst reports in Bloomberg and the FT that Europe might be willing to strike a customs deal with Britain which mooted the possibility of setting up ‘UK-EU dialogue on trade’.  Although, Mr Davis claimed that it would be a failure if the UK ended up in a Customs Union, there appears to be efforts being made behind the scenes to arrive at a customs arrangement which officially places the UK officially outside of the EU Customs Union but still within the gravitational pull of the EU’s trading framework.

When speaking on Northern Ireland, where agri-food trade accounts for 45% of total goods trade with the Irish Republic, the Brexit Secretary mentioned that the Customs Union on its own would be insufficient to ensure a frictionless border after Brexit.  Mr Davies believes that the best solution was a comprehensive free trade deal in conjunction with a deal to recognise shared regulations and customs procedures. This would encompass mutual recognition on standards and all-island arrangements for agri-food (i.e. the island of Ireland being a single epidemiological unit for animal disease as it at present).

Mr Davis also acknowledged that if an ambitious deal, or alternative technological suggestions to avoid a hard border cannot be agreed with the EU, that a proposed ‘Plan c’ (backstop) to align all regulations was still a potential “emergency parachute”.  Some believe that the extension of Customs Union participation, beyond December 2020, as agreed in the transition phase, has emerged as a fall-back option as the Government’s alternative customs proposals will take time to implement.

The Brexit secretary also added that the Irish border question could wait until a final deal is struck in October, as issues around mutual recognition of standards and rules of origin would only bite from 2021. He saw the June deadline as being an “artificial” hurdle set by the EU side.  Brexit Committee MPs including its chair Hillary Benn expressed concern that an October deal would give Parliament very little time to scrutinise its implications properly which could even then be based on a mere political statement rather than a binding treaty.

It is unsurprising that on Northern Ireland, the can looks set to be kicked down the road yet again. It is by far the most complex and nuanced issue in the negotiations.  Some might argue that if agreement is reached on all other parts of the withdrawal deal with the EU and the framework for the future trading relationship, then the pressure exerted on the Irish Republic would ramp-up substantially. As the Brexit Secretary pointed out there is about £1 billion worth of trade between the Irish Republic and the UK each week, far more than North-South trade which for goods is estimated at €3.2 billion (£2.8bn) per annum. Any significant impact on this East-West trade would hurt the Irish economy.  If agreement is reached on all other major areas and Northern Ireland remains outstanding, the Irish Government could be forced to relent on some key issues.