Category: Policy & Business

Farmland Values

The supply of farmland coming onto the market continues to fall according to the latest Rural Land Market Survey from the Royal Institution of Chartered Surveyors (RICS) and the Royal Agricultural University (RAU).  Both the availability of residential and commercial units has declined over the last twelve months and more respondents reported that they did not expect the situation to change much in 2018, citing the ongoing uncertainty over Brexit resulting in less land being made available.  On the demand side, this appears to have stabilised in the second quarter of 2017, after declining for a couple of years.  However, this is probably more due to an upturn in ‘lifestyle’ buyers returning to the market as demand for purely commercial farmland still continues to fall marginally.  In addition, there remains a divide between good quality land in the right location and the poorer quality farmland.

The survey’s transaction-based measure for the second half of 2017, shows the weighted average price increased by 1.6% to £10,257 per acre (£25,345 per hectare) compared with the first quarter.  However, this is 2% down on the year.   By contrast, the opinion-based survey, fell by a further 1.4% in quarter two to £7,434 per acre (£18,369 per hectare); nearly 8% down compared to year-earlier levels.  The opinion-based measure, is a hypothetical estimate from surveyors of bareland prices.  The transaction-based measure is from actual sales and also includes a residential component where its value is estimated to be less than 50% of the total, and is therefore usually higher.

Looking ahead, the survey reports a net balance of -13% of surveyors expect land values to fall over the coming year, with more anticipating the value of commercial farmland to fall compared to those blocks of land which also have a residential element.

Turning to rents, arable FBT rents showed a fall in the second quarter, from £146 per acre (£361 per Ha) to £141 per acre (£348 per Ha), although these are still up by 4% year-on-year.  Pasture rents also declined marginally from £94 per acre (£232 per Ha) in the first half of 2017 to £93 per acre (£230 per Ha) in the second quarter and are 1% down annually.  In comparison, Agricultural Holdings Act tenancies saw an increase for both arable and pastureland in quarter two compared to the first half of 2017, from £75 per acre to £78 per acre and £53 per acre to £58 per acre respectively.

Average yields on investment land, although edging upwards from 1.5% to 1.6% in the second quarter, are still at their second lowest figure on record.

 

LFASS Loans

The Scottish Government has announced it will be offering a nationally-funded loan for the 2017 Less Favoured Area Support Scheme (LFASS).  Similar to the BPS, the processing of payments is not at a stage at which advance payments out of EU funds would be permissible, therefore the loans will be made from domestic funding.  Eligible hill farmers and crofters will be offered loans of up to 90% of their estimated LFASS payment.  Balance payments will be made once the claims have been fully processed.  Offer letters, will be sent out in batches, commencing at the end of February and continuing as claimants’ eligibility is confirmed.  The first payments will be made at the beginning of April.  The scheme should pay around £55 million to about 11,275 businesses.

Field Margins to Satisfy Greening

With the prohibition of Plant Protection Products (PPPs) on Ecological Focus Areas, many are looking for alternatives to growing Nitrogen Fixing Crops (NFC) to satisfy their EFA requirement.  We have had a number of enquiries regarding Field Margins and this article sets out the situation.  The Greening Guidance is expected to be published at the same time as the BPS Manual, which will give detailed rules, but below is our present understanding.

Field Margins replace ‘Buffer Strips’ in the Greening rules from this year – the big difference is they don’t need to be next to a watercourse – you can put a Field Margin against any boundary.  The minimum width for a Field Margin is just 1m, so most existing Cross-compliance margins meet the requirements.  (Note, however, that the X-compliance strip is 2m from the centre of the hedge and the Field Margin is 1m from the edge of the hedge, so be careful if you have a very wide hedge).

Each 1m run of Field Margin gives you 9m2 squared of EFA so it is a very generous weighting.  In addition, it is possible to claim for both the Hedge and Field Margin for the same boundary, without having to make any deductions in the EFA output of either.  This means that 1m of hedge and a 1m margin length gives you 14m2 of EFA per one side of the hedge or 28 m2 of EFA if you can claim both sides of the hedge (if you can claim both sides of the hedge you would normally claim for each half in the associated eligible parcel).

Field Margins are a ‘linear feature’ under Greening and hence there is no need to split them out into separate parcels on the online system; you only have to record the linear metres, which will ‘filter’ through into the Greening section, so this makes completing the form much simpler for Margins as opposed to Fallow.

Where you have wide fallow strips around the edge of fields it is possible to claim the first 1m as Field Margin and then the rest as EFA Fallow.  However, the RPA require that the two types of EFA be ‘visually distinguishable’.  Unless claimants are prepared to go around mowing these margins at different heights, or they have a different seed mixture, it may be best to steer clear of this.  Because Field Margins give you 9m2 squared for every 1m run, if you have any fallow strips that are less than 9m wide, it makes sense to enter it as Field Margin rather than EFA Fallow.

Welsh Young Entrants Scheme

Welsh Cabinet Secretary, Lesley Griffiths, has announced a new £6 million initiative to support young entrants into farming.  The new scheme called ‘Young People into Agriculture’ will offer financial support to ‘high achieving’ young entrants looking to start a business in farming or develop an existing one.  Successful applicants will need to be able to show they have the right characteristics to lead ‘dynamic businesses’  and ‘drive change in the wider industry’.

Curiously, the details of the initiative are no longer available on the Government’s website but we expect the scheme will offer £40,000 to 150 individuals, to be used as working capital.  The grant will be paid in three installments up until 31st March 2020 subject to agreed Key Performance Indicators being met.  Eligible applicants must be under 40 years old on 1st April 2018 and must either setup as head of a holding for the first time by 1st September 2018, or have become head of a holding for the first time in the 12 months preceding 1st April 2018.

The scheme will be competitive and applicants will be scored against set criteria with points being awarded according to business type, business structure, academic qualifications, level of Continued Professional Development (CPD) and strength of the business plan.

The scheme is expected to be open for Expressions of Interest between 1st April and 31st May 2018.

In addition there will be a Young People in Agriculture Forum to compliment the scheme.  This will allow young people involved in agriculture to express their views and help develop future policies.

 

Farm Incomes in Scotland

Farm profits in Scotland are estimated to have risen by 36% last year.  This finding comes from the Scottish Government’s first estimates of Total Income From Farming (TIFF) for 2017.  TIFF, the aggregate return for the farming industry, is estimated to have increased by £245 million compared with 2016, which, in-turn, saw a modest increase of 5% over 2015.  TIFF is based on a calendar year and therefore these ‘first estimates’ for 2017 are pretty soon after the year-end.  Accordingly, the figures contain a large number of forecasts, but the Scottish TIFF is estimated at £917 million, which is the third highest since 2000 in real terms.

Milk and barley have contributed most to the increase.  In the dairy sector, the milk price increased by 28% compared to year-earlier levels and with a slight increase in production, the overall output from milk rose by £117 million to £434 million.  In the cereals sector, the barley harvest saw a 10% increase, which together, with improved prices saw the value of barley increase by 36% (£67million) to £128 million.  Wheat output also increased due to better prices.

Overall income from the grazing livestock sector saw a small increase in value compared to 2016.  The beef industry is the largest in Scotland.  Throughout 2017, prices remained slightly above year-earlier levels; total output from slaughter and sales of cattle is estimated to have been £716 million.  Higher prices in both the sheep and pig sectors also saw values increase.  The poultry sector saw a small decline (to £80m), whilst the value of eggs increased by 8% to £89 million.

The potato sector saw a 4% increase in value, mainly due to a strong ware harvest which offset poorer prices.  The value of seed potatoes remained pretty steady.  There has been strong growth in the Scottish vegetable sector over the past two years, output is now estimated to stand at £155 million.  In contrast the fruit industry has fallen over the same time period, but is still historically strong at £134 million.

On the costs side, feed, fuel and labour are estimated to have increased.  Fertiliser, after falling in 2016 is estimated to have remained steady in 2017.  This all results in an estimated increase in costs in the region of 7% compared to 2016.

The full publication, which can be found at www.gov.scot/Publications/2018/01/1265 also includes comparisons with other parts of the UK.  This shows that income from farming in Scotland (and Wales) is below other areas.  The highest level of income from farming in Scotland (on a per Ha basis) was in the North East.  In terms of productivity (the amount of output per input, irrespective of price); this has  improved in four of the last five years.


Small Grants Scheme Open

The Countryside Productivity Small Grants Scheme is now open for applications.  It was officially launched by the Farm Minister, George Eustice, at the Dairy Tech Event on the 7th February.  As outlined in our December article, the CPSGS offers capital grants to farmers investing in equipment to improve the productivity of their holding.  This scheme is targeted at smaller investments than existing programmes.  Grants will be between £3,000 and £12,000.  There is a set list of eligible items (61 in total) and a fixed level of grant will be paid on each one – meaning there is no need to obtain quotes.  The first round of the scheme will be open until midday on 14th March 2018.  £60m has been allocated to the scheme.

All applications are done online through a new portal.  This can be accessed via – https://www.gov.uk/guidance/countryside-productivity-scheme.  Those applying need to be registered on the RPA’s Rural Payments system and and have a Single Business Identifier (SBI) number and Customer Registration Number (CRN).  After the closing date for each ’round’, applications will be scored.  Those scoring most highly will be sent an e-mail confirming their grant.  It is therefore not guaranteed that all applicants will receive funding.  Once an application has been approved, there are 150 days to purchase and claim for the equipment.  Invoices will need to be provided to the RPA.  Second-hand equipment is not eligible for the scheme.

 

 

Welsh BPS Payments

The Welsh Government has announced that 96% of claimants had been paid their 2017 BPS money as at the end of January.  This leaves around 600 businesses still waiting for funds and these are mostly more ‘complex’ cases such as cross-border farms or those that have been inspected.

BPS Application Delay

The RPA’s Chief Executive, Paul Caldwell, has announced that BPS applications in England will not now open until ‘mid March’.  It was thought that the Rural Payments system would allow claims to be made from the start of March.  This squeezes the workload, particularly of Agents who have numerous applications, into a tighter window.  This is especially unfortunate as, this year, each application may well take longer due to the need to un-pick incorrect changes from the Proactive Land Change Detection (PLCD) process (i.e. remapping).  However, it seems that the Land Use table on Rural Payments will become available from around the 20th February.  This is to allow the Arable Option under the new Streamlined Countryside Stewardship strand to be opened.  With this functionality, claimants will at least be able to start building their BPS applications by checking field areas and eligibility, and entering crop codes.  However, it will not be possible to generate or submit an application or produce a summary of the claim until the mid-March date.

Brexit Roundup

Impact Analysis

A leaked copy of a Government impact analysis of Brexit indicates that economic growth will be lower in the long-term, whatever final deal is agreed.   The report, titled ‘EU Exit Analysis – Cross-Whitehall Briefing’ was produced by the Department for Exiting the EU (DExEU) and is being used to inform Government discussions.  It was not planned to make the findings public, but the news site BuzzFeed has obtained a draft copy.

The analysis models three ‘off-the-shelf’ trade arrangements with the EU.  A no-deal Brexit, leaving Britain trading with Europe on World Trade Organization terms, would reduce growth by 8% compared with current projections.  A comprehensive Free-Trade Agreement (FTA) in the style of the current EU/Canadian deal would see growth 5% lower over the next 15 years.  Remaining in the Single Market with membership of the European Economic Area (EEA) would reduce growth by 2%.  All the analyses assume that a trade deal is quickly agreed with the US, and that the UK will be able to maintain the current trade deals the EU has already struck with third countries.  Any one-off costs from Brexit are not included (e.g. new customs systems).

Almost every sector of the economy included in the analysis would be negatively impacted in all three scenarios.  Interestingly, the analysis found that only the agriculture sector under the WTO scenario would not be adversely affected (the WTO scenario appears to assume the UK will mirror current EU tariffs rather than adopt a liberalised ‘cheap food’ policy).  In terms of regional effects, every part of the UK would also see lower growth under all the modelled scenarios, with the North East, the West Midlands, and Northern Ireland hardest hit.

The Government has responded to the leak by pointing-out its aspiration is not just for an off-the-shelf arrangement, but a far-deeper ‘bespoke’ UK/EU trade deal which, presumably, would have less negative impacts.  Pro-Brexit campaigners have also pointed out that the record of economic forecasts around Brexit have not been very accurate up to now.  However, the fact that the report has been produced by its own Department, and shows a large potential downside, is somewhat embarrassing for the Government.

EU Negotiating Position

The EU has agreed its negotiating position for the next round of the Brexit talks.  In stark contrast to the UK side, where arguments still rage on what type of Brexit (if any) should be pursued, it took EU Leaders less than two minutes to sign-off the mandate for the Chief negotiator, Michel Barnier.  The mandate relates mostly to the discussions over the ‘transition period’ includes  the following elements;

  • the transition should only run to 31st December 2020 (not the full two-years the UK has suggested)
  • whilst in the transition period the UK would have to accept the full acquis (body of EU laws).  This includes accepting the ‘four freedoms’, including the free movement of people, and remaining pat of the Single Market and the Customs Union
  • during the transition the UK would have to implement any new EU legislation enacted.  However, the UK would have no formal say in setting that legislation
  • the UK would need the permission of the EU to sign trade deals with other countries
  • the ‘first-stage’ agreement on Ireland, Citizens rights, and Funding should be translated into legal terms as soon as possible
  • the UK needs to provide further clarity on its proposals for a future trading relationship between the UK and EU.

The full text can be seen at – http://www.consilium.europa.eu//media/32504/xt21004-ad01re02en18.pdf

Although billed as a negotiating mandate, EU officials have indicated that what has been set out is not actually very negotiable.  They see the next stage of the talks as ‘explaining’ to the UK how things are going to be.  Both sides hope to come to an agreement on a transition period by the European Council summit in late March.

Scotland BPS Loan Update

Rural Economy Secretary, Fergus Ewing, has announced the 2017 BPS Loan Scheme will close on 9th February.  So far 13,000 farmers and crofters have applied, but there are around a further 4,500 who have yet to apply.  The loan is worth about 80% of their anticipated 2017 payment.