Category: Policy & Business

Scottish Upland Sheep Support Scheme

The claim period for the Scottish Upland Sheep Support Scheme (SUSSS) opened on 1^st September and will close on 16^th October.  The scheme is open to those where 80% or more of their land is within Scotland’s Basic Payment Region 3 and they do not have more than 200 Ha in Payment Region 1.  A payment of approximately €100 per ewe hogg is made (actual payments were £57.13 under the 2015 scheme and £65.69 in 2016).  Ewe hogs must be less than 12 months old at the start of the retention period, which is from 17^th October in the claim year, to 31^st March in the following year.  Claims can be made online or via a paper application.

Integrated Land Management Plans

The Scottish Government, through the Farm Advisory Service is offering funding to help farmers and crofters to access accredited farm business advisors to develop detailed Integrated Land Management Plans.  Funding of 80%, up to a maximum of £1,200 is available.  These are the successors to the Whole Farm Reviews seen under the previous SRDP.  They provide a review of the farming business (both financial and environmental) and offer specialist advice in a number of areas (see https://www.fas.scot/integrated-land-management-plans-ilmps/ for more detail).

The Scottish Government has produced detailed Greening guidance on its website for 2018.  Two new EFA options have been added:

• Hedges will be a separate EFA option.  There is no maximum or minimum height.  The maximum width is 3m from the centre of thehedge.  There is a minimum length of 20m (unless intersected by another hedge at each end).  Gaps of up to 20m are allowed.  A hedge must be next to or within 5m of arable land.  If the claimant has control of both sides of the hedge, 1m in length equals 10m² of EFA.  Where a claimant only has control of one side of the hedge, 1m in length is worth 5m² of EFA.
• Agro-forestry established since 2015 under the Forestry Grant Scheme on BPS eligible arable land in 2015, will be a separate option.  1ha of Agro-forestry is worth 1ha of EFA.

Other changes to the rules, as a result of updates to the EU legislation include:

• A ban on the use of Plant Protection Products (PPPs) on EFA Fallow, EFA Nitrogen Fixing Crops (NFC) and EFA Catch and Cover Crops.  For EFA Fallow in Scotland, this means a ban from 15th January to 15th July (fallow period).  For EFA NFC the ban is from establishment until harvest i.e. that could be this autumn.  For EFA Catch & Cover Crops see below.
• In Scotland EFA Catch Crops are cereal crops undersown with grass.  They must be maintained until 31st December.  No PPPs can be used from the date ofharvest of the nurse crop to 31st December
• Cover Crops must be established by 1st November and maintained until 31st December.  No PPPs can be used from establishment until 31st December.
• EFA NFCs must be made up of two or more from the following crops; alfalfa, beans, birdsfoot trefoil, chickpea, redclover, white clover, lentil, lupin, peas and vetch.  The largest crop must not be more than 75% of the total NFC area.  The requirement to surround EFA NFC by an EFA margin is retained.
• The EFA field margin and EFA buffer strip options have been amalgamated.

The full Greening Guidance can be found at https://www.ruralpayments.org/publicsite/futures/topics/all-schemes/basic-payment-scheme/greening-guidance/greening-guidance-2018/

The Countryside Stewardship Scheme (CSS) Facilitation Fund is now open for applications.  This grant helps pay for the cost of an advisor to bring together neighbouring farms into a ‘landscape scale’ CSS agreement.  Such schemes must cover at least 2,000 hectares and comprise a minimum of four separate holdings.  Facilitators will receive a maximum £10,000 per annum plus £500 for each holding in the group.  Agreements are for three years and the scheme is competitive.  The deadline for 2017 applications is 14th November.  More details are available at – https://www.gov.uk/government/publications/guide-to-countryside-stewardship-facilitation-fund

Sterling has continued its ‘seemingly’ one-way journey against the Euro this month, dropping to less than 1.10 Euros per Pound (€1 = £0.93); a far cry from the €1.38 (€1 = £0.74) it was at in January 2016 as seen in the chart below.  This 25% devaluation has moved commodity prices in favour of the UK farmer as we have commented on several times before.  Once again, it is worth pointing out that weak currencies are inflationary, and the main reason High Street prices have not escalated in the same way as commodities is the uncertainty surrounding the UK economy at present.  Once a clear route for Brexit is created, then it is very possible that inflation might quickly follow.  The weakness of Sterling against the Euro is partly a reaction to lack of clarity and progress in the Brexit talks (see earlier article), but also a result of the better economic performance of the Eurozone compared to the UK. 

Those currently benefitting from the vagaries of a weak currency shouldremain focussed on how currencies can move in both directions.  As the Pound starts to gain strength again (whenever that might be), we would logically expect to see prices in the UK (of commodities, and resources like land) potentially go the other way and decline in value by a similar amount to the rises seen.  When this will be, nobody knows.  Indeed, many believe the Pound will get weaker before it gets stronger – with an exchange rate moving to parity or beyond.  But history shows that trends can turn quickly in response to political and economic events.

The conversion rate for 2017 BPS is set on the average £/€ rate during September.  If the currencies stay at their current level then it is possible that UK farming might see the most advantageous conversion rate ever.

As politicians return form their long summer breaks, the Brexit saga takes some more twists and turns.

Labour Position Shifts

The Labour Party has committed to remain in both the Customs Union and the Single Market during any Brexit transition period.  Whilst this has been reported as being a significant U-turn in some media, it is more of a clarification of a (previously ambiguous) position.  It does, however, clearly differentiates the Party’s position from that of the Government which states the UK should be outside the Customs Union and Single Market during the transition period.  The new policy also outlines a longer transition – up to four years – to give time for new arrangements to be properly thought through.

The importance of this shift in policy is that it makes it more likely that the Labour opposition, in alliance with other parties, may seek to water-down elements of Brexit as theGreat Repeal Bill and other legislation passes through Parliament.  There also seems to be hope within part of the Remain camp that, if the transition process can be drawn out, andthe amount of change minimised, it may be possible to weaken or even reverse the overall Brexit process.

Position Papers

We reported earlier in the month on the Brexit Position papers that had been produced on Customs and Ireland.  The UK Government continues to publish these on a variety of topics.  These include one on ‘The Continued Availability of Goods’ – basically the recognition of product standards and quality legislation.  Other topics include dispute resolution, access to data, judicial cooperation and access to documents.  All can be found at – https://www.gov.uk/government/collections/article-50-and-negotiations-with-the-eu

Brexit Talks

The third round of Brexit talks got underway on the 28^th August.  Ahead of the round of meetings the expectations on both sides seem pretty modest, with no major breakthroughs expected.  The UK may struggle to prove that enough progress has been made ahead of the European Council meeting in October for the talks to progress to the next stage of talking about future trade arrangements.

Free Trade Study

A study has estimated that the UK economy would be £135bn per year better-off under a hard Brexit, accompanied by a unilateral abolition of all trade tariffs.  The study, produced by Professor Patrick Minford of Cardiff University has been widely questioned by other economists.  For the food and farming sector this would be a ‘cheap food’ policy, with imports coming from the lowest-cost producer around the world.  Although it might be good for consumers, it would cause severe problems for the domestic farming sector. 

Labour Requirements

A new survey has found that there would be massive disruption in the food supply chain if the sector cannot continue to have access to EU workers.  Conducted by the Food and Drink Federation (FDF), it surveyed 1,500 businesses from farmers to food manufacturers.  Over a third of businesses (36%) stated they would become unviable if they could not employ migrant labour.  The full survey can be found via – https://www.fdf.org.uk/workforce.aspx?utm_medium=email&utm_source=press-release&utm_campaign=workforce-report .

Uncertainty surrounding Brexit has contributed to a notable fall in land prices in the first half of 2017.  The latest results from the RICS/RAU Rural Land Market Survey shows both the ‘opinion based’ and the ‘transaction based’ measure have declined in the first half of 2017, by 6.5% and 5.5% respectively (compared to the second half of 2016).  Average land values in England and Wales are now at  £18,633 per Ha (£7,541 per acre) under the opinion-based measure (which is on a ‘bare-land’ basis), and £24,552 per Ha (£9,936 per acre) under the transaction measure (which includes elements of buildings and properties).  The survey reveals that demand for farmland in general has weakened for the fourth consecutive report, with the uncertainty over Brexit being cited as the main reason.  As previously noted, the market is becoming increasingly split.  Demand for the better quality land is ‘still there’, but less favourable parcels are failing to sell, or having to be sharply discounted.  The fall in price has occurred despite a drop in availability of land for sale. 

Looking ahead price expectations remain negative, although the latest survey has recorded the ‘least negative results’ since 2015, with land that has a residential component showing more resilience than commercial farmland.

The survey also shows the results for rented land.  Average arable rents for land let under an FBT have increased by 8% to £334 per Ha (£135 per acre) since the second quarter of 2016, and by 3% for the year, although they are still 10% lower than their peak in 2014.  AHA arable rents have remained static at £185 per Ha (£75 per acre).  Pastureland rents have remained stable at £232 per Ha (£94 per acre) for land let under an FBT and  £131 per Ha (£53 per acre) for AHA lettings; this being 2% down on the year.

Brexit’s effects on UK farming have been modelled in a study released this month.  Perhaps not surprisingly, the future trading relationship between the UK and the EU is crucial as to whether the overall outcomes are positive or negative.

The study was conducted by the Agri-Food & Biosciences Institute (AFBI) in Northern Ireland in conjunction with the University of Missouri, using the FAPRI-UK modelling system.  It looked at three possible post-Brexit trade scenarios;

• Bespoke Free Trade Agreement (FTA) between the UK and the EU
• Default World Trade Organisation (WTO) trading conditions
• Unilateral UK Trade Liberalisation (i.e. a ‘cheap food’ policy)

The chart below summarises the effect on overall revenue for key sectors of UK farming – it combines both price effects and production changes.

The FTA option assumes that the EU and UK retain tariff-free access to each other’s markets after Brexit, and also that there are no changes in tariffs between the UK and the rest of the world.  Cost increases equivalent to 5% of the commodity price are included to cover additional trade-facilitation costs between the UK and EU such as customs paperwork, inspections, and delays at ports.  It can be seen that, overall, the changes in outputs under this scenario are all small – the largest being only 3% for beef.

Far bigger changes will occur if no deal is concluded between the EU and UK.  In this case, trade between the two will default to being under WTO Most Favoured Nation (MFN) status.  The EU will apply its normal tariffs onimports from the UK, and it is assumed the UK will reciprocate by charging the same tariffs on EU imports.  Again, no change in trade arrangements between the UK and the rest of the world are assumed, but trade facilitation costs go up to 8% of a commodity’s value.  Broadly, under this scenario, the value of UK output rises in those sectors where we are a net importer (dairy, pigs, poultry etc.).  This is because the domestic market no longer has access to European imports which are replaced by domestic production.  Both market prices and production levels rise.  Conversely, in sectors in which the UK is a net exporter (notably sheepmeat) there is a dramatic decrease in output value as prices and production falls.  Whilst, superficially, this potentially looks good news for UK farming (unless you are a sheep farmer), the model does not cover ‘second-order’ effects.  The increase in prices for various commodities will have an effect on consumer demand.  In addition, over time the UK may well start to conclude FTAs with other countries (New Zealand, Australia, Brazil etc.).  These are likely to open-up the UK agricultural market to more competition with the competitive environment looking more like the ‘liberalisation’ one. 

The final scenario assumes that the UK unilaterally opens up its agricultural markets to both the EU and the rest of the world, not levying any tariffs on imports.  It would still be subject to EU tariff when trying to export to Europe however.  This can be considered as a ‘cheap food’ policy.  Under this scenario, all sectors suffer considerable revenue falls as the UK market is subject to least-cost competition from all around the world.

The authors of the report note that the final outcome may well be a hybrid of the scenarios offered.  The report does quantify the wide range of outcomes and reiterates why agriculture needs to make itself heard in the negotiation process.  The full report can be found at https://www.afbini.gov.uk/news/afbi-releases-report-post-brexit-trade-agreements-uk-agriculture

The UK has started publishing a series of ‘position papers’ on its approach to Brexit.  This, at least partly, is to counter the impression that it is ill-prepared for the negotiations compared to the EU.  It is believed that a dozen will be produced before October.  This is when a European Council Summit will decide whether there has been enough progress on the three key ‘divorce’ issues of citizens’ rights, Ireland and the Brexit bill, to move on to talk about the future trading relationship between the UK and EU.  The papers produced this month cover Customs arrangements and the Irish border.  Both papers tend to be somewhat vague on the detail of what is being proposed. 

The Customs paper reiterates that the UK will leave the existing EU Customs Union (CU) upon Brexit.  Confusingly, it then goes on to state that there should be a transition period before new arrangements come into force with ‘a new and time-limited Customs Union between the UK and the EU’.  Having a CU with the EU would limit the amount of upheaval and new procedures need at ports etc., but would also prevent the UK implementing trade deals with other countries.  It is unclear from the paper which is the Government’s priority because, despite its aspirations, the Government can’t do both. 

Longer-term, after the transition period, two options for a permanent customs arrangement are put forward.  Both are light on specifics and seem quite reliant on technological ‘fixes’ – worrying with the Government’s record on IT projects.  The first option would be for the UK and the EU to have a ‘normal’ customs border, but with the UK simplifying and streamlining where possible to make the arrangements ‘frictionless’.  The second option is a vaguely-defined ‘customs partnership’ which would see the UK ‘align’ its approach to that of the EU resulting in there being no need for a UK-EU customs border.  The paper itself states that this would be ‘unprecedented and challenging’.  Under both options the UK would be free to strike its own free-trade deals with other countries.  The paper can be found at https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/637748/Future_customs_arrangements_-_a_future_partnership_paper.pdf

On the issue of Ireland, in the position paper the Government commits to protect the Common Travel Area (CTA) between the UK and Ireland (which predates the EU) and to uphold the Belfast (‘Good Friday’) Agreement.  As part of the latter, it is affirmed that those in Northern Ireland will continue to be able to claim citizenship of Britain, Ireland, or both.  In terms of the border, the paper states a desire to have ‘no physical infrastructure’ whatsoever.  This suggest both people and goods will be able to freely cross the 310 mile border.  How this would be squared with leaving the Customs Union and having to police imports and exports is unclear.  The paper suggests that regulatory equivalence in agri-food measures should be maintained between the EU and UK to facilitate cross-border trade and minimise disruption to existing supply chains.  Although this would be welcomed by many in the Irish food industry, it may not go down well with Brexiteers wanting to escape ‘EU red-tape’.  It may also make agreeing trade deals with third countries more difficult.  The Irish paper can be found at – https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/638135/6.3703_DEXEU_Northern_Ireland_and_Ireland_INTERACTIVE.pdf

In a further development, the Times has reported that the UK will allow Visa-free access to EU citizens.  This would people to travel to the UK, live, and even look for work without restriction.  However, those wishing to take up jobs will be required to have a Government-issued permit.  The number of permits would be vary by sector.  Assuming the number of permits was adequate, this approach might serve to allay some of the fears the food and farming sector has around access to labour after Brexit.

The RPA is currently undertaking a mapping update, which for anybody involved in BPS applications will set ‘alarm bells’ ringing.  It can be thought of as a remote sensing inspection, but for a far larger proportion of those who claim the BPS.  Agents who’s clients have undergone remote sensing will know that it can cause a great deal of work as fields are incorrectly merged, split or otherwise altered and then have to be subsequently corrected.

The process is known as Proactive Land Change Detection (PLCD).  Under EU rules the RPA is required to make sure that none of its land data is more than three years old by 31^st October 2017.  Approximately 800,000 land parcels will be updated out of about 2.4 million held by the RPA.

Between 16^th August and the end of October the RPA will be publishing updates to the land data held on the Rural Payments Service.  Agents and applicants will be informed of any changes via the ‘Messages’ tab on the Rural Payments Service.  This will mean Agents will need to check their clients’ accounts for any messages notifying there has been a change.  It appears some changes maybe negligible, just minor boundary changes, with the area of the parcel not even changing.  Where you agree with the changes no action is required.  If you disagree with the updates an RLE1 and a sketch map will need to be completed;

• Write on the front of the RLE1 and on the sketch map ‘Unrequested change query‘ and which schemes the updates relate to i.e. BPS, CSS or ELS/HLS
• Complete the land parcel information in the RLE1 including the date when the change was made on the ground
• Mark any changes on a sketch map, including the SBI number and any evidence to support why you do not agree with the change.

From past experiences there will no doubt be lots of incorrect ‘corrections’ made by the RPA, which Agents will then have to spend ages reversing or, at the very least, checking.  The RPA has said it will review all RLE1s but it has said that it will be, ‘focusing on making payments, so may need additional time to review your RLE1 request’.  It seems very likely that the majority of RLE1 Unrequested Change queries will not be dealt with prior to the 1^st December payment start date.  Which will either mean applicants having to wait to be paid, or payments being made using incorrect data, even penalties being applied if areas are deemed to be wrong or Greening not satisfied.  With many still unresolved 2015 and 2016 payments this does not bode well for 2017 payments.