Category: Policy & Business

Payments under the 2017 Basic Payment Scheme will be converted at a rate of €1 = 89.47p (subject to confirmation by DEFRA).  This is 5% higher than last years’ conversion rate of 85.228p and 22% better than the rate seen two years ago.  As the table below shows, it is also the best figure since 2009.

BPS/SPS CONVERSION RATES
	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
€1 = p	69.68	79.03	90.93	85.995	86.665	79.805	83.605	77.730	73.129	85.228	89.47

 

Although this is one more piece of information, it is still not quite possible to work out exact payments for 2017.   The RPA and devolved administrations still have to calculate entitlement values for 2017.  These can change on a yearly basis, depending on the number of entitlements claimed.  In addition, the final rate of Financial Discipline needsto be set at the EU level.

The conversion rate for the 2017 BPS is likely to be around 5% better than 2016, and the most favourable since 2009.  Whilst this is good news, it could have been even better.  Most readers will be aware that the average £/€ exchange rate during September sets the rate at which the BPS is converted in Sterling for that year.  At the start of this September, the weakness of the Pound saw it down to €1 = 92p (or £1 = €1.09).  A weaker Pound means higher BPS payments in Sterling terms, as each Euro buys more Pounds.  During the month, however, the Bank of England indicated that it would soon be raising UK Base Rates.  This saw Sterling firm to around 88p.  With a few days of September to go, it looks likely the average will be around €1 = 89.5p (compared to 85.228p for 2016).  We will provide the final figure next month.

The UK will be looking for a ‘transition period’ after formal Brexit, for up to two years.  During this period, it will continue to have access to EU markets on ‘current terms’, pay into the EU budget, and accept EU rules.  After that period, the UK would be looking to agree to a bespoke, deep and comprehensive trade agreement with the EU.  The UK and EU should also continue to cooperate closely on security issues.  This vision was set out by Teresa May in a speech in Florence on the 22^nd September.

The speech was full of warm words about the deep bonds between the UK and Europe, and, by adopting a softertone, Mrs May was looking to reinvigorate the Brexit negotiations which have become bogged-down.  However, the position set out was still light on specifics.  Although the speech mentioned trading on ‘current terms’ it is not clear exactly what is meant by this.  The Government’s ‘position papers’ have clearly stated that the UK will leave the Single Market and Customs Union after 29^th March 2019, and then just have (unspecified) ‘access’ to the Single Market.  Whether the position has now shifted to retaining Single Market membership and/or retaining the Customs Union is not clear.  Leaving the Customs Union would leave many questions unresolved, not least around the Irish border.

During the transition period Mrs May stated that the UK would comply with the ‘existing structure of EU rules and regulations’.  This implies the free movement of people would continue, as would the jurisdiction of the European Court of Justice (ECJ) for the two years – both strongly apposed by hard-line Brexiteers.  Mrs May suggested any EU nationals moving to the UK within the transition period would need to register.  The continuation of free movement (albeit ‘monitored’) might alleviate some of the concerns the food and farming sector have around access to labour.  However, it only ‘kicks the can down the road’ for two more years. 

As another concession, the UK would pay its share of the EU budget through to the end of the current accounting period in late 2020.  Although Mrs May put no figures on this, it is calculated that this commitment is worth around €20bn.  The EU believes that this is not the full extent of the UK’s ‘Brexit Bill’ with figures €50bn or higher being mentioned.  Any further payments by the UK will, again, come up against strong opposition from within the Conservative Party. 

In the longer term, following the transition, Mrs May ruled out an off-the-shelf trade agreement.  She rejected membership of the European Economic Area (aka ‘the Norway option’) as not being a real Brexit.  Likewise, doing a deal similar to the one the EU recently concluded with Canada was not seen as ambitious enough, given the depth of the current trading relationship.  A future role for the ECJ in settling disputes seemed to be conceded although this would not give it ‘jurisdiction’ over the UK.  The future role of the ECJ can seem rather arcane, but it is a real sticking point in the negotiations.  For example, it was hoped that it would be quite easy to come to a deal on EU and UK citizens’ rights.  But it has foundered on the question of what body enforces those rights – i.e. could the ECJ have power over the UK Government to protect the rights of EU citizens living in the UK?

Whether any of this will be enough to get the talks moving, and allow the EU Summit in October to agree to begin the ‘future relationship’ strand of the negotiations remains to be seen.  The response of the EU to the speech was polite, but guarded.  It still wishes to see more concrete proposals in many areas.  As has been pointed out, making speeches calling for ‘imaginative solutions’ to problems does not actually create imaginative solutions.

The Rural Payments Agency has started to make ELS advance payments.  HLS payments should also be made shortly.  The data for the agri-environment scheme and the Basic Payment Scheme have to be crossed-checked and HLS is more complex and takes a little longer.  Natural England is currently working on Countryside Stewardship agreements and payments are due to start in the near future.  This year both Environmental Stewardship (ELS and HLS) and Countryside Stewardship advanced payments will be 75% of the total payment, previously it was a 50:50 split.  Balance payments will be made in spring 2018.

For the past 40 years, the UK faming industry would be getting very excited about an upcoming reform of the CAP.  Brexit has rather changed this, but it is still important to our industry how farms in our nearest competitors are to be supported.  The first official proposal for the CAP after 2020 is set to be published at the end of November.  EC Farm Commissioner, Phil Hogan, is to set out possible ideas in a ‘Communication on the Modernisation and Simplification of the CAP’.

It has been announced that the date of the Autumn Budget will be the 22^nd November.  The autumn will now see the main ‘fiscal event’ in the UK, with the Chancellor giving only a Spring Statement in response to the latest Office of Budget Responsibility figures.

EU Withdrawal Bill

The EU Withdrawal Bill, previously known as the Great Repeal Act, has cleared its first Parliamentary hurdles.  In the early hours of the 12^th September it passed the ‘second reading’ phase by 326 votes to 290 – with seven Labour MPs supporting the Government.  The Bill now passes to the committee stage followed by a third reading.  It then also has to make its way through the House of Lords.  It is highly likely that, at each stage from here onwards, legislators will try and attach amendments to the Bill to reflect their particular viewpoints.  The passage of the Bill is therefore likely to become much more difficult.  One of the areas of contention is around the so-called ‘Henry VIII Clauses’.  These allow the Government to alter legislation to ensure ‘it functions effectively post-Brexit’ without the need for Parliamentary scrutiny.  This is seen as unconstitutional by some, whereas the Government argues that, with a process as complex as Brexit, it needs flexibility to make changes as problems arise.

Devolution Issues

The heads of the Scottish and Welsh Governments have set out amendments to the EU Withdrawal Bill that aims to retain the power of the devolved administrations.  Nicola Sturgeon and Carwyn Jones claim the EU Withdrawal Bill is a ‘power grab’.  This is because policy areas that are not currently reserved to Westminster, but are exercised at EU level, such as farming, fisheries and the environment, will become matters for the UK government.  In a letter to the Prime Minister on the 19^th September, the two leaders have set out 38 amendments to the Bill.  Negotiations are likely to continue for some time.

State of the Union

The President of the EU Commission, Jean-Claude Junker gave his annual ‘State of the European Union’ (SOTEU) speech on the 13^th September.  It struck a more optimistic tone than has been seen around the EU for some time – due to rising economic growth, falling unemployment, the recent failure of populist parties to make electoral gains, and the ebbing of the migrant and debt crises.  In terms of Brexit Mr Junker stated “a very sad and tragic moment in our history, we will always regret this”.  He then responded to a heckle from Nigel Farage by stating “I think you will regret this soon, I might say.”

As part of the SOTEU speech, Mr Junker outlined that the EU shortly hopes to start talks on Free Trade deals with both New Zealand and Australia.  In addition, it is believed that the talks currently underway with the Mecosur block and Mexico, can be concluded by the end of this year.  Agriculture remains a key-sticking point in the Mercosur talks – especially around how much South American beef may be imported into the EU.  As we have previously outlined, any deals negotiated by the EU will need to be replicated by the UK on Brexit – simply to retain our existing trade advantages.  The more deals the EU does, the bigger that task becomes.  

TRQs

A slightly technical subject, but one which will have significant implications for UK farming in a post-Brexit world.  Tariff Rate Quotas (TRQs) allow a certain volume of farm commodities into the EU market at much lower tariffs than normal (or even zero tariffs).  For example a sheepmeat TRQ allows nearly 230,000 tonnes of New Zealand lamb to be imported into the EU.  With the UK leaving the EU there is a question of how the volumes under TRQs should be split between the two.  On one hand, no side wants to end up with ‘too much’ of the TRQ because it serves to let in cheaper imports and reduce market prices.  On the other hand, the import volumes are an established feature of EU markets, and without them there could be shortages.  Technical talks are now starting on the division of TRQs.  It seems likely that the allocation will be based on average volumes being imported into the UK/EU under each TRQ over the past three years.

Gove and May on Farm Policy

Senior UK politicians have weighed-in on the subject of farm support.  Speaking at Prime Minister’s Question Time Teresa May promised a set of farming policies that ‘suit the UK’.  The DEFRA Secretary, Michael Gove, speaking in front of the EFRA Committee has stated that there is a ‘better path’ outside of the EU.  All very positive, but rather lacking in detail.

A National BPS Loan Scheme will  operate again in Scotland for 2017 payments.  The scheme will open for applications at the end of September with payments being made from the first week in November.  This information is contained in a ‘Schedule of Key dates’ which the Scottish Government has released as part of its ‘CAP Plan for Stabilisation’  which outlines measures to improve the delivery of support payments in the future.

The delay in payments being made to farmers and crofters and problems with Scotland’s IT system have been well documented, the ‘CAP Plan for Stabilisation’ aims to tackle these.  The launch of the Loan Scheme is part of its commitment to improve the ‘customer experience of applying for and receiving rural payments’.  Progress on LFASS 2017 payments will also be monitored and a decision to launch a further loan scheme for LFASS will be decided in due course.  A full Schedule of Key dates has been published and can be found at http://www.gov.scot/Resource/0052/00524625.pdf it includes outstanding payments still to be made from 2015 and 2016.  Other commitments in the stabilisation plan include:

• simplifying rules and guidance, not introducing new changes unless required by law or they are beneficial.  Piloting new ways of undertaking inspections and improving efficiency and customer service
• implementing a new system of land change to enable farmers to verify data held and update it directly
• supporting claimants to apply on-line from 2018
• continuing to build on improvements made to deliver and operate a reliable IT platform to ensure payments are correct and made on time
• implementing major changes to planning and governance to underpin value for money, payment delivery and staff resilience.

Below is a reminder of some of the key dates for funding currently available under the Welsh Rural Development Programme:

• The Expression of Interest (EoI) window for Glastir Advanced 2019, opens on 18th September and closes on 20th October 2017.  EoIs need to be submitted via applicants’ RPW Online accounts.  Glastir Advanced is targeted towards landscapes and catchment areas that require high levels of environmental management to improve habitats, species, soil and water.

• The 2nd window for applications to the Farm Business Grant Scheme closes on 29th September.  The grant provides 40% towards the cost of specific capital items which improve the economic and environmental performance of agricultural holdings.  The min. grant is £3,000 and the max. grant is £12,000.  A list of capital items available can be found at http://gov.wales/topics/environmentcountryside/farmingandcountryside/cap/ruraldevelopment/wales-rural-development-programme-2014-2020/farm-business-grant-scheme/?lang=en If budgets allow, there will be a further application window running from 2nd January to 2nd March, however claimants need to remember,only one application can be made per holding over the lifetime of the scheme.

• The EoI window closes for the Food Business Investment Scheme on 19th September.  This provides capital grants of between £2,400 and £5,000,000 for adding value to agricultural products and marketing them.

The RPA has announced details of a Financial Discipline refund.  Those with a 2016 BPS claim worth more than €2,000 will receive a reimbursement of 1.368% from the 2015 Financial Discipline Mechanism Fund (FDM).  Payments started in September and claimants will receive a remittance advice, with ‘FDM reimbursement’ on it shortly afterwards.  The FDM reduces all direct payments pro-rata if it is looking likely that the CAP budget is going to be exceeded in a year and helps fund a ‘Crisis Reserve’.  But if it is not used, all or part of it can be refunded to claimants’ with the following year’s BPS payments.  Financial Discipline was applied at 1.39% to 2015 payments and not all of it was used.