Category: Policy & Business

Payments from the national LFASS are being paid from the w/c 22^nd May into farmers’ and crofters’ bank accounts.  So far 7,400 payments worth over £45 million have been processed and are scheduled for payment.  Further payment runs are expected as in total 11,000 letters were sent out with loan offers.  It is still possibleto apply for the loan scheme.

LFASS payments were due to be paid in March, but due to Scotland’s failing IT system, it has not been possible to fully validate the claims to allow EU payments to be made.  The Scottish Government took the decision in April (See April’s article) to offer farmers and crofters a loan out of national funds.  The loans will be automatically deducted from EU payments once LFASS 2016 applications have been fully processed.

As the BPS deadline passes for another year, readers are reminded it is still possible to make a late application, albeit with penalties.  It is also possible to make a number of changes to an application which was submitted by the deadline without penalties.  Applications received after midnight on 15^th May 2017, but before midnight on 9^th June 2017 will still be accepted but will receive a 1% penalty for each working day it is late.  Applications made after 9^th June will not be accepted.  These deadlines are also applicable for applications to the Young Farmer Payment and Young & New Farmer Entitlement applications.  Note for the latter, the penalty is 3% per working day late.

If the original application was made by the 15^th May deadline, claimants can make the following amendments up until 31^st May without a penalty and between 31^st May and 9^th June but a penalty will apply:

• Add a land parcel
• Increase the eligible area of a land parcel
• Change the ‘land use’ of a parcel
• Increase the area they want to use to activate their entitlements

To change an already submitted online application, claimants must ‘create’ a new one, complete the changes and then submit the new version.  The RPA needs to be informed via an email that an amendment has been made to an application submitted by the deadline.

It is possible to withdraw an application or part of a claim at any time without penalty, unless the claimant has been notified of an error or of an inspection.

Those who commenced a new Countryside Stewardship (CS) agreement at the start of this year will have an extra month to make their annual claim.  Natural England has experienced delays in sending out CS agreement offers with a 1^st January 2017 start date, so it has taken up the European Commission’s offer of extending the annual claim deadline for these Agreements to 15^th June.  The extension only applies to Countryside Stewardship Agreements with a 1^st January 2017 start date.  For Environmental Stewardship (HLS, ELS etc), CS agreements with a 2016 start date, English Woodland Grant Scheme, Farm Woodland Premium Scheme and Farm Woodland Scheme agreements the deadline for the annual claim remained 15^th May without penalties.

The European Commission gave Member States the option to extend the annual submission date by one month for both BPS and Rural Development schemes.  None of the UK regions has taken up the offer for BPS.

The remaining 27 Member States of the EU have agreed their negotiating position ahead of the Brexit talks.  Heads of Government met on the 29^th April and swiftly agreed the guidelines for Michel Barnier, the European Commission’s Brexit negotiator.  A more detailed draft mandate, will be rubber-stamped on May 22^nd.

The document sets out a number of core principles for the negotiations;

• it starts with a statement that the EU wishes to have the UK as a ‘close partner’ in the future.  This echoes the warm words in the UK’s Brexit White Paper back in February
• however, it then sets out that the UK cannot have the same rights and enjoy the same benefits from the Single Market as a member of the EU.  it specifically states that the UK cannot ‘cherry-pick’ the bits of the EU it likes
• the ‘Exit’ talks must be agreed as a package, with ‘nothing agreed until everything is agreed’.  This appears to head-off the UK Government’s proposal to have a quick (but perhaps only broad-brush) deal on citizens rights.  The EU appears far more concerned with fully working out the deal, whilst the UK is happier to set out general principles and leave the detail to later.
• all negotiation will be undertaken by the EU as a block, with no separate negotiations between the UK and individual Member States.  At present the EU-27 are presenting a very united front, but negotiators will not want to see countries ‘picked-off’ by separate deals with the UK
• the negotiations will adopt a ‘phased approach’

This last point is key.  Some in Europe had suggested that talks on the future relationship between the EU and UK could not start until the exit talks (aka Article 50 negotiations, or the ‘divorce talks’) were complete.  The UK Government believed that the two sets of talks should progress in parallel.  In fact, the EU’s position offers a halfway house.  Talks on the future relationship can be undertaken alongside the exit negotiations, but only if ‘sufficient progress’ has been made on the first phase of negotiations.  This phrase has, perhaps, been deliberately left vague, allowing some flexibility on what constitutes ‘progress’.  Three areas are seen to be key in this first phase;

• the rights of EU citizens currently living in the UK, and those from the UK residing in the EU.  The guidelines suggest that a right to permanent residence should be acquired after five years of legal residence.  On the face of it, this might appear a relatively simple topic, but it is complicated by issues such as the rights of spousesand children, access to healthcare and social security, and how such rules are to be enforced (the EU suggests that they should be arbitrated by the European Court of Justice, which will be unacceptable to Brexiteers in the UK).   
• the UK’s financial responsibilities under existing EU Treaty obligations.  This is the much talked-about ‘exit bill’.  The figures appear to be heading upwards with the latest figures being quoted in Europe being €80-€100bn.
• an agreement on how the Irish border will operate after Brexit.  This is a major difficulty, especially now that the UK has opted not to remain part of the Single Market.  The paper calls for ‘flexible and imaginative solutions’ but we have yet to see any proposal that offers a simple and elegant way to prevent a ‘hard’ border whilst simultaneously reflecting that there will be different trading and customs regimes.

Once progress is made on these points, then negotiations can begin on the future trading relationship.  It is highly unlikely that will occur before October this year, therefore reducing the time for the trade talks even further.  The negotiating mandate explicitly states that some transitional arrangements may well be needed after the formal Brexit date of 29^th March 2019.   Whilst it may be agreed in principle, the UK cannot sign any EU trade deal until it has formally left the Union.

All this has been accompanied by a deterioration in the relationship between the UK Government and Brussels.  It began when a German newspaper leaked details of a reportedly bad-tempered dinner party between Theresa May and Jean-Claude Juncker, the EU Commission’s President, in Downing Street on April 26^th.  This was followed by further comments from Brussels that some people in the UK were delusional about how difficult Brexit would be.  Mrs May countered by stating that some in the EU were trying to influence the UK’s General Election.  She has also angered Europe by refusing to allow tweaks to the EU Budget until after the Election.  None of this seems to bode particularly well for a considered and fruitful set of negotiations after the Election on the 8^th June.

Full details of the EU’s position can be found at – http://www.consilium.europa.eu/en/press/press-releases/2017/04/29-euco-brexit-guidelines/

The productivity of the UK farming industry declined by 2.5% between 2015 and 2016.  This finding comes from the Total Factor Productivity (TFP) figures released by DEFRA at the same time as last month’s TIFF data (see last’s months article).  TFP is a measure of how well the farming industry converts inputs into outputs, and thus measures the efficiency and competitiveness of the sector.  In 2016 the volume of outputs fell by 2.7% compared to the (record) levels seen in 2015.  Whilst input use also fell, this only declined by 0.2%, resulting in a drop in productivity.  As DEFRA states ‘external factors such as weather conditions or disease outbreaks cane have a short term impact on productivity’.  This, to an extent, was seen last year with the decline in arable yields.  Looking at longer-term trends TFP has risen since 2010, but only by 2.3% – equating to a yearly improvement of 0.4%.

Applications to the BPS in England are progressing reasonably smoothly.  As of the 20^th April, over 23,000 completed applications had been received by the RPA.  This is out of a total claim population of around 85,000.  There is likely to have been a significant number of further submissions in the last week or so, with perhaps close to half of all applications now being made.  The online process is proving largely trouble-free, although there have been a number of ‘bugs’ in the computer system which have affected certain elements of the claim.  The RPA has deployed ‘fixes’ to deal with these.  The deadline is, as usual, the 15^th May for submitting a claim.  However, late applications are allowed after this date, albeit with penalties.

The EU Commission has so far received over 175,000 responses to its consultation on the future of the CAP.  It is believed that the total may exceed 200,000 by the time the exercise closes on the 2^nd May.  A large number of the responses are pro formas produced by NGOs.  The results of the consultation will inform a formal proposal on the future of EU farm policy due to be published by the EU Commission in November.  This will be followed by legislative proposals, possibly in early 2018.

Farming charitable organisations, Linking Environment And Farming (LEAF) and Farming and Countryside Education (FACE) have announced a proposed merger.  If approved, it will take place this summer.  The aim of the merger is to increase efficiencies in improving education and understanding of farming, food and the environment.

The Government’s long-awaited 25-year plans for Agriculture and the Environment look set to be delayed further.  The two documents were Initially supposed to have been published last summer, but have been subject to numerous postponements.  The ‘snap’ General Election to be held in June looks like delaying the plans further.

UK farm profits rose by 1.5% in real terms between 2015 and 2016.  This is according to DEFRA’s first estimate of Total Income From Farming (TIFF) for 2016 and sees the return for the entire industry of just under £3.96bn.

TIFF shows the total profits from all farm businesses in the UK on a calendar year basis.  It is the return to all the entrepreneurs in agriculture and horticulture for their labour, management and capital invested in their businesses.  The series has been running for over 40 years and is generally regarded as the benchmark for the financial health of the sector.  Despite the use of the word ‘income’ it can be thought of as the overall profit of the farming industry.

The chart below shows the ups and downs of farm profitability over the past 26 years.  It also demonstrates how strongly TIFF is influenced by the exchange rate between the Pound and the Euro, and what an important part of total farm profits direct support comprises.

The weakening of Sterling from the summer of 2016 following the vote for Brexit was expected to push farm incomes up for the year.  The surprise is probably that the improvement was so minimal (we had been forecasting an uplift of around 7%).  But it must be remembered that these are only provisional figures and they can be revised substantially.  For example, the 2015 TIFF wasoriginally forecast to be £4,009m but is now put at £3,837m.

The effect of currency can be clearly seen in the subsidy figures.  The value of the Basic Payment to UK farmers rose by 18% simply due to the weaker Pound.  Overall, direct support rose by 11% compared to 2015 (lower environmental payments offset some of the rise in the BPS).  Other positives in the figures were increases in the value of fruit, potatoes, vegetables and plants and a reduction in costs – notably fertilisers and animal feeds.

However, all this was largely offset by falls in output in two of the major sectors of UK agriculture – dairy and combinable crops.  In both cases volumes sold were lower (reduced crop yields and restricted milk volumes).  In addition sale prices were also lower in these two sectors.  Output was slightly improved in the meat sectors, but not by enough to give the overall TIFF figures a boost.

Looking to the current, 2017, year we have projected a further increase in profitability – and somewhat larger than that seen in 2016.  Assuming no major shift in currency from current levels, the better prices seen in many sectors during the second half of 2016 may well persist for all of 2017, helping boost profits.  The recovery in the dairy sector in particular should see TIFF improve.  Inflation will be a big theme of 2017, are there have been cost increases in a number of inputs.  This may dampen any increase and through into 2018 could see profitability fall back.   

For the full statistics see – https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk