Category: Policy & Business

The Prime Minister has announced a snap general election to take place on Thursday 8^th June. Whilst the announcement may be sudden, it should not come as a major surprise. With Labour trailing badly in opinion polls, the Prime Minister is keen to consolidate the Government’s mandate ahead of the Brexit negotiations. However, there are risks associated with this opportunistic move. Opinion polls have been proved wrong time and again in recent years. In some constituencies, especially those that voted Remain in the June referendum, there may be a ‘Brexit backlash’. This could aid the Liberal Democrats especially but they are way-off threatening the Conservatives position in Westminster.

In Scotland, the election may be perceived as a proxy for the second independence vote. This could help the Scottish Conservatives in some constituencies although the SNP remains in a strong position. For Northern Ireland, with thetalks on Stormont power-sharing stalling, the general election could potentially coincide with another assembly vote but it remains unclear whether this would overcome the current stalemate.

Sterling has strengthened in reaction to the announcement and now stands at a 10-week high against the dollar although it remains about 14.5% weaker than pre-Brexit vote levels. Stock markets have declined as a result, though heightened geopolitical risks elsewhere (e.g. Korea) are also having an influence. While it is unclear at this stage what the implications of a snap election are for farming and the Brexit negotiations, it could potentially have a major influence on both in the months ahead.

The Welsh Government has announced the first window for Expressions of Interest (EoI) for the new Farm Business Grant Scheme will open on 2nd May and close on 30th June.  The scheme will provide a 40% contribution towards specific equipment and machinery that has been identified as having the ability to help Welsh farmers improve the economic and environmental performance of their holding.  Guidance notes will be available shortly which will include a list of the qualifying itemsand a standardised cost for each.  The minimum and maximum grants will be £3,000 and £12,000 respectively.

Only one application will be possible throughout the lifetime of the scheme.  The aim is to have three windows for EoIs in the 2017/18 financial year, each open for two months at a time; May 2017, August 2017 and February 2018.

The IT system in Scotland is continuing to cause problems in the delivery of support payments to farmers and crofters.  LFASS payments for 2016 which were due to be paid in March will now be offered via (another) Scottish Government funded loan.  Letters should be sent out to eligible claimants by the end of April offering the loan.  Fergus Ewing, the Rural Economy Secretary has also provided a timetable for delivery of other support payments:

• BPS including Greening and Young Farmer Payments – 90% should now be in bank accounts.  Those who applied for for the (80%) BPS loan back in November 2016 should have received a further 10%.  Those who did not take up this loan should have received 90% at the beginning of April.  The remaining 10% (top-up) will be paid by the end of June 2017, when the BPS payment window closes
• Scottish Suckler Beef Support and Scottish Upland Sheep Scheme – payments to be made in May 2017
• Rural Priorities – payments will be made from July 2017
• Agri-Environment Climate Scheme, Forestry Grant Scheme and Land Managers Options – payments to be made during the Autumn of 2017
• Beef Efficiency Scheme – during Autumn 2017

The continued failure to deliver payments anyway near on time has led to many calling for the current IT system to be shut down and replaced.   Government loan schemes have now had to be put in place for the two main support schemes in Scotland.

Farm rents showed further increases in the 2015/16 year although, the rate of increase has slowed down.  The latest DEFRA statistics on farm rents in England reveal the average rental value under Agricultural Holdings Act (AHA) tenancies rose by 2% between 2014/15 and 2015/16 to £180 per hectare.  For Farm Business Tenancies (FBTs) the average figure increased by 1% (compared to 5% last year) to £209 per hectare.  The averages do however mask some large variations between farm types, the table below shows these.  The data is collected via the Farm Business Survey.  It is rather historic as the Survey takes some time to undertake.  The figures are for the 2015/16 year (roughly Feb to Feb).  They are shown as ‘2015’ in the table below.

General Cropping rents remain the highest for both AHA tenancies and FBTs.   FBT rents in this category have fallen from year-earlier levels but even so remain considerably higher than the other categories as these will include a large number of short term potato and vegetable growers who will be prepared to pay high rents.  The average rent paid under Seasonal Agreements (likely to be largely grass lettings) in 2015 was £162 per Ha – a 9% increase on the 2014 figure.  Full results can be found at https://www.gov.uk/government/statistics/farm-rents

The results from this survey show the amounts actually being paid by farm businesses in England.  This will include some lettings that are not at full market value – for example lettings within families.  Therefore, the figures may not correspond to some of the ‘headline’ rates often quoted.  These usually relate to situations where new land is being let, or there is a review.  The historic nature of the survey means that current trends are not picked up.  There is strong (anecdotal) evidence that rents are now falling, both for AHA and FBT lettings, indeed AHA dairy rents show a reduction in the table above.  Perhaps not surprising given the economics in many sectors.  However, tender rents, especially in the cropping sector, still often remain above levels that can be economically justified.  

The percentage of arable land that needs to be allocated as Ecological Focus Areas (EFAs) will not be increased from 5% to 7%.  There was a possibility of this from 2017 onwards, if a study backed the move.  But the Commission has confirmed there will be no increase, stating that the area of land already dedicated to EFAs (under the Greening rules of the BPS) amounted to more than the 7% threshold.  Latest figures from 2015, which include all Member States (apart from France) reveal that 10% (nearly 8m Ha) of land (even after applying the weighting factors) is actually reserved for EFAs and results for 2016 are expected to show a similar position.

The study did find however that the majority of farmers were opting to grow Nitrogen Fixing Crops (NFC) or Catch Crops to satisfy their EFA requirements, whereas the more ecological options available such as hedgerows and buffer strips accounted for much less.  The areas under NFCs and Catch Crops accounted for 39% and 15% of the total EFA respectively, even after the weighting factors of these options were taken into consideration.  Hedgerows and buffer strips only accounted for 1.7% and 0.7%.  The full report will be presented to Ministers at the Farm Council on April 3^rd.  The results will then be fed into a wider evaluation of the CAP Greening measures due to be finalised by the end of the year and will also be used to help formulate future reforms of the CAP.  From the report it seems likely that the rules and requirements surrounding the most ecologically beneficial features will be made more attractive and possibly vice versa.

So the letter has been delivered, the wheels are in motion and the divorce process began on 29^th March.  Theresa May’s speech in the House of Commons was simultaneously heart-warming and tear-jerking; filled with emotional promises.  It would appear that all the UK (and Europe’s) problems will soon be solved as the UK government will represent every UK citizen including all those EU nationals who have chosen to make the UK their home.  If we learnt nothing else from the speech, we now know Mrs May wants a ‘deep and special relationship’ with Europe.  It might be noted that EU negotiators did not necessarily reciprocate these sentiments – their negotiating agendas are clearly different to the UK’s, so what Prime Minister May wants is not necessarily what we will get.

The White Paper legislating for the UK’s withdrawal from the EU, which was published on 30^th, explains how the Great Repeal Bill is designed to work.  This is the bombastically named Act of Parliament which is merely a licence to copy and paste all EU law into UK law – thus ensuring there is no legal black-hole come Brexit Day (B-Day).  All European laws will be included in this process, including the Common Agricultural Policy in its entirety.  This gives us a strong hint of what agricultural policy will be like on the first day after Brexit; probably identical to what we have the day before Brexit.  It strengthens our theory that policy is likely to evolve from where it currently is rather than be regenerated from a blank piece of paper.

Under EU rules, 2017 will be the last year that the current Less Favoured Area Support Scheme (LFASS) will be allowed to operate.  The EU is moving to a new ‘Areas with Natural Constraints’ (ANC) designation to replace the LFA.  Any scheme supporting farming in the ANC must be completely decoupled from production – therefore it is not possible to pay on the basis of stocking densities, enterprise mix etc. as the LFASS currently does.  A change to a new ANC support system is likely to redistribute aid to more extensive units.  Also, it seems illogical to set a new system in Scotland for 2018, when it may well be outside of the CAP a year later.  However, the EU Commission is offering a option to Member States not to introduce a new scheme in 2018.  It will possible to make what is being called  ‘parachute’ payments for 2018.  This allows Member States to pay eligible producers in 2018, 80% of their 2017 payment.  The Scottish Government has announced it will be taking up this option.  Using the parachute payment will provide some stability for producers in the short term.  The hope is also that theremaining 20% of the budget is used to fund a small capital grant scheme or similar for those in the LFA.

The RPA will be writing to all those eligible claimants who have not yet received their 2016 BPS, during the week commencing 27^th March, to inform them that they will be receiving a bridging payment, whilst their claim is still being finalised.  The payment will be 75% of the estimated value of the BPS 2016 payment.  However, crossborder claims, those with money owing to the RPA, and those who have already received a BPS Financial Support Payment (FSP) will receive less than 75%.  Those who have applied for a FSP but not yet received it, will get the bridging payment now instead.

The RPA will start issuing payments from the beginning of April.  Remittance Advice notes will be sent out.  Once the full claim has been finalised, the BPS will be paid less the bridging payment already received.  Remittance Advice and Claim Statements will also be issued.

Eight organisations and trade associations have come together to form The Agri-Brexit Coalition.  The Agricultural Engineers Association (AEA), Agricultural Industries Confederation(AIC), British Society of Plant Breeders (BSPB), Central Association of Agricultural Valuers (CAAV), Crop Protection Association (CPA), Grain and Feed Trade Association (GAFTA), National Association of Agricultural Contractors (NAAC) and National Office of Animal Health (NOAH) are offering a united voice on agricultural supply, trade, technology and advice.  The new Coalition will focus on key issues in the Brexit negotiations which are important to agricultural supply and trade and will be a ‘one-stop shop of expertise’ to UK Governments.  The Agri-Brexit Coalition has said it will also seek to work with other like minded organisations within the farming, food and environmental sectors where appropriate.

The latest results from the RICS/RAU Land Market Survey for the second half of 2016 shows land values continue to cool.  The survey includes two measures.  The ‘transaction‘ based measure uses actual sales and includes a residential component (where that component is estimated to be worth less than 50% of the total value of the land).  And then the ‘opinion’ based measure; this is a hypothetical estimate of bare land only, no residential component is included and therefore it tends to be less than the transaction-based figure.  The transaction based measure has fallen for the second survey in a row.  The opinion based measure has stayed pretty level compared to H1 of 2016.  The results are in the table below;

Source: RICS/RAU

¹ Includes residential component where estimated value is less than 50%

P – provisional, subject to revision in the next half

The uncertainty surrounding subsidies post Brexit is cited as the main reason for prices easing.  Availability has also declined and the fact that prices have eased at a time when supply has also fallen, has led many commentators to forecast decreases in values over the next 12 months.  The decline is expected to be greater for commercial farmland, rather than blocks with a residential component.  The survey reveals that the net balance (numbers expecting a rise, minus numbers forecasting a fall) remains in favour of a further decrease in land values.  However, the balance shows less are now forecasting a decrease than in the previous survey which was conducted near the time of the Referendum.

The report also includes the latest feedback on rents.  Average arable rents fell by 5% in the second half of 2016 to £135 per acre for FBT rents and £75 for Agricultural Holding Act 1986 (AHA 86) rents; an annual decline of 11%.  According to the survey, rents for pastureland have fallen to £94 and £53 for FBT and AHA 86 rents respectively.