Category: Policy & Business

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

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.

£ per Ha	FULL AGRIC. TENANCY			FARM BUSINESS TENANCY
	2013	2014	2015	2013	2014	2015
Cereals	190	192	194	223	231	234
General Cropping	201	200	204	290	309	274
Dairy	195	201	194	206	218	230
Cattle & Sheep (LFA)	64	73	79	76	79	78
Cattle & Sheep (L’land)	160	152	160	124	134	142
All Farms	170	176	180	196	207	209

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.  

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.

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.

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.