Category: Policy & Business

UK Joins CPTPP

On 16th July, the UK Government formally signed its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).  This comes approximately four months after accession negotiations were agreed and concluded in March (see previous article).  Despite the formal signing of the accession agreement, the entry into force of the agreement will not take place until the latter part of next year.  In the interim, each of the existing CPTPP members will need to ratify the UK’s entry.

Although there has been some lobbying by the Canadian meat industry for Canadian MP’s to vote to block the UK’s entry, this is not anticipated to scupper the deal.  Canadian producers remain unhappy that the UK refuses to recognise Canada’s food safety and animal health systems as being equivalent to its own.  This is chiefly due to Canada’s acceptance of hormone-treated beef and the use of antimicrobial carcase-washes in Canadian abattoirs.

As reported previously, whilst joining the CPTPP might help the UK to gain greater access to some Asia-Pacific markets (particularly Malaysia), its impact from an agricultural perspective looks set to be limited.  This is because the UK already has bilateral trade deals with most CPTPP members and most agricultural trade will continue to be conducted via these bilateral trade deals.  

EU-NZ Trade Deal

On 9th July, the EU and New Zealand (NZ) reached an agreement on a Free Trade Agreement (FTA).  From an agricultural perspective its key provisions include:

  • Elimination of all duties on EU agri-food exports to New Zealand: will be effective upon entry into force.  This also includes wine, confectionary and dairy products including speciality cheeses.
  • NZ access to the EU: greater access has been achieved for its agricultural exports to the EU, including for;
    • Beef: a new tariff rate quota (TRQ) for 10,000 tonnes (t) with a reduced duty of 7.5%.  This volume will be gradually phased in over 7 years from entry into force of the agreement.
    • Sheepmeat: a new 38,000t TRQ to be imported duty-free. Again, this volume will be gradually phased in over 7 years.
    • Milk powder: a 15,000t TRQ with a 20% import duty, to be phased in over 7 years.
    • Butter: for the pre-existing TRQ of 41,177t which currently attracts a 38% import duty, for 21,000t of this TRQ, the duty will gradually be reduced to 5%. There will also be a new butter TRQ of 15,000t which will also see in-quota duty rates gradually fall to 5%. This means the NZ TRQ access will increase to 56,177t, with 36,000t of this seeing duties gradually fall to 5%.
    • Cheese: a new TRQ of 25,000t to be imported duty-free. This will gradually be phased in over 7 years. NZ’s existing TRQs of 6,031t allocated under the EU’s WTO schedule will see tariffs eventually reduced to 0%.
    • High-protein whey: new 3,500t TRQ to be phased in over 7 years at 0% duty.
    • Other TRQs: for sweetcorn (800t) and ethanol (4,000t) will also be eventually at zero duty.
  • Sustainability: both sides claim that the dedicated Chapter on Sustainable Food Systems and Animal Welfare makes significant advances on the provisions of most existing trade deals and that the parties will work together on animal welfare, food, pesticides and fertilisers.
  • Geographic Indicators (GIs): the EU claims that 163 of its most renowned food GI’s will be protected in NZ as well as the full list of GIs for EU wines.  GIs for 23 NZ wines will also be protected in the EU market.

The agreement will draw inevitable comparisons with the UK-NZ trade deal.  Certainly, NZ’s access to the EU market is much more curtailed for beef, sheepmeat and dairy products in comparison to the relatively more generous access that the UK has granted.  Therefore, the competitive pressures exerted on EU producers as a result of this deal will be much less pronounced.  Over the longer term, for EU Member States such as Ireland, the UK-NZ trade deal could end up being more influential on its animal product sales as NZ exports to the UK could displace notable volumes of Irish beef exports to the UK.

Both the EU and NZ will now begin the ratification processes for this deal. Therefore, the entry into force of this FTA is still some time away. 

Trade Deals Study

The Scottish Government has published a study on the impact on Scottish agriculture of Free Trade Agreements (FTAs) between the UK and four selected non-EU partners, namely: Australia; New Zealand (NZ); Canada; and the Gulf Cooperation Council (GCC).  It found that these free-trade deals could have a significant negative impact on certain sectors of Scottish farming, particularly sheep.  The study was undertaken, in 2022, by Andersons and Wageningen University and Research (WUR).

The study quantifies the FTA impacts on selected Scottish agricultural sectors namely: cereals (wheat and barley); livestock (dairy, beef, and sheep); and potatoes.  This was done using two FTA scenarios; high and low liberalisation.  These were modelled alongside the current status quo (UK has left the EU but the Trade and Cooperation Agreement (TCA) is in place).  An Alternative Baseline (No-Brexit) scenario was also briefly examined.

The research was undertaken in collaboration with Wageningen University and Research (WUR) and used a combination of MAGNET, a computable general equilibrium economic model to assess the individual and aggregated impacts of each FTA, as well as desk-based research and interviews with industry experts based in Scotland, the UK, Australia, New Zealand, Canada, and the Gulf region.

Key Results

  • Impact of the selected FTAs is generally limited, but significant in some sectors: as Table A depicts, the projected long-term impact of the FTAs on Scottish output is relatively small in most cases. The exceptions are sheepmeat, where output is forecast to fall by around 10.5% to 11% under the Low and High Liberalisation scenarios. Beef and wheat are also projected to fall (both by around 3% to 6% depending on the scenario). Conversely, liquid milk output is forecast to grow by 3% to 9% in value terms, indicating significant FTA opportunities for dairy products. Barley is forecast to show a small long-term gain.
  • Cumulative impacts of future FTAs will be more significant: although the aggregated impact of the selected FTAs is relatively limited, the cumulative effect of multiple trade deals over the longer term should not be underestimated. This is especially so if the UK agrees FTAs with agricultural powerhouses such as the US and Mercosur (including Brazil and Argentina).
  • FTAs with Australia and NZ are main drivers of declines Scottish sheepmeat output: the new FTA is seen by many as a strong signal for NZ businesses to recapture trade with the UK, which was lost when the UK joined the EEC. Australia will also be keen to increase sheepmeat exports to the UK.
  • Beef sector will come under pressure but some opportunities also exist: whilst imports from Australia and NZ will create more competition, a trade deal with Canada is likely to generate some export opportunities. Given the brand recognition of Scotch beef, it should be relatively well-positioned to exploit such niches. That said, safeguarding domestic sales, particularly to UK retailers, from overseas competitors will remain most crucial.

  • The FTAs with Australia and NZ set important precedents: the recently agreed FTAs with Australia and NZ give important signals to other countries on what the UK is willing to cede in trade negotiations. Therefore, the standards that the UK is willing to accept for imports is pivotal, especially as other FTA partners will likely push for more concessions during negotiations. Any significant changes to standards relating to food safety and hygiene, the environment and animal welfare will have major implications for Scottish produce. This is not just on the home market, but overseas as well, especially in terms of highly-renowned brands such as Scotch Beef.
  • FTA opportunities for dairying the dairy sector is best positioned to see export growth, particularly to the GCC, where Scottish dairy produce has already gained traction in high-end segments. UK exports to GCC in 2018-20 are valued at £38m and could rise by as much as 49% in a High Liberalisation scenario. Opportunities theoretically exist to export to Canada, but, as it is highly protectionist, sales are likely to be limited to select niches.
  • Long-term impact of Brexit is deemed to be limited: Table A also shows relatively small differences in output under the Main Baseline (incorporating Brexit) and the Alternative Baseline (No-Brexit scenario). Although seed potatoes were not modelled, the loss of the EU markets for Scottish seed potato exports is significant and the restoration of this market access is a key goal for the sector. It should also be a primary objective for policy-makers.
  • Significant Farm Business Income (FBI) declines: of up to 60% in some sectors, in both the Main Baseline and FTA Scenarios in comparison with the Base Year (2019/20) although the differences between the Main Baseline and FTA scenarios are quite small. This is chiefly linked with declining prices.
  • New FTAs to have negligible impact on potatoes: industry input suggests that the new FTAs will have minimal impact on seed potatoes’ profitability. Instead, the impact of the loss of the EU market for Scottish seed potatoes is estimated to have led to a decline in seed potato prices of approximately 4%. Restoring market access to the EU27 and Northern Ireland is a priority for the sector.

Overall, the findings that more pressure will be exerted on the Scottish (and UK) beef and sheepmeat sectors are unsurprising as Australia and New Zealand are widely regarded as significant and highly competitive players on the world markets.  That said, the projected extent of declines on output is perhaps not as pronounced as some might have feared, although the declines are still significant.  The report also suggests some opportunities for dairy products, particularly in the Gulf region. 

The Summary Report is available on the Scottish Government website via: https://www.gov.scot/publications/analysis-impact-future-uk-free-trade-agreement-scenarios-scotlands-agricultural-food-drink-sector/

 

Farming Innovation Grants

Applications are now open for the £5 million Farming Innovation Investor Partnership competition.  This is aimed at small and medium sized agri-tech businesses that are developing innovative solutions and technologies to make farming more productive, sustainable and resilient.  Projects must be ready to start by 1st April 2024 and demonstrate benefits to farmers and growers in England.  Eligible project costs must be between £750,000 and £3 million.  The competition combines grant funding with private investment.  Defra provides the grant funding and private investment will come from Innovate UK’s Investor Partner Pool.  This comprises around 80 investors with the ‘expertise and appetite’ to invest in innovative agri-tech businesses.  Applications need to be submitted by 30th August 2023.  Further guidance can be found via https://apply-for-innovation-funding.service.gov.uk/competition/1640/overview/da96b78e-141e-41f2-8602-d27bcc36555c?_ga=2.186364713.165112781.1688381897-437835825.1681894878#summary

Advance BPS Payments: England

Defra has announced the ‘vast majority’ of English farmers should receive their advance BPS payment on 1st August.  The remainder will be made in December.  Advance payments should be 50% of the total annual Basic Payment due.  Last year was the first time part-payments were made and these started in July, continuing through August, but this year Defra has said most payments will be received on the first day of August.  There will be a few claims that need additional checks and will take longer to process; the RPA will contact those to inform them of what is happening, while maximising the number of farmers receiving their advance payment by the end of August.

Rates will of course be lower than last year as the Agricultural Transition continues; all payments will be reduced by at least 35% rising to 50% next year, with bigger claims experiencing larger reductions.  Defra still has not confirmed the % reductions for 2025 onwards.

Sustainable Farming Scheme: Wales

More details have emerged on the Sustainable Farming Scheme (SFS) which will replace the BPS in Wales from 2025.

This follows the Agriculture (Wales) Bill passing its final stage in the Senedd (see article https://abcbooks.co.uk/agriculture-wales-bill/).  The Minister for Rural Affairs, Lesley Griffiths subsequently made a Statement in the Senedd and answered questions on the second phase of the SFS co-design.  Last summer, the Welsh Government published draft proposals on the SFS (see article https://abcbooks.co.uk/future-farm-support-in-wales/).  These formed the basis of the second phase of co-design.  Two reports have now been published on the co-design outputs.  The Sustainable Farming Scheme Co-design – Final Report includes feedback from over 1,600 respondents, mainly farmers.  The second report, Sustainable Farming Scheme – Analysis of Feedback to the Outline Scheme Proposals, reflects the wider responses of 100 stakeholder organisations, groups and individuals.  A third document published, SFS Outline Proposals – Co-design Response contains the Welsh Government’s thoughts on how it will use the findings to develop an ‘ambitious and accessible’ scheme.

Feedback showed there was concern over how different the scheme would be to current ones and the limited amount of time there would be to understand the new rules.   Therefore, the Government is considering a staged approach, this could mean focusing on rolling out the Universal Actions in 2025 before the roll-out of the Optional and Collaborative actions in following years.  However, presumably this would mean claimants only being able to receive the ‘baseline payment’ in the early years.  The Minister has said they want to ensure that farmers can enter the Universal layer as soon as the scheme opens, the hope being that as many, if not more, take up the SFS than the Basic Payment.

The most feedback surrounded the tree planting proposals to have at least 10% tree cover on farm managed in line with UK Forestry Standard.  The Welsh Government is exploring changes so that the action is not necessarily 10% of the entire holding, but 10% of the remaining area once unsuitable areas have been identified such as restrictive Tenancies or sensitive habitats.  In addition, the 10% tree cover will also include existing tree cover, but will not include hedgerows, although trees within a hedgerow will be included.

Other concerns include the cost and availability of advisors to carry out the Habitat Baseline Review required for every farm before joining the scheme.  The Welsh Government is exploring how it can use information already held on Rural Payments Wales, using remote sensoring and farmer knowledge to confirm habitats and only using advisors where necessary.

The Statement does not make any changes to the overall design of the SFS that was proposed last summer, with three layers – Universal, Optional and Collaborative remaining.  No payment rates were included either, with the Minister saying payment ‘methodology’ will be included in the final consultation which will go out in winter this year.  Payment rates will not be included as not all of the actions will have been finalised by then.  A final scheme design, including rates will be published in 2024, ready for a 2025 start.

The Minister also stated how difficult it is to design a scheme whilst not knowing the budget post 2025.   But she has said, we do know the scheme will be the main source of funding for farmers, it will be different to the current BPS, with the fundamental change being the level of payment will be linked to the the activities a farmer undertakes.

Fertiliser Usage Falls

Fertiliser usage in Great Britain declined considerably, in the wake of inflated costs, following Russia’s invasion of Ukraine.  For the 2022 crop year, overall nitrogen use dropped by 18%, according to data published by Defra in July.  In addition, potash (P) and phosphate (K) usage declined by 22% and 29%, respectively.

The fall in usage of nitrogen (N) was driven, primarily, by a drop in applications on grassland; down 33% year-on-year.  That said, total N use on arable crops also fell by 9%.  This is not surprising given the typical timing of purchasing fertiliser in the respective sectors – arable farmers are more likely to have purchased their requirements in autumn 2021 before the invasion of Ukraine saw prices rocket.  The impact of the increased cost of fertiliser on nutrient application rates in 2022 is summarised in the table below.

The decision to apply less fertiliser is clearly not as simple as reducing rates purely because it has become more expensive.  This is evidenced by the increase in the area being tested for nitrogen, prior to application, in 2022.  In 2022, 20% of the arable area surveyed was tested for N content, up from 15% in 2021.

As use of mineral fertiliser fell, applications of farmyard manure increased.  The percentage of farms applying farmyard manure increased from 65% in 2021 to 67% in 2022.

In response to inflated costs, Defra added additional questions to the British Survey of Fertiliser Practice in 2022.  The questions asked about specific measures taken (or not) because of the increased cost of fertiliser.  As a result of the higher cost, 6% of farms increased the area of crops with a lower fertiliser requirement.  Additionally, 5% of farms reduced the area of crops grown.  There were also indications that farms looked to make longer term behavioural change including 6% of farms introducing new technologies to improve efficient use of fertiliser.  Those that did not make a change cited the good grain price/ yield and lower cost of fertiliser at the time of purchasing as key drivers.

Given costs remained high going into planting 2023, we can expect to have seen declines in application rates for harvest 2023 as well.  We will not officially know whether that assumption is correct until this time next year.

Interim Environment Scheme in Wales

The Welsh Government has announced there will be an interim agri-environment scheme to support protection of habitats on agricultural land from 1st January 2024.  This scheme will be available to bridge the gap between Glastir finishing at the end of this year and the start of the new Sustainable Farming Scheme due to commence in 2025.  Rural Affairs Minister, Lesley Griffiths has confirmed that Glastir contracts will not be extended beyond December this year.  Currently there are 2,100 Glastir Advanced, more than 450 Glastir Organic and 180 Glastir Common agreements.

The announcement has caused grave concern amongst the industry; particularly over how a scheme will practically be implemented in such a short time and over having a scheme that lasts just a year.  It is unclear whether the majority of current Glastir agreement holders will get into the interim scheme and whether accrued environmental benefits will be lost; some Glastir Agreements have been running for a long time.  But the Welsh Government has said the new scheme will enable more farmers to take part and protect habitat land.  It also means those that are in Glastir will be able to enter all the Rural Investment Schemes preparing them for the Sustainable Farming Scheme (SFS).  Currently, Glastir Advanced farmers are unable to apply for the Small Grants – Environmental Scheme.

Currently very little is known about the scheme, including rules and payment rates.  The Welsh Government has said the application window will open later this year, with contracts commencing in January 2024 to ensure a ‘seamless’ transition as Glastir closes.  Further details of the new scheme will be made available following discussions with stakeholders. The budget available will be announced prior to the application window opening.

Species Survival Fund

A new £25m Species Survival Fund has been launched by Defra.  It is a short-term programme which will support projects with grants of between £250,000 and £3m to tackle habitat loss, safeguard fragile ecosystems and create habitats such as grasslands, woodlands and wetlands across England.  The funds are being administered by the National Lottery Heritage Fund who are looking for an individual or organisation which has a nature recovery project planned, costed and ready to start.  Environmental not-for-profit organisations, National Park Authorities and ANOBs, local authorities, farmers and land managers are all invited to apply.  EOIs need to be submitted by midday on 24th July with the full applications due by 26th October 2023.  Projects need to be completed within 2-years.  Further information can be found via https://www.heritagefund.org.uk/funding/species-survival-fund .

Nature Recovery Network

Six new Nature Recovery project areas have been announced by the Government.  These join the six already in place.  Between them, the twelve projects will be supported by £7.4m over the next three years.  The designation of these areas is part of the Government’s commitment to have 30% of the country’s land area ‘protected’ for the environment by 2030.  The Nature Recovery Network (NRN) brings together these areas where a number of parties are working in partnership to create large-scale environmental improvement.  They are separate to Landscape Recovery (LR) projects under ELMs.  However, there are cross-overs as the NRN projects can also bid for LR funding.  The six new areas are – Cumbrian uplands; Cheshire & Lancashire wetlands; Tees estuary; Surrey heathlands; Bradford & S. Pennines peatlands; and Sussex & Kent coasts.  More details can be found at – https://www.gov.uk/government/news/nature-recovery-projects-to-boost-wildlife-and-access-to-nature .