Category: Policy & Business

SFI Latest

Defra has announced some changes to the SFI 2023 option rules and has also published some voluntary guidance on how to carry out the actions.  The key changes include;

  • NUM3 (legume fallow) is now rotational
  • AHL1 (pollen and nectar flower mix) is now rotational
  • SAM3 (herbal leys) can now be done on the same land as Countryside Stewardship options OT1 and OR1 (relating to organic land) 
  • it is no longer necessary to have hedges recorded on the RPA online digital maps for the SFI actions for hedgerows (HRW1, HRW2 or HRW3)

There are also some clarifications to the wording in the Handbook, which has been updated to include the changes; these are shown in blue text and highlighted yellow so can be found easily.  In addition, there is a separate leaflet showing just the updates, both can be found via https://www.gov.uk/government/publications/sfi-handbook-for-the-sfi-2023-offer .  This further set of changes to the SFI has unsettled many farmers and their advisors.  SFI only started last June and all these agreements are in the process of being terminated and we have now had a change to the latest set of rules.  The changes are in response to farmer feedback and Defra say it is possible for them to be able to respond quickly and can be more ‘agile and nimble’ now that we are out of the EU.  However, it has been suggested that constant amendments could put some farmers off from entering for fear of more rule changes.  In response Defra has said it is making these changes because the controlled rollout of the 2023 offer has not yet started.  Once the controlled rollout starts from later this month, it ‘will minimise any further changes to the SFI Handbook, to provide stability, give certainty to farmers and agents, and save them the trouble of having to keep up to date with changes’.

Defra has also published ‘How to do the SFI Actions‘ guidance, there is one for each of the 23 Actions.  This new guidance is voluntary.  It is there to help and doesn’t have to be followed.  The aim of the SFI is to be less prescriptive, and Defra’s overarching guidance on completing actions remains ‘it is up to you how to complete this action as long as you do it in a way that can be reasonably expected to achieve this action’s aim’.   However, some claimants are concerned whether they are doing the right thing.  Therefore, the new guidance provides suggestions on how land owners might choose to do the actions in the SFI Handbook.  It is there to give ‘reassurance’.  It is likely to be particularly relevant to the ‘plans’ under the SFI.  It can be found at https://www.gov.uk/government/collections/sustainable-farming-incentive-guidance#further-information-to-help-you-

In terms of when the SFI 2023 will be open for applications, Defra has said, later this month farmers should be able to submit an Expression of Interest (EOI) and the RPA will contact them in a ‘controlled’ manner.  This is to ensure the system is working before it is then scaled-up.

Food Checks Delayed

It seems likely that the UK Government will, again, delay checks on food coming into the UK from the EU.  The ‘Border Target Operating Model’ was due to start phasing-in from the 31st October.  This would have seen certain food and feed products require health certificates, with other checks being introduced next year.  It is reported that the UK Government is looking to delay their introduction (for the fifth time) amid concerns that adding to import costs will push food prices even higher.  All UK exports to the EU have been subject to the full range of checks since the end of the Brexit Transition period in January 2021.  UK producers point out that there is not currently a level playing field for them and EU competitors, with checks only operating in one direction.   

 

Fertiliser News

CF Industries has announced that it is to permanently close its ammonia production facility at its Billingham fertiliser plant.  The company will continue to manufacture ammonium nitrate (AN) fertiliser in the UK, but this will produced from imported ammonia rather than from a natural gas feedstock.  The ammonia plant on Teesside had already been mothballed for the past 10 months, as rocketing natural gas prices in the wake of the Ukraine invasion made production uneconomic.  Gas prices are much cheaper in the US and other markets, so it makes sense for the company to import ammonia (which is relatively energy-dense).  There have been concerns expressed that this move will reduce the long-term food security of the UK – now having to rely on imports for nitrogen fertiliser.  It has been announced that buyers of AN fertiliser will need to provide photo ID as of the 1st October.   This measure is being brought-in as AN can be used as a precursor to home-made explosives.  If fertiliser is not being ordered in person (e.g. orders placed over the phone) then proof of identity will need to have been provided beforehand.  The ID will need to be updated at 18 month intervals.

Base Rates

On Thursday 3rd August 2023, the Bank of England announced a 0.25% increase in its base rate from 5.00% to 5.25% – the 14th consecutive increase.  With inflation remaining well-above the 2% target level the Bank continues to try and slow the economy to bring price rises under control.  The consensus of forecasters is that interest rates will peak between 5.75% and 6% by the end of 2023 or start of 2024 – potentially pointing to a couple more 0.25% rises at the minimum.  UK base rates are not expected to fall until mid-2024. 

SFI 2023 Applications

The SFI 2023 is probably not going to be open for applications until October 2023 for the majority of farmers.  When the new SFI Actions were announced in detail in June, Defra stated ‘applications for SFI 2023 will start to be accepted through a controlled rollout beginning in August‘.  At the time we said this was a ‘bit vague’, but it appears the new system will be tested on about 100 farmers who have been put forward via stakeholder participation.  These will go through the whole application process and agreement offer to test the processes.  Following this, they will be able to give RPA feedback to enable the system to be improved, if necessary, before opening up to more BPS eligible farmers.  It seems to us that all this might take a couple of months. 

Planning Rules Relaxation

The Government has issued a wide-ranging consultation on relaxing the Planning rules in England.  This mainly refers to Permitted Development Rights and has the overall aim of increasing the supply of housing.  In terms of farming and rural areas the main points are as follows;

  • Extending Class Q:  this is the right to develop farm buildings (modern as well as traditional) into dwellings.  The current size restrictions will be loosened and the ‘footprint’ of buildings will be able to be extended in some circumstances.  The rights will be extended to areas such as AONBs and National Parks which have, until now, been excluded.
  • Non-Agricultural Conversions:  buildings that are only in part-agricultural use; those that are being used for diversifications (e.g. storage); former agricultural buildings no longer on an agricultural unit; and forestry or equestrian buildings may be given the same ‘rights of conversion’ under Class Q as farming buildings
  • Extending Class R:  this allows agricultural buildings to be converted into a ‘flexible commercial use’ – storage, distribution, hotels, offices or shops.  The rights would be extended to allow for food processing and also leisure uses.
  • Increasing Agricultural Building Sizes:  under the current rules, Class A allows farm buildings of up to 1,000 square meters to be erected on holdings of over 5 Ha without a full Planning Application being required.  The consultation proposes this limit is raised to 1,500 sq m.
  • Design Codes:  Local Planning Authorities are required to produce Design Codes that reflect local character and design preferences.  These will be applied to Permitted Development Rights
  • Call for Evidence:  the consultation announces a Call for Evidence to be run by Defra on a number of Planning-related agricultural issues.  It is asking whether;
    • there needs to be greater clarity around when environmental works (digging ponds, re-routing rivers etc.) needs Planning Permissions
    • the Planning rules prevent projects to increase farm efficiency – notably slurry stores and reservoirs for crop irrigation
    • the current rules allowing diversification on farm are flexible enough.

The full Consultation can be found at – https://www.gov.uk/government/consultations/permitted-development-rights/.   Replies have to be made by the 25th September 2023.

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