Category: Policy & Business

The Scottish Government has launched a consultation on the contents of its proposed Agriculture Bill.  This gives further clues as to what a post-CAP farm policy in Scotland will look like, but poses just as many questions as it answers.

Timing

The existing legislation that rolled-over the CAP rules has a ‘sunset’ clause in it which means that the powers under it cease at May 2026.  Therefore, the Scottish Government has to put into the new Agriculture Bill everything it wants the power to do in the future.  The Bill is intended to go before Parliament sometime next year.  The consultation runs until November 21st and can be found online at – https://www.gov.scot/publications/delivering-vision-scottish-agriculture-proposals-new-agriculture-bill/ ).

The consultation refers to ‘a future agriculture support regime to be implemented at an appropriate point and flexibly from 2025 onwards’.  It appears not to have been decided when to start the new regime – previously 2026 for the new arrangements have been suggested but it could be 2025 or later.  It seems likely that there will be some sort of phasing between the current system and the new one (like the Agricultural Transition) but the consultation is silent on this point.

Payment Framework

The consultation suggests that there should be a four-tier framework for payments;

Tier 1: a ‘Base Level Direct Payment’.  This is an income-support measure aimed at those producing food and managing land.  It will be ‘conditional’ on farmers meeting various criteria;

• ‘Active Farmer’ test – there is no indication of whether the rules will be amended from the present ones – this would be possible now EU legislation no longer applies.  However, defining active farming is a minefield and it remains to be seen what the Scottish Government does.    
• a Whole-Farm Plan.  This new element aims to ensure those receiving public support are meeting minimum standards in sustainability and resilience.  It is suggested that the WFP would cover a Business Plan; a Land Management Plan; a Carbon, Soil & Biodiversity Audit; a Climate, Environmental & Nature Declaration; a Animal Health & Welfare Declaration; an Equality Duty Declaration and a Fair Work Declaration.  All this sounds like a large amount of bureaucracy – especially for smaller businesses.
• Cross-compliance regulations – no mention of whether these will be reformed
• Greening – again, no mention of whether the current rules will roll-over unchanged

Tier 2:  an ‘Enhanced Level Direct Payment’.  This would provide a top-up to the Base Level.  The precise measures are not outlined, but payments would be for;

• efficiency improvements
• reducing greenhouse gas emissions
• improving biodiversity and nature enhancement

Tier 3:  are ‘Elective Payments’.  These are targeted payments covering a range of topics.  Examples given include;

• targeted support for specific species and habitats
• alternative forms of farming including organic
• innovation in agriculture
• supply chain support

Such support would not be limited to individual businesses but would also cover groups and cooperatives.

Tier 4:  is ‘Complimentary Support’.  This will cover areas such as;

• continuous professional development (CPD) for farmers
• advisory services
• support for tree planting, woodland management and the timber supply chain
• peatland restoration and management
• the agricultural transformation fund
• support for areas of natural constraint (previously LFAs)
• coupled support for the beef and sheep sectors.

This appears a wide-ranging ‘catch-all’ category.  There is no specific mention of LFASS payments in the consultation.  They could be continued in some form under this Tier as ‘support for areas of natural constraint’.  However, it is perhaps more likely they will be phased-out and combined into the Tier 1 / 2 payments.

Other Measures

As outlined above, the proposed Agriculture Bill is an omnibus piece of legislation covering many areas.  It will also include provisions on;

Administration:  there will be powers to continue to operate an IACS-like administrative system including on-farm checks.

Food:  the Bill will give the Government power to regulate food markets.  This includes the power to intervene in markets should there be exceptional circumstances.  The continuation of funding for Producer Organisations in the fresh produce sector appears to fall under this heading.  There will also be the opportunity to fund the wider agri-food sector (i.e. processing and marketing grants).

Rural Development:  clauses will be included to allow rural development prrgrammes to continue.  A successor to the LEADER scheme is specifically mentioned.

Animals and Plants:  the Bill will allow standards on animal health, welfare and biosecurity to be set as well as payments made to encourage higher standards.  Data will also be gathered and shared.  The Government will also have powers to support the conservation of plant genetic resources.

Skills:  programmes to support knowledge transfer, innovation and skills development within the agricultural, crofting and land management sectors.  Encouraging new and young entrants is included under this heading.

Agricultural Tenancies:  the legislation will be used to update agricultural tenancies legislation legislation;

• a power to define what is acceptable diversification under agricultural tenancies
• modernising the ‘Waygo’ provisions at the end of tenancies
• amending the rules of good husbandry and good estate management to allow a wider range of activities to be undertaken on land
• a new rent review calculation for secure tenancies
• amending the compensation provisions if a Landlord takes back land for development

Agricultural Wages:  agricultural workers in Scotland would be paid at the ‘Real Living Wage’ as a minimum.

Funding and Payments

The ambition of any support scheme is limited by the funds available.  The budget for farm support is being maintained until 2024 as a result of a commitment by the UK Government (although, as it is only fixed in current prices, the value is dropping considerably at present due to high rates of inflation).  The farm support budget after 2024 is unknown.  Defra will apply to the Treasury under the next Spending Review.  The amount granted will then fix the allocation for Scotland under the  Barnett Formula.  As we understand it, the Scottish Government could then decide to ‘raid’ or ‘top-up’ these funds as it wishes – i.e. they are not ring-fenced for agriculture.  However, for political reasons, any large adjustment is probably unlikely.

There is nothing in the consultation on any split of funding between the Tiers.  There may never be firm splits provided – Defra has been quite vague for example about the split of funding under ELM.  If we were to guess then perhaps it might look something like – 1/3 for Tier 1; 1/3 for Tier 2 and the final 1/3 split between Tiers 3 and 4 (assuming some sort of LFASS replacement isn’t run under Tier 4).  In any event, it is quite clear that the ‘Base Payment’ will be much lower than the current BPS.

Other Issues and Final Thoughts

The paper is silent on both regions and entitlements.  The Tier 1 payments (and possibly Tier 2) could be differentiated by regions (e.g. Regions 1, 2 and 3).  How this all interacts with existing entitlements is also not clear.  The only mention of entitlements is on page 35 where it refers to establishing a National Reserve. This suggests entitlements could remain under the new system – but, equally, it could just be a poor bit of drafting!

On capping, the consultation states that ‘The Bill will allow the flexibility to weight payments…through front loading, tapering and capping of payments’.  It therefore looks like the power to impose reductions will remain – whether, and how, they are used is another matter.  Perhaps these powers could also be used to weight payments by regions?

The consultation reiterates that the goal is to have ‘conditionality’ apply to 50% of support payments.  It is not clear how this works in practice.   Tier 1 payments appear to have conditionality built-in through things such as the WFP and cross-compliance.  But would it be possible to not do some of these things and still get some (50%) payment?  

Many questions are raised by the consultation.  The Scottish Government’s response is likely to be that this consultation (and legislation) is just setting the framework for support and the details will be filled-in in the years to 2025.

Overall, these proposals fundamentally change the economics of farm support.  As soon as you have to ‘do something’ to get your payment, the margin drops substantially from the 95%+ seen under the BPS.  Andersons have done some analysis of the SFI in England.  Obviously, every farm is different, but, crudely, around 50% of the payments can be swallowed up in the cost of getting the payment.  With the ‘profit’ from support much lower, there will have to be an increased focus on profitability from the farming operation.   

Defra has announced 22 projects that will be funded under the pilot phase of Landscape Recovery.  The projects will share around £12m of funding to support their development.  Details of the projects can be found at – https://www.gov.uk/government/news/projects-of-landscape-recovery-scheme-announced .

The Government has committed £110m to help improve rural economies.  This is effectively a replacement for the previous LEADER and Rural Growth programmes under the Rural Development regulation that ended last year.  It will provide capital grants for the the same sort of projects;

• farm diversification, including tourism enterprises
• the conversion of redundant farm buildings for other uses
• food processing and marketing ventures
• boosting rural ‘connectivity’ through broadband projects
• community projects such as village halls, public access etc.

The Rural England Prosperity Fund (REPF) will be available from the 1st April 2023 and funding will run through to March 2025.  It will be operated by Local Authorities (LAs) – this is a different approach to previous grant schemes, and it remains to be seen how it works in practice.  Allocations have already been made to each LA (see https://www.gov.uk/government/publications/rural-england-prosperity-fund-prospectus).

The REPF is a top-up to the £2.6bn UK Shared Prosperity Fund (UKSPF).  This is replacing EU Structural Funds and is part of the Levelling-up agenda to improve the economic performance of regions of the UK that are lagging economically and socially.  The UKSPF money is being awarded to LAs based on a formula.   All LAs will get some funding, but it was feared that much of the money would be allocated to post-industrial areas or struggling coastal communities with little going to rural areas.  The REPF money is ring-fenced so will boost the rural allocation.  It seems likely that the REPF money will be channeled through the same grant system as the main UKSPF, but it is possible there will be a dedicated rural ‘strand’ .  Each LA has to produce a ‘Local Investment Plan’ for the UKSPF.  These need to be approved by Government which should start to happen from this autumn.  Hopefully, therefore, grants should start appearing in local areas over the next few months.

The REPF allocation comes partly as a response to a Government report – Delivering for Rural England (see https://www.gov.uk/government/publications/delivering-for-rural-england).  This looks at how the Government is ‘rural proofing’ its policies and is the second such report.  It sets out a range of statistics on how rural areas compare to their urban counterparts.  Overall, it finds that, although there have been some areas of improvement, rural areas are lagging on many ‘opportunity’ indicators and have a significant productivity gap compared to large towns and cites.

The Scottish Government has announced the payment rates under the 2022 BPS.  These are set out in the table below and are a fraction higher than the rates seen last year.  This generally means that slightly fewer entitlements were claimed.  As set out in the June Bulletin advance payments commence from mid-September – around a month earlier than usual.  Although the advance percentage has not been outlined for this year, it is very likely to be 90% as in the past.

The fertiliser market has entered another period of turmoil after a quieter few months.  The price of natural gas has surged during August as Russia has restricted supplies through the major NordStream 1 pipeline and has announced plans to shut it down completely for a number of days in September for ‘maintenance’.  This has seen an increase in gas prices on the EU market with values now back to the levels seen in early march, just after the Russian invasion of Ukraine.  World prices have also increased as customers look for alternative supplies.  Natural gas is the main feedstock for nitrogen fertiliser production.  At current gas prices the production of fertiliser is uneconomic and there have been plant shut-downs across Europe.

The largest nitrogen fertiliser producer in Poland, Grupa Azoty, announced it has halted production, whilst the second-largest manufacturer in the country, Anwil, is doing the same.  The major Lithuanian producer, Achema will shut its plants from 1st September.  All of these companies are major suppliers of imported ammonium nitrate (AN) to the UK.  Availability is likely to dwindle away over the next few weeks as stocks are used up.

Here in the UK, CF Fertilisers announced on the 24th August that it was going to cease ammonia production at its Billingham plant (the Ince plant in Cheshire has been permanently closed form some time).  The company has stated that it will use imported ammonia to produce AN to fulfill contracts over the coming months.  Although AN production is not ceasing, it seems possible that production will be at a fairly low level just to meet orders already placed.  There may be little new tonnage placed on the market.  This may not appear a huge issue for UK farmers as nitrogen is not a key requirement during the autumn/winter period.  However, the fertiliser plants run year-round to produce the volume of product required for the sector – with much being stored until it is needed in the spring.  If factories are not running, orders not being placed and deliveries not being made then this stores up significant problems for next year.  With all these closures, it seems that (imported) urea will be increasingly important in meeting UK crop nutrition needs.

More of an immediate concern than fertiliser is probably CO2 availability.  This is a by-product of ammonium production and has a variety of uses in the food chain – including stunning pigs and poultry prior to slaughter, expelling air in food packaging and carbonating drinks.  Readers may recall that, when the CF plants were previously closed last Autumn (see September Bulletin) it was the shortage of the CO2 that caused major problems.  So much so, that the Government stepped in and offered financial support for the Billingham plant to be re-started.  Defra is confident that, compared to previous CO2 shortages, there is now a more resilient system with greater domestic production (including access to CO2 from AD plants), increased levels of stocks, and more secure access to imports.  It must be hoped that this is the case, but the UK’s second-largest source of CO2, the Ensus biofuel plant, is due to be closed for maintenance for some of September.  If Co2 supplies prove adequate it will mean that any Government assistance to restart ammonia production at CF plants is unlikely in the short-term.

Further to our article last month (see https://abcbooks.co.uk/funding-for-farm-based-protein/) Defra has announced a further two ‘competitions’ via the Farming Innovation Programme.  The latest rounds of the Feasibility Projects and the Small R & D Partnership Project open for applications on 31st August.  There is £5.5m of funding available for UK businesses to apply for Feasibility Projects which will;

• investigate early-stage solutions that have the potential to substantially improve the overall productivity, sustainability and resilience of farming, and move existing agricultural sectors to net zero
• prioritise solutions that will have positive outputs for farmers, growers and foresters in commercially relevant situations
• accelerate research and development of new agricultural solutions by actively engaging collaboration with the wider UK research community in the innovation process

Proposals need to be submitted by 12th October and must be able to demonstrate how the project will benefit farmers, growers or foresters in England.  Total project costs must be between £200,000 and £500,000.

UK registered businesses also have until 2nd November to apply for a share of up to £11m for Small R&D Partnership Projects which;

• develop solutions with the potential to improve overall productivity, sustainability, resilience, and move existing agricultural sectors to net zero
• ensure solutions have positive outputs for farmers, growers or foresters in commercially relevant situations
• develop new agricultural solutions, by collaboration through engagement with end users and the UK research community in the innovation process
• accelerate adoption by ensuring knowledge exchange with the wider sector and other stakeholders

Total costs for Small R&D Partnership Projects must be between £1 million and £3 million.

Further information is available via https://www.gov.uk/government/news/boost-for-farming-innovation?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=2e74a1ae-3773-473e-a993-636756c29b80&utm_content=daily

Due to the hot, dry, weather Defra has announced ‘temporary requirement adjustments’ to some Countryside Stewardship (CS) and Environmental Stewardship (ES) options.  These will allow grazing and cutting of earlier than normal.  A list of the options, with the current requirements, possible use, and the temporary requirement adjustment (what you can now do) can be found at https://www.gov.uk/government/publications/hot-and-dry-weather-temporary-support-for-farmers-in-2022/options-with-temporary-adjustments.

The adjustments apply from 17th August, so straight away, and run until 31st December 2022.  The relaxation to the rules are to help ease the shortage of grazing and forage crops due to the dry weather and should be ‘mainly for your own use or the wider community’; i.e. they should not be used for profit.  Those making use of the adjustment to their CS or ES agreements need to complete a Minor and Temporary Adjustment Form (see https://www.gov.uk/government/publications/minor-and-temporary-adjustment-mta-form-countryside-stewardship) but apparently there is no need to send it in to Defra; it should be kept for users’ records along with any field operations and stock records to show grazing activity on parcels.  Defra may request to see this information.

 

Defra has announced support for a Nutrient Mitigation Scheme to try and reduce pollution but also allow Local Planning Authorities to grant permission for new developments where nutrient pollution is an issue.

The concept of Nutrient Neutrality isn’t new.  Under the EU Habitats Directive (92/43/EEC) and implemented in the UK by The Conservation of Habitats and Species Regulations 2017, any project cannot proceed unless it can be demonstrated that it would be ‘Nutrient Neutral’ and not adversely impact a protected site.  The interpretation of the legislation has meant new building developments in many areas across the country have not been granted planning permission.

The Nutrient Mitigation Scheme is due to open in autumn 2022.  Although full details are yet to be announced, we do know the Government will provide funding to Natural England (NE) to establish ‘strategic mitigation schemes’, such as areas of wetlands and woodlands, prioritising those catchments which will have the greatest impact in unlocking frozen housing developments.

Natural England will then be responsible for accrediting the schemes.  ‘Nutrient Credits’ will then be available for developers to purchase to offset any increase in nutrients caused by the development.  For Local Planning Authorities involved in giving planning permission, the inclusion of NE should provide confidence that the schemes provide the mitigation credits, that they have been correctly calculated and will be delivered.  There are already offsetting schemes prepared by developers or independent operators and it is not quite clear how these will interact with this public scheme, but NE has said its intention is to ‘work with, not crowd out’ existing offsetting providers.

Along with the introduction of statutory Biodiversity Net Gain, the Nutrient Mitigation Scheme could be another income stream for those with areas of land they wish to change their land management on.  Further details are available at https://www.gov.uk/government/news/government-sets-out-plan-to-reduce-water-pollution

Defra has launched a Consultation on proposed ‘technical’ changes to the Biodiversity Metric.  This is a additional consultation to the one which ended in April covering the Secondary Legislation (the ‘details’ of the scheme).  The recent consultation, is asking eight questions on technical proposals to update Metric 3.1 and the Small Sites Metric to produce the Statutory Metric 4.0 which will be available later this year.  This should then give a year of trial use before mandatory BNG commences from November 2023 for Town and Country Planning Act 1990 development.  Perhaps the question which may be of interest to many readers is the last one ‘Do you think that metric users should be required to attend a verified training course or be accredited before completing the calculation?’  The reason cited is to reduce the burden on Local Planning Authorities by improving consistency of submitted calculations.

The Metric is to be used for assessing Biodiversity Net Gain (BNG) in relation to planning permission for development.  This may seem incidental to agriculture but it potentially opens up a new income stream for land managers – see our article of  12th January 2022 https://abcbooks.co.uk/biodiversity-net-gain/ .  Responses to the consultation need to be submitted by 27th September.  Further information can be found at https://consult.defra.gov.uk/defra-net-gain-consultation-team/technicalconsultation_biodiversitymetric/

The Bank of England (BoE) has raised interest rates by 0.50% in a bid to reduce inflation.  The rise of 50 basis points is the biggest since the BoE was given control of rates 25 years ago and takes the cost of borrowing via the BoE base rate up to 1.75%; the highest since December 2008.  It will also raise banking interest rates throughout the economy.  With inflation now reported to be at a 40-year high of 9.4%, Andrew Bailey, Governor of the BoE, has reiterated the Bank’s commitment to reduce this to the 2% target.  The BoE also forecasts that energy price rises resulting from the Russia-Ukraine conflict will push inflation to around 13% over the next few months and it will take around two years for inflation to be back to around the 2% target.

The latest rise comes after the ECB raised its rate by 0.50% in July, and the US Federal Reserve making back-to-back increases in June and July, each of 0.75%.  All central banks are facing a difficult balancing act of trying to curb inflation, whilst minimising any economic damage in terms of causing a recession.  However, when announcing its interest rate increase, the BoE warned that the UK is likely to slip into recession in the final quarter of this year which could last until late 2023.  In the US, growth was already negative in the first quarter and looks like being negative in the second quarter also.

It is unusual for banks to raise interest rates while the economy is facing a high risk of recession.  However, if high inflation becomes embedded in the economy, it will also cause significant long-term economic damage particularly in terms of eroding consumers’ purchasing power.  In the UK, consumer spending is facing its worst squeeze for over 20-years and many businesses are experiencing labour shortages.  With the Russia-Ukraine conflict exacerbating energy costs, The Resolution Foundation is forecasting CPI inflation to move above 15% in 2023 if there are no policy measures to reduce it.