Category: Policy & Business

Private Investment in Green Markets

For the Government to achieve its ambitious target of net zero in 27 years and to reach its environmental targets set out in the Environmental Improvement Plan (EIP), it acknowledges it will require a step-change in investment.  Recently two pieces of policy have been released addressing ‘Green Investment’ and how to ‘mobilise’ private investment in this area.  Mobilising Green Investment: 2023 Green Finance Strategy is an update to an earlier 2019 Strategy.  The 2023 Strategy represents the latest policy blueprint developed jointly by HM Treasury, the new Department for Energy Security & Net Zero, and Defra.  It aims to ‘strengthen the UK’s position at the forefront of the rapidly growing global green finance market, while driving private investment to deliver our energy security, net zero and environmental objectives’.

Alongside the Green Finance Strategy, and perhaps of more interest to land managers, Defra has released a Policy Paper entitled Nature Markets: A Framework for Scaling up Private Investment in Nature Recovery and Sustainable Farming.  The Framework sets out;

  • core principles to ensure markets operate with integrity and deliver positive outcomes.
  • current rules for how farmers and other land and coastal managers can access markets and combine income streams, and plans to further develop policy in this area.
  • a new arrangement with the British Standards Institution (BSI) to develop a suite of high-integrity nature investment standards. These will enable new markets to develop and emerging markets to scale up and operate soundly
  • next steps to clarify and develop institutional and regulatory roles and market infrastructure needed to ensure good market governance.

Overall, the Nature Markets Framework provides a good summary of the current state-of-play in these developing environmental markets.  It also sets out what the Government plans to do in the future to help them develop further.  For those with an interest in this area it is probably worth a read (and only 38 pages).  

The Nature Markets framework can be found via https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1147397/nature-markets.pdf.  The 2023 Green Finance Strategy is available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1149690/mobilising-green-investment-2023-green-finance-strategy.pdf

Water Management Grant

The second round of the Water Management Grant opened on 19th April and will close on 12th July 2023.  This is part of the Farming Investment Fund (FIF) and offers grants of between £35,000 and £500,000 for capital items which help improve farm productivity through more efficient use of water for irrigation.  This is by using best practice irrigation application equipment and to secure water supplies through constructions of reservoirs.  A list of eligible items can be found in the guidance at https://www.gov.uk/government/publications/water-management-grant-round-2/about-the-water-management-grant-round-2-who-can-apply-and-what-the-grant-can-pay-for.  As in the previous round there will be a two stage application process.  The first stage will be an online eligibility checker and to see how the project fits with the priorities of the scheme, this can be found via https://check-farming-transformation-fund.defra.gov.uk/water/start.  Those successful at the first stage will be invited to make a full application by 31st October 2024.

 

Nutrient Mitigation Credits

Further to our article in December (see https://abcbooks.co.uk/nutrient-mitigation-scheme-2/) developers wanting to build new housing within the Tees catchment area can now apply to buy nutrient mitigation credits.  This is the first scheme that is completely ‘up and running’; Defra and Natural England are working to provide similar projects in affected catchments across the country.  Developers in the Tees catchment will need to calculate how many credits are required to mitigate the nutrient pollution caused by the proposed house building, using the Teesmouth nutrient budget calculator (version 2.2).  These calculations are submitted as part of the Planning Application.

Applications for Nutrient Credits are made to Natural England.  The window for the first round of applications is currently open and closes on April 30th.  Further windows will open in July, October and January 2024.  In the first round of applications, one credit will cost £1,825.  The cost of credits may vary in future rounds and in different catchment areas (when they become available), depending on the mitigation projects.  More information can be found via https://www.gov.uk/government/publications/natural-englands-nutrient-mitigation-scheme-for-developers/how-to-apply-for-nutrient-mitigation-credits-from-natural-england

Defra and Natural England have been working with partners, such as the Wildlife Trusts, in affected catchments to ‘identify and develop’ additional mitigation projects such as creating new woodland or wetland areas. These will then be used by Local Planning Authorities (LPAs) and developers to unlock the building of new homes across the country, whilst also contributing to nature recovery.  Natural England is working with LPAs and other partners to identify opportunity and need in each catchment – it is recognised that the scheme will develop at different rates in different catchments, but could potentially be a further income stream for some landowners.

Gene Editing

The legislation to allow gene editing technology to be used commercially in England has passed into law.  The Genetic Technology (Precision Breeding) Act received royal assent on 23rd March 2023.  This provides for a streamlined regulatory system for precision-breeding techniques.  More onerous regulations will remain in place for genetically modified organisms (GMOs).  Gene editing ‘switches on and off’ genetic coding which is already present in an organism, whereas GMOs include genetic material introduced from a separate organism.  

The new rules will initially apply to plant breeding, before being rolled-out later to farm animals if proved successful.  The legislation only applies to England with Scotland, Wales and Northern Ireland still to approve the commercial use of gene editing.

It will be some time before farmers are growing gene-edited crops however.  Secondary legislation is needed to implement the new rules, with estimates that this could take two years.  Also, the Food Standards Agency (FSA) will need to approve any products produced from gene-edited crops before they can be placed on the market.  Defra’s estimate is that it may be five years before crops are ready to be grown commercially.

Rural England Prosperity Fund

Defra has recently put out a Press Release announcing £110m worth of funding available to support rural businesses and community groups between 2023 and 2025.  This is not actually ‘new’ money, as it was announced last autumn (see our article from September 2022 https://abcbooks.co.uk/rural-funding-boost/).  But it is a timely reminder that there will be support for projects such as farm diversification, boosting rural tourism and for start-up local businesses to create opportunities for rural areas.  The funding will be operated by Local Authorities and is a ‘rural top-up’ to the UK Shared Prosperity Fund (UKSFP) which is worth £2.6bn.  Those who have a project which fits into the categories above are urged to contact their Local Authority.  Each LA will operate its own process for allocating grants – and many are not yet operational.  It is expected that some will be running individual ‘calls for projects’ similar to that under the previous LEADER funding.

Scottish Agriculture Secretary

Mairi Gougeon has been reappointed as Cabinet Secretary for Rural Affairs in the new administration of Humza Yousaf.  The post was reportedly offered to Mr Yousaf’s defeated rival in the SNP leadership election, Kate Forbes, but she turned it down.  Ms Gougeon also takes on responsibility for Land Reform.

Agreement Reached on UK Joining the CPTPP

On 31st March, the UK Government completed negotiations to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), following over 2 years of negotiations.  Whilst the accession agreement was signed at a virtual meeting of Trade Ministers, the legal text of the agreement has yet to be published, and there will be a ratification process in the UK similar to that of other recent trade deals (e.g. Australia and New Zealand).  The key points from an agricultural perspective are:

  • General economic impact: the UK will be joining a trade bloc of 11 countries, accounting for about 7% of global GDP.  The UK already has bilateral trade agreements in place (or pending ratification in the case of Australia and New Zealand) with nine of these members, the other two being Malaysia and Brunei. Therefore, the additional economic gain from joining the CPTPP will be limited at a national level, with the UK Government estimating that it will boost UK GDP by 0.08% in the next decade.  From an agri-food perspective, the UK joining the CPTPP will not alter the level of access that Australian and New Zealand exporters will have to the UK market.
  • Import tariff concessions:
    • Palm oil: controversially, import duties on Malaysian palm oil (currently up to 12%) will be eliminated upon entry into force.  Given the environmental concerns around deforestation associated with palm oil production in Malaysia, this will attract strong criticism.  The UK and Malaysian Governments have attempted to address this by publishing a joint statement as part of the environment chapter of the agreement which sets out commitments to promote sustainable production and protecting forests.  Palm oil may provide greater competition for domestically-grown oilseed rape.
    • Sheepmeat: Australian and NZ exports to the UK will remain subject to the TRQs outlined in the UK’s bilateral Free Trade Agreements (FTAs) with these countries.  Duties on imports from other countries, which are minimal, will be eliminated from entry into force.
    • Eggs:  Australian eggs will remain subject to the UK’s Global Tariff. Duties on imports from other countries will be eliminated over a 10-year period, although imports from these countries are likely to remain minimal.
  • Tariff Rate Quotas (TRQs) on Imports to the UK: the following new TRQs have been agreed
    • Beef: a new duty-free TRQ of 13Kt will be phased in over 10 years and will start at 2.6Kt.  It only be available to Canada, Mexico, Chile, Peru, Malaysia and Brunei.  Importantly, any beef imports will have to meet UK Sanitary and Phytosanitary (SPS) requirements.  The Canadians sought UK acceptance of its standards (which permit hormone-treated beef), but the UK withstood this.  Also, Australia and New Zealand will not get any further access to the UK market under the CPTPP.
    • Pork: a 55Kt TRQ will be phased in over 10 years (starting at 10Kt).  Again, this will be available to the same countries listed above.  Vietnam and Singapore will also have access to this TRQ for an initial 3-5 year period before their duties are eliminated via a bilateral FTA with the UK.  This TRQ could present some competitive threats from the likes of Canada and Mexico, although some commentators don’t believe that Canada will pose an immediate threat as it currently only utilises a small proportion of its potential TRQ under pre-existing agreements.
    • Chicken: a TRQ of 10Kt will again be available to the countries listed above.  A 10-year phase-in period will again apply.  Vietnam and Singapore will again have access to this TRQ for an initial 3-5 year period before tariffs on imports from these countries are eliminated.
    • Sugar: a 25Kt tonne TRQ will be shared by Brunei, Chile, Malaysia, Peru, and Vietnam.  Canada will also have access to this TRQ for an initial two-year period before its tariffs will be eliminated as per the bilateral (roll-over) FTA that the UK has with Canada.
    • Rice: for long-grain milled rice, there will be a 10Kt TRQ to be shared by Brunei, Chile, Malaysia, and Peru.  Most-favoured nation (MFN) duties will continue for rice from Australia, Japan and Mexico.
    • Other CPTPP countries: will have access to the UK market as agreed in existing (pending) bilateral trade deals.  As our previous articles on the Australian and New Zealand trade deals have noted, bilateral TRQs of beef and lamb will be phased in over 15 years, whilst dairy TRQs will be phased in over 5 years.
  • Tariffs and TRQs on UK Exports: as the UK was perceived to be quite defensive in the access that it is offering to importers, the market access for UK exports has also been limited to some key areas, including:
    • Whisky: exports to Malaysia will see tariffs of up to 80% being reduced down to zero over a 10-year period which should help Scotch whisky to gain further market share. This is seen as a significant win for the UK.
    • Dairy exports: the Canadian Government has not made any additional market openings available. This means that the UK will need to compete with other members for Canada’s CPTPP TRQs for dairy products (16.5 Kt). This is unsurprising given the UK’s stance on Canadian beef imports and the Canadian dairy sector is highly protected.  There will be similar additional cheese TRQ of 6.5Kt on exports to Mexico, again, this will be shared with other CPTPP members.  Similar arrangements to Canada will be put in place for to any UK dairy exports to Chile, Japan, Mexico, Peru and Vietnam.
    • Beef: British exports of beef will be subject to a TRQ under the CPTPP.  There is limited further detail at this stage and it will require the publication of legal texts to confirm what is available.   In 2022, it is estimated that the UK exported 4.4Kt of beef to Canada and the CPTPP potentially presents an opportunity to grow this volume.  Tariffs on UK beef exports to Mexico (up to 25%) will be eliminated after a staging period.  There will also be staged liberalisation on exports to Peru, although export opportunities to Latin America will be limited.
    • Pork and poultry: tariffs on UK exports to Mexico, of up to 25% and 75% respectively for pork and poultry, will be eliminated over a staging period.  Similar provisions will apply to poultry meat exports to Peru and pork exports to Vietnam.
    • Other goods’ exports: over 99% of UK goods’ exports will be eligible for tariff-free trade upon accession.  For other goods where tariffs are being phased out, the UK has agreed to catch-up to other CPTPP members who are in Year 6 of their various multi-year tariff phase-out schedules.  Importantly for the UK, this includes Malaysia agreeing to phase out its 30% tariff on car imports.
  • Sanitary and Phytosanitary (SPS) measures: as mentioned above, the UK has offered no concessions on this.  However, the deal does provide a framework for more transparency and information sharing on SPS issues, which would help with addressing food fraud.  The UK has also managed to formalise the principle of ‘regionalisation’ meaning that in the event of animal or plant disease outbreaks, trade restrictions would only be limited to affected regions.
  • Other provisions: for goods, there will be multilateral cumulation which basically means that intermediate goods (e.g. car parts) from any country will count as ‘local’ for the purpose of accessing tariff concessions on trade within the bloc.  So, UK car parts sold to a Vietnamese automotive plant would be classed as local for any Vietnamese car exports from that plant to Malaysia.  In terms of services, UK companies will be able to operate in all CPTPP countries without the need to establish a local base in each territory.  This will be a significant gain for the UK financial services sector in particular.  The CPTPP chapter on the environment largely formalises commitments made by the UK and other CPTPP members under other international agreements.

Overall, 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.  As mentioned above, the UK already has bilateral trade deals with most members and most agricultural trade will continue to be conducted via these bilateral trade deals.  In the longer term, a bigger issue could be what happens if the US joins the CPTPP, as it had agreed to join its predecessor (the Trans-Pacific Partnership), until the Trump administration pulled out.  Although the current US administration is not overly focused on international trade, the prospect of a future US administration re-joining a Pacific trade bloc (CPTPP, or a subsequent deal) should not be ruled out.  This would have much more significant implications for agriculture from both a market access and SPS perspective.

What happens next?

  • The legal text of the agreement will be formalised and published in due course.
  • From there, the agreement will come under Parliamentary scrutiny and this should include an examination and report by the Trade and Agriculture Commission; similar to the reports it compiled for the Australia and New Zealand trade deals.  This will be done to verify that accession to the CPTPP is consistent with UK laws concerning animal welfare, food safety and environmental protection.
  • Existing CPTPP members will also have their own ratification processes, which could potentially result in delays, although this is not anticipated as things stand.
  • The UK is expected to be formally approved to join during a Ministerial meeting of CPTPP members during the summer, with the ratification process will then need to be completed by all CPTPP members.

Further information can be obtained via: https://www.gov.uk/government/publications/comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp-conclusion-of-negotiations/conclusion-of-negotiations-on-the-accession-of-the-united-kingdom-of-great-britain-and-northern-ireland-to-the-comprehensive-and-progressive-trans-pac

Energy Efficiency

From the 1st April non-domestic premises being let out must comply with energy efficiency standards.  This applies to England and Wales where all properties must be rated grade E or better.  Those that are rated F or G are deemed to be ‘substandard’ and it will be illegal to let them until improvements are made.  It covers buildings that are not used for residential purposes that ‘use energy to condition the indoor environment’.  This rule will apply to lettings on farm such as offices or workshops.  Some of these are likely to have been let on long-standing or informal arrangements (especially workshops).  An EPC may never have been done or the landlord might be unaware of their obligations.   

Scottish Farm Incomes

Farm profits in Scotland have significantly increased for the second year running.  In the 2021/22 year, the average Farm Business Income (FBI), which can be thought of as farm profit, was £50,000 across all farm types; a rise of over £11,000 on the previous year.  This follows a £10,000 increase the year before.

The main cause for improvement is an improvement in total output.  This includes agricultural output, agricultural support payments and diversified activities, and was up by 9% on the year.  Agricultural output alone increased by 10% due to strong milk, cereal and livestock prices.  The profit for an average Dairy farm was estimated to be £162,100, with Cereal farms reaching a record high of £84,632.  The increase in output more than offset the increase in costs which were up by 6%.  However, with the figures only running to spring 2022, these costs do not not the reflect the cost rises seen over the last year.  For the first time in ten years, the average farm would have been profitable without support payments (BPS, LFASS etc).  The average business would have made a profit of £5,100 from agriculture, contracting and diversified activities.

The data is from the accounting year 2021-2022 – i.e. the period ending around a year ago which relates to the 2021 crop year and 2021 BPS.  The analysis is based on a survey of about 400 commercial farms (standard output exceeds £20,000).  It excludes farm types not in receipt of support payments (i.e pigs, poultry and horticulture).  Full details of the data, including a breakdown by farm type, can be seen at https://www.gov.scot/publications/scottish-farm-business-income-annual-estimates-2021-2022/