The Bank of England increased Base Rates by a further 0.5% on 15th December. This is the ninth increase in a year and brings rates up to 3.5% – the highest level for 14 years. The market is expecting some further increases in the New Year as inflation remains far above the Bank’s 2% target. However, with economic indicators looking negative, rates may not need to be raised as high as once thought. Base Rates may well peak at 4-4.5% in the late spring.
Defra has said it is keen to launch another round of Landscape Recovery (LR) as soon as possible. LR is the third element of ELM and supports bespoke agreements to delivery large-scale nature recovery projects. In an update regarding the current projects (see https://defrafarming.blog.gov.uk/2022/12/08/an-update-on-the-first-round-of-landscape-recovery-projects/) it has said it is working on the details and will share more information in the New Year. This is a slight surprise to us as we weren’t expecting anymore pilots until the full scheme was to be launched in 2024, especially as originally Defra were only looking for 15 pilot projects, but finished with 22. However we have noticed that the word ‘pilot’ has been ‘dropped’ in Defra’s recent communications on the scheme.
The current (pilot) projects, in total, cover over 400,000 Ha and aim to restore nearly 700km of rivers and protect and provide habitat for at least 263 species. These are being funded over a project development phase, which will last up to two years and will help them to draw-up detailed land management plans, quantify environmental and social outcomes and assess the impact on food production. If a project meets Defra’s requirements at the end of this phase, it will be awarded long-term funding. Originally, it was suggested that the project development phase would be used to move the project to a position where it could attract private funding. The requirement for LR schemes to be, at least partly, privately funded seems to have been dropped. This is likely because of the slow pace of development in private nature recovery markets and the difficulty in actually concluding deals.
The Farm Business Survey (FBS) has published its annual analysis of farming businesses in England. ‘Farm Accounts in England’ provides information on farm incomes, outputs and costs for various farm types, farm sizes, regions and economic performance groups along with enterprise level gross margins, balance sheet data and flow of fund statements. The figures come from an annual survey of a cross-section of farm businesses in England so the results are the most robust snapshot of the financial performance of the sector. The publication can be found at – www.gov.uk/government/statistics/farm-accounts-in-england. The consortium of Universities and Colleges (Rural Business Research – RBR) that have been undertaking the Farm Business Survey for many years has not been awarded the next contract. Instead, Promar International will conduct the Survey on behalf of Defra.
Andersons has launched its annual ‘Outlook’ publication. This looks ahead to next year and beyond, and offers opinions on the future of UK farming. 2023 is also the 50th anniversary of the founding of the Andersons business (then called David Andersons & Co). To mark this milestone, a special feature is included comparing farming in 1973 with that of today. If you have not already received a copy, the document can be downloaded from – www.theandersonscentre.co.uk/publications/outlook/
Farm costs continue to rise. Andersons ‘Agflation’ index shows input prices continuing to rise by around 20% compared to the same month a year earlier. Whilst this is down slightly on the increases seen in the summer, it is still well above historical averages.
Earlier in the year, as input costs increased, then output values were also showing big gains. However, over the past couple of months the sale prices of farm commodities have shown far less growth. Whilst some products, such as milk, have continued on an upwards trajectory, this has been largely offset by declines in other areas notably combinable crops. With costs continuing to increase but sale prices flatlining, this puts farm margins under pressure. Both the agflation and agricultural output indicies relate to the entire farming industry. The prospects for individual sectors will depend on how specific costs and prices are moving.
To recap, our agflation index uses Defra Agricultural Price Indices for agricultural inputs and weights each category of input (e.g. animal feed) by the overall spend by UK farmers. We fill in some gaps not covered by the Defra series and also provide some up-to-date estimates for the latest months (the official figures work some months in arrears). The same methodology is used for agricultural outputs.
The chart above also shows CPI along with the specific food inflation measure. It can be seen that food is one the elements driving general inflation in the economy. It is not necessarily the case that higher commodity prices are driving food-price inflation – the cost of the raw materials is often a very small part of the cost of food. It is other elements in the food chain such as electricity, fuel and labour that are pushing up costs. Food comprises a larger proportion of the spending of those on the lowest incomes. Therefore, effective inflation for those people will be even higher than the headline CPI rate.
Staff at the Rural Payments Agency (RPA) have voted to take strike action during dates in December and January. 91% of members of the Public and Commercial Services Union voted to strike, on a 73% turnout. The Union has said the initial phase of strike action will cover the Customer Service Centre as it ‘will have a significant impact on employers’ operations and Government’. The Union therefore asked its members in the Customer Service Centre to strike from 13th-16th and 19th-23rd December and again from 3rd-6th and 9th-13th January 2023 (basically from 13th December to 13th January when weekends and Christmas closures are taken into account). The Union says this will have a ‘major impact on the employers’ ability to administer the work of the RPA at a critical time of the year’.
In response the RPA has said it has ‘tested plans’ which will enable it to continue to pay farmers their BPS money if the strikes take place. We have already reported on BPS progress, with the majority of payments already made (see previous article). Those with outstanding RPA queries with regards to BPS and other agreements such as Countryside Stewardship are advised to reply to these within a timely manner.
The Welsh Government has opened a consultation on introducing a licensing scheme which will allow higher levels of nitrogen applications in certified circumstances. The current nutrient measures are set out in the Water Resources (Control of Agricultural Pollution) (Wales) Regulations 2021. Under these, there is a limit of 170kg of Nitrogen per hectare per annum from livestock manures across a holding. The proposals in the consultation would allow this limit to be exceeded, up to a maximum of 250kg of nitrogen per hectare per year, subject to crop requirement and conditions to protect the environment. The proposed licence scheme will commence from April 2023 and run until 2025. For more information on the consultation and ways to respond go to https://gov.wales/nutrient-management-managing-application-livestock-manures-sustainably
The Government has made some changes to Planning policy in England which will have an effect on rural areas. They have occurred as the Levelling Up and Regeneration Bill goes through the Parliamentary process and are a result of lobbying by groups of disaffected Conservative MPs. Firstly, on housing, the proposed mandatory house building targets for Local Authorities are to be made ‘advisory’. There will be increased protection for the Green Belt and areas such as National Parks and AONBs. This is a reversal of the ‘growth’ agenda. It is widely acknowledged that more housing is needed (especially in the South of England) to deal with shortages and provide homes in areas with strong economies. But, of course, few people, including MPs, want those extra homes in their Constituencies. This change in policy can be seen as a win for the ‘Nimby’ tendency. Landowners who were hoping to develop land may now have slightly less chance of doing so.
The other policy change relates to onshore wind. Oddly, this moves policy in a pro-growth / less protection direction. Since 2016 there has been a de facto moratorium on the development of new onshore wind farms. The power to decide on whether Planning would be granted to a wind farm was given to Local Authorities, but subject to there being no local objections and the area having been identified as suitable for wind in the Local Plan. These hurdles have proven too difficult and little development has taken place. The rules will be amended so that the proposed wind farm area does not need to have been pre-identified, and the development has overall ‘local support’. Rules on how such local support would need to be demonstrated will be produced. For landowners, this is unlikely to herald a ‘gold rush’ as developers race to build new wind-farms – the rules remain restrictive. However, they do represent a loosening and there may be increased opportunities to benefit from this renewable technology.
As at the 6th December the RPA reported that it had made 2022 BPS payments to 95.3% of farmers. This is a top-up for most claimants with a 50% advance paid in the summer. Since the payment window opened on the 1st December the RPA says it has made 102,000 payments in total across BPS, CS and ES.
The Scottish Government has announced improved grants for renewable heating. Under the Home Energy Scotland scheme there is a £7,500 grant available towards the cost of installing a heat pump. Those in rural areas can get an extra £1,500. There are also grants worth up to £7,500 for energy efficiency works. Previously, it was necessary to take a loan out under the scheme, but now the grant is paid direct to homeowners. More details can be found at -https://www.homeenergyscotland.org/funding/grants-loans/
