Category: Policy & Business

Scottish farmers will see the levels of their direct payments remain the same in 2023.  This is a result of the Scottish Government Budget announced on the 15th December.

Funding for Basic Payments, Greening and Voluntary Coupled support remains at £485 million for 2023.  However, it must be noted that, with inflation at 10% plus, the actual value of these payments falls considerably.  The budget for LFASS has also be retained at the same nominal level as 2022, at £65m.  The Agri Environment Climate Scheme (AECS) is held at £35.8 million whilst funding for the Agricultural Reform Programme (including the National Test programme) increases from £23 million to £39 million.

The Budget also saw an announcement on increases in the level of Scottish Income Tax;

• The Higher Rate (payable above £43,663) will increase from the current 41% to 42%
• The Top Rate (in future payable after £125,140 rather than the current £150,000) will rise from 46% to 47% as from April

The extra funds raised will be targeted at the NHS.  Full details of the Budget can be found at – www.gov.scot/publications/scottish-budget-2023-24/

Rural Affairs Minister, Lesley Griffiths has confirmed that Welsh farmers will continue to receive the BPS at current levels in 2023 and 2024 (subject to budget).  The announcement has been welcomed by the Welsh farming industry and will provide some certainty for the sector.  However, the Rural Affairs Minister has accused the UK Government of ‘continually refusing to review the farm funding methodology…’ and its ‘continued failure to adjust funding levels to deal with rising costs exacerbates the impact on their economic mismanagement on Welsh farmers’.  The Minister went on to say that it is therefore even more important to transition to the new Sustainable Farming Scheme which is ‘fairer and which will support our farmers in the sustainable production of food’, confirming this scheme will commence from 2025.

The Government has increased the number of workers that will able to come to the UK under seasonal working visas.  The Seasonal Agricultural Workers Scheme (SAWS) will have 45,000 potential places in 2023 – up from 30,000 in 2022.  There will also be the potential to increase numbers by a further 10,000 if necessary.  The Government will also be appointing new operators to help administer the scheme.  Foreign workers are allowed to come to the UK for up to 6 months under the scheme.  Further details can be found at – www.gov.uk/government/news/government-provides-boost-to-horticulture-industry-with-certainty-over-seasonal-workers.  The first 4,000 visas will be made available to operators imminently to ensure that daffodil growers have the labour available for their harvest at the start of the year.

With labour being such a key issue, this is positive news for the farming industry – especially the fresh produce sector.  It is a welcome U-turn from last year when the industry was told 30,000 will be made available for 2022 but numbers would then taper down in 2023 and 2024 and disappear completely by 2025.  It seems that the Government has been listening to the problems of the industry.  However, with announcements on numbers being made on a yearly basis, and very late-in-the day, it provides no long-term certainty to allow businesses to invest in the fruit and veg sector.  Many producers have already scaled-back their cropping plans for 2023 due to uncertainty over labour (and low margins in 2022).  A longer-term solution is needed. 

More details are emerging of a new scheme which could provide an additional income stream for some farmers.  Readers will recall we wrote about the introduction of a Nutrient Mitigation Scheme back in August (see https://abcbooks.co.uk/nutrient-mitigation-scheme/), Natural England has now released further information.  Defra and the Department for Levelling Up, Housing and Communities (DLUHC) are investing up to £30 million over the next three years to fund the Natural England-led Nutrient Mitigation Scheme (NMS).  Since the announcement in the summer, Defra and Natural England have been working with partners, such as the Wildlife Trusts, in affected catchments to ‘identify and develop’ additional mitigation projects.  The first projects are now being negotiated with two partners in the Tees catchment, with feasibility studies underway in a further five catchments.  Furthermore as from December, landowners within targeted areas are being approached to invite them to offer their land as sites for nutrient mitigation schemes.  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 via the creation of new wetlands.   This framework will eventually be expanded across the country.

The scheme will be fully launched from March 2023 when Natural England will invite applications from developers to purchase certificates or credits.  The certificates can then be submitted by the developer to the LPA as part of the Planning process to show that nutrient neutrality planning conditions have been satisfied.  Full details of the scheme are not yet available, but developers will be given information on credit availability and price ahead of the first credit sales.  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.  Natural England will be accrediting the mitigation schemes according to ‘environmentally robust standards’.

It is envisaged that as the scheme is rolled out into each catchment, credits will be offered in batches and any developer requiring credits will be able to apply for them.  The scheme will be designed so that banking of credits by developers is not allowed.  It will still be possible for developers to source credits from other markets or suppliers, via on-site features or through their own off-site nutrient mitigation plan.

Potentially this could be another income stream for landowners who have suitable areas of land, but crucially there is no indication of how payments will be made to landowners – establishment and maintenance, annual, lump sum or even how much?  Also, how long will agreements be for?  Similar to many of these ‘new’ income streams, more information is required but it is worth keeping an eye on.

 

 

 

 

The Farming Futures: Automation and Robotics, Industrial Research Fund, which we first reported on in October (see https://abcbooks.co.uk/horticulture-support/) will open for applications from 9th January 2023.  Details of the fund have been made available online ahead of this date and can be found at https://apply-for-innovation-funding.service.gov.uk/competition/1380/overview/2457c13f-ab6a-4a88-9f81-812f5f6e2d52?_ga=2.179995300.1603189312.1670842557-230918486.1663164674#summary .  This fund is part of the Farming Innovation Programme delivered in partnership with UKRI’s Transforming Food Production Challenge.  This is the third round of competitions under this fund and it aims to support collaborative development projects with ‘ambitious solutions’ for robotics and automation in both agriculture and horticulture to:

• support specific recommendations for automation innovation funding from recent Defra reviews and the Government Food Strategy
• address key issues affecting the sector, where automation and robotics can mitigate labour challenges and increase productivity.

Proposals must be able to demonstrate how the project will benefit farmers or growers in England.  This competition is split into two strands:

• Strand 1 –  industrial research; accelerating collaborative R&D with the UK’s world-leading research base, agri-tech businesses, SMEs and the UK agricultural sector to develop innovations in agriculture and horticulture
• Strand 2 –  experimental development; accelerating the deployment and uptake of innovation for robotics and automation in agriculture and horticulture that is almost at commercial stage

Under this round there is £12.5m of funds available.  Total project costs must be between £500,000 and £1m.  The deadline for applications is 11am on Wednesday 15th March 2023.

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.