Category: Policy & Business

Rural Funding Boost

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.

Scottish BPS Payments

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.

Fertiliser and CO2

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.

Farming Innovation Programme

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

Grazing & Cutting CS and ES Options

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.

 

Nutrient Mitigation Scheme

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

Biodiversity Metric

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/

Interest Rate Hikes

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.

Ireland: GHG Emissions Reduction Target

After much debate, the coalition partners of the Irish Government finally agreed on a 25% reduction target for greenhouse gas (GHG) emissions in Irish agriculture (i.e. in the Republic of Ireland) by 2030.  The target will have significant implications for Irish agriculture, with the suckler beef sector likely to come under intense pressure. 

This target forms part of Ireland’s commitment under its Climate Action Plan to reduce its emissions by 51% by the end of the decade and to reaching its legally binding target of being net-zero by 2050.  Previously, the Climate Action Plan, published in November 2021, had mentioned a reduction target range of 22-30% versus 2018 emissions, with a number to be finalised at a later juncture.  Farming organisations were seeking a maximum reduction target of 22% whilst environmental organisations  were seeking a 30% reduction. 

A 2021 KPMG study examined the impact of a 21% and a 30% reduction in GHG emissions on Irish agriculture.  It projected that a 6% cut to the beef herd and a 5% cut to the dairy herd would be required if the emissions reduction target was 21%.  A 30% GHG reduction would require a 22% cut in the beef herd and an 18% cut to the dairy herd.  The agreed 25% target would imply a fall in population numbers somewhere in the middle of these projections, a circa 13-14% decline in the beef herd and a 11-12% decline in the dairy herd.  There would also be a hit on the Irish rural economy in the region of €2.5 billion.

As the chart below shows, suckler cows numbers have already fallen sharply in Ireland, with an estimated 15% decrease between 2010 and 2020.  Over the same period, dairy cow numbers rose by 45%. This increase was chiefly due to the shackles of milk quotas being removed in 2015. The proposed target could undo much of the expansion in dairying and poses major questions for the future viability of significant swathes of suckler farming, given its poor profitability. 

Ireland Cow Population Estimates 2010 to 2021 (Million Head)

Sources: Irish Central Statistics Office (CSO) and Teagasc

From a UK farming perspective, declines of this magnitude would imply a potentially significant decrease in the importation of beef and dairy products from Ireland.  This could present some opportunities for UK farmers.  However, British farmers are also likely to be subject to stringent emissions targets as the decade progresses.  The Irish Government is at pains to point out that it believes that the 25% reduction across agriculture is attainable without necessitating declines in its suckler beef herd.  That remains to be seen.

Overall, these targets illustrate the difficulties that the agricultural industry as a whole will face in reducing its global emissions and going towards net-zero.  Of course, the Irish reduction targets above are predicated on the IPCC’s preferred ‘GWP-100’ method of measuring GHG emissions.  Some believe that this over-estimates the warming potential of methane and, therefore, penalises agriculture.  The alternative ‘GWP*’ method being put forward by some scientists at Oxford University is preferred by the agricultural industry as it treats methane as a short-lived, recyclable, greenhouse gas.  Whilst the GWP* method is being re-examined by the IPCC, there is no escaping the fact that all sectors are going to face difficult trade-offs as society tackles the climate change challenge. 

The unintended consequences of an individual country striving for net-zero also need close monitoring.  If the relatively GHG-efficient Irish beef production is replaced by less GHG-efficient beef from elsewhere, then the planet as a whole will be in a worse-off position.  There are similar issues with water; a generally abundant source in Ireland and the West of the British Isles.  It is important that produce which is certified as being more environmentally sustainable than the standard achieves a premium price that appropriately rewards the immense efforts that will be involved.