Category: Policy & Business

Trade Update – July 2022

Although summer is often quieter on the trade front, there have been a couple of developments in recent weeks which merit mention. These relate to the UK-Australia Free Trade Agreement (FTA), and the announcement of the EU trade deal with New Zealand (NZ), which will be of interest to many in the UK agri-food sector.

UK-Australia FTA

The UK Government has failed to offer MPs the opportunity to debate the UK-Australia FTA within 20th July deadline as required by the framework set-out under the Constitutional Reform and Governance Act 2010. This means that the FTA can be ratified by the Government without the parliamentary scrutiny that it had promised to the farming industry on several occasions. Many in the UK farming industry see this as a betrayal and are concerned that it will create a precedent for future trade deals that the UK negotiates.

Separately, the House of Commons Library published its assessment of the UK-Australia FTA on 15th July. It noted that whilst the overall impact of the FTA is limited (adding 0.08% to UK GDP (£2.3 billion per year) in 2035), it does note that the effects on agriculture will be more sizeable. It references the UK Government’s own assessment from earlier in the year which projects that long-term agricultural output would decline by £94 million whilst semi-processed food output would also decline by £225 million as a result of the deal. The impacts would be strongest in the beef and sheep sectors.

The report has also highlighted concerns around environmental, animal welfare and food safety standards. The report has noted the importance of distinguishing between two aspects of standards:

  1. Product standards which must meet before they can be imported into the UK
  2. Wider questions of differences in animal welfare and environmental practices permitted in Australia and the UK.

On the former, it highlighted the Government’s conclusion that the FTA did not require changes to the UK’s import rules or statutory protections concerning human, animal or plant life or health, animal welfare or the environment. Regarding the latter, it highlighted concerns around Australian products being produced to lower animal welfare and environmental standards than what UK producers (farmers) must adhere to. It also noted that the Government has refused calls for Australian access to the UK to be contingent on adhering to “core standards” as advocated by the National Food Strategy.

Whilst it is unsurprising that the Government has taken this approach, it will add to concerns in British farming that its competitive position will be undermined as future FTAs are negotiated and agreed.

The House of Commons Library report is available via: https://researchbriefings.files.parliament.uk/documents/CBP-9484/CBP-9484.pdf

EU-NZ FTA Announcement

On 30th June, it was announced that the EU and New Zealand concluded negotiations for a trade agreement. In announcing the deal, the EU Commission projected that bilateral trade could grow by up to 30% and also emphasised what it claims were unprecedented sustainability commitments to align with the Paris Climate Agreement. From an agri-food perspective, the Commission also highlighted that key EU sensitivities around agri-food products were also safeguarded. Key provisions of the announced trade deal include;

  • EU agri-food exports to NZ: all tariffs would be removed from entry into force. This is unsurprising as most tariff lines for agri-food imports into NZ are already at 0% or at very low levels. Given the geographic distances involved, the benefits of this are likely to be limited to high-end niche food products, including chocolate, confectionary, ice-cream and wine.
  • EU beef imports from NZ: the EU will permit a tariff rate quota (TRQ) of 10,000 tonnes (t) with a reduced duty of 7.5%. This will be phased in over 7 years and will have to adhere to EU standards. This level of access is substantially lower than what the UK has permitted (12,000 t in Year 1, rising to unlimited  access from Year 16).
  • EU sheepmeat imports: an additional TRQ of 38,000 t will be permitted to be imported duty-free, again phased in after 7 years upon entry into force. As the old WTO TRQ was split evenly between the EU27 and UK as a result of Brexit (i.e. 114,000 t each), it is more likely that this new TRQ will be activated, given the EU’s market size and population (circa 450 million). But again, the level of access is lower than that ceded by the UK to NZ (35,000 t in Year 1 rising to unlimited access from Year 16).
  • EU dairy imports: the following provisions apply;
    • Milk powder: a new 15,000 t TRQ with a 20% duty will be phased in over 7 years.
    • Butter: NZ has currently access to the TRQ of 47,177 t allocated under the EU’s WTO schedule with the in-quota tariff of 38% of the MFN duty. Under the FTA, 21,000 t of this TRQ will have the tariff gradually reduced to 5%. The EU will also provide a new 15,000 t TRQ with the same gradually reduced tariff duty (i.e. from 38% to 5%).
    • Cheese: the EU will allow 25,000 t to be imported duty-free via a new TRQ. This will again be phased in over 7 years. In addition, for 6,031 t of cheese TRQ that NZ currently has under the EU’s WTO schedule, the tariffs will gradually be reduced from €176/t to zero.
    • High-protein whey: a new TRQ of 3,500 t with zero duty to be phased in over 7 years.

As with beef and sheepmeat, the concessions offered by the EU are generally less than what the UK has offered (more generous TRQs for butter and cheese with full liberalisation after 5 years).

More information on the EU-NZ FTA is available via: https://ec.europa.eu/commission/presscorner/detail/en/IP_22_4158

Overall, it is evident that despite agreeing this FTA, the EU will continue to offer a higher level of protection to its farmers than the UK has done with its FTA with New Zealand. That said, it must be emphasised that, like Australia, NZ continues to be heavily focused on the Asian markets, where it is getting strong prices for its produce. Just because increased access is available to the UK or EU markets, this does not necessarily mean that this access will be availed of. 

Review of ELM Roll-Out

The Environment, Food, and Rural Affairs (EFRA) Committee has launched a probe into the Governments roll-out of the Environmental Land Management Scheme (ELMS). The cross party committee will be looking at a number of key questions including whether the Government needs to change the focus of ELMS given the current pressures on farmers and UK food security.

The EFRA Committee published the terms of reference for the review on 18th July 2022, outlining six key questions.

  1. What progress has the ELMS programme made since January 2022 (when the government responded to the first committee report on ELMS)?
  2. What have farmers’ experiences been of applying to the SFI since its launch on 30 June 2022? How effectively has the scheme used the feedback from the SFI pilot? What are the timescales for launching additional standards under the SFI?
  3. Is the government on track to get 70% of farmers, covering at least 70% of farmland, to take up SFI agreements? How have recent changes in global food prices impacted on the attractiveness of the financial incentives in the schemes?
  4. Is ELMS on track to start piloting the Local Nature Recovery and Landscape Recovery schemes in 2022?
  5. How effectively is the Government communicating and engaging with farmers and other landowner groups about the progress of ELMS?
  6. Should the Government change the focus on the ELMS scheme and/or the timescales for implementation given the current pressures on farmers and UK food security?

Defra is welcoming submissions of evidence into the review at https://committees.parliament.uk/call-for-evidence/2698

The Deadline for responses is 21st August 2022.

BPS England

The RPA has started to make BPS advance payments to farmers in England as of 19th July.  The agency expects the majority of farmers to receive their advance payments by the end of the month.  Although, for a small number of claims which require additional checks, the process will unfortunately take longer.  These are usually those in probate, subject to inspections or large ‘complicated’ claims.  The RPA has said it will be in touch with those affected.

Advance payments will be 50% of the estimated full payment.  The proportionate amount of the % deductions under the Agricultural Transition will be applied to both the advance and balance payments.  Those who have applied for the Lump Sum Exit Scheme and claimed the BPS in 2022 will also receive an advance payment.  Balance payments are expected to commence at the usual time in December.  Although the twice-yearly payment structure has been brought in this year to help with cashflow issues, the RPA has confirmed this will be a permanent change to BPS payments in England.

Organic Conversion Scheme: Wales

The Organic Conversion Scheme (OCS) opened in Wales for Expressions of Interest (EoI) on 18th July and will close on 26th August 2022.  This is another grant which will be available over the next three years to assist Welsh farmers during the transition to the new Sustainable Farming Scheme (see https://abcbooks.co.uk/welsh-schemes-open/).  The Organic Conversion Scheme is a 5-year contract, which will provide support for conversion of eligible land to organic production and towards the cost of certification in the first two years of the contract only. As a condition of these payments, claimants must maintain continuous organic certification for the remaining three years of the contract, once full conversion has been achieved after the first two years. 

Application is via farmers’ RPW online accounts.  The scheme is competitive and Expressions of Interest (EoIs) delivering the most positive environmental land management practices that contribute to the overarching aims of the scheme will score more highly.  These include:

  • Reducing Carbon and Green House Gas emissions
  • Building greater resilience into farm businesses by adapting to climate change
  • Managing water resources to improve water quality and reduce flood risks
  • Contributing to economic sustainability of farms and the rural community
  • Protecting and improving the natural landscape and the historic environment
  • Developing and improving Wales’ native biodiversity

Geographical Information System (GIS) (digital maps) layers will inform where specific objectives of the OCS can best be delivered.

Payments

Payment rates will be based on the land use as submitted on the SAF 2022. Although contracts are for 5 years, payments will only be made during the first two years to support the conversion to organic production.  The table below summarises the rates for the different land use;

All of an applicant’s eligible land, that they have management control over and is not already registered as organic, must be included in the EOI.  Although there is no upper limit to the area of land that can be submitted, payments will be capped as follows:

0 to 200 ha   –  100% of payment rate

200 to 400 ha  –  50% of payment rate

400 ha +  –  10% of payment rate

If the holding has different land uses, the highest paying rate will be considered first.

If an EoI is offered, it must be accepted within 30 days and the agreement will commence on 1st January 2023.  The full guidance can be found at https://gov.wales/organic-conversion-scheme-guidance-html  Previously support for organic conversion in Wales was via Glastir Organic but this has been closed to new applications since 2016.

 

 

 

 

 

 

 

 

 

 

Future Farming Resilience Fund

Defra has announced the next phase of the Future Farming Resilience Fund (FFRF) will commence in October 2022.  Through the FFRF, BPS claimants in England can receive free business advice during the early years of the Agricultural Transition.  Under this latest, and final round, 17 organisations will receive a total of £32m to support up to 32,000 farmers.  The various providers will offer different kinds of support and across different agricultural sectors.  Some will offer one-to-one farm visits with recommendations included in a written report, whilst others will provide workshops, webinars, tours or networking opportunities.  Farm businesses can choose who they would like to receive their advice from.  The current ‘interim phase’ of support closes in August; 6,600 farmers have so far accessed this free advice.  The next ‘scaled-up’ phase will run until March 2025, when the scheme will end.  Once again, Andersons’ consultants will be delivering one-to-one farm advice in partnership in association with Ricardo-AEA Ltd.  See https://defrafarming.blog.gov.uk/2022/07/14/free-business-advice-next-phase-to-start-in-october/ for a full list of providers.  

 

Grants for Nutrient Management: Wales

The Nutrient Management Investment Scheme is now open in Wales and will close on 12th August 2022.  This is one of a number of grants which will be available over the next three years to assist Welsh farmers during the transition to the new Sustainable Farming Scheme (see https://abcbooks.co.uk/welsh-schemes-open/).  The Nutrient Management Investment Scheme supports infrastructure and capital investments in equipment and machinery that addresses the impact of on-farm pollution; offering clear and quantifiable benefits to farm businesses and the wider environment.

Grants, of up to 40%, will be available to purchase items which enhance on-farm nutrient management, protect and enhance water, soil and air quality, improve on-farm resource efficiencies, technical performance, and the use of technology to improve management decisions.  There is a list of eligible items which can be found via https://gov.wales/nutrient-management-investment-scheme-list-eligible-capital-items.  The investment must meet or exceed the minimum specification described.  Second-hand equipment is eligible where the applicant can demonstrate it complies with current health and safety legislation, is fit for purpose, and as at least five-years life expectancy remaining.  One application per window will be allowed, with a maximum grant worth £50,000 and a minimum of £12,000.  All items must be purchased and claimed by March 2025.

 

Agriculture in the UK

The annual compendium of farming statistics, ‘Agriculture in the UK’ has been published by Defra.  The document covers all of the UK, and is the most comprehensive and authorative set of data on the farming and food sector.  The latest edition covers up to the 2021 year and can be found at – https://www.gov.uk/government/statistics/agriculture-in-the-united-kingdom-2021?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=f6e7b3df-3b7e-4811-b127-6503ec1adbf9&utm_content=daily

Defra Ministers

Defra has seen relatively few change in its Ministers, despite all the political turmoil in Westminster.  In the wave of Ministerial resignations that led to Boris Johnson’s exit, only the junior Ministers Rebecca Pow and Jo Churchill quit their Defra posts.  The Johnson loyalist, George Eustice, remains as Secretary of State and Victoria Prentis continues with the farming portfolio.  Rebecca Pow has been replaced by Steve Double, MP for St Austell and Newquay.  It does not appear that Jo Churchill’s position has been filled.  Of course, once the Conservative leadership election has taken place, and a new Prime Minister installed, they are likely to want to appoint their own team.  There is then likely to be a further change in the Defra Ministerial team.  It would be surprising if this led to a change in policy direction though – the key elements of the Agricultural Transition in England look set to continue.      

Climate Change Report

At the end of last month, the Committee on Climate Change (CCC) presented its latest Progress Report to Parliament.  The overall summary would be ‘must-try harder’.  The report states that, although there is a clear policy ambition, a strategy and measures to actually deliver the goals in the timeframe outlined is lacking.  In terms of farming, the CCC describes progress in cutting GHG as ‘glacial’.  The Committee goes on to add that ‘agriculture and land use have the weakest policies, despite being vital to delivering net zero and the Government’s other goals on food security and biodiversity’.   The full report can be found at – https://www.theccc.org.uk/publication/2022-progress-report-to-parliament/#key-messages

Exchange Rates

A decline in the value of Sterling, especially against the Dollar, has gone somewhat un-noticed over the past few months.  This is partly as the Dollar has always enjoyed ‘safe haven’ status which means its value tends to rise in times of political and economic uncertainty.  The Pound has come under particular pressure as traders believe the UK economy will be more affected by inflation and cost-of-living pressures than others.  The fevered political situation in Westminster has not helped but the Pound has strengthened slightly since Boris Johnson announced his resignation.

As we have pointed out before, a weak Sterling is generally good for most parts of UK agriculture.  It makes our exports more competitive on world markets, and makes imported food more expensive here (although this is not so good for consumers and a further source of inflation).