Category: Policy & Business

The Lump Sum Exit Scheme is now open for applications.  Our article of 8th February provides background detail on the scheme see https://abcbooks.co.uk/lump-sum-payments/.  The Scheme is open until 30th September 2022 and is not expected to open for applications in future years.  It allows English farmers to take their future BPS payments through to 2027 in a single Lump Sum.  In return, farmers will have to transfer out (rent, sell or surrender their tenancy) the agricultural land that was at their disposal on 17th May 2021.  Up to 5 hectares of agricultural land can be retained, also any non-agricultural land and buildings including the farmhouse.

The payment will be based on the average BPS payment received by the business for the three years 2019-2021 (the reference period).  This will be capped at £42,500 and multiplied by 2.35, meaning the maximum payment will be just under £100,000.  The full scheme guidance and application forms can be found via  https://www.gov.uk/government/collections/lump-sum-exit-scheme

Defra has also said ‘the Scheme will free up land for new entrants to farming’ and it will be ‘saying more’ about a New Entrants scheme shortly.  We have previously stated that any new Entrants Scheme would be ‘programme’ based i.e. matching hubs, rather than actual financial support.  We wait to see whether this is correct and will inform readers as soon as information is available.

The Welsh Government has announced it is making £227m of funding available over the next three years (2022-2024) to support Wales’ rural economy.  This funding is in response to the ending of the EU Rural Development Programme (RDP), which will completely close in 2023; it will ensure continued support for the areas previously funded under the RDP.  The funds will be delivered through a flexible framework across the following themes:

• Farm-scale land management – providing support for on-farm sustainable land management actions.
• On farm environmental improvements – including a focus on nutrient management, enhancing fuel and feed efficiency, embedding circular economy approaches and encouraging the use of renewable energy.
• On farm efficiency and diversification – including supporting farm efficiencies through investment in new technology and equipment and to enable opportunities for agricultural diversification.
• Landscape scale land management – delivering nature based solutions at a landscape scale, through a multi-sectoral collaborative approach.
• Woodland and forestry – supporting the commitment of 43,000 hectares of woodland creation by 2030 and supporting the creation of a timber based industrial strategy.
• Food and farming supply chains – creating a strong and vibrant Welsh food and drink industry with a global reputation for excellence with one of the most environmentally and socially responsible supply chains in the world.

Scheme details are still being drawn-up, but for 2022 £100m is being made available for the following;

 

Rents

The latest agricultural rents data shows quite a mixed picture.  Some sectors have experienced a rise in ‘full’ Agricultural Holdings Act (AHA) rents whilst at the same time seeing a fall in FBT rents; for other sectors it is vice versa.  The table below shows a summary of the last three years.  Defra’s Farm Rents publication uses data from the Farm Business Survey.  Due to the time taken to collect the data, it is somewhat historic.  The figures just published are for the 2020/21 year, March to February, (shown as ‘2020’ in the table below).  The full statistical notice can be found at https://www.gov.uk/government/statistics/farm-rents.

The overall average annual rent for AHA tenancies in 2020 has risen by 5% compared with 2019.  Average Farm Business Tenancy (FBTs) rents, after an annual decline in 2019, have also risen, up by 8% to £239 per Ha.  Cereals farms on AHA Tenancies recorded a 10% rent increase, whilst FBT rents declined marginally.  Although only a small decrease this year, it can be seen this is the second year in a row that Cereal FBT rents have fallen.  However, they still remain 16% higher than AHA rents.  The only other farm type to experience a rise in AHA rents in 2020 compared to 2019 is Lowland Cattle & Sheep, again after a drop in 2019.  However, Lowland cattle and sheep farms have also seen a significant (30%) increase in FBT rents after a large decline in 2019, perhaps reflecting better conditions in the livestock sector.  Dairy farm rents show  a decline in AHA rents but continue to see steady increases in FBT rents, perhaps a reflection of progressive farms keen to expand in the sector.

As written previously, data on rents can fluctuate annually and one year’s information should not really be taken in isolation.  In general, rents have been on an upward trend, but looking to the future it would be expected that, as the BPS is phased-out, then overall rents will fall.  

Land Values

Also a little historic is the RICS/RAU Farmland Market Directory of Land Sales.  As previously reported, the RICS/RAU Farmland Market Survey has been discontinued.  However the Farmland Market Directory of Land Sales provides a Weighted Average – comparable with the figures in the previous Farmland Market Survey.  The Weighted Average Value excludes those sales which have been identified as having a residential value of more than 50% and a regional adjustment is also made.  The most recent values are for the first half of 2021.  This shows the Weighted Average value per hectare was £27,191 per hectare (£11,004 per acre).  This compares with £25,674 per hectare (£10,390 per acre) for the full year 2020.  The table below shows the last six surveys.

As can be seen land values have remained robust even through the uncertainties of Brexit and Covid.  Demand remains strong, with rollover money and lifestyle buyers helping to drive the market.

Defra has released further information on the Sustainable Farming Incentive (SFI) for 2022.  It is now expected to open for applications in June and then remain open with no closing date.  This is to allow those interested to apply at a time to suit.  However, Defra has stated that, if it is necessary to close applications, it will give six weeks notice.  The information is included in a ‘collection’ of webpages which can be found at https://www.gov.uk/government/collections/sustainable-farming-incentive-guidance.  Below is a summary of the key points:

• Agreements will be for three years.  Initially it will only be open those businesses which are eligible for the BPS – the business (SBI) must have at least 5 Ha of eligible land and 5 or more BPS entitlements on 16th May 2022 – but there is no requirement to have made a claim.
• The applicant must have ‘management’ control of the land for three years e.g. own the land or a tenancy
• Payment will be made quarterly in arrears i.e. the first payment will be made three months after the agreement commences
• The Standards will not include funding for capital items in 2022.  But it is possible to apply for existing funding for capital items for parcels included in an agreement, such as Countryside Stewardship capital grants
• In the future, SFI will include capital items funding to help complete the actions in the standards
• Applications will be online via the Rural Payments Service.  Prospective applicants are encouraged to ensure their digital maps are up-to-date, including land cover (certain land covers will be eligible for each standard) and available area.  With the application window opening after BPS, in most cases these should already have been checked
• Certain changes can be requested to an agreement.  It will be possible to upgrade an agreement annually to:
  • add more Standards as they become available
  • add more land, including land coming out of Countryside Stewardship
  • increase Levels within Standards already in an SFI agreement
  • it will not be possible to reduce the Levels or land area, except under very limited and specific circumstances
  • it will not usually be possible to transfer an SFI agreement to another person
• You do not need to have an SFI Standards agreement to be eligible to apply for the SFI Annual Health and Welfare Review.

Below is a summary of payments.  The Moorland Standard payment has been increased, fairly significantly, since the previous announcements.  Those with common land entered into an SFI agreement will receive an additional £6.15 per Ha.  Payments for the other standards, remain the same:

In response to rocketing prices of fertiliser, Defra has announced a number of steps to help farmers with their nutrient management.

Urea

The planned ban on the use of urea fertiliser has been scrapped.  Instead, an industry-run voluntary scheme will aim to reduce the ammonia emissions from solid urea fertiliser, commencing in 2023.  This will be delivered through the Red Tractor farm assurance scheme and FACTS advisers.  This is an alternative approach to the Options included in the Defra Consultation (see our article https://abcbooks.co.uk/ban-on-urea-fertiliser/) and will mean scheme members can:

Farming Rules for Water

Defra has released ‘revised and improved’ statutory guidance on applying the Farming Rules for Water.  The de facto ban on autumn manure spreading, based on how the rules were being enforced, has been removed.  However, farmers will need to demonstrate that what they are doing does not pose a risk of diffuse pollution – and the guidance is somewhat complex.

The Farming Rules for Water (formally the Reduction and Prevention of Agricultural Diffuse Pollution (England) Regulations 2018) have not been amended.  Instead, the new guidance tells the Environment Agency about criteria that they should consider when assessing if enforcement action should be taken under the regulations.  It also provides some clarity for farmers as to how to manage the use of slurry and other manures during autumn and winter including;

• the planning of applications,
• assessing the crop and soil needs,
• assessment of significant risk of agricultural pollution
• spreading time periods

The new guidance can be found at https://www.gov.uk/government/publications/applying-the-farming-rules-for-water/applying-the-farming-rules-for-water.

Slurry Storage

The final Defra announcement on the issue of nutrients was a confirmation that grants for slurry stores will be available in England.  As we wrote in the February Bulletin, this will come under the Farming Investment Fund.  The announcement didn’t provide much further detail (this is expected over the next few months).  However, from what we have learned, the following rules are likely to apply for Slurry Infrastructure Grants;

• grant funding will be at 50% rates with grants from £25K to £250K (thus project sizes of £50K to £0.5m)
• initially they will only apply to dairy, beef and pig farms already on a slurry-based system – i.e. those operating a FYM system will not be eligible to get grants to ‘convert’ to slurry
• grants will fund projects that create up to 6 month’s storage.  If additional capacity beyond 6 months is constructed, this element will not be grant-funded
• the scheme will fund replacement, reconstruction and additions to storage.  However, once the work is completed all slurry storage on the farm must be compliant with the Silage, Slurry and Agricultural Fuel Oil (SSAFO) regulations.  Effectively, pre-1991 ‘grandfather’ rights on old stores will be removed for those applying for grants
• stores will need to be covered.  Grants may be available for covering existing stores, but this could depend on the type/quality of existing storage
• all types of storage will potentially be eligible including earth-bank, lined lagoons (as long as they can be covered)
• a manure management plan (to work out volumes of slurry) will be required – potentially signed-off by the Environment Agency.  There will also need to be a Nutrient Management Plan to show how the stored slurry will be used
• the grant will be competitive, with a scoring system used.  Farms in certain locations (priority catchments, close to protected sites etc.) will be favoured.

These are subject to change before the final scheme is launched.  However, farmers (and their advisors) may wish to start preparing ahead of this by doing such things as applying for planning permission, securing quotes for work and discussing funding.  

The rise in input prices had already been considerable coming into February.  Between January 2021 and January 2022 the price of UK produced ammonium nitrate was up 145%, urea up 156%, and glyphosate up 307%.  Those price rises reflected a wider direction of inflation in agricultural inputs.

However, following Russia’s invasion of Ukraine, input prices have spiraled upwards further.  The value of ammonium nitrate has exceed £900 per tonne, up from £645 per tonne in January.  The value of tractor fuel has also risen substantially.  In 2021, the price of red diesel average 65.64 pence per litre according to AHDB.  Whilst price discovery for inputs is challenging at the moment, with terms changing frequently, red diesel prices have been quoted by some publications in excess of 130 pence per litre.

The importance of Russia in energy markets, especially natural gas and crude oil, will pose significant challenges for the industries relying on these commodities.  Natural gas is a key input into ammonium nitrate production and fertiliser prices will likely remain elevated as a result.

The high cost of inputs will challenge many businesses over the next 12 months and beyond.  The working capital of farms will be under significant pressure.  While the cost of outputs has risen the level of cash required to operate has also increased rapidly.

The Chancellor, Rishi Sunak, used the Spring Statement on the 23rd March to announce a number of policies designed to mitigate the cost of living crisis.  The Statement came a day after the latest inflation figures were announced.  These showed year-on-year inflation in February (CPI measure) had risen to 6.8%.

Despite much speculation, the 1.25% increases in National Insurance (NI), known as the Health and Social Care Levy, will still be introduced in April as planned.  Instead, the threshold at which NI becomes payable by employees will be raised from the current £9,500 p.a. to £12,570 – the same as Income Tax.  This change will not happen until July however, as it is stated that payroll systems will need to be adjusted.  From April to June the threshold will be the previously announced £9,880.  In addition, the Employers’ Allowance for NI will be increased from £4,000 to £5,000.

In a crowd pleasing measure, the rate of fuel duty has been reduced by 5p per litre.  There was also £500m promised to Local Authorities to help vulnerable families.

In a nod to the energy crisis, and the need to wean the economy off (Russian) fossil fuels, there was a boost for renewables.  Home energy-saving equipment such as solar panels and heat pumps already have a reduced rate of 5%, but this will be cut to zero.

Finally, the Chancellor committed to cutting the basis rate of Income tax to 19% from the present 20% by the end of the current Parliament (2024).

The 5th Woodland Carbon Guarantee auction will take place from midday on Monday 9th May to midday on Sunday 15th May 2022.  Applications to take part in the next auction can be submitted now and need to be made by midnight on Sunday 24th April.  Woodland creation projects accepted into the Woodland Carbon Guarantee scheme have the option to sell WCUs to the government every 5 or 10 years up to 2055/56. The government will buy the WCUs for an agreed guaranteed price that is index-linked for the life of the contract. However, you can still choose to sell the carbon credits on the open market at any time.  In order to apply, applicants must first register their project with the Woodland Carbon Code (WCC).  The WCC verifies and records the amount of carbon a project will capture and have available to sell in the future.  More information on the Woodland Carbon Guarantee scheme can be found at https://www.gov.uk/guidance/woodland-carbon-guarantee#full-publication-update-history

Defra has launched a Green Paper and associated consultation on the mechanisms to drive nature recovery in England.  It covers a number of areas.  Firstly, the system of designations around nature (such as SSSIs) and whether this can be simplified and improved.  Secondly, how the ’30 by 30’ commitment to protect 30% of the areas of England by 2030 is to be delivered.  Thirdly, the improvement of wildlife legislation and, lastly, the roles and responsibilities of the various Defra Agencies that are responsible for nature.  The consultation can be found at – https://consult.defra.gov.uk/nature-recovery-green-paper/nature-recovery-green-paper/ and runs to 11th May.

 

The Bank of England increased the Base Rate by a further 0.25% on the 17th March.  This takes the cost of borrowing from 0.5% to 0.75%.  This is a response to increasing inflation.  The Bank is tasked with keeping inflation at 2% but, according the the Bank’s own forecast, increases in prices will hit 8% this spring.  The rise in interest rates is meant to bring inflation back towards the target over the medium term.  Many forecasters believe that there will be two further 0.25% rises before the end of 2022, taking rates to 1.25%.  It is not only UK monetary policy that is having to react to rising inflation.  This month also saw the US Treasury raise its interest rates for the first time since 2018, from 0.25% to 0.5%.