Category: Policy & Business

Farming Innovation Programme

A new round of the Farming Innovation Programme is now open.  Farmers and foresters can apply for funding towards innovative methods and technology to solve major problems within the industry.  Defra will work with UK Research and Innovation (UKRI) to invest up to £1m in feasibility studies and projects.  Applications are competitive and there is a two-stage process.  EOI to the first stage must be submitted by 6th July, with the second stage opening in August for those that have been successful.  Project costs are not required at the EOI stage, but to give applicants an idea of scale, total project costs at the full stage must be between £28,000 and £56,000.  Proposals must be able to show how the project will benefit farmers, growers or foresters in England.  Further information can be found via https://apply-for-innovation-funding.service.gov.uk/competition/1158/overview#scope

 

Welsh Schemes Open

A number of grants 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/new-welsh-schemes/).  These are now starting to become available; the ‘Small Grants – Efficiency’ and ‘Small Grants – Environment’ opened for applications on the 18th and 23rd May and will close on the 29th June and 1st July respectively.

Small Grants – Efficiency

Small Grants – Efficiency is a capital scheme designed to help Welsh farmers to improve the technical, financial and environmental performance of their farm businesses.  It supports capital investments in equipment and technology and, as in previous schemes, there is a pre-defined list of items available.  Each item has a full specification together with the standard value and the grant value.  The full list of capital items can be found via https://gov.wales/small-grant-efficiency-list-eligible-capital-items-html.  The maximum grant is £12,000 and the minimum is £1,000.  The grant provides a 40% contribution against the actual invoiced costs up to the maximum stated in the scheme rules.  Applications and claims are all online.  The scheme is competitive and applications are scored, each item has a weighting.  If successful, contracts must be accepted within 30 days and all items must be purchased and claimed for within 180 days.  Further scheme details can be found at https://gov.wales/small-grants-efficiency

Small Grants – Environment

The Small Grants – Environment, is a standalone scheme providing a maximum of £7,500 funding per window for Capital Works Projects.  Set lists of Capital Works are available to support the delivery of beneficial environmental outcomes under the following three themes:

  • carbon
  • water
  • landscape and pollinators.

This round of Small Grants – Environment will address the theme of Water.  A programme of capital works is available to help Welsh farmers to carry out projects to help improve water quality and reduce the risk of flooding.  The Capital Works items will be identified as ‘Main’ and ‘Supportive’ Work(s), which, together, form a ‘Project’.  The payment rates for the items can be found via https://gov.wales/small-grants-environment-water-payment-rates-html.  The scheme is competitive and each Expression of Interest will be scored.  Every land parcel in Wales has been assigned a score for each available activity, these can be viewed via applicant’s RPW online accounts.  The highest scoring capital works projects will be selected.  Further scheme details can be found at https://gov.wales/small-grants-environment

Timetable

Other funding is becoming available, the table below shows the application windows for each scheme;

 

 

‘Super’ National Nature Reserve

A new ‘super’ National Nature Reserve (NNR) has been designated.  The Somerset Wetlands NNR will protect 6,140 hectares of saltmarsh, heath and wetland habitats.  The site brings together six nature reserves and other land managed for its nature in the Somerset Levels, Coast and Moors and will join England’s developing Nature Recovery Network.  The new ‘super’ NNR comes 70 years after the first designation of a National Nature Reserve.  The creation is part of the Government’s commitment under the Environment Act to halt the decline of habitats and species.

Organic Farming

Defra Statistics

The area of UK land managed according to organic principles grew again in 2021.  Latest figures released on 12th May from Defra put the organic land area (both fully organic and in-conversion) at 507,000 hectares.  This is a rise of 3.6% compared to 2020.  The organic area peaked in 2008 at over 700,000 hectares, but has seen a steady decline until 2018, after which, it started to increase again.  The growth in 2021 has mainly been driven by a 34% rise in the area of in-conversion land.

Organic land now represents 2.9% of the total farmed area on agricultural holdings in the UK.  Grassland makes up, by far, the largest organic area, with permanent pasture taking 61% of the share and temporary grassland 20%.  Cereals are the next highest at 9.2%, increasing by 9% compared with 2020.

In the meat sector, the numbers of cattle and sheep farmed organically fell in 2021 compared to 2020.  Organically reared sheep experienced a 1% decline, to 723,600 head; organic sheep account for 2.2% of the UK flock.  Cattle numbers fell by 2.7% to 295,600 head, making up 3.1% of the total UK herd.  Both organically produced pig and poultry numbers experienced a year-on-year increase of 17.8% and 6.2 % respectively.  At 32,100, organic pig numbers make-up just 0.6% of the total UK pig herd.  Organic poultry numbers now stand at 4.02 million head make up 2.1% of the UK’s flock.

The full details can be found at https://www.gov.uk/government/statistics/organic-farming-statistics-2021

UK Organic Market

The 2022 Organic Market Report by the Soil Association shows the UK organic market grew by 5.2% to over £3 billion in 2021.  The Report summarises the trends in the 2021 organic market in the UK.  Since 2019, the market has seen a 23% growth. spread across food & drink, beauty & well-being and textiles.  Local and online shopping including box schemes, have been big drivers of growth over the last two years.  According to the Report, online and boxed schemes have seen sales increase by 13% to £558m compared with 2020 and by 54% when compared with 2019.  Supermarkets make-up 64% of the organic food market, increasing by 2.4% in 2021.  The food service sector, despite a challenging environment, also experienced a 3.3% year-on-year increase.  The Report shows that shoppers are now spending nearly £60m every week on organic food and drink.

Northern Ireland Protocol Wrangling

On 17 May, the Foreign Secretary, Liz Truss, made a statement in the House of Commons on the Government’s intention to introduce legislation to make changes to the Northern Ireland (NI) Protocol.  During her statement, the Foreign Secretary stated that her preference remains a negotiated solution with the EU.  To this end, she invited European Commission Vice-President Maroš Šefčovič to a meeting of the Withdrawal Agreement Joint Committee.  However, she also said that various aspects of the Protocol are not working.  She stated that the new Bill would address these issues whilst claiming it would also uphold the provisions of the Good Friday Agreement and be consistent with international law – points that the EU, in particular, disagrees with.

The new Bill, due to come before Parliament in the coming weeks would focus on addressing issues around;

  • The movement of goods: particularly relevant to agri-food, where the Protocol is not yet fully functional in some areas as a result of the grace periods already put in place by the UK Government for products such as sausages and mince
  • Goods regulation: also of relevance to agri-food, and concerns NI having to follow EU rules for goods which has precedence in NI over rules that the UK might introduce in the future (which could diverge from the EU)
  • VAT: NI remains within the EU’s regulatory orbit for VAT on goods
  • Subsidy control: the EU’s State Aid rules are applicable to NI and, in some instances, British based companies that do business in NI.
  • Governance: this links with the oversight that the European Court of Justice has over the NI Protocol.

The Foreign Secretary stated that the Bill would include a Trusted Trader scheme, effectively a ‘green channel’ for goods imported from GB and staying in Northern Ireland.  It would also encompass the provision of real-time data to the EU with the intent of giving them confidence that goods intended for NI do not enter the EU Single Market, via the Republic of Ireland.

A dual regulatory regime is also suggested so that NI could follow UK rules for goods that would stay in Northern Ireland.  Effectively, businesses would choose between producing goods to UK or to EU standards in Northern Ireland.  Liz Truss also stated that robust penalties would be imposed for those seeking to abuse the proposed new system and promised further detail in the coming weeks.

Unilaterally disapplying key parts of the NI Protocol via UK legislation has the potential to place the whole post-Brexit trading arrangements between the UK and the EU in jeopardy.  Whilst the EU has been somewhat muted in its response, Maroš Šefčovič clearly stated that the EU would respond ‘with all measures at its disposal’ should the UK follow through and enact legislation to override the NI Protocol.  However, we remain several steps away from retaliatory action being taken.

If a Bill is brought before Parliament in the coming weeks, it needs to go through Parliamentary approval process.  Most believe that the House of Lords would almost certainly vote against the Bill.  This would mean a delay by one year to the Bill’s enactment.  Some suggest that 20th June 2023 to be a potential key date, if the Bill gets to the final House of Lords vote by 20th June this year.

This gives some time for the UK and the EU to reach a negotiated solution. For agri-food businesses, it is unlikely that much will change in the interim.

There is a delicate balancing act required between the UK seeking to rewrite large chunks of the Protocol on the one hand and the EU Commission not having the mandate from EU Member States to renegotiate the Protocol on the other.  That said, there is the scope for all parties to improve the Protocol and this must be the focus.

As we have stated in the past, a veterinary agreement between the UK and the EU would go a long way towards addressing the most problematic Protocol issues around the movement of agri-food goods between Britain and NI.  This could be along the lines of the veterinary agreements that New Zealand has with the UK and the EU.  This would still give the UK the ability to negotiate free trade deals with third countries.  It would mean that some checks would remain, but at greatly reduced levels (e.g., 1% physical checks versus the default 15% for red meat).  The DUP NI Agriculture Minister, Edwin Poots, has suggested a similar concept in the past. 

It is most likely that a way will, eventually, be found to muddle through the current issues as this is what has occurred with the Brexit process to date.  We are probably into the territory of having Protocol 2.0, 3.0 etc. in the coming years.  This will most likely align, to some degree, with the vote that the NI Assembly will have on the Protocol every 4 years.  In some ways, this would be akin to new versions of MS Windows that Microsoft brings to the market periodically – each new version is fundamentally the same operating system (Protocol) but with scope for improvements, even if certain aspects remain imperfect to some. 

Further detail on the Foreign Secretary’s Statement to the House of Commons is available via: https://www.gov.uk/government/speeches/northern-ireland-protocol-foreign-secretarys-statement-17-may-2022

Inflation

The headline rate of inflation jumped to 9% in April.  The Consumer Prices Index (CPI) recorded its highest level of increase since the early 1980’s in the 12 months to April 2022.  According to the Office of National Statistics, almost three-quarters of the rise in the CPI index can be accounted for by increases in energy costs.   However, food costs are another major source of inflation.  The specific CPI Food index showed price growth of 6.7% in the 12 months to April.

This rise in ‘general’ inflation will be felt by farm businesses eventually as many of the ‘overhead’ costs such as labour, fees, office costs etc. are closely linked to the cost of living.  However, agriculture has its own set of specific costs – many being linked to commodity markets such as grains, oils and gas.  We have complied an ‘agflation’ index to represent this.  This 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 chart below show CPI along with our agflation index.  It can be seen that farm input prices are estimated to have increased by over 30% year-on-year in April.

Queens Speech

The Government has set out its legislative agenda for the next Parliamentary session in the Queen’s Speech (given this year by Prince Charles).  A number of proposed bills will have a potential impact on farming and rural areas.  The Genetic Technology (Precision Breeding) Bill (England) is designed to allow the commercialisation of plants and animals derived from gene editing.  Gene editing is selectively using the genes already present in an organism so is different from genetic modification.  The Government seems keen to ‘fast-track’ this legislation, with the Bill being introduced into Parliament on the 25th May.  It is hoped that it will become law by the end of the year.  The focus will initially be on allowing plant breeding with the aim of producing crops that are higher yielding, more resistant to pests and diseases, less affected by climate change and are better users of nutrients.

The Levelling Up and Regeneration Bill contains a grab-bag of policies designed to implement the Government’s ‘big idea’.  Whilst this includes some reform of the Planning system, the proposals are watered-down compared to those in the Planning White Paper of 2020.  There will be a Renters Reform Bill which will limit Landlords’ right to regain possession under ‘section 21’ notices.  With the number of surplus ‘farm cottages’ now rented out on the private market, this could have an impact on farm businesses.

The Animal Welfare Bill, which bans the live export of animals other than for breeding, will be re-introduced as it had not completed its legislative process during the last session.  One piece of legislation notable by its absence was a Food Bill.  This had been promised, in response to the Dimbleby Nation Food Strategy report.  Instead a White Paper on the food chain is to be published.  This has been delayed a number of times, but is now expected in June.  It may be a fairly ‘high-level’ document containing broad policy aims, rather than much detail on the implementation of a food policy.

 

Farm Profits Rise

Total Income from Farming

UK farm profits improved by 14% in real terms between 2020 and 2021 according to Defra.  The latest figures for Total Income from Farming (TIFF) were released on the 12th May and show that returns increased to £5,998m – the third highest in the last 20 years.   TIFF is the aggregate profit from all UK farming businesses for the calendar year.  It shows the return to all entrepreneurs for their management, labour and capital invested.  In simplistic terms, it is the profit of ‘UK Agriculture Plc’.

Output from both the arable and livestock sectors was higher during the year which offset a rise in costs.  Total crop output increased by 20%, whilst livestock sales were up 7%.  Costs increased by 12% compared to the 2020 year (and, of course, have gone up considerably more since).

This data is a ‘provisional estimate’.  There are often quite large revisions in the figures – both when the second estimate is published in December and when the final figures are produced in a year’s time.  For example, the first estimate of TIFF for 2020 was £4,119m.  This was then revised upwards to £5,121m in December before now being put at £5,242 (all figures in current prices).  We would not be surprised to see an upwards revision in the 2021 figures too – most sectors, with the exception of pigs and horticulture, had a pretty good year.   

The chart below shows the evolution (in real terms) of TIFF over the past 25 years.  Also included is the average £ / € exchange rate for the year, which is one of the key drivers of overall farm profitability.  Also shown on the chart is the contribution of direct support (BPS plus agri-environment scheme payments).  This continues to contribute a sizeable proportion of farm profits.

On the chart is an estimate of TIFF for the current, 2022, year.  A sizeable drop is forecast.  Despite output prices being generally high, increased costs will result in lower profitability.

The full Defra TIFF data can be found at – https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk

Balance Sheet

Alongside the TIFF figures, Defra also published an updated Balance Sheet for the industry.  This shows the Net Worth of farming at the end of 2021 as being £285.6bn.  This is a 1% increase on the 2020 figure and shows a rise of 9% (in real terms) over the decade from 2011.  The main driver of the increase in asset values is the land price.  After falling in the mid-2010’s, land has now shown an increase in value for the past four years

Glyphosate Availability Extension

Glyphosate is likely to remain available to British farmers until at least 2026 as a result of a decision by EU regulators.  The EU approval for the herbicide was due to expire on 15th December 2022.  However, due to the plethora of responses to public consultations, it has been decided to delay any decision on an extension until ‘mid 2023’.  A temporary approval will be granted by the EU whilst it considers the issues.

The UK Government had previously announced an automatic three-year extension for any active substance with an EU licence expiring between 1st January 2021 and 31st December 2023.  Even if glyphosate was banned in the EU from mid-2023 therefore, farmers here could continue to use it to at least mid-2026.  With a separate GB plant protection product (PPP) approvals process being introduced, it is possible glyphosate could remain in use in the Britain after that date, even if it were banned in the EU.  (This would likely cause some friction in trade terms, however).

The situation is different in Northern Ireland.  EU PPP legislation remains in place, under the terms of the Northern Ireland Protocol.

Business Models Handbook

A new guide to joint ventures in farming has been released.  Called ‘Business Models to Unlock Future Farming Potential’ it covers such arrangements as licences, tenancies, contract farming, share farming and cooperative arrangements.  It has been produced by the Agricultural Productivity Task Force (APTP).  Getting resources (notably land) in the right hands and encouraging farmers to work together is seen as a key way of improving the performance of the sector.  The guide can be found at – http://fdsc.org.uk/fdsc/documents/business-models-to-unlock-future-farming-potential-handbook.pdf.