Category: Policy & Business

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.

New Season Fertiliser Price

CF Fertilisers issued its new season price for nitrogen fertiliser this month.  The starting price for Nitram (34.5% ammonia nitrate) wass between £630-£640 per tonne on-farm.  This was for bulk bag delivery from May to July.  This initial tranche was quickly sold out.  Prices for September deliver are now around £710-£720 per tonne on farm.  The new-season nitrogen price had been a source of much speculation, given the huge increase in prices seen over the past few months.  This price came in at the lower end of expectations.  There is likely to be an element of the manufacturer trying to stimulate demand – its facility at Billingham has continued to produce nitrogen but UK sales have been muted.  Volumes have been exported and stored.  Gas prices have recently reduced from their previous highs.  The economics are likely to favour producing fertiliser during the summer months when gas prices are lower.  Unless there is a sudden shift in the political situation in Ukraine, then a quick fall in gas prices back to past levels looks unlikely next winter.  Those that ‘hang on’ to wait for cheaper fertiliser later may be disappointed.  Buying this early does generate its own working capital and storage issues however.  

 

 

Advance Payment of BPS

English farmers will get a 50% BPS advanced payment this year.  Defra has emailed all BPS applicants to inform them that they will receive an advanced payment from the end of July with the remaining balance when the usual payment window opens in December.  The Department also confirmed that this two-part payment structure will be a permanent change for the remaining years of the BPS.

The advanced payment will be half of the estimated value of a businesses’ BPS payment and will be made to those who have made eligible application by 16th May.  Unfortunately cases that are in probate will not receive advanced payment.  Payments are expected to be made from the end of July and throughout August.  Defra has said advanced payments are being made in recognition of the increased pressure on producers’ cash flows due to the spike in input costs. 

 

Base Rates

The Bank of England increased the Base Rate by a further 0.25% on the 5th of May.  This takes the cost of borrowing from 0.75% to 1%.  This is another attempt to respond to increasing inflation which is being exacerbated by the Russia-Ukraine conflict.  The Bank is tasked with keeping inflation at 2% but, according to the Bank’s own forecast, increases in prices would rise above 10% this year.  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 at least another 0.25% price rise before the end of 2022, taking rates to 1.25%.

Rural Economy

The rural economy is underperforming due to a lack of productivity – with rural areas being 18% less productive than the national average.  This finding comes in a report from the All-Party Parliamentary Group (APPG) on the Rural Economy and Rural Powerhouse, backed by the CLA.  It calls on the Government not to ignore rural areas in its policy making and thus waste the economic potential of these areas.  The report makes recommendations in six main areas;

  • Planning: too often the prevailing sense is that rural areas must be ‘preserved’ with a inherent bias against development that could improve economic activity
  • Tax: making the taxation system more aligned with the types of businesses seen in the countryside – i.e. smaller, family-run, more diversified etc.
  • Connectivity: improving rural broadband and telecoms and improving digital skills
  • Farming: addressing issues around labour shortages, trade deals and investment
  • Skills: ring-fencing funds for rural areas under the Shared-Prosperity Fund (SPF).  Making skills training relevant to rural areas
  • Processes: ensuring Government departments take account of rural issues in their policy-making

The full report can be found at – https://www.cla.org.uk/library/levelling-up-the-rural-economy-an-inquiry-into-rural-productivity/ .

Scottish Transition Schemes

Scottish farmers are now able to claim grants if they take part in carbon audits and soil testing on their farms.  The Preparing for Sustainable Farming (PSF) programme has opened, as part of the Scottish Government’s National Test Programme (NTP).  As we wrote in February, ‘Track 1’ of this will encourage farmers to start collecting information on their businesses.  This baseline data will then be used to measure future improvements.  There is a goal to have half of all funding for farming and crofting be subject to ‘conditionality’ by 2025.  Part of this conditionality will be making improvements in emissions and input use.

The Carbon Audit element will pay a fixed amount of £500 towards having an audit.  The calculator to be used is not specified, but it must be compliant with the PAS 2050 standard to be eligible for the grant.  Funding is only available for businesses that don’t already have a carbon audit, or if it is more than three years old.  To be eligible for the grant, the Carbon Audit must have been reviewed by, and had recommendations from, a Farm Business Adviser Accreditation Scheme for Scotland (FBAASS) adviser.  This will give pointers to how the farm can reduce its GHG emissions.

The Soil Sampling scheme covers only Region 1 land (land included on that year’s SAF form).  The soil analysis is to determine the current levels of pH, Phosphate (P), Potash (K), and Carbon in the soil.  If any of these are not included (e.g. carbon), then the testing will not be eligible.  Payments will be the actual cost of having the testing done (the invoiced cost), plus an allowance of £4 for gathering the sample.  However, there will be an annual ‘cap’ on payments; this will be the area of Region 1 land, divided by 5, multiplied by £30.  Small farms (and crofts) will have a minimum annual allowance of £300.  In the first year of the scheme there will also be a one-off payment of £250 as a ‘development’ payment.  Before a claim for the Soil Analysis and Development Payment is made, the farm must have a current Carbon Audit (i.e. less than three years old).

There is no requirement to register for the grants – it is a question of claiming the funding once the work has been done.  This is via a new online portal which will be accessed from the Preparing for Sustainable Farming (PSF) guidance page on Rural Payments and Services website.  The full scheme guidance can be found at – https://www.ruralpayments.org/topics/all-schemes/preparing-for-sustainable-farming–psf-/ .

Border Check Postponement

It has been confirmed that there has been a (further) postponement to the introduction of the remaining border controls for imports into the UK from the EU.  The Minister responsible, Jacob Rees-Mogg, issued a statement to the House of Commons on 28th April which set out the reasoning behind these delays and the UK Government’s plans for the future operation of its border controls.

Mr Rees-Mogg claimed that introducing additional controls from July would have replicated the controls that the EU applies to its global trade which would have meant ‘complex and costly’ checks which would have to be altered in the future when the UK implements its transformation programme (including greater digitisation) for the operation of its border controls with both the EU and non-EU countries.

This means that no further controls on EU goods (notably agri-food products) will be introduced in 2022.  Instead, the UK Government plans to publish a Target Operating Model in  the autumn that will set out its new regime of border import controls.  Thereafter, the new import controls regime would be introduced by the end of 2023.  In effect, the following controls will now not be introduced:

  • A requirement for Sanitary and Phytosanitary (SPS) checks on EU imports to be done at a Border Control Post (BCP) (currently done at destination)
  • A requirement for safety and security declarations on EU imports
  • A requirement for further health certification and SPS checks for EU imports
  • Prohibitions and restrictions on the import of chilled meats from the EU

As alluded to in previous articles, it is no surprise that there is a further delay to the implementation of border controls on imports from the EU as the required infrastructure, particularly IT systems, were simply not ready.  In light of this, business organisations have broadly welcomed the announcement.  However, some firms had already spent quite heavily on preparing for the introduction of more controls from July, and potentially, this money will effectively be wasted.  This latest announcement is also different to previous delays in that a more fundamental review of import controls on all UK trade (EU and non-EU) is taking place.  Certainly, there are areas where greater efficiency is possible, particularly around the use of e-certification processes, which is widely used by New Zealand.

Within the farming sector, several organisations have rightly highlighted the lack of a level playing-field – in that UK exports to the EU are subject to the full range of regulatory checks, whilst UK imports from the EU continue to need far fewer checks.  This has put UK Farming Plc at a significant disadvantage.  In this context, it would surely have been better for the UK Government to have reached a veterinary agreement with the EU, to drastically lower the levels of checks on both sides?  Such an agreement would not have stopped the UK from introducing a separate border control regime in the future, but would have supported UK exporters. 

Scottish Farm Incomes

Farm profits in Scotland showed a significant increase in the 2020/21 year.  The Scottish Government has released figures from the Farm Business Survey (FBS) that relate to the 12-months spring 2020 to spring 2021 – i.e. the period ending around a year ago.  The average Farm Business Income (FBI), which can be thought of as farm profit, was £39,300 across all farm types.  This is an increase of £10,000 on the previous year and takes profits to their highest level in real terms since 2012.  The main cause of the improvement in performance was lower costs.  Of course, over the latter half or 2021 and into 2022 there have been significant cost increases.  The figures for 2021/22, and certainly 2022/23, when they are published may well not be so good.  Full details of the data, including a breakdown by farm type, can be seen at – https://www.gov.scot/news/farm-income-statistics/.

 

Border Checks Delay

It is heavily rumoured that full checks on foodstuffs coming into the UK from the EU will be delayed once again.  The Border Operating Model (BOM) was due to see sanitary and phytosanitary (SPS) checks for most agri-food products being introduced from the 1st July.  With concerns over the extra costs the checks could impose on top of already considerable food-price inflation (and logistics issues at ports) the Government seems minded to delay their imposition.  This is the fourth delay in implementing checks on imports.  It has even been suggested that they may be delayed until 2025 when a new computer system is meant to be in place.  UK food exports to the EU have been subject to full checks since January 2021.

Welsh Residential Tenancies

From 15th July 2022, the (long awaited) Renting Homes (Wales) Act 2016 will see the end of Assured Shorthold Tenancy Agreements (ASTs) in Wales.  The Act introduces two new forms of ‘Occupation Contract’ for letting residential property in Wales: a Secure Contract and a Standard Contract; the latter will replace the AST.  The legislation will apply to existing tenancies as well as new Agreements.  Existing ASTs will need to be converted to Standard Contracts.  The new Contracts will also be ‘Model Contracts’ meaning that, when setting up a new Tenancy, the contract will need to contain certain clauses and conditions set by the Welsh Government.  Model Contracts are available from the Welsh Government website.  More information can be found via https://gov.wales/landlords-housing-law-changing-renting-homes.  This will affect farmers and landowners who let out surplus cottages.