Category: Policy & Business

Under the Environment Act, the Government has to set binding environmental targets for England.  Defra is currently undertaking a consultation on this.  Some of the targets will have a significant effect on agriculture over the coming years.  Examples include;

• to improve water quality, there should be a reduction in nitrogen, phosphorus and sediment pollution from agriculture by at least 40% by 2037 against a 2018 baseline
• the woodland area should increase from 14.5% of England to 17.5% by 2050
•  the decline in species abundance should be halted by 2030 and then improved by 10% by 2042 compared to 2030
•  over 500,000 hectares of wildlife-rich habitats outside of protected sites to be created or restored by 2042, compared to a baseline of 2022

It can clearly be seen how these types of targets will lead directly through into policy in areas such as ELMs, woodland creation and slurry storage and management.  The consultation can be found at – https://consult.defra.gov.uk/natural-environment-policy/consultation-on-environmental-targets/supporting_documents/Environment%20Targets%20Public%20Consultation.pdf.  Responses are required by the 11th May.

Defra has released its forecasts for Farm Business Income (FBI) for 2021/22.  Taken from the English Farm Business Survey (FBS), the data shows FBI for various standard farm types.  The FBS works on February/March year ends so the period being reported covers harvest 2021 and the 2021 BPS – including the first year of deductions under the Agricultural Transition.  FBI can be thought of as equivalent to the ‘Net Profit’ measure widely used in accountancy.  The full release can be found at https://www.gov.uk/government/statistics/farm-business-income/farm-business-income-in-england-202122-forecast.

In the chart below, the first column for each sector shows the average FBI from 2012/13 to 2016/17.  The next four columns show the FBI for the subsequent four years, broken down into four ‘profit centres’.  The final, light blue column is Defra’s forecast for the current 2021/22 year; the data to split down into the profit centres is not yet available.  As the chart shows, except for specialist pigs and poultry farms, average FBI is expected to increase for 2021/22.  Higher prices for key outputs, such as cereals, meat and milk is expected to result in a rise in output, but this will be offset to some extent by higher costs, particularly for feed and fertiliser.   Compared to 2020, the average BPS is expected to decline by about 9% across all farm types, as we enter the first year of progressive reductions.

Source:Defra

General cropping and cereals farms are both forecast to see strong rises compared with 2020/21, 70% and 51% respectively, driven by better yields and higher prices.  Even though input costs are forecast to rise by 18% on cereals farms and 12% on general cropping (mainly due to fertiliser costs more than doubling) output is expected to more than offset this.

As the chart shows, dairy farms perform well and have been pretty consistent over the last three years.  The current forecast sees further (and larger) improvement, a 21% rise compared with last year.  Milk and dairy products are expected to improve by 9% year-on-year, although production is forecast to be lower, strong prices are expected to more than compensate for this.

Grazing livestock farm incomes are forecast to make marginal increases.  This is perhaps somewhat surprising given current buoyant livestock prices, but higher crop costs and building depreciation is increasing inputs.  As can be seen for the two grazing livestock farm types, the return from agriculture is consistently negative; it takes part (or all) of the Basic Payment to return these farms to profit.  This is of real concern when looking ahead to the removal of direct support.  This year the Basic Payment is predicted to fall by around 6% on lowland and 9% on LFA grazing livestock farms.

Both specialist pigs and poultry are forecast to see big decreases in their FBI; down 73% and 51% respectively.  This is as a result of input costs rising considerably more than output.  We have written extensively about how Brexit and Covid has impacted negatively on pig prices, but this has been exacerbated by high feed costs.  For pig farms, feed costs, (which typically make up around 50%-60% of all their costs) are expected to rise by about 22% and on poultry farms will be 19% higher.

It’s difficult to know where farm incomes are heading.  Cereals and oilseed prices were already high due to tight supplies. Fertiliser is almost now a by product of CO2 production due to sky-high energy prices and red diesel has increased sharply. But this has all now been exacerbated by the war in Ukraine.  This will now remove large stocks from the 2021 harvest when carryover was expected to be low anyway.  May feed wheat prices are circa £300 per tonne and rapeseed £740 per tonne.  Both the Ukraine and Russian harvests will more than likely be disrupted for this year and possibly next.  Closer to home fuel and fertiliser prices are likely to shape next year’s harvest.

Our article on 4th March (see https://abcbooks.co.uk/rpa-log-in/) reported on problems Agents were having when trying to access Clients’ BPS accounts on Rural Payments.  It seems following the RPA’s downtime on Wednesday the issue has now been resolved.  Agents who do not have ‘full permissions’ should now be able to log-on as previously.  However, it does look like those who do hold ‘full permissions’ for the account will still be asked to check the details, but this is not now denying access to the account.  Whether this is just a short term fix is not clear.  It is possible the situation will arise again, but hopefully with some prior notice and not just before the system’s busiest time of the year.

Defra has released its latest information from the Farmer Opinion Tracker.  This asks farmers for their views on issues such as business planning, relationships with farming organisations (including Defra), new schemes, and the future of farming.  The survey first commenced in autumn 2019 and is usually undertaken in April and October, with these results coming from the October 2021 survey.

Worryingly, when asked if they understood Defra’s vision for farming the percentage of respondents which said ‘no’ but would be interested to know more was the highest since the Tracker began, at 36%; up from 29% in April 2021 and also 29% in autumn 2019.  Those who said ‘yes’ had increased from 5% to 7%, but those who ‘roughly knew’ had declined from 62% in April to 54% in the latest survey.  In addition, when asked if they had the information they required for business planning the percentage that had ‘all the information’ or ‘most of the information’ had declined from 40% in April to 37% in October.

One of the biggest changes since the survey began just three years ago, is the proportion of holdings that responded saying they needed to make changes to their business in the ‘next 3-5 years’, up from 52% in 2019 to 64% in October 2021 (perhaps an indication that now we have entered the Agricultural Transition, the loss of BPS is starting to ‘concentrate the minds’ of many).   Of these, the majority (53%) said they intended to stay in farming, but diversify into non-farming areas.  However, 9% said they planned to either retire or pass on the farm to the next generation with a further 3% saying they would be leaving for ‘other reasons’.

Farmers on 80% of holdings said that Defra paying for environmental outcomes was currently ‘very important’ (47%) or ‘moderately important’ (33%) to their holding, with the proportion believing it to be ‘very important’ increasing to 67% in the future.

A lack of optimism and confidence in the future of the industry is indicated by just 1% of all respondents being ‘very confident’ that changes to the schemes and regulations will lead to a successful future in farming, with the majority (68%) ‘not confident at all’.  Another worrying outcome was that 2/3rds of all farms were ‘not confident’ in Defra and Defra Agencies’ abilities to work together to deliver changes to schemes or regulations.  With only 3% ‘very confident’ and 33% ‘somewhat confident’ that their relationship with Defra will develop positively in the future, down from 4% and 42% respectively in April.  Just 36% felt ‘very positive’ (4%) or ‘somewhat positive’ (32%) about the future of farming.  The full survey can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1056800/Opinion_Tracker_Oct_2021_24feb22.odt

 

It has been confirmed that Young Farmers and New Entrants will not be able to apply for entitlements from the National Reserve in England this year, except in respect of land which was leased, bought, or gifted prior to 17th May 2021.  Confirmation comes as the Direct Payments to Farmers (Allocation of Payment Entitlements from the National Reserve) (England) Regulations 2022 SI 200 come into force.  With De-linking of entitlements expected to take place 2024 this is just another step in drawing the BPS to a close.

Direct payments will remain central to Scotland’s future farm support.  This is the conclusion drawn from the Scottish Government’s latest ‘vision’ for the agricultural sector.  It is largely a re-statement of previous policies and does not provide that much more information on detailed scheme requirements.  However, it does add a little to the emerging picture of future Scottish Farm Policy.

The Vision and Timetable can be found at –  www.gov.scot/isbn/9781804351154.  It sets out the following values and principles for future farm support;

• ensure that Scotland’s people are able to live and work sustainably on our land
• remain committed to supporting active farming and food production with direct payments
• seek to create a diverse, flourishing industry
• integrate enhanced conditionality of at least half of all funding for farming and crofting by 2025
• as part of this conditionality, expect recipients of support to deliver on targeted outcomes for biodiversity gain and low emissions production
• develop policy, regulatory and support mechanisms which deliver emissions reductions in line with our climate targets, and contribute to wider government objectives and priorities, particularly in relation to our net zero ambitions
• design those mechanisms to support outcomes that restore nature, benefit our natural capital and promote the natural economy
• ensure those mechanisms are flexible enough to be adapted in delivery to accommodate emerging evidence, science, technology and tools
• adopt an evidence-based, holistic, whole farm approach, including learning from and applying practice and experience from other nations
• adopt a natural capital and just transition approach to land use change
• where practicable, stay aligned with new EU measures and policy developments

Although much of this is vague and aspirational, there is some ‘meat’ to be found in it.  The continuation of direct payments is clearly stated, along with the shift towards more ‘conditionality’ on these.  It is also clear that climate change will be a big driver of farm policy (as we have written previously) and there is a desire to keep policy aligned with the Common Agricultural Policy as much as possible.

In terms of what ‘conditionality’ looks like, some key themes are outlined;

• greenhouse gas (GHG) emission reductions
• biodiversity audits (and improvement)
• soil testing
• nutrient and forage plans
• animal health and welfare plans

In short, farmers will be expected to do some of the above in order to get their full BPS.  Interestingly, on GHG emissions, the Scottish Government states that it wants to see the same amount of agricultural production with fewer emissions, rather than more production with the same emissions.  

In terms of timing, a full consultation on a future Agricultural Bill will be undertaken this summer with a view to enacting legislation in 2023.  However, the replacement support framework under this will only be implemented from 2026.  Therefore, the ‘legacy’ CAP schemes will continue until 2025, albeit with some changes.  In the shorter-term, a ‘National Test Programme’ will commence this spring.  This will have two ‘tracks’;

• Track 1 (Baselining):  this will be an offer to all farmers to start collecting information on their farming business (e.g. around GHG emissions and biodiversity).  This ‘baseline’ information can then be used to measure improvements in the future.  It is not yet clear whether there will be any element of compulsion to take part in 2022 or whether, at the outset, it will be voluntary.  There will be an initial focus on those parts of farming with the highest emissions – e.g. livestock.  The suckler beef sector has previously been highlighted in this regard and there may be some conditions on the Scottish Suckled Beef Support Scheme (SSBSS) either this year or in the near future.
• Track 2: (Development):  this will aim to develop tools, processes and support structures that will deliver the goals of the vision.  It can perhaps be seen as a test-and-trials approach.  Recruitment of farmers to take part will commence shortly.  The development of policy will continue to be overseen by the Agriculture Reform Implementation Oversight Board (ARIOB).

This ‘announcement’ continues the pattern of limited and partial policies being announced by the Scottish Government.  It would no doubt argue that it is progressing steadily, with a desire to minimise disruption and take the industry with it in designing a new farm support system.  Alternatively, it could just be described as ‘slow’.  Much of the farming sector would just like more clarity on future support arrangements.  We will continue to report on developments.     

There have been problems accessing the RPA’s computer systems for many Agents over the last few days.   Those logging-on to undertake BPS or agri-environment work for their clients may have noticed that the usual ‘View business’ hyperlink is not available.  Due to data protection reasons, online access is being restricted to accounts until somebody holding ‘full business permissions’ for the business logs-in and confirms the relevant information.

This is causing a problem as not many Agents will hold ‘full business permissions’ for their clients, just permissions to allow them to update and make claims for the relevant schemes (BPS, CS).  This means accounts are effectively locked until somebody who does have such permission logs-in and confirms the details.  The problem further escalates as, in many instances, those who have got the relevant permissions (the business owners, partners etc.) may not have actually logged on for many years, leaving it to their Agent and will not even know their log in details, meaning many phone calls to the RPA helpline to retrieve lost log-in details.

Apparently the RPA is looking into solutions and we will try and keep readers up-to-date if there are any changes, but in the meantime, if access is required, the RPA has said the only solution is for an individual holding full business permission to access the business online and confirm the data and permissions.

The situation has arisen because a year ago, under pressure from the Government Digital Service as part of ensuring data security, the RPA put in a system which now requires RPA customers to log-in and confirm their business details on an annual basis.

The deadline for accepting a Farm Equipment and Technology Fund Agreement has been extended until 1st April 2022; originally this was 4th March.  Successful applicants need to accept their Agreements via the dedicated FETF acceptance portal  – https://www.fetf.org.uk/acceptance_portal_intro/ . They then have until midnight on 31st October 2022 (also extended by one month) to buy and install the items and submit a claim for payment (see our article of 22nd February https://abcbooks.co.uk/farm-equipment-technology-fund/).

Intra-Ireland Trade

Latest data from the Irish Central Statistics Office (CSO) show that total agri-food trade between Northern Ireland (NI) and the Republic of Ireland (ROI) has increased significantly (by 42%) in 2021 versus 2020.

NI agri-food imports from ROI have increased by 47% with regulatory controls imposed on GB to NI trade as a result of the NI Protocol being the primary driver. Corresponding NI exports to ROI have also risen by 38% over the same period, showing that increased all-island agri-food trade is happening in both directions.

Looking at individual product categories in more detail, the chart below shows substantial increases in dairy trade during 2021.  NI exports to ROI are estimated at nearly £284m in 2021; up from £202m in 2020.  Imports are up from £169m to nearly £314m over the same period, suggesting that NI retailers and the food services sector are procuring a greater proportion of inputs from ROI as a result of regulatory barriers on GB to NI trade.  Other product categories also show similar trends with NI imports from ROI showing strong growth across all sectors.

NI Protocol Negotiations

Talks to simplify post-Brexit trade between GB and NI as a result of the imposition of the NI Protocol are continuing but progress has been limited of late.  Despite some rumours of the UK Government contemplating the triggering of Article 16 to suspend some parts of the Protocol, discussions look set to continue particularly as both the UK and EU are keen to show a united front as tensions between Russia and Ukraine mount.  Whilst some progress has been achieved on simplifying customs formalities, significant gaps remain in terms of how checks on food, animals and plant products are managed.  With the NI Assembly election looming in May, it is likely that both the UK Government and the EU will be keen to give the Protocol negotiations a low profile until then.

ROI Trade with GB

The CSO data also reveal a 4% drop in total agri-food trade between ROI and Great Britain (GB) from £8.8bn to just over £8.4bn.  The key driver of this has been a 19% drop in ROI imports from GB as EU regulatory controls have been effective since January 2021.  Over the same period, there has been an 8% increase in the value of agri-food exports from ROI to GB.  Increased agri-food prices during 2021 are the major driver of this increase.  Whilst the UK Border Operating Model is not fully functional and Irish exports to GB face few regulatory barriers and this will also have supported continued Irish exports to GB.  That said, Irish exports of beef to GB (£753m) have declined by 4% in value terms during 2021 and by 23% in volume terms (decreasing from 193Kt to 149Kt). Irish dairy exports to GB have witnessed a more severe decline, down by 24% in value terms in 2021 and are now valued at just under £530m.