Category: Policy & Business

Applications to the fourth Woodland Carbon Guarantee (WCaG) auction are now open.  The WCaG provides owners of new woodland projects the option to sell their captured carbon in the form of carbon credits, called Woodland Carbon Units to the Government for a guaranteed price, protected against inflation, every 5 to 10 years for 35 years.  Applications to the scheme must be made by 9th July and the auction will take place online between 26th July and 1st August 2021.  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

The area of UK land managed according to organic principles grew marginally in 2020.  Latest (provisional) figures from Defra put the organic land area (both fully organic and in-conversion) at 489,000 hectares.  This is a rise of 0.8% compared to 2019.  Over the last two years, the area of organic land has just started to increase again after a number of years of decline (except 2017).  The organic area peaked in 2008 at over 700,000 hectares, but has declined by 34% since then.

Organic land represents 2.8% of the total farmed area on agricultural holdings in the UK.  Grassland makes up, by far, the largest organic area, with permanent pasture taking 62% of the share and temporary grassland 20%.  Cereals are the next highest at 9% and have seen the highest year-on-year increase at 7.5%.

In the organic red meat sector all classes of livestock numbers fell in 2020 compared to 2019.  Organically reared sheep experienced the largest decline, by 13% to 678,000 head; organic sheep account for 2.1% of the UK flock.  Cattle numbers fell by 8.9% to 274,000 head, making up 2.8% of the total herd. Pig numbers fell by 7.6% and at 31,000 head make up just 0.6% of the total UK pig herd.

In contrast the number of poultry farmed organically increased by 2%, to just over 3.5m birds and 1.9% of the total UK poultry population.

The full details can be found at  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/989695/Organic_Farming_stats_notice-27may21.pdf

UK farm profits fell by 20% in real terms between 2019 and 2020 according to Defra.  The latest figures for Total Income from Farming (TIFF) were released on the 27th May and show that profitability fell to its lowest level since 2007 at £4,119m.  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.

The main reason for the drop in TIFF was a 15% (real-terms) fall in the value of crop output.  This was a result of lower yields caused by the wet weather through the autumn and winter of 2019-20.  Another major reason for the decline in profits was a reduction in income from diversification of almost a quarter (‘inseparable non-agricultural activities’ in Defra jargon).  Output from the livestock sector was broadly flat between 2019 and 2020 whilst costs were down slightly in real terms.  These all combine to produce the drop in profits of a fifth.

Whilst the data just published are called a ‘first estimate’, a figure was published in December (see our article https://abcbooks.co.uk/farm-profits-2/).  This was an initial forecast and also showed a 20% drop in profits – this means there has been little revision in the data in the meantime which is quite unusual.  A ‘final’ TIFF figure for 2020 will be published in November.

Looking to the current 2021 year, the prospects are for a recovery in returns.  Crops currently look in good condition and prices for both crops and livestock are generally good (with some exceptions).  With lockdown restrictions easing, there should also be some bounce back in returns from diversification.  Input prices are nudging up, but not too dramatically.  Overall, TIFF could recover back to over £5bn for the year.  Full details of the Defra statistics release can be found at – https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk

 

It seems that the British are not the only ones who have fallen out of love with the EU.  On the 26th May the Swiss decided to cease negotiations on a new Partnership agreement with the EU.  The deal for a single framework to replace a patchwork of around 120 different treaties between the Swiss and Europe had been in negotiation for many years.  The Alpine nation decided not to go ahead due to fears of a loss of sovereignty.  The existing arrangements will continue, so there will be no ‘cliff edge’.  However the EU has stated that ‘our bilateral agreements will inevitably age’ and thus Swiss access to EU markets will gradually deteriorate as the current procedures get ever-less fit-for-purpose.  This has some lessons for the UK – bilateral trade relations are not just about doing a deal and then moving on.  To gain the most benefit they need to be constantly updated (and even deepened).    

George Eustice has announced a new ‘flagship’ tree planting grant.  The England Woodland Creation Offer has been announced as part of the Government’s ‘nature week’ in which a number of new measures to tackle climate change and biodiversity loss have been announced (see previous article https://abcbooks.co.uk/defras-plans-to-restore-nature/ ).  The grant is part of a suite of measures to ‘treble the planting rates’ in England during this Parliament.

The England Woodland Creation Offer (EWCO) is due to open for applications shortly (late spring).  The Forestry Commission will be administering the scheme which replaces the Woodland Carbon Fund, which closed for applications in March 2021.  It will be funded through the Nature for Climate Fund, supporting the creation of over 10,000 hectares of new woodland over the lifetime of the scheme.

Although scheme details and payment levels are not yet available, we do know support will be available for diverse woodland types from a minimum of 1 hectare per application, with individual blocks as small as 0.1 hectares.  Up to 100% of capital costs (up to a per hectare cap) will be available, together with annual maintenance payments for 10 years.  Further funding will be available for:

• Recreational infrastructure, such as paths and picnic tables
• Forest paths and tracks
• Nature recovery and riparian buffer strips
• Allowing access and proximity to settlements
• Reducing flood risks and increasing water quality

The existing Woodland Creation Planning Grant can be used to help with applications to the EWCO and the application form will make it easier for applicants to register with the Woodland Carbon Code.

From 2024, the EWCO will transition into ELM, with woodland creation being funded through the three components.  EWCO agreement holders will be able to end their EWCO agreement at agreed points without penalty once they have secured a place in ELM.  Furthermore, EWCO agreement holders will continue to be able to claim BPS payments on land in an EWCO agreement, provided it meets certain eligibility requirements.

Funding to support tree planting and maintenance of woodlands also remains available through the Countryside Stewardship scheme.  Further funding may also be available via New Community Forests – three new Community Forests will be planted by 2025 and the Urban Tree Challenge Fund – open to organisations or individuals to fund planting of trees in urban areas or peri-urban areas (applications close 25th July 2021).

The new woodland creation grant is part of the Government’s plans to achieve net zero emissions by boosting tree planting.  But this just adds to the schemes available; does it just ‘muddy the waters’?  Perhaps simplicity and clarity would help boost uptake?  It will be interesting to see what 100% of capital costs (capped) really means and how generous the payment rates are compared to current schemes.  Scheme details should be available shortly.

 

In a speech made on 18th May, the Environment Secretary, George Eustice, set out plans to boost biodiversity, protect peatlands and create new woodlands.  The plans include:

• Amending the Environment Bill to require an additional legally binding target for species for 2030
• A new Nature for Climate Peatland Grant Scheme to support the restoration of 35,000 hectares of degraded peatland in England, and
• Plans to treble tree planting rates in England during this Parliament, including introducing a new planting grant – England Woodland Creation Offer (see article https://abcbooks.co.uk/woodland-creation/ ‎ for more information)

The plans are part of the Government’s measures to tackle climate change, address the biodiversity crisis and to help deliver its net zero commitment, the also develop some of the recommendations from the Dasgupta Review on the Economics of Biodiversity.

Mairi Gougeon is the Rural Affairs Secretary in the new Scottish Government, replacing Fergus Ewing.  It remains to be seen whether the new SNP administration will drive forward with farm policy change in Scotland, with very little having happened in the years leading up to the May election.  As set out in last month’s Bulletin, it seems increasingly likely that support will be driven to a large extent by climate change considerations.

The UK farming industry has come together to call on the Government to protect the agricultural sector under any future Free-Trade Agreement (FTA) with Australia.  Nineteen bodies have produced a ‘Statement on the UK’s Free Trade Agreement Negotiations’ which was published on the 17th May (see https://www.nationalsheep.org.uk/workspace/news-pdfs/ukfr-statement-on-ftas-170521.pdf).

The publication comes amid reports that negotiations between the UK and Australia on a comprehensive FTA are in a ‘sprint’ to be completed.  It is perceived that access to UK food markets may be offered to ease the passage of a deal.  The farming sector is asking that tariffs and tariff-rate quotas be retained – especially in the sensitive sectors of beef, dairy, sheep and sugar.  There is also a call that any FTA must uphold the UK’s standards on the environment, labour, food safety and animal welfare.

Any deal with Australia would be the first entirely new FTA agreed by the UK as an independent trading nation.  It is not merely the terms of this specific deal that are of concern – what is agreed will set the ‘benchmark’ for other future deals.  For example if Australia received complete tariff-free access then New Zealand would expect the same.  These two deals would then, in turn, set expectations in countries such as the US, India, Brazil etc.

The long-awaited Defra consultation on Lump Sum payments and Delinking of the BPS has finally been published.  The consultation seeks views on who should be eligible for the Lump Sum payments and how these and Delinked payments should be calculated.

Lump Sum Payments

These will be offered to those who wish to exit the industry.  Defra’s intention is that there will be a one-off application window in 2022 with no scope to apply after that.  Proposed conditions and eligibility rules include:

• Only those who claim the BPS will be eligible, it is an exit scheme and therefore there will be no age restrictions.  To prevent recent entrants from leaving with a lump sum, Defra is proposing that applicants must have made their first Direct Payment (BPS) claim in 2015 or earlier.
• The BPS applicant would have to give up their land in England.
  • An owner/occupier would have to sell and/or rent out their land, or transfer by gift.  The proposal is if an owner/occupier decides to rent out their land this must be via an FBT and for a minimum of five years.
  • A Tenant must surrender their tenancy, this can be a Farm Business Tenancy (FBT) or An Agricultural Holdings Act (AHA) tenancy.  AHA tenants will also be eligible if they pass on their tenancy under a succession.
  • Those receiving a Lump Sum would be able to retain occupation of their residential and commercial property and up to 5% or 5ha (whichever is the smaller) of their land.
• All English BPS entitlements held by the applicant would be cancelled, including any that have been leased-in from another farmer.  Those that have been leased-out would be cancelled at the end of the lease.  This could present a problem where a Landlord has leased or Transferred entitlements to a Tenant with an obligation to return to the Landlord – will the Landlord accept the Surrender if he will be left with land without any entitlements? 
• It will be an all-or-nothing scheme – it will not be possible for applicants to keep some entitlements and take a partial Lump Sum payment.
• If a Lump Sum payment is received, the farm business cannot claim any further direct payments (BPS).  This includes any Directors of a Limited Company and all Partners of a Partnership.  If any recipient enters into a new land management agreements (or adds land to an existing agreement) such as Countryside Stewardship or ELM, during the Agricultural Transition, the Lump Sum payment will have to be repaid.
• The tax treatment of Lump Sum (and Delinked) payments is currently being discussed with HMRC and guidance is expected shortly.  This will be crucial to how attractive the ‘offer’ is to many farmers – i.e. will the payment be taxed as capital or income.

With regard to the actual payments, Defra expects to be able to fund all the eligible applications it receives and therefore it will not be a competitive scheme.  There will be no rules on what the lump sum can be spent on.  The amount a claimant will receive will be;

Lump sum Reference Amount   X   2.35

A 2.35 multiplier means the payment will be approximately equivalent to the amount a farmer could have received in Direct Payments for 2022 to 2027 under the phasing out of the BPS.  The Reference Amount will be the average value (if more than one year is used) of BPS received (for English entitlements) before any penalties or progressive reductions have been applied in a Reference Period.   Defra is asking for views on the Reference Period, but is proposing a three-year average based on 2018, 2019 and 2020 BPS years.

There is a proposed payment cap of £100,000, meaning a maximum Reference Amount (average BPS claim) of about £42,500 would not be affected by the cap.  There will be measures put in place to deal with changes to farm businesses since the start of the reference period (‘mergers and scissions’) and also to prevent artificial changes to businesses to claim payment.

Full rules for the Lump Sum scheme are promised by the end of October this year.  This is to allow time for farmers to consider the merits of the scheme (and potentially Tenants to negotiate with Landlords) before applications are invited in ‘early 2022’.

Defra has clearly said exiting farmers will have to give up their entitlements.  It has also stated that it intends to end the New and Young Farmers National Reserve scheme (offering free entitlements) from 2022, meaning from next year we could already see land which will not have any entitlements over it.  On the face of it, it looks like new entrants will be losing out, which seems strange as part of the reason for the Lump Sum encourage new and young entrants by freeing-up land.  Defra has said the proposal will create ‘more lasting opportunities for new entrants to access land’ and in the press release it has said it is working on a scheme with industry leaders, local councils, land owners and new entrants on a New Entrants Scheme.  This will be available in 2022 with details expected to be published later this year.

Delinked Payments

These are expected to be introduced in 2024 and will mean businesses can reduce the area they farm or even cease farming and they will still receive payments for the rest of the Transition Period.  Delinking will not be optional.  Delinked payments will be made to those who were receiving a BPS payment in a Reference Period (see below) and in 2023 (if the Reference Period is earlier than this).   Defra has said Tenants who received BPS during the Reference Period, and still farm at the end of it should be eligible to receive the delinked payment. Again, this throws up questions about Tenancies which end during the Agricultural Transition; it seems to suggest that the Tenant will receive the Delinked payment and the Landlord will not have a payment to ‘give’ to a new Tenant.

The actual payments will be calculated for each year from 2024 to 2027 based on the BPS payments made to the applicant in the Reference Period less the progressive reductions for each year.  Defra is asking for views on the Reference Period.  It is proposing the average of 2018 to 2020 (the same as the Lump Sum) for ease, but acknowledges a longer period, which includes 2021 and 2022 would take account of more business changes.

Defra acknowledges that Delinking payments means there will no longer be an annual BPS claim, meaning it loses data on land use.  Having no link between payments and land also means  cross-compliance will no longer operate.  These points are not part of this consultation, indicating there will be another consultation later.

The consultation is open from 19th May until 11th August.  The  full consultation document can be found at https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/supporting_documents/lumpsumexitschemedelinkedpaymentsconsultation.pdf.  Responses can be made online via https://consult.defra.gov.uk/agricultural-policy/lump-sum-and-delinked-payments-england/

Whilst the detailed scheme rules for the Lump Sum will not be known until October, those potentially wanting to take advantage of it should be having discussions with the relevant parties (bankers, advisors, landlords, etc.) sooner rather than later.  

The Welsh Government has announced the Expression of Interest windows are open from 18th May to 25th June for the following schemes:

• Farm Business Grant – Yard coverings
• Glastir Woodland Restoration – Capital grants for restocking and fencing
• Glastir Small Grants, Landscape and Pollinators – Support for the maintenance of traditional landscape features and for providing habitat ‘linkage’ for pollinating insects.