Category: Policy & Business

Latest farm income figures released by Defra show a surprising increase.

The figures are for Farm Business Income (FBI).  This effectively shows the profit for an average full-time farm in each of the main sectors of English farming.  The data is for the 2020/21 year (March to Feb) which covers the 2020 harvest, 2020 BPS payments and the first months of the Covid outbreak.

The aggregate farm business profitability figures (Total Income from Farming – TIFF) released in May showed a 15% fall in returns.  Although this was for the calendar year 2020 and the whole of the UK, it might be thought that the FBI figures would show a similar trend.  However, looking at the table below it can be seen that all sectors, apart from General Cropping and Poultry showed higher profits.  And, overall, FBI rose by 5%

The latest figures show significant (upwards) revisions from the first estimates of FBI published in April 2021 (figures in italics).  It seems there was a general under-estimation of output in the first set of data.

This means that the TIFF figure for 2020 could well also be revised upwards.  An update of this is expected shortly, along with the first estimate for farm profits for the 2021 year.  Overall, the emerging data suggests that the 2020 harvest year was not as bad, financially, as many feared.

Farm Business Income represents the financial return to all unpaid labour (farmers and spouses, non-principal partners and their spouses and family workers) and on all their capital invested in the farm business, including land and buildings.

Following a consultation earlier this year, the Scottish Government has published new legislation for the protection of water.  The Water Environment (Controlled Activities)
(Scotland) Amendment Regulations 2021 set out new standards for storage of slurry, silage, manure and digestates.  Furthermore, the legislation also outlines new measures for slurry application.  The key points are summarised below.

Silage storage (not in bags or bales)

• Stores built pre-September 1991, previously covered by grandfather rights, must now meet a new set of standards.  These are lower than the British Standards for new stores, however.
• Where stores built pre-1991 are enlarged, reconstructed or remedial works conducted, they must comply with the British Standards by 1 January 2026.
• Stores built before 1 January 2022 but after 1 September 1991 must comply to the British standards by 1 January 2024.
• Stores which are built, substantially reconstructed, or enlarged after 1 January 2022, must have a 20-year life span, with proper maintenance.
• the Scottish Environment Protection Agency (SEPA) must be notified at least 30 days prior to the start of construction, substantial rebuilt, or enlarged stores or effluent tanks.  Engineers Certificate to be retained for life of store.

Silage making and storage (bags or bales)

• Must not be stored, opened, or unwrapped within ten metres of surface water or opening to a surface water drain.

Slurry storage

• Where slurry is produced on farm by housed animals, storage must be sufficient for the quantity likely to be produced in 26 weeks for pigs and 22 weeks for cattle.
• New measures relating to the design of slurry storage are also introduced.  Including the need to notify SEPA prior to construction.
• Systems constructed pre-1991 must now comply with a set of basic standards to ensure they are fit for purpose and protecting the environment.  Where a pre-1991 system has been enlarged, reconstructed, or remedial work conducted, systems have until 1 January 2026 to comply.
• As with silage storage, systems constructed prior to 1 January 2022 have until 2024 to comply with new standards.
• If new, substantially reconstructed, or enlarged on or after 1 January 2022, a store must have a life expectancy of 20 years.

The rules for liquid digestate storage are largely in line with those for silage and slurry stores.

Slurry and liquid digestate application

• Precision spreading equipment to be used for application from 1 January 2023.  This includes the phasing-out of spreading via splash plate.  There will be a phased introduction by 1 January 2027 in some circumstances.

Organic fertilizer application

• Where organic fertilisers are applied, a risk assessment including a farm map is required.

Over the past month or so, you are unlikely to have turned on your TV and not seen mention of COP26.  But what was agreed and discussed in Glasgow and how might it affect (UK ) farming?

The main result from COP26 is agreement of the 197 nations on the Glasgow Climate Pact.  The pact outlines a ratcheting-up in the effort of nations to limit global warming.  Whilst no direct statements are made in the pact in relation to agriculture it is nonetheless very import for the sector.

The main points in the pact relate to:

• A commitment for nations to review and strengthen their 2030 emission reduction targets by the end of 2022.
• Accelerating efforts towards the phasedown of unabated coal power and phasing out of inefficient fossil fuel subsidies.
• Step up efforts to transfer finance from developed to undeveloped nations, to the $100 billion per year, by 2025, agreed at COP15.

The aim of these points is bringing the current trend in global emissions in line with the Paris Agreement.  The Paris Agreement set a target of limiting global warming to well below 2°c above pre-industrial levels.  Further the agreement aims to keep a 1.5°c reduction by the end of the century within reach.  Climate Action Tracker, an independent scientific analysis, suggests that the current 2030 targets would lead to 2.4°c of global warming.

For agriculture, there are three indirect points from the Pact.  These are:

• A renewed focus on ending deforestation.
• Further drive to improve the integrity of ecosystems and protect biodiversity.
• Nations invited to consider further actions to reduce by 2030, non-carbon dioxide emissions i.e., methane.

The Environment Bill finally received Royal Assent on the 9th November.  The Government’s flagship environmental legislation has had a long gestation, being first announced in October 2019 and presented before Parliament back in January 2020.

The Act, which mostly just covers England, is wide-ranging.  Some of the most important areas for agriculture are;

• Targets:  the Act sets out long-term, legally-enforceable, targets for the improvement of air quality, water, and waste reduction.  Binding targets on biodiversity improvement were added during the legislative process.  These targets must be of at least 15 years in duration, and be proposed by late 2022.  There is no requirement to set interim targets.  The air quality measures will impact on farming through a focus on ammonia emissions from intensive livestock.  The water quality is likely to touch on many areas of agriculture.  Waste reduction could see a charge for single-use plastics introduced, including farm use.  There are no binding targets specifically on soils, which many believe to be a large omission.  Defra is working on a separate ‘Soil Health Action Plan’, but this will have no legal basis.  
• Environmental Improvement Plans:  these will effectively be the delivery plans for the long-term targets set under the Act.  They will build on the current 25-Year Environment Plan which is seen as the first EIP.
• Environmental Principles: there are five principles of environmental management set out in the Act, including the polluter pays and precautionary principle.  It remains to be seen whether this will have an effect on farming.  For example, a very strict reading of the polluter pays principle could see growers responsible for the costs of any diffuse pollution from fertilisers or agro-chemicals.  
• Office of Environmental Protection: the OEP will be established to hold public authorities (including Government ministers) to account for applying the environmental principles and complying with environmental law.  The OEP has in fact already been running on an interim statutory footing and under early use of powers under the Act has now been put on a statutory footing (as from 17th November).Whilst some environmental groups feel the way the OEP has been set up is not independent enough of Government, there is a fear, including in farming, that it will become ‘captured’ by environmental interests and not weigh other factors such as economic development in its decisions.    
• Local Nature Recovery Strategies: these will be a set of spatial strategies covering the whole of England.  The relevant authorities (probably Local Authorities) will map existing habitats and set out a plan for improvements.  It will be similar to Local Plans under the Planning regime and may have implications for what landowners can do with their land. 
• Biodiversity Net Gain (BNG): the Act requires developers of land to generate 10% BNG – i.e. there must be more biodiversity on the site once the development has finished than before it commenced.  This will drive the development of a Biodiversity Credit market where landowners create biodiversity offsets in situations where developers cannot create extra biodiversity on site. 
• Conservation Covenants:  the Act will create a new legal instrument.  At present covenants on land that pass from one owner to the next can only be restrictive (i.e. you cannot do something).  There is no way to tie future owners into positive management (i.e. you must do something).   This is seen as vital in securing the long-term management of land for things such as BNG – which require management for 30 years.  An amendment to the legislation means that Conservation Covenants will now need to be executed as deeds (i.e. by a solicitor).
• Water Use:  reform of the water abstraction regime is covered by the Act (a consultation on abstraction reform was launched in September).

It can be seen that the Act is likely to have a long-term impact on farming for many years.  However, the effects will not be immediate.  In most cases the Act simply sets the legal framework, with detailed provisions needing to be introduced through secondary legislation.  For example, it is not thought the Biodiversity Net Gain requirement will be fully enacted for another two years.  We will keep you up-to-date as elements of the Act are introduced.

A new capital grant scheme for English farmers has opened.  The Farming Investment Fund (FIF) is designed to help farmers invest in new technology and equipment and was launched on the 16th November.  Full details can be seen at https://www.gov.uk/guidance/farming-investment-fund

The scheme is similar to the previous Countryside Productivity Scheme having two elements – for small and large investments.

Farming Equipment and Technology Fund (FETF)

This is the small-scale scheme.  This pays a fixed amount for specific items of equipment (usually 40% of the cost).  The full list can be seen at  – https://www.gov.uk/guidance/farming-equipment-and-technology-fund-round-1-manual/annex-3-eligible-items-specification-and-grant-amount.  The list is longer than under the previous Countryside Productivity Small Grants Scheme (CPSGS) having an extra 38 items, bringing the total to 120.

Other points to note are;

• the minimum grant per application is now £2,000 – reduced from £3,000 under the CPSGS, so more people should be able to apply if they only want a few items
• the maximum grant is raised to £25,000 (from the previous £12,000).  There are a number of ‘big ticket’ items such as drills added to the list
• this round of funding is open between the 16th Nov and 7th January.  Claims will have to be made (i.e. the equipment purchased) by 30th Sept 2022.  There will be further rounds in future
• applicants can apply for a total of £50,000 of grant during the scheme’s lifetime (meant to run to 2026).  Any funding received through the CPSGS will not count towards the £50,000 – i.e. those that claimed under the old scheme can also apply for this one
• the eligibility for the scheme is wider than previously, as it is open to contractors, foresters and those who have not claimed the BPS.

Farming Transformation Fund (FTF)

This is for larger items of spending with grants of between £35,000 and £500,000 (again, based on a 40% grant rate).  Like the FTF, it is open to contractors as well as farmers.  The grant funds projects in three areas;

• Water Management – applications for this opened on the 16th Nov
• Improving Farm Productivity – to open ‘later this year’
• Adding Value (i.e. processing and marketing) – to open ‘early next year’

There is a two-stage application process for the FTF;

• An online check of an applicants ‘eligibility and desirability’ (a bit like an expression of interest)
• A full application if the first test is passed

The current scheme on water management will support investments in such things as reservoirs and irrigation systems.  The online first-stage check closes on the 12th January with full applications needing to be made by 30th June 2022.

The Scottish Government has announced the Agri-Environment Climate Scheme (AECS) will open for a full application round in 2022.  In addition, it has confirmed it will open for future rounds up to and including 2024.  The 2021 round of the scheme was quite restricted with only certain categories eligible to apply.  The rounds from 2022 onwards will be much more comprehensive.  Support will be available for – organic farming, land management practices which protect and enhance the natural heritage, improving water quality, managing flood risks, mitigating climate change, increasing diversity and improving public access.  Although no application dates have been announced, it usually opens in January, we will endeavour to keep readers up-to-date.

Defra’s response to the Delinking and Lump Sum consultation which closed on 11th August (see article https://abcbooks.co.uk/lump-sum-and-delinking/) has been delayed.  Defra was due to report in October, however it has announced this has ‘been delayed so we can fully consider the comments made by respondents’.  It now expects to publish the report ‘by the end of 2021’.  As the Lump Sum exit scheme is expected to be open in 2022 and is only supposed to be a ‘one-off’ this will give prospective applicants and their advisors very little time to get to grips with the detail and understand the rules. 

The BPS payment rates for 2021 have been published by Defra.  This is rather earlier than normal and bodes well for the early payment to English farmers from the 1^st December.  The gross rates have increased slightly but the effect of the agricultural Transition will see farmers receive less than last year.

The calculation of entitlement values is done from scratch each year.  The sum of money under the BPS is fixed so the payment per entitlement tends to rise as slightly fewer entitlements are claimed each year.  The table below summarises this year’s rates plus those for the past two years (it also includes our forecast for this year which was fairly accurate).

Of course, payments  are being reduced as 2021 is the first year of the Agricultural Transition.  To recap, the deductions are;

• Up to £30,000 – 5%
• £30,000 to £50,000 – 10%
• £50,000 to £150,000 – 20%
• Over £150,000 – 25%

The bands work like Income Tax, so all claimants ‘only’ get 5% deduction on the first £30,000 of payment.  The final column of the table below takes off the basic 5% to get to a net figure.  However, larger claimants will have a lower ‘per Ha’ BPS this year.

In his second Budget of 2021, the Chancellor, Rishi Sunak set out the Government’s tax and spending plans with the twin aims of stabilising the Government’s finances post-Covid and also promoting the ‘levelling-up agenda’.  Ahead of COP 26 in Glasgow there were also some nods to environmental action.  Much to the annoyance of the Speaker of the House of Commons, a large number of the headline measures had been announced in the Press beforehand.

The speech was more significant than usual.  Not only did it contain the normal Budget-type measures, it also contains the results of the Comprehensive Spending Review (CSR).  This sets Government Department’s budgets for the next three years.

As usual, the Chancellor set out the latest economic forecasts from the Office of Budget Responsibility (OBR).   These predict economic growth in 2021 will be 6.5%.  This is a sharp increase on the 4% forecast at the time of the Spring Budget – the OBR has concluded that the economic ‘scarring’ from Covid has been less severe than expected.   Growth in 2022 is put at 6.0% before falling to 2.1% in 2023.  With the economy shrinking 9.8% in 2020 due to Covid, it will be the middle of next year before activity returns to its pre-Covid level.  The biggest economic issue in 2022 looks set to be inflation.  The forecast for CPI is a rate of 2.3% for the current year.  For 2022 the OBR has a central forecast of 4% and it states there is a strong chance it could be as much as 5% – the highest level in three decades.

The main items of interest from a farming perspective (including some of the policies announced pre-Budget) are;

• Under the CSR, Defra’s budget will rise 5.3% in real terms between 2021/22 and 2024/25.
• As announced in September, there will be a new Health and Social Care Levy.  From April 2022 this will see the rates of National Insurance rise by 1.25% for both employers and employees.  This will apply to both Class 1 and Class 4 contributions.  From April 2023, NI will return to its current rates and the 1.25% will be collected by a separate levy (which will also apply to the earnings of state pensioners who are still working).
• The taxation of Dividends will also rise by 1.25% on each of the three rates in April 2022.
• The National Living Wage will rise by 6.6% to £9.50 per hour from the 1st April 2022.  Rates for those aged 21-22 will increase to £9.18.  Clearly, the rise in the NLW plus that in NI will make employment costs much higher from next spring.
• The Annual Investment Allowance (AIA) for plant and machinery will remain at its higher level of £1m for an extra year until 31st March 2023.
• Business Rates (in England) will be frozen and there will be a 50% discount for retail, leisure and hospitality businesses.  The wholescale review of the Business Rates system has been postponed.
• The Shared Prosperity Fund (SPF) which is designed to replace EU Structural Funds (and an element of Rural Development funding) will finally be launched in 2022.  However, funding in the first year of £0.4bn will be substantially less than that previously received from the EU(£1.5bn).  There will also be no ring-fencing of funds for rural areas.
• There was no announcement on major rail schemes such as HS2 or Northern Powerhouse rail which would have a big effect on landowners in the midlands and the north.  Details will be announced in the forthcoming Integrated Rail Plan.
• There will be reform of alcohol duties including extending the small-producers’ relief to other products apart from beer (e.g. cider).
• Fuel Duty has been frozen and there is no change to the Red Diesel rebate.
• Various announcements were made on housebuilding including a new 4% additional tax rate on the profits of large housebuilding firms.
• In terms of the environment, many previous pledges were reiterated in the Budget.  This includes designating 30% of England’s area for nature by 2030 (’30 by 30′) and funds for tree planting and peat restoration.  Interestingly, as well as Government money, there is a new target to raise at least £500 million in private finance to support nature’s recovery every year by 2027 in England, rising to more than £1 billion by 2030.  This will be supported by a range of measures, including £30 million public investment in a Big Nature Impact Fund, as well as £140 million to assess the extent and condition of the country’s natural habitat.

More details are in the Budget documents available here – https://www.gov.uk/government/publications/autumn-budget-and-spending-review-2021-documents