Category: Policy & Business

Slurry Storage

The Scottish Government has opened a consultation on introducing new rules on the storage of silage, slurry and digestate.  Under the proposals, for both silage clamps and slurry stores, the exemption for facilities built before 1991 will be removed.  Slurry store storage capacities will be aligned with the NVZ rules (22 weeks for cattle, 26 weeks for pigs).  Rainfall calculations will have to be done on a once-in-five-year maximum rather than average figures.  Deadline for responses is the 13th April 2021.  The full consultation can be found at – https://www.gov.scot/publications/delivering-scotlands-river-basin-management-plans-silage-slurry-anaerobic-digestate-improving-storage-application/pages/1/

Trade Agreements with Non-EU Countries

With the UK-EU Trade and Cooperation Agreement (TCA) in place, attention will increasingly shift towards Free Trade Agreements (FTAs) with non-EU countries.  These can be divided into two broad categories;

  • Rollover FTAs: these are agreements that the UK had access to when it was an EU Member State.  In recent weeks, there has been significant progress.  To date, the Department for International Trade (DIT) has already completed agreements with 63 countries, 60 of which became effective from 1st January. The other 3 (Canada, Mexico and Jordan) have been partially applied.  This is an impressive feat considering the enormous challenges associated with Brexit and Covid-19.  Discussions continue with 6 more countries including Serbia and Ghana.

As our previous article noted, although the negotiation with Japan was technically a ‘new’ FTA negotiation, the deal is essentially a rollover of the existing EU-Japan Partnership agreement.  The UK-Japan agreement has some slight adjustments in terms of UK access to Tariff Rate Quotas (TRQs) and market access for products such as cheese.

  • FTA Negotiations Underway: before the end of the Transition Period, DIT was already focusing on progressing FTA discussions with several countries.  From an agricultural perspective, the most notable of these are the US, Australia and New Zealand.  These negotiations will need to be watched closely as 2021 progresses.

Although the US trade deal negotiations get the most attention, progress may dissipate somewhat during 2021 as the Biden administration will have other priorities to deal with.  However, talks will continue particularly as the UK-EU TCA has largely safeguarded the Good Friday Agreement – a key ‘red-line’ for the US.

Perhaps the negotiations which are most likely to conclude in 2021 are those with Australia and New Zealand.  As the tables below show, both countries are major exporters of meat (beef and lamb), dairy products and wine.  A trade deal with these countries will exert the most pressure on UK grazing livestock.  Admittedly, imports of beef and lamb from both countries into the UK and EU have been below historic levels recently.  This is mainly a function of a greater emphasis being placed on the Asia-Pacific region.  However, if the UK agrees a FTA with these countries it will lower trade barriers significantly versus current arrangements which operate via TRQs and standard WTO terms. 

Sources: Sources: Australian DFAT / NZ Government / Andersons

Australia has been particularly eager to progress trade negotiations with the UK.  Given the relatively high prices achievable in the UK, there is the potential for exports to be diverted from Asia-Pacific towards our market, particularly as China starts to recover from African Swine Fever and produces more of its own meat.  From an agri-food perspective, export opportunities to both countries are limited to niche areas.  Instead, the UK will use access to its food market as leverage to secure gains for its automotive and digital services sectors.

Longer-term, it inevitable that the UK will seek FTAs with other countries which will also exert significant competitive pressure on British farming.  Chief amongst these would be an FTA with Mercosur, which includes Brazil and Argentina – – both beef exporting powerhouses.  In recent years, Brazilian beef prices have been £1 per kg or more below the UK price.  So, whilst the UK might be a net importer of beef presently and there is some scope for prices to increase given the frictions now placed on imports from the EU, future FTAs with non-EU countries have the potential to torpedo such gains, given the large price differences.

The agri-food industry needs to play close attention to the progress of new FTAs during 2021 and beyond, as they will  have a huge influence over the future direction and competitiveness of British farming.  The Trade and Agriculture Commission (TAC) set-up by the UK Government in July 2020 to examine the impact of new trade deals on UK agriculture will have a central role to play.  However, it remains to be seen how much influence it will have in practice as Parliament will have the final say.

BPS and Agri-environment Payments

The RPA paid just under 98% of 2020 BPS claims in December.  The agency paid about 82,500 eligible claimants more than £1.77bn in total making it the best performance since the BPS commenced in 2015.  This was despite Covid disruptions and the BPS submission deadline date being extended by a month.

The better performance was also seen in Countryside Stewardship and Environmental Stewardship payments.  Just under 68% of CS revenue and just over 57% of ES claims were paid in December totalling £67m.  Agri-environment payments are made all in one tranche now, the payment window is the same as BPS; December to June.  In addition 63% of CS 2021 applicants received their offers by the end of December.  Whilst this last performance indicator doesn’t sound the best, considering agreements are supposed to commence on 1st January, it is much better than previous years.

 

 

Insect Safe for Human Consumption

Yellow mealworms are safe for human consumption according to the European Food Safety Authority (EFSA).  The insect has become the first to be found safe by EFSA after an application was submitted by the French company EAP Group Agronutris back in early 2018.   The EFSA Panel on Nutrition, Novel Foods and Food Allergens found that mealworms were safe to eat in the intended uses, which include snacks, protein for sports people and biscuits.  Insect based food has long been seen as part of the solution to cutting the emissions of greenhouse gases in food production by providing a substitute food to animal proteins.  But the industry has been held back by a lack of EU-wide approval.  The products are prohibited from sale in a number of EU countries including France, Germany, Italy and Spain.  Previously the UK, Netherlands, Belgium, Denmark and Finland have allowed consumption.  But in 2018 a law stipulated that insect-based dishes would require novel food (NF) authorisation.  A transition period has allowed companies already producing insect-based food to continue until a final judgement was received.  This has, until now, limited expansion in the sector, but this looks sets to increase now.  The Commission is expected to submit a draft proposal to Member States, with a view to authorising and marketing the product across the EU, possibly by the middle of 2021.

Farm Business Income

Defra has released its revised Farm Business Income (FBI) figures for 2019/20.  Taken from the English Farm Business Survey (FBS), the data shows FBI for various standard farm types.  FBI can be thought of as equivalent to the ‘Net Profit’ measure widely used in accountancy.  These results update the provisional ones released earlier in the year.  The FBS works on Feb/March year ends so the period being reported covers harvest 2019 and the 2019 BPS.  The full release can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/944352/fbs-businessincome-statsnotice-16dec20.pdf

In the chart below, the first column for each sector shows the average FBI from 2011/12 to 2015/16.  The next four columns show the FBI for the subsequent four years, broken down into four ‘profit centres’.  The final, light blue column is Andersons’ estimate for the current 2020/21 year.  As can be seen, only Dairy, LFA Grazing and Specialist Pigs and Poultry farms saw an increase in returns in 2019/20 compared to the year before.

Source:Defra

For Cereal farms there was an increase in yields and areas for some crops, but in general, prices were lower and therefore only partially offset the increase in variable and fixed costs.  On General Cropping farms, profits fell by 21% on the year.  The return from agriculture was £16,000 compared to £38,900 in the previous year.  This was due to lower prices, although an increase in yield for many crops partially offset this.  OSR prices were an exception, remaining firm, but the yield and area was lower due to the continued problems with Cabbage Stem Flea Beetle.  General Cropping farms have increased their participation in agri-environmental schemes with output from these increasing by nearly 50% on the year to £5,900.

After experiencing a significant drop in agricultural output in 2018/2019 following the highs of 2017/18, dairy farmers have seen a modest (6%) improvement in 2019/2020 with profits from agriculture remaining solid for the sector.  Milk production rose, but more because of an increase in cow numbers than yield, however average milk price was down by 2%.  Output from other cattle enterprises on the dairy farm saw an 4% increase.  Whilst variable costs decreased, notably feed prices, there was a rise in fixed costs, particularly machinery depreciation, rent and other general farm expenses.

Lowland grazing farms saw their profits decline by 25% on the year to average just £9,400; the lowest for this farm type since 2006/07.  Poor cattle prices during 2019/20 was the main factor, but also declines in both the sheep and crop enterprises contributed.  Both fixed and variable costs reduced but were insufficient to offset the drop in output.  Profits from agricultural activities on this type of farm fell to minus £16,300 – more than the Basic Payment (£15,800).  Lowland grazing livestock farms saw a big revision from the provisional results forecast earlier in the year which was £19,000, mainly due to an over-estimation of the value of cattle, which was very poor for the year and has thankfully recovered in the current year.  In contrast to lowland grazing farms, LFA farms experienced an increase of nearly 50% to £22,800.  Input costs, mainly feed and purchased fodder decreased and although the output from cattle also fell, sheep output increased by 7% due to higher prices for breeding ewes and hoggs.  Income from agriculture still remained negative though, but LFA farms receive (and rely on) significant payments from agri-environment schemes and also the BPS due to being generally larger.  Specialist pigs and poultry have both seen increases for the year, due mainly to a reduction in costs for both farms.

The chart shows a breakdown of where the profit comes from for the years 2016/17 to 2019/20.  It 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 which is commencing this year.  Of course, FBI is only an average for the sector.  The range in performance across farms is vast, and the more efficient units are likely to have made a much better return than these average values show.  Unfortunately, the opposite is also true.  We have made some initial estimates of 2020/21 FBI, shown in light blue on the chart.  These show the Grazing Livestock farm types seeing significant improvement mainly due to the better livestock prices experienced since spring 2020, but these are from a pretty low base.  Dairy farms are also forecast to see a further increase on the back of solid milk prices and a decline in costs.  Lower cereal and other crop output from harvest 2020 are forecast to impact on Cereal and General Cropping farm profits.

Nitrate Vulnerable Zones

Zones for 2021-2024

The Environment Agency has concluded its four yearly review of Nitrate Vulnerable Zones (NVZs) and has recommended the zones should remain the same for the period 2021-2024.  Defra will contact farmers in writing to confirm this.

Grassland Derogations for 2021

The Environment Agency (EA) has said it will try and process grassland derogation applications received between 1st and 31st January 2021.  The statutory deadline for applications was 31st December 2020, but with Defra only announcing the application window was open from 14th December, the EA has recognised this was a very short period.  Anyone requiring a derogation who has not submitted there’s are advised to do so as soon as possible.  The grassland derogation allows, in certain circumstances, farmers to increase the amount of nitrogen from livestock manure applied to a holding from 170kg per hectare to 250kg per hectare.

Scottish Agricultural Wages

The Scottish Agricultural Wages Board (SAWB) is seeking views on a proposed increase to wages.  The proposal is for a single minimum hourly rate for agricultural workers, irrespective of their age or duties.  This would mean the hourly rate would increase by 21p per hour to equal the UK Government’s National Living Wage of £8.91 per hour.

Other proposed headline minimum rates include:

  • overtime rate – during the first 26 weeks of employment will start after 48 hours is worked in the week and at the rate of 1.5 times the agreed hourly rate.  After 26 weeks of continuous employment will start after 39 hours, at the rate of 1.5 times the agreed hourly rate.
  • workers who undertake an SCQF Level 4 or 5 or equivalent in Agriculture / Horticulture will receive £5.58 per hour
  • an additional sum of £1.32 per hour for workers who have appropriate qualifications
  • those working with dogs should receive an allowance of £6.57 per working dog up to a maximum of four dogs.
  • accommodation off-set for accommodation provided by an employer other than a house, to increase to £8.36 per day

Written representations need to be made to SAWB by 27th January 2021.