Category: Policy & Business

Scottish Farm Policy

The Scottish Parliamentary session ended, ahead of the 6th May elections, without any further announcements on future farm policy.  It seems that it will be the next Parliament that sets the agenda for future support.  It is perhaps not surprising that the Government decided to kick any changes into the long grass – any new policy is bound to upset one group or another which, ahead of an election, is not good politics.

As Parliament rose, a further set of reports has been published however.  It appears the commissioning and publication of reviews and reports has become a substitute for any actual policy development.  These were from various sector-led climate groups which were set up last year.  These have each produced reports giving advice and proposals on how to cut emissions and tackle climate change within their industry;

  • Arable Climate Change Group
  • Dairy Sector Climate Change Group
  • Hill, Upland and Crofting Group
  • Scottish Pig Industry Leadership Group
  • Suckler Beef Climate Group Programme Board

Each have put forward practical proposals to cut emissions and ‘drive transformation in the agricultural sector’.  The proposals and ideas within the reports will now be analysed by the Scottish Government and will be used to help shape a new rural support scheme.  Further information and the reports can be found via  https://www.gov.scot/news/signalling-a-sustainable-future-for-farming-and-food-production/.  Whilst it may be reading too much into things, the press release that accompanied these reports referred to having new support policies in place by 2026.  This is legal ‘end-stop’ put in place by the Agriculture (Retained EU Law and Data) Act 2020.  It is therefore not a new date, but it is interesting to see the Government referring to this one, rather than 2024 as was set out in the ‘Stability and Simplicity’ consultation.

There has still been no report from the Farm and Food Production Future Policy Group (see https://www.gov.scot/groups/farming-and-food-production-group/).  This was the body set up to advise the Government on future policy.  It was meant to report ‘in 2020’ but nothing has emerged as yet.

Overall, it seems that future Scottish farm policy will be framed to a large extent by the need to address climate change.  The Government published the ‘Climate Change Plan Update 208-2023 at the turn of the year (https://www.gov.scot/publications/securing-green-recovery-path-net-zero-update-climate-change-plan-20182032/).   Chapter 7 of this relates to agriculture.  This sets out some broad policy principles that are likely to apply to farm support as and when firm proposals are finally published.

 

 

 

Sector-led

Updated Water Rules for Wales

New Regulations to protect water from pollution came into force in Wales from 1st April 2021.  The rules, which were only published about a week before their introduction, puts the whole of Wales into a Nitrate Vulnerable Zone (NVZ).  The Water Resources (Control of Agricultural Pollution) (Wales) Regulations 2021, apply to all land in Wales, but transitional periods have been provided for certain requirements where land was previously not within an NVZ.

For those already in an NVZ all the rules (see link below) came into force from 1st April 2021.  For those previously not in an NVZ, from April 2021, they must follow the requirements for:

  • Storage of silage;
  • Notifying Natural Resources Wales (NRW) of the construction of any new substantially enlarged or reconstructed silo or slurry storage system;
  • Controlling the spreading of nitrogen fertiliser at high risk times and high risk areas;
  • Incorporating organic manures into bare soil or stubble; and
  • Closed periods for spreading manufactured nitrogen fertiliser.

Further requirements (for those previously not in an NVZ) are applicable from 1st January 2023 and 1st August 2024.  The 96 page guidance can be found via  https://gov.wales/sites/default/files/publications/2021-03/water-resources-control-of-agricultural-pollution-wales-regulations-2021-guidance-for-farmers-and-landmanagers.pdf

Mixed Fortunes for Incomes

Farm Incomes in England show a mixed picture for the past year.  The main sectors almost all show big changes on the previous year, but in varying directions.  The winners were Grazing Livestock and Poultry whilst the Arable sectors, Dairy and Pigs all showed large declines in returns.

The data comes from the Farm Business Survey (FBS).  Just released are forecasts for Farm Business Income (FBI) for the 2020/21 year (the years run approximately from Feb to Feb).  Final figures will be released in November.  FBI is effectively farm profit.  The full set of statistics can be found at https://www.gov.uk/government/statistics/farm-business-income.

As seen in the table below, both Cereals and General Cropping farms are estimated to show big falls in FBI compared to the previous year.  This is perhaps not surprising as the latest figures cover the 2020 harvest which saw reduced planted areas and lower yields.  Dairy farm profits have been affected by higher costs, notably feed, even though milk prices were largely stable during the year.

Livestock farms both in the lowlands and uplands have benefitted from much improved prices for beef and sheep.  Pig producers have seen lower values.  Coupled with rising feed prices this has resulted in a big downwards swing in FBI.  Poultry farms have also had to face increased feed prices.  In this case however, these have been offset by better egg and broiler values.

Farm Rents

Agricultural rents in England remain broadly stable according to the latest figures released by Defra.  Whilst ‘full’ Agricultural Holdings Act tenancies showed a small (4%) increase, overall rents under Farm Business Tenancies fell by the same amount.

The Farm Rents publication uses data from the Farm Business Survey.  Due to the time taken to collect the data, it is somewhat historic.  The figures just published are for the 2019/20 year (shown as ‘2019’ in the table below).   Most farm types showed little movement in values.  However, beef & Sheep farms in the LFA recorded a, perhaps surprising, uplift in rents for both AHAs and FBTs.  There was a move downwards in rents for both Cereals and General Cropping, perhaps reflecting tougher business conditions in the arable sector.   Lowland cattle and sheep farms have seen quite a drop in FBT rents, again perhaps reflecting the more challenging conditions, particularly in the beef sector in the years covered by the survey.  However, it should be noted that the figures often show sharp year-on-year movements and one year’s data is not really enough to discern a trend.

Looking to the future it would be expected that, as the BPS is phased-out, then overall rents will fall.  

Rural Funding

With Brexit, the Rural Development programmes no longer operate in the UK.  The environmental elements have largely been taken on under national ‘farm’ support policies.  However, there is no direct replacement for the economic development and social funding under such schemes as LEADER or the Growth fund.  The UK Shared Prosperity Fund (UKSPF) is designed to (partly) fill this gap.  However, up to now, there was little detail and no funding available.  This is now slowly starting to change.

The UKSPF replaces both Rural Development and EU Structural Funding.  As such, it is not just targeted at rural areas but all regions that are lagging behind.  This includes ex-industrial areas, coastal towns, deprived areas and rural communities.  The UKSPF is due to launch in 2022 with more details later this year.  Whether this will involve ‘business grants’ for things like farm diversification is not yet clear.  There seems more of a focus in investing in ‘people’ under the UKSPF – training, skills, employment help etc.  

Ahead of the launch of the UKSPF, the Government has announced an interim scheme.  The UK Community Renewal fund will have a £220m budget.  This will be targeted at 100 areas selected based on their poor economic resilience.  Many of these are rural or have significant areas of countryside.  Project proposals have been invited from local organisations (mainly Local Councils probably), with programmes starting in the summer and completed by the end of March 2022.   Each Council will draw up their own scheme so, at present, it is unclear what funding opportunities there might be for specific businesses or projects in any particular area.  We will keep you informed as the scheme progresses.  

BPS and Environment Scheme Claims

England

The BPS application window and the Countryside Stewardship (CS) and Environmental Stewardship (ES) annual revenue claim submission period is now open.  The deadline for submission for all three schemes, without incurring a penalty is 17th May this year, as 15th May falls on a Saturday.  This includes Young and New Farmer applications and is also the deadline date for transferring entitlements in England to be used for the 2021 claim.  Applications or revenue claims made between 17th May and 11th June will be accepted but will receive a penalty for each working day late.  Any submitted after 11th June will not be processed.

Certain changes can be made to a BPS application which is submitted by 17th May, without penalty, until 11th June (in previous years the date was 31st May).  This means, in some circumstances, if the deadline is close, it might be worth submitting the claim and making the amendments afterwards.  For CS revenue claims made by 17th May, certain amendments can be made up until 31st May without penalty.  A few changes have been made to the BPS scheme rules this year,

  • A reminder that all three of the Greening requirements – EFAs, Crop Diversification and Permanent Pasture retention, have been removed.  But farmers must still meet the cross-compliance rules including on hedges and buffer strips etc.  With regards to Permanent Pasture, even though the Greening rules have been abolished, it must not be ploughed if it is a Natura 2000 site, or has not been cultivated for 15 years or is semi-natural grassland; an Environmental Impact Assessment (EIA) screening remains a requirement in such cases.
  • Cross Border applications have been abolished.  Only land located in England should be applied for on the BP5 form or through Rural Payments online.  Land located in other parts of the UK must claimed via the appropriate devolved administration.
  • The entitlement usage rule has also been abolished.  From 2021 onwards, farmers do not have to use all their entitlements in one claim, at least once in every two years to avoid using them.  Unused entitlements do not have to be leased or sold.
  • There will be no option to be paid in Euros.  Entitlement values will be shown in Sterling and payments will be calculated in Sterling rather than using an exchange rate.

There have been a few simplifications to the Rural Payments online site, mainly due to the removal of the Greening requirements.  This means the EFA section of the application ‘form’ has been removed, the tab to ‘reduce the EFA area’ has also gone and the ‘Declarations’ are a lot simpler; no Organic Exemption required, payment in Euros removed and Cross Border farms.  The Hedge View remains, partly because it was so costly to design, but also as it may be useful for agri-environment scheme applications.  But reference to the hedge being available for EFAs has been removed.

All guidance and forms required to make a BPS application can be found at https://www.gov.uk/government/collections/bps-2021

Guidance on making a CS revenue claim can be found at https://www.gov.uk/guidance/countryside-stewardship-2021-how-to-submit-a-revenue-claim-online

Wales

The Single Application Form (SAF) claim window is now open.  It closes on 17th May.  Applications can still be submitted until 11th June but these will receive late penalties.  Any claims received after 11th June will not be accepted.  The deadline date for transferring entitlements in Wales, to be used for the 2021 claim, is the 15th May.  The submission date for BPS Supporting Documents (except for growing Hemp) has been extended until 31st December 2021.  But for other schemes (Glastir), SAF deadlines continue to apply.  Other changes in Wales include;

  • Greening has been removed.  Although Environmentally Sensitive Permanent Grass (ESPG) is now protected as part of Cross Compliance.
  • The Negative List has been abolished.  This was the Active Farmer Test for businesses operating other activities such as airports, water works, railways etc. which rendered the claimant ineligible.

Scotland

The Single Application Form (SAF) window opened on 15th March and closes on 17th May 2021.  The entitlement transfer window closes on 2nd April.  In Scotland, a reminder that the Crop Diversification (CD) requirements under Greening have been abolished from 2021.  Claimants are advised to ignore any reference to the CD requirements on the claim form.  (Rural Payments Scotland is considering removing the references for next year’s claim.)  But Ecological Focus Areas (EFAs) are still required in Scotland.

 

 

AHDB Report on Future US Trade Deal

The latest AHDB Horizon report, published on 18th March, examines the potential impact of a trade deal with the US.  It acknowledges that, being an agricultural powerhouse, any enhanced access for US suppliers into the UK would pose competitive pressures for UK farming.  However, it suggests that fears of a glut of cheap food, produced to lower standards flooding the UK market might be misplaced.

The report highlights the adaptability of US supply-chains to meet varying standards, if there are sufficient margins.   Furthermore, a market of 330 million affluent consumers will also present opportunities for high-quality UK exports. Indeed, exports of British products such as regional cheeses and whisky have risen significantly in the past decade and in the past year, the US market for beef exports has reopened.

Whilst a US trade deal would have a significant impact on UK farming, it is unlikely that an agreement will be concluded any time soon as the Biden administration has more pressing priorities.  In the more immediate future, trade deals with Australia and New Zealand are much more likely to be finalised.  These too will have a significant impact on UK farming and the industry needs to prepare for these as a priority.

The AHDB Horizon report can be accessed via: https://ahdb.org.uk/uk-us-free-trade-agreement-impact-on-uk-agriculture

Trade Update

The Office for National Statistics (ONS) recently published UK trade data for January 2021.  Unsurprisingly this has revealed significant drops in food and live animals trade with the EU.  Whilst the 64% drop in exports to the EU captures the headlines, imports from the EU have also dropped by 24%.  However, there are multiple factors at play and it is still too early to tell with accuracy how much trade with the EU will change as a result of Brexit. 

As the chart below also reveals, there was a significant increase in trade with the EU from September 2020 as businesses stockpiled in advance of potentially significant border friction arising from a No Deal Brexit or a bare-bones trade deal.   As it happened, the Trade and Cooperation Agreement (TCA) was comprehensive in the sense that there were no tariffs or quotas on agri-food trade; however, it did not include a veterinary agreement and left exporters to the EU with just one week to prepare for border controls.  With the UK phasing-in controls on imports from the EU as a result of its Border Operating Model, the implementation of which has now been delayed until the year-end / early 2022, it was evident that UK exports to the EU would suffer more in percentage terms than imports.  The January data has borne this out. 

UK Food and Live Animals Trade with EU and Non-EU Countries – January 2010 to January 2021 (£ Million)

Source: ONS

Looking at the HMRC trade data (the source of the ONS figures) in further detail shows that exports of chilled beef to the EU have declined by 59% in January 2021 versus January 2020.  Sheep and goat meat exports to the EU are down by 29%, pig meat exports to the EU are 78% lower, whilst butter and cheese exports are down by 67% and 61% respectively versus a year earlier.

Whilst the data are of concern, more time is needed before definitive conclusions can be drawn.  Although there is still significant friction on trade and many of the TCA’s so-called ‘teething problems’ are in fact permanent fixtures, the situation has improved since January and traders who are well-organised are getting through the EU border controls. That said, given the complexity of UK-EU supply-chains, high value food products with multiple ingredients are experiencing significant issues, many UK traders are now looking at setting up distribution hubs and some processing facilities in the EU.  This will permit them to send loads to a single destination, thus cutting down the paperwork significantly.  From there, if further processing is needed, it will take place in the EU before moving to its end destination. 

It will be mid-year before a definitive picture will emerge as agri-food trade is often lower during January to March.  Trade should recover somewhat but probably not to the same levels as before.  The significant decline in EU imports also presents opportunities for domestic suppliers to capture a greater proportion of the UK market, particularly in perishable agri-food products.  This will mean that there will be winners as well as losers as a result of the TCA.  That being said, supply-chains need time to adapt and such opportunities cannot be realised overnight. 

Morrisons Net Zero Carbon Commitment

Morrisons has pledged to be the first supermarket to be supplied by net-zero farms.  The supermarket has said it will work with its 3,000 suppliers to help them become zero carbon emitters by 2030.  Waitrose has also committed to be supplied by net zero farms by 2035.  Morrisons expects eggs will be the first products to reach this status and this could be as early as 2022.  Lamb, fruit, vegetables, pork and beef will then follow.

Morrison’s Livestock and Produce Teams will initially work with a small number of their suppliers to create net zero carbon farm ‘models’.  Once these ‘blue prints’ have been established they will be rolled out across all of the retailer’s suppliers to enable all food to be produced in a climate friendly way.  The models will look at reducing carbon through better genetics and low food-mile feed, but also by using renewable energy, low emission housing and using less fuel and fertilisers.  Carbon offsetting will also be modelled through planting trees, hedges, improving soil health, restoring peatland and planting grassland & clover.  The retailer is also looking at how ELM can fit into these models.

In developing the programme, Morrisons has said it will work with universities, vets, farming & countryside organisations and carbon experts.  The retailer will also team up with Harper Adams University to set up the world’s first School of Sustainable Farming to offer training to farmers.

Reducing carbon in primary food production forms a key part of Morrison’s plan to become net zero for emissions, as a entire company, by 2040.

Trade & Agriculture Commission Report

The Trade and Agriculture Commission (TAC), the body set up to advise the Government on future trade deals, has published its ‘final’ report on 2nd March.  However, as the TAC will soon move onto a statutory footing, giving it a greater role in evaluating future Free Trade Agreements (FTAs), we will be hearing more from this body in the future.  This report, therefore, is likely to be the first of several.

The report itself is a well-polished document and sets out how much UK consumers are currently spending on food and drink (£46.60 per person per week in 2018/19), the volume of food consumed by food group, and the origins of food being consumed (55% of food consumed is grown and produced in the UK).  It also outlines the implications of leaving the EU, highlighting the disruption caused to devolved regions from friction on UK-EU and GB to NI trade as well as the changes in regulatory authority from the European Food Safety Agency to UK agencies.  It urges that these issues need to be resolved quickly.

The TAC proposes an overarching vision for UK agri-food which centres on having an ambitious trade policy that ‘contributes to a global farming and food system that is fair and trusted by all its participants, including farmers, businesses and citizens, from source to consumption’.  It also calls for food to be ‘safe, healthy, affordable, produced in a way which does not harm the planet, respects the dignity of animals and provides proper reward for those involved.’

Linked with this, the TAC suggests six guiding principles to develop a value-generating and values-driven UK trade policy. These are;

  • Promote the liberalisation of trade, to positively influence innovation and productivity, and price and choice for consumers
  • Prioritise a thriving domestic agri-food sector supported by complementary domestic and trade policies
  • Ensure that agri-food imports meet relevant UK and international standards on food safety and biosecurity
  • Match tariff-free market access to relevant climate, environment, animal welfare and ethical standards, remedying competition issues arising where permitted imports do not meet relevant UK and international standards
  • Lead change, where needed, to the international framework of rules on trade and relevant standards, to address the global challenges of climate change and environmental degradation
  • Support developing countries in accessing the full benefits of the global trading system.

The guiding principles reveal the balancing act that the UK is trying to achieve by liberalising trade on the one hand but safeguarding standards on the other.  The ambition of matching tariff-free market access over time provided standards can reach relevant UK/international requirements is arguably the most complex.  It suggests some form of ‘nuanced’ tariff system which could potentially add (yet) another layer of bureaucracy to an agri-food sector already struggling to implement the requirements of the UK-EU Trade and Cooperation Agreement (TCA).  Much will depend on how these high-level principles are implemented in practice as they are open to differing interpretations. 

The report sets-out 22 recommendations for the UK Government. These can be grouped into five areas;

  1. Develop a bold, ambitious agri-food trade strategy: aligned to a broader UK Food Strategy that would seek to provide a unifying logic and direction for all UK devolved regions, Government departments and industry stakeholders . It would also strike and appropriate balance between liberalising trade and safeguarding key standards. This is certainly something that the UK should aspire to. However, it is especially challenging given that the interests of UK Devolved regions looks set to diverge further as each implements its own agricultural policy and Northern Ireland remains subject to EU Single Market rules for agri-food goods.
  2. Provide international leadership on key issues such as climate change: the opportunities arising from hosting the G7 summit and COP26 this year should be grasped to show the UK’s leadership credentials not just on climate change but on animal welfare, labour rights, ethical trading and combatting anti-microbial resistance. One of the UK’s key objectives from COP26 should be to develop a more robust methodology to accurate net emissions from each farming sector (i.e. gross emissions less on-farm sequestration). 
  3. Continue to strengthen the UK’s approach to negotiating and scrutinising trade agreements: lessons from the TCA should be applied elsewhere.  Future trade deals need comprehensive impact assessments considering both UK-wide and devolved issues. These should also consider qualitative impacts where quantitative measures are lacking. Presumably, the TAC would play a key role here once its Terms of Reference have been agreed. 
  4. Enhance export promotion, market access and marketing: the TAC highlights the UK’s food ‘offer’ being one of quality, traceability, heritage, safety and high environmental and welfare standards.  It urges that opportunities to grow exports beyond the negotiation of trade agreement need to be embraced energetically by the UK Government.  Arguably, the UK is behind the likes of New Zealand, Netherlands and Ireland in this regard and such initiatives need to be embraced at the highest levels in Government if they are to make an impact in key markets such as China.  The TAC rightly highlights the potential offered by ‘heritage’.  Globally, consumers are increasingly seeking ‘experiences’ and authentic British produce is highly-regarded in many regions.  In this era of Covid-curtailed travel, food is a key means to experience another culture. The strong country associations of iconic products such as Stilton, Welsh lamb and Scotch beef have the potential to be a major source of competitive advantage.
  5. Align trade, aid and climate change policies relating to agri-food: so that these work together to strengthen UK relationships with developing countries over time, to diversify Britain’s food supply, support its food security goals and overseas economic development. Aligning these policies is worthwhile, but arguably this policy alignment should be wider and include domestic agricultural policy which was not given much emphasis by the TAC but is a crucial part of the policy framework.

The key difficulty for the TAC was that it was set-up in July. By then, negotiations with the US, New Zealand and Australia were already underway.  Recently, the TAC Chairman admitted that he had no visibility of how those negotiations are going.  This is a concern because what has already been negotiated with these countries, particularly the US, might contradict what the TAC is recommending.  The true litmus test will be the extent to which the UK Government and Parliament takes on board the TAC’s recommendations when concluding and ratifying FTAs with other countries.  Time will tell as to how much influence the TAC ultimately has in practice.  The report is accessible via:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/969045/Trade-and-Agriculture-Commission-final-report.pdf