Category: Policy & Business

CAP Reform

EU Agricultural Ministers have struck a ‘general approach’ on the three-way CAP Reform regulations.  The agreement was reached in the early hours of 21st October, paving the way for trilogue negotiations to kick start with the European Parliament and EU Commission.  One of the key elements will see ‘eco-schemes’, such as precision farming, agro-forestry and organic farming becoming mandatory, with 20% of direct payment funding ring fenced for these activities.  Both Lithuania and Latvia had grievances over the 20%, saying it was too high and would lead to a reduction in Basic Payments for their farmers who were already below the EU average.  Lithuania voted against the package whilst Latvia together with Bulgaria and Romania abstained.  Provisions for capping payments and degressivity remain, with Member States able to cap the basic payment at €100,000 and reduce payments from €60,000.  Coupled support will still be possible similar to the current percentages (13% +2%) of the national budget.

The EU Farm Chief, Janusz Wojciechowski backed the compromise text stating ‘it provides a good starting point in the trilogue discussions and legal certainty for farmers from next year’.  The majority of delegations praised the ‘Herculean’ effort of the German Federal Minister Julia Klockner and her team, whilst others said they would support the text in the ‘spirit of compromise’.  In contrast, environmental groups do not believe the plans go any where near far enough on the environment.  Although no longer directly relevant to UK farmers CAP reform is still important in respect of what support our closest competitors are receiving.  This reform is not especially radical.  Direct payments, in the form of the BPS will still be core of farm support across the EU, with some Rural Development type funding in addition.  The biggest change under the new CAP is that it aims to be less prescriptive – rather than a single EU-wide regime for support, each country will draw up Strategic Plans setting out how it aims to achieve its goals.   

Agriculture Bill Update

The House of Commons has removed the amendments to the Agriculture Bill proposed in the House of Lords that would have enshrined protection of UK food standards in law.   The Commons voted 332 to 279 to reject the Lords amendment that would have required food imports to meet domestic production standards.  Other amendments on incorporating climate change requirements into policy and restricting the use of pesticides in certain locations were also rejected.  The Bill now returns to the Lords.  As their amendments have been rejected once, it seems likely that the current version will be accepted by the Lords.  It will then return to the Commons for a final reading.  It still seems likely that the Act will receive Royal Assent by the turn of year.

ELMs

Defra Secretary, George Eustice, has been giving more details of the transition to the Environmental Land Management scheme (ELMs) in recent interviews and at the virtual Conservative Party Conference.  However, some of his statements have done more to muddy-the-waters rather than provide clarity.

It is clear that ELM will have three tiers, with the recently announced Sustainable Farming Incentive (SFI) scheme (see last month’s article) being the prototype for Tier 1.  This scheme will not be available until 2022, but will be one which most farmers should be able enter.  Mr Eustice outlined this as a way of being able to recoup some of the BPS money which will be lost as we go through the Agricultural Transition.  No details are available regarding the SFI scheme yet.

Also in 2022 and 2023 the aim is to ‘drive-up participation in the Countryside Stewardship’.  The scheme will be simplified, and will be the stepping stone to Tier 2 of ELMs; commitments are likely to be for 3, 5 and 10 years.  Ultimately Tier 2 of ELMs will depend on having a Land Management Plan for the farm which is expected be drawn-up between the land manager and an accredited advisor with a menu of options and payment rates.  It is this element which will be tested under the ELM pilots in 2021.

In addition, the intention is also to roll out more bespoke schemes, again in 2022/23, which require more complex change of land use, such as woodland creation, peatland restoration.  These would form the prototype for Tier 3.

The slightly confusing element is that Mr Eustice referred to a full launch of ELM in 2027 when these ‘prototype’ schemes would be consolidated.  This is at odds with previous statements that ELM would launch in ‘late 2024’.  It has been indicated in the past that not all elements of ELM would be ready until 2027, even if the scheme launched earlier (although it’s never been clear what wouldn’t be ready and how you could launch an incomplete scheme).   It is not clear whether this is what Mr Eustice is referring to, or whether the timetable for ELM really has slipped to 2027.  The consultations on future policy due in November may provide more clarity.

Countryside Productivity Small Grants Scheme

The third round of the Countryside Productivity Small Grants Scheme opened on 7th October for new applications and will close at noon on 4th November.  The scheme offers grants of between £3,000 and £12,000 for agricultural equipment, such as livestock handling systems or precision farming equipment, which have been specifically identified to increase the productivity on farms through:

  • technical efficiency
  • animal health and welfare
  • resource efficiency, or
  • nutrient management

The scheme is simple to apply for and uses an online portal; it gives a set grant for each specific item, meaning quotes are not required.  Applicants must wait to see if they are successful before purchasing or paying a deposit for any items. If applicants have applied in the previous two rounds they can apply again under this one, but the overall limit of £12,000 applies across all rounds.

Further advice and a list of eligible equipment can be found via https://www.gov.uk/guidance/countryside-productivity-scheme#small-grants

This is the final round of the Small Grants scheme, but powers have been included in the Agriculture Bill to allow the Government to provide financial assistance to support farmers to invest in equipment, technology and infrastructure that will not only boost their productivity, but also deliver environmental and other public benefits.  Further detail on the support available from 2021 is expected to be released later this year.

Scotland Permitted Development Rights

The Scottish Government has launched a consultation on changes to Permitted Development Rights (PDR) under Planning.  Feedback is being sought in the following areas:

  • New Agricultural Buildings – including increasing the area allowed under PDR from 465 square metres to 1,000 square metres
  • Conversion of Agricultural and Forestry Buildings to residential or commercial use
  • Peatland restoration
  • Telecommunications infrastructure

The full consultation can be found via https://www.gov.scot/publications/consultation-proposals-changes-permitted-development-rights-phase-1-priority-development-types/ Responses need to be made by 12th November.

Permitted Development Rights remove the need to apply for Planning Permission.  They typically relate to minor, uncontroversial, developments or changes associated with an existing development and it would be very unlikely for Planning Permission to be refused.

Protection for 30% of Land

The Prime Minister, Boris Johnson, has pledged that 30% of the UK’s land area will be ‘protected’ by 2030.  This is part of an international ’30 by 30′ campaign and was announced ahead of a (virtual) UN summit on biodiversity.  The devolved administrations are responsible for land designations in their territories so, by promising on behalf of the whole UK, the Prime Minister is rather exceeding his scope.  In terms of England, around 26% of its land area is currently either protected as being part of a National Park or Area of Outstanding Natural Beauty (AONB).  The extra 4% equates to around 400,000 hectares.  This might come from an extension of existing areas, or completely new designations – for example, National Parks for the Chilterns and Cotswolds have previously been suggested.  There is an ongoing review of the whole system of land designation in England – see https://abcbooks.co.uk/national-park-review/ for more details.

 

Food Prices After Brexit

The British Retail Consortium (BRC) has estimated that, under a No-Deal Brexit, the cost of importing food and drinks products to the UK would increase by £3.1bn.  This equates to £112 per year per household.  The analysis only focuses on the effect of tariffs, and does not include extra non-tariff costs, meaning the final figure would be significantly higher.

Welsh Schemes Update

Further to the Welsh Government’s announcement of £106m worth of funding (see earlier article, Welsh Funding), a number of dates for expressions of interest (EOIs) have now been announced:

  • The Farm Business Grant scheme will open from 9th November to 18th December 2020 and 18th May to 25th June 2021 for grants towards yard coverings; no further details are currently available. The Farm Business Grant is expected to open between 1st March and 9th April 2021 for other items.
  • The Sustainable Production Grant will open between 1st February and 12th March 2021 for EOIs.
  • The Timber Investment Scheme will open for another round of EOIs between 1st March and 9th April 2021.
  • The Co-operation and Supply Chain Development Scheme – (Pilot Actions for Community Cohesion and Green Recovery) will be available from 30th September to 29th October 2020 to submit EOIs.
  • EOIs for Food Business Investment Scheme will be available from 1st October to 29th October 2020.

More scheme details and EOI documents are expected to be available shortly via the Welsh Government website at https://gov.wales/rural-grants-payments

New Covid Support

The Chancellor, Rishi Sunak, has announced a further package of measures to support employment as the original ‘Furlough’ scheme starts to be phased-out.  This comes against a background of a resurgence in cases of Covid-19 across the UK and a reversal of the easing of the lockdown restrictions.

Dubbed the ‘Winter Economy Plan’, the centrepiece of the package is a new Jobs Support Scheme (JSS) to top-up the wages of those who are working reduced hours.  Unlike the previous Furlough scheme, the idea is to focus on viable jobs, but where demand may have temporarily dropped, rather than supporting all pre-Covid jobs.  The scheme starts on the 1st November (when Furlough ends) and precise rules are still being worked on.  In broad terms, employees must work at least a third of their normal hours, which employers will pay for at the usual rates.  For any reduced hours, the cost of these will be split three ways between the employee, the employer and the Government.  Effectively the employee gets paid two-thirds of their salary for the hours they are not working.  There is a cap of £697.92 per month.

The JSS is designed to run for 6 months, and can be claimed along with the previously announced Jobs Retention Bonus.  The new scheme is open to all employers, even those that have not used the Furlough scheme in the past.  Large businesses will have to undergo a financial assessment to ensure they have been affected by the downturn.

Other elements of the package include;

  • extending the Self Employed Income Support Scheme (SIESS).  This will see a lump-sum grant paid for the period from Nov through to the end of January to those eligible for the current SEISS who are continuing to actively trade but face reduced demand.  This is worth 20% of average monthly profits, up to a total of £1,875.  There could be a further round, depending on economic circumstances, for the period Feb 2021 to April 2021.
  • the temporary VAT cut for tourism and hospitality businesses will be extended to 31st March 2021.
  • those businesses that have deferred their VAT payments will not have to pay it in full in a lump sum at the end March 2021 but will be able to make 11 smaller interest-free payments during the 2021-22 financial year.
  • self-assessed taxpayers who deferred their Income Tax payments in July 2020 will not need to pay these until January 2022.  This delay also applies to payment due in January 2021.
  • businesses who have taken out Bounce Back Loans and the Coronavirus Business Interruption Loans (CBILs) will also have more time to pay them back.  The terms of the loans can be extended from six years to ten, with payment holidays and interest-only periods on offer.

Full details of the measures can be found at – https://www.gov.uk/government/news/chancellor-outlines-winter-economy-plan

It has also been announced that there will be no Autumn Budget this year.  The Government believes that the fiscal situation is so uncertain, that any decisions made could quickly be overtaken by events.  The Comprehensive Spending Review (CSR) is still expected to report this autumn.  However, its timeframe may be cut from the usual three years to just one year of funding commitments.  Whether this affects any of the announcements on future farm support policies, especially in England, is unclear (see previous article).  

Brexit Update

As has so often been the case with the Brexit process, it has been yet another tumultuous month in the UK-EU negotiations.  Whilst the Future Relationship negotiations have continued to get bogged down over the summer months, it was the admission by the Northern Irish Secretary (Brandon Lewis) that the UK Internal Market (UKIM) legislation currently working its way through Parliament would break international law that sparked the most controversy.  Not just with respect to the EU but also in terms of the prospect of a trade deal with the US.  Whilst the prospects of a No Deal scenario with the EU have increased, there are signs to suggest that progress continues to be made towards a Deal.

UKIM Legislation Flashpoint

The key flashpoint with respect to the UKIM legislation is the provision for the NI Secretary to disapply parts of the Northern Ireland Protocol (which was agreed in conjunction with the EU Withdrawal Agreement).  This relates to NI to GB trade and the reach of EU State Aid rules if the UK and the EU did not come to a satisfactory agreement.

From the UK side, given its promise of ‘unfettered access’ for NI businesses into the GB market, it objects to the prospect of NI businesses having to complete Safety and Security (Exit) Declarations on shipments into GB.  However, the bigger issue is the potential reach of EU State Aid rules to affect companies operating in GB that have subsidiaries in Northern Ireland.  The EU interpretation of the Withdrawal Agreement suggests that such companies, even if NI subsidiaries are small, would have to apply EU State Aid limits. The UK objects to this and wants to have the freedom to operate an independent State Aid regime from January.  The UK Government has also claimed that the EU has threatened to withhold the granting of third country approval for GB and British companies wishing to export into the EU post-Brexit.

All of this political rancour has eroded trust and caused significant damage.  That said, if one pays attention to the mood music concerning the Joint Committee which oversees the implementation of the Withdrawal Agreement, including the NI Protocol, then progress is being made.  Some believe that these discussions could result in the need for Exit Declarations being waived, overcoming one of the key issues concerning the UKIM legislation.  Most trade experts also agree that the UK will be granted third country status so that firms can continue exporting into the EU, as it granted such status to the UK previously on a temporary basis when the prospects of a No Deal loomed before.  There is also evidence to suggest that progress is being made on the border arrangements required to manage trade from GB into Northern Ireland, although doubts remain as to whether that will be ready on time.

Future Relationship Talks

The State Aid issue is more problematic and remains a key stumbling block in the UK-EU negotiations.  Of course, a State Aid agreement as part of a wider UK-EU trade deal would address the difficulties caused by the UKIM legislation, but that still seems a long way off.  Although there appears to have been some progress in resolving the issues around fisheries, the level-playing-field difficulties persist.  This, of course, will have a major bearing on agri-food in terms of the extent to which UK exports could access the EU market but also in terms of the standards that the UK would accept on imports from elsewhere.

Given that there are now just 98 days until the Transition Period ends, the prospects of a comprehensive Free Trade Agreement (FTA) between the UK and the EU are diminishing.  Instead, the prospects have increased of a more basic FTA that would have zero tariffs and zero quotas on goods (including agriculture) but would offer little in the way of reducing non-tariff barriers (e.g. SPS checks) or dealing with services.  However, to achieve this agreement the EU is still pushing for the UK to adopt a ‘shared philosophy’ on State Aid and to have a robust mechanism to deal with disputes (which is a relaxation of its stance on European Court of Justice (ECJ) oversight) as well as solid enforcement of domestic regulations.  These latter issue have arguably become even more important in the EU’s eyes given the UKIM legislation introduced by the UK Government.

So, although the outline of a ‘landing zone’ is beginning to take shape, it remains to be seen whether the UK Government will agree to this.  It is proposing an entirely independent State Aid regime based on WTO principles concerning such supports.  It also wants to pursue its own trade deals, which as the accompanying article shows, would have significant implications for UK agriculture. 

All the while, the UK is also trying to implement plans to manage cross-border traffic from January. It has recently introduced the concept of a ‘Kent Access Permit’ which hauliers would require before being admitted to travel towards Dover and the Continent.  This is in a bid to reduce congestion as some estimates have suggested potential tailbacks of 7,000 trucks which would cause major disruption.  All of this highlights just how much work still needs to be done in the months ahead.  As reported previously, it is increasingly obvious that businesses need more time to operationalise all of these requirements, particularly if key pieces of infrastructure (e.g. Smart Freight System) are not going to be ready on-time.  Whilst the Transition Period will end in December, one person’s Transition Period extension can be another’s Implementation Period if managed correctly.  Such a period of at least 6 months is needed and is often a feature of other FTAs.