Category: Policy & Business

Free Trade Agreements Update

Although the UK-EU negotiations dominate the trade landscape, the UK is undertaking several other negotiations with non-EU countries which arguably could have as great an impact on the British food and farming sector.

UK-Japan Trade Agreement ‘In Principle’

On 11th September, the UK Government announced that it had secured a free trade deal with Japan; its first as a newly-independent trading nation.  Whilst a key achievement, it is noteworthy that the deal has only been agreed ‘in principle’ and a full text is anticipated in October.  Furthermore, whilst additional access was granted, it largely replicates the provisions of the EU-Japan trade deal.

Although it is difficult to tell precisely what benefits such an agreement will bring until the full text becomes available, the UK Government is keen to highlight increased market access for products such as Stilton, it also claimed increased opportunities to export products such as malt (Japan is already the leading export market for UK malt).  Furthermore, significant tariff reductions in terms of pork and beef were also cited and this could certainly create some niche export opportunities.  The other significant gain highlighted by the UK was Japan’s agreement to recognise 70 Geographic Indicators (GIs), it currently recognises just seven.

So, there have been some gains from a UK perspective but these are minimal when compared with Britain’s current trade with the EU.  It is also likely that part of the reason why the full text has not been published yet is that Japan is keen to ensure that its supply-chains are protected under a UK-EU trade deal, so that cars produced in Japanese-owned manufacturing plants in Britain can continue to enjoy good access to EU markets and would not be subject to arduous Rules of Origin requirements.

UK-US Trade Talks

The fourth negotiating round was completed recently and talks have now progressed towards dealing with more substantive issues such as Sanitary and Phyto-sanitary (SPS) regulations.  But a trade agreement is still some way off and will not be happening before the US election on 3rd November.  This is significant, particularly because if the Democrats’ candidate (Joe Biden) wins the election, any UK-US trade agreement would be heavily contingent on the UK upholding its commitments arising from the Good Friday Agreement (GFA).  Here, the proposed UKIM legislation is perceived by influential voices on Capitol Hill as contravening the UK’s commitments under the GFA.  Without a trade agreement with the US, the UK’s ‘Global Britain’ aspirations will be severely deflated.

Another negotiating round is anticipated mid-to-late October and it is likely to be next year at the earliest before a full trade deal is negotiated.

Australia and New Zealand Talks

These are also continuing to progress with second negotiating round with Australia commencing on 21st September.  Arguably, a trade agreement with these countries could have a bigger impact on UK farming than a US deal; particularly given the significance of these countries’  beef and sheep exports and dairy exports in the case of New Zealand.

The Department for International Trade has already acknowledged that achieving greater access to the UK market for agricultural produce is a key focus for both Australia and New Zealand and this will mean that the UK will need to offer concessions.  This, in turn, means greater competition for British farmers and the DIT’s analysis for the Australian FTA concedes that in the longer term output from UK agriculture and food processing would decline (DIT’s analysis for New Zealand contains similar projections).  Therefore, these negotiations need to be closely watched.

Roll-Over Agreements

The final issue is ‘roll-over agreements’.  These are deals ensuring continuity of trade under previous FTAs signed by the EU when the UK was a Member State – 40 FTAs covering 70 territories.  These are continuing to progress, with the UK concluding 19 agreements covering 50 territories.  This includes Switzerland, Chile, South Korea and Israel.  Another 18 are being negotiated including with Canada, Mexico, Turkey, Ukraine, Egypt and Vietnam.  An agreement with Canada is anticipated in October and similar to the CETA agreement with the EU is likely to result in increased access for Canadian beef in the UK market.  Otherwise, these roll-over agreements shouldn’t affect agricultural markets very much as they are all about maintaining the status quo for the UK in trade terms.   

Higher Level Stewardship

HLS agreements due to expire in 2021 could be offered a one-year extension.  Natural England (NE) will initially carry out an assessment to see if the current agreement is suitable for an extension.  If it is, NE will contact the Agreement holder to make sure the contract is still meeting the rules an continues to provide the right outcomes; this may involve a site visit.  Those who do not wish to extend can inform NE, and they are then able to apply under Countryside Stewardship.

If the current agreement meets all the extension criteria, a recommendation will be made to the RPA; these should be completed by December 2020.  The RPA will make the final decision as to whether to extend the agreement.  If found suitable, an Extension Offer will be sent, this will not include any incomplete capital works and will be amended if some of the original options are ineligible to extend;  agreement holders are therefore advised to read the new offers carefully.  Acceptance declarations and supporting evidence will need to be returned to RPA by the date shown in the covering letter, this is usually only 20 days though.

HLS agreements that commenced in 2009 and 2010 and have already been extended once or more will also be offered a further one year extension provided they continue to meet the criteria.  Further information can be found on the GOV.UK website via https://www.gov.uk/guidance/higher-level-stewardship-hls-2021-agreement-extension

John Nix Pocketbook

The Latest Edition of the John Nix Pocketbook for Farm Management has just been published.  The ‘bible’ of farm management has been comprehensively updated and also continues to evolve with a new section on Greenhouse Gas emissions in the latest, 51st, Edition.  For more details go to – www.thepocketbook.co.uk.

Future Support in England

The farming industry in England will have to wait a little longer to get more details on the Agricultural Transition.  In previous articles we have outlined how a Defra consultation is expected that will cover the ‘delinking’ of the BPS, lump sum payments, and deductions beyond 2021.  This was always billed as coming ‘in the autumn’ and we had hoped for September (it was originally planned before the end of 2019).  It now seems that it could be late October or November before it emerges.  This is quite unhelpful for those trying to plan future land occupation arrangements.  

The reason for the delay is that agricultural policy has become entangled in the Comprehensive Spending Review (CSR).  This sets the budgets for Government departments (and the block-grants to the devolved administrations) for the next three years.  As farm support is no longer funded by the CAP, it comes from Defra’s budget, which is ultimately decided by the CSR.  Of course, it might be pointed-out that the CSR should make no difference to agricultural support as the Government gave a ‘funding guarantee’ at the last Election.  This stated that farming would receive ‘the same level of support until the end of the current Parliament’ (2024).   The suspicious might conclude that subsequent events, i.e. Covid, has rendered this guarantee less robust.  Until there is uncertainty over the farm support budget Defra is unable to make key decisions on the Agricultural Transition – such as what deductions will apply to the BPS after 2021.

In England, the Agriculture Bill mandates that multi-annual ‘financial assistance plans’ will have to be drawn up.  This will set out what support the Government intends to operate under its financial assistance powers.  The first plan will run for seven years from 2021, and then each plan will be for a five-year period.  We are expecting the first plan before the end of the year, and this should provide some clarity on farm support funding.  This could well arrive as part of a package of policy documents along with the Agricultural Transition consultation.

Adding to the reading list might be further consultations.  One looks set to be on Regulation and Enforcement.  A new regime will be required to replace Cross-compliance, which becomes ineffective once the BPS is delinked from land.  This is unlikely to see much of a reduction in the red-tape burden on farming as much of Cross-compliance is already law.  However, the way it is enforced (legal sanctions rather than BPS fines) and the administration of it (more proportionality and ‘common sense’?) will be different.  It also has linkages to ELM and animal welfare payments.  These will only pay farmers for going beyond the ‘regulatory baseline’.  Where that baseline is set is therefore quite important.

The final area that could be consulted on is the support schemes that aren’t either ELM or BPS.  This would cover programmes in areas such as productivity, animal health & welfare and farmer advice & training.  One new idea that seems to be gaining ground in Government is a new scheme called the ‘Sustainable Farming Incentive’.  Details are sketchy at present, but the idea appears to be for an interim scheme to run alongside Countryside Stewardship until such time as ELM is fully launched (2024).   The SFI would cover areas that will be included in ELM, such as soil health and emissions, that are not well supported under CS.  It would seem logical that the SFI would close when ELM is fully operational, although some reports have suggested it would continue to operate ‘alongside’ ELM.  There may be more detail in the upcoming consultations. 

In terms of ELM itself, the national Pilot Scheme is meant to open for Expressions of Interest (EOI) in March 2021 with applications commencing in April.  Presumably, in order to express an interest, some details of the pilot scheme will need to be published beforehand – perhaps February?  Whilst it is always possible for the scheme to alter between the Pilot stage and its full roll-out in 2024, this will at least give some indication of what ELM will look like in areas such as options, management requirements and payment levels.

Overall then, probably plenty for the sector to digest over the next few months.

 

No BPS Change in Wales Until 2024?

It seems increasingly likely that the BPS in Wales will continue relatively unchanged for the next three years.  We had previously thought the replacement Sustainable Farming Scheme (SFS) would be introduced for the 2022 year – indeed we wrote this last month.  However, statements from Leslie Griffiths, Minister for Environment, Energy and Rural Affairs, suggest that the timetable will be much later.

There has been no ‘official’ release to this effect, but in a Senedd debate where the Minister gave an update on Welsh farm policy she stated on a number of occasions that it was ‘unlikely’ that the new schemes would be introduced before 2024 (see https://record.assembly.wales/Plenary/6394#A59160 for a transcript).  The Welsh powers under the Agriculture Bill only run to the end of 2024 so a new Welsh Agriculture Act will be needed anyway.

In addition, Ms Griffiths indicated that there would be a significant transition period from the current arrangements to the new ones.  A White Paper setting out the current administrations thoughts on future policy is set to be published before the end of the current Senedd term (May 2021).  It is unclear how much detail on the new SFS this will provide.  Legislation for the new Welsh Agriculture Bill will be brought forward in the next Senedd term after a full economic impact assessment of the plans is produced (due summer 2021).

This timing fits in with recent announcements.  The consultation on ‘Simplifying Agricultural Support’, reported on last month, looked to be ‘overkill’ for schemes that were only running for one more year.  It makes more sense in the context of schemes that will last three years (2021, 2022 and 2023).  The announcement on Rural Development funding set out in an earlier article also covers the same three-year period.  

 

Glastir

Expiring Glastir Advanced and Commons contracts will be offered a one-year extension.  The Welsh Government has confirmed Glastir Advanced and Commons contracts which began in 2016 and will be finishing on 31st December 2020 will be offered a further year until the end of 2021.  The new contracts will be based on the management options being delivered in the final year of the Agreement; no capital works will be included and agreement holders do not have to continue with the original Glastir Entry options.  Those Glastir contracts which were renewed in 2018 and 2019, and are due to expire in December 2020, will also be offered a further one-year extension.  This will be on the same land and options as under the current renewed contract.  All extended contracts will be offered via RPWonline and agreement holders will have 21 days to accept the offer otherwise the Agreement will end on 31st December 2020.

Welsh Funding

The Welsh Government has announced it will be making £106m of funding available for the rural economy over the next three years.  This will allow some of the current Rural Development Programme (RDP) schemes to open for new rounds.  The Government recognises many businesses have been hit hard by the Covid-19 pandemic, but investment must support a ‘green recovery’.  When allocating funding the Government has taken this into consideration.  The plans include;

  • Woodland creation and restoration – The Glastir Woodland Creation and Glastir Woodland Restoration grants will receive £10m of funding.  The Timber Business Investment scheme will receive a further £2m
  • Supporting businesses to improve their technical and environmental performance – The Sustainable Production Grant and the Farm Business Grant have been allocated £8m and £8.5m respectively in funds.  £3m of support will be available for the Glastir Small Grants – Water, and also for the Small Grants – Carbon and Landscape & Pollinators combined.  In addition the Farming Connect Advisory Service will receive £1.875m to continue to give independent one-to-one and group advice.
  • Supporting food businesses, including delivery of the food and drink sector Covid-19 Recovery Strategy – The Food Business Investment scheme will receive £23m in funding and there will also be support for Food Tourism (£3m) and the Food Covid Recovery Plan (£3.5m)
  • Building resilience into our natural resources and improving biodiversity – £16.5m will be available through the Enabling Natural Resources and Wellbeing scheme

The full list of schemes and funds available for each can be found via https://businesswales.gov.wales/walesruralnetwork/sites/walesruralnetwork/files/Rural%20Development%20Programme%202014%20-%202020%20Commitment%20of%20Funds%20-%20ANNEX%20-%20En.pdf.  The schemes will be funded through a combination of EU RDP and domestic funds; £53m is still available from the EU.

UK Internal Market Legislation

The negotiations on a post-Brexit trade deal have been thrown into disarray as the UK has threatened to unilaterally override parts of the Withdrawal Treaty.  Boris Johnson’s Government proposes to use the Internal Market Bill currently progressing through Parliament to amend the implementation of the Northern Ireland (NI) Protocol.  This is despite the fact that the Treaty and Protocol were agreed by the Government less than a year ago, and that breaking Treaty obligations contravenes international law.

The EU was quick to react and told the UK that it must withdraw the relevant parts of the legislation before the end of the month.  The UK has, so far, declined to do this.  However, talks on a future Free Trade Agreement (FTA) will continue for now, although relations between the two sides have reached an all-time low.

The crisis began when the UK Government published its draft legislation on the UK Internal Market (UKIM) on the 9thg September.  This was subject to a consultation during July and August (click here for article summarising the Government’s initial proposals).  Whilst the draft legislation mainly deals with the functioning of the UKIM in a post-Brexit world, various elements impact on the implementation of the Northern Ireland Protocol.  The UK Government claims that this is largely an exercise in ‘clarification’ although a Minister had to admit in Parliament that the proposals were in breach of the Withdrawal Treaty obligations.  A senior UK Government legal adviser has resigned over the plans.

The UKIM legislation affects the NI Protocol in three main ways:

  1. Access from GB to NI: goods from GB entering into NI have to abide by EU standards based on the provisions of the Protocol. The UKIM legislation is not proposing to ignore that, however, in implementing the Protocol the UKIM legislation states that UK authorities have to show special regard for, and strengthen the integrity of the UK internal market. As things stand, this is not a controversial proposal and it is understandable that the UK would seek to uphold the integrity of its internal market. That said, it will be interesting to see how the UK defines goods that are ‘at risk’ of entering into the EU Single Market, which may be ineligible to do so if they are not covered by a Free Trade Deal or do not have the appropriate tariffs applied in a No Deal scenario. This is especially relevant for agri-food products and more detail on this is anticipated in the Finance Bill due to come before Parliament later in the year.
  2. Trade from NI to GB: here, the promise by the UK Government to give “unfettered access” for NI businesses to the GB market comes into play. The UKIM draft legislation gives the NI Secretary of State the powers to modify or disapply sections of the NI Protocol that requires NI businesses to complete additional EU paperwork (e.g. export summary declarations) for goods sold to the GB market. These intentions are causing concerns in EU circles as they are at odds with what the EU has understood to have been agreed under the Withdrawal Agreement. Exactly how the completion of this additional EU paperwork would operate in practice has still to be defined. Much of the information required will already be contained in commercial documentation. So, it should be possible to address this issue with information the NI businesses already compile, particularly as there is a Trader Support Service also available to NI businesses.
  3. State Aid Rules: this is perhaps the most controversial aspect as it continues to be a sticking point in the future relationship negotiations. Article 10 of the NI Protocol specifies that EU State Aid Rules apply to all trade relating to the Protocol. This includes GB companies with bases in NI and means that EU State Aid Rules reach into GB which the UK Government objects to.  The UKIM legislation would again give powers to the NI Secretary of State to modify or disapply these powers, despite the UK Government’s own admission that these powers would contravene international law, as the Withdrawal Agreement is now legally binding. This has caused the most alarm on the EU side and the negotiations are very much at a make-or-break point.  

Moving away from the Brexit-related aspects of UKIM, this legislation will be important for agri-food businesses operating throughout the UK.  Goods produced in one part of the UK (e.g. Scotland) and meeting the required standards will be mutually recognised when placed on the market in another part of the UK (e.g. England).  That said, if products produced in England are subject to lower standards than those applying in Scotland, the non-discrimination principle would mean that these products cannot be prevented from being offered on sale in Scotland.  Accordingly, this gives the potential for products produced to a lower standard to be supplied across the UK and this has drawn sharp criticism from the devolved administrations as they believe it undermines any powers which might be repatriated to them (from Brussels) as a result of Brexit. 

The draft UKIM legislation is accessible via: https://publications.parliament.uk/pa/bills/cbill/58-01/0177/20177.pdf

The introduction of the UKIM was always going to be controversial but recent statements in Parliament by the NI Secretary of State has raised tensions to a new level, particularly concerning UKIM’s incompatibility with international law and its implications for the UK-EU negotiations. Given how controversial the Brexit negotiations have been, it was always likely that a flashpoint such as this would emerge, especially as we are reaching the climax of the talks. The prospects of a No Deal Brexit have increased. That said, the controversial points can still be ironed out in the remaining negotiations – if there is the will on both sides to achieve this. Also, it is worth pointing out that the UKIM legislation is likely to be modified significantly as it passes through Parliament and the House of Lords could potentially delay its passing by a year as it will have grave concerns about its current incompatibility with international law. What is clear is that even if an agreement is reached between the UK and the EU, significantly more time will be needed to implement any agreement. Whilst the Transition Period might end on 31st of December, a further Implementation Period is now necessary, such periods are common in other Free Trade Agreements. 

BPS 2020 Payments

Defra has reminded claimants that the BPS payments for 2020 will converted from Euros to Sterling at a rate of €1=0.89092; the same as last year and all payments will be made in Sterling.  But the final rates will not be available until November, as entitlement values change on a yearly basis depending on the number claimed.  However, this is unlikely to change payments a great deal.  The biggest change compared to last year is that the Financial Discipline reductions will not apply in 2020 (1.4327% in 2019).  Therefore the estimated rates set out in Key Farm Facts are likely to be pretty close.

Scotland Capital Grant Scheme

The Sustainable Agricultural Capital Grant Scheme (SACGS) has been launched in Scotland.  The new pilot scheme will offer grants of up to £20,000 to farmers and crofters towards the capital cost of specific items which have been identified to reduce Greenhouse Gas (GHG) emissions and improve land and livestock management on Scottish farms and crofts.  Grants of 50% (60% in the Highlands and Islands) will be paid on the standard costs of agricultural equipment.

The scheme opened on Monday 7th September and closes on 11th October 2020.  Each capital item has been allocated a number of ‘green points’ depending on how much it delivers the scheme objectives.  If funding is oversubscribed, applications with the most ‘green points’ will be prioritised.  Those who have completed a carbon audit, nutrient plan or veterinary health plan between March 2017 and March 2020 could be credited with bonus ‘green points’.  Further information, the application form, and a list of the capital items supported can be found at https://www.ruralpayments.org/topics/all-schemes/sustainable-agriculture-capital-grant-scheme–sacgs-/