Category: Policy & Business

Land & Entitlement Transfers

England

Defra has announced it is now possible to transfer land parcels and BPS entitlements for 2021.  The functionality on the Rural Payments service is open until 17th May 2021 (15th is a Saturday).  Those making the transfers will need to have ‘amend’ permissions for ‘land details’ and ‘entitlements’.

In some cases a paper RLE1 may already have been sent in to transfer land, or entitlements to be used in 2021, i.e. where land has been sold in the autumn.  If the transfer hasn’t yet been completed, you can still make the transfer using the Rural Payments online service, but you must let the RPA know.  Details on how to do this can be found on Page 4 of the RLE1 Guidance Notes (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/919288/RLE1_GUIDANCE_2020_v4.0.pdf) The 2020 guidance is still valid for 2021.

It is also possible to ‘Add land’ via email.  This service is open until 3rd May 2021 for BPS applications, to ensure the RPA has time to get back to applicants.  Details on how to do this can be found at https://www.gov.uk/guidance/rural-payments-add-land-by-email-for-2021

Wales

The entitlement transfer window opened at the beginning of January in Wales.  Transfers via sale, lease or inheritance can be made via a client’s RPW Online account.  In Wales notification of transfers must be made by midnight on 15th May 2021 in order for a 2021 claim on the entitlements.

LFASS Payments & Convergence Funds

Farmers in Scotland are due to receive an additional £71.8m of funding in 2020 direct payments.  This is the second (and final) tranche of ‘convergence’ money.  A total of around £160m was provided by the UK Government, of which £90m was paid out last year – see our article of November 2019 for the background to the funding.

This year’s funds will be used in two ways.  Firstly, £32.8m will be used to top-up 2020 LFASS payments.  Due to EU rules these were only paid at 40% of the usual, 2018, rate.  This funding will bring them back to the 100% level.  For 2021 onwards, payments are due to return to their full, historic level (see Nov 2020 article).  The other £38.9m will be used to top-up 2020 BPS payments – following a similar pattern as was seen for 2019 BPS.  This results in payments of £9.65 per Ha in Region 1, £17.97 in Region 2 and £9.69 in Region 3.  More details can be found at https://www.ruralpayments.org/topics/customer-services/common-agricultural-policy/convergence-funding/

UK-EU TCA ‘Teething Problems’

Having been agreed on Christmas Eve and becoming effective just over one week later, it is unsurprising that challenges have arisen for agri-food traders as a result of the UK-EU Trade and Cooperation Agreement (TCA).  The TCA (click here for summary) is perceived by many to be a ‘thin’ deal as it only focuses on delivering tariff-free and quota-free trade in goods; it delivers little in terms of services and reducing trade friction (non-tariff barriers).

It is in relation to the latter that agri-food trade has been significantly affected, as the EU’s border controls on UK exports became effective immediately.  Trade frictions have been experienced in two key areas:

  1. Customs and Sanitary & Phytosanitary (SPS) controls: whilst there are some limited easements in the TCA on Customs issues (e.g. allowing the pre-lodgement of documents), these are less than many would have hoped for.  There are even fewer easements in the SPS area with most of these limited to trade between GB and Northern Ireland.  Here, a grace period has been agreed which varies from 3-12 months for specific items.  As a result, traders have suddenly been faced with a substantial increase in paperwork with only a few days’ notice.  Some have reacted by limiting the number of consignments being shipped to the EU until they get a greater understanding of how the procedures work.  Hauliers are unwilling to depart warehouses, processing plants etc. until the paperwork for each shipment is in order.  This has meant that port traffic volumes are lower than normal.  For instance, traffic on the Dublin-Holyhead route is down by 50%.  Volumes traditionally start to increase during the spring.  This will be a key test of the ability of border control systems to cope, especially as additional certification and checks will be required on imports into the UK from April and will become fully operational in July.

When both the UK and EU border controls are fully operational, the physical check rates for SPS purposes will be as follows:

    • live animals – 100%
    • minced & poultry meat, dairy products & eggs – 30%
    • red meat & poultry products, ambient dairy & eggs, fertiliser – 15%
    • semen/embryos, animal by-products – 5%; highly-refined products – 1%

These check rates are effectively the same as the levels of checks that countries trading with the EU on standard WTO MFN terms experience.  A proportion of these loads will then be subject to sampling.  Selections will be risk-based and shipments could be delayed by several days which will have a significant impact on product value deterioration for the ‘unlucky loads’ affected. 

  1. Rules of Origin (RoO): essentially determine the ‘economic nationality’ of a goods consignment.  They aim to prevent goods manufactured in third countries, but routed through the UK (or EU), taking advantage of the zero tariffs.  They are particularly significant for industries (e.g. car manufacturing, composite foods) where components/ingredients are sourced from multiple countries.  RoO can be expensive for businesses as they have to demonstrate the origin of their product.  Whilst the TCA has allowed traders up to 12 months to supply evidence that the goods they are trading between the UK and the EU meet RoO requirements, this is considered to be of limited use as the evidence will still be required.  The TCA also allows both the UK and EU to count inputs from the other party when assessing the origin of goods.  The UK had wanted to include content from other countries towards meeting the rules of origin requirements (e.g. Canadian wheat used to produce flour for bread-making) but this was rejected by the EU.

There are three general levels of RoO, all of which must be met in order for a good to be traded between the UK and the EU on a tariff-free basis:

    • Eligibility of goods: do the goods concerned meet the RoO criteria (e.g. ≥85% of content by weight) is eligible for tariff-free trade?
    • Certification: can the trader provide adequate certification that the goods are eligible (e.g. Rules of Origin certificate)?
    • Shipping and product-specific requirements: has the end-product undergone sufficient processing in the UK/EU before it is subsequently traded.  Generally speaking, if there is a change in the tariff code as a result of processing, it would be deemed as sufficient.  Other issues can include means of transportation, cumulation arrangements etc.  Retailers such as Marks & Spencer who operate a distribution hub covering the UK and Ireland have been particularly affected by this issue.  Some of their products are procured from the continent in large consignments and then broken down into smaller consignments for shipment to Ireland.  As such products have not undergone sufficient processing, a tariff is payable upon re-entry to the EU. 

Generally speaking, if a consignment fails on one of these levels, then the products will fail to meet RoO requirements.  This is why Rules of Origin are fiendishly complex.  

For each business, it is vital to assess how the TCA will affect the products that it trades, not just between Britain and Europe but also between GB and Northern Ireland, where the NI Protocol is now operational.  The challenges here have  prompted some suppliers (e.g. Ethical Dairy Company) to cease serving NI customers.  From a business perspective, trade has become more complex.  But, once businesses become more familiar with the specific requirements that apply to their goods, some of the teething problems will be overcome.  However, the UK-EU trading relationship has fundamentally changed, meaning some of the challenges are set to become permanent fixtures.  It is likely to mean more single-product, single-consignment loads being traded as opposed to the multi-product, multi-consignment shipments of the past.  This will have an impact on value-added, particularly on high-value exports (e.g. high-end prime boneless beef cuts). 

Finally, it merits mentioning that in terms of SPS especially, the TCA is a framework that can be built upon.  Particularly in terms of reducing the levels of physical checks in the future.  However, this is contingent on close alignment on standards between the UK and the EU.  Here, the British Government is going to have a delicate balancing act in terms of the trade agreements it completes with other countries and the importance it places on trade with the EU. 

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.