Category: Policy & Business

Northern Ireland Protocol Agreement

On 7th December the UK and EU announced that they agreed ‘in principle’ how the Northern Ireland (NI) Protocol would be implemented.  This is a significant achievement given the problems in other UK/EU talks, and has been widely welcomed, especially by business groups.  However, there is unease in some quarters on the how the new procedures will work in practice.

The arrangements will enter into force irrespective of whether the UK and the EU reach an agreement on their future trading relationship, although if such an agreement were reached, it would make the operation of the NI Protocol much easier.  Key aspects include;

  • No checks on goods being transported from NI to GB: this issue caused problems throughout 2020 as the EU was insisting that Exit (Export) Summary Declarations were required for Safety and Security purposes.  This requirement has been obviated through the use of commercial data (e.g. from shipping manifests), which is already collected, to meet safety and security obligations. This is a pragmatic solution to the issue.
  • Trusted Trader scheme: is to be introduced for supermarkets and other suppliers.  This ‘UK Trader Scheme’ is primarily directed at businesses whose products will be sold to NI consumers and who can prove that such products will not leak into the Republic of Ireland (EU Single Market) and thus be potentially liable to tariffs (under a No Deal).  Traders who believe that their products being sold to NI are not ‘at risk’ of entering the EU Single Market can register for authorisation via’ https://www.gov.uk/guidance/apply-for-authorisation-for-the-uk-trader-scheme-if-you-bring-goods-into-northern-ireland-from-1-january-2021
  • Reimbursement scheme: for traders who are not part of the UK Trader Scheme or who cannot guarantee that their goods will remain in the UK customs territory (including NI) can join this scheme to have any tariffs paid upon entry into NI reimbursed if such goods are eligible to be traded freely in the UK.  This will require proof that such goods have remained in the UK customs territory. 
  • Grace periods for traders to adjust to new arrangements: these vary from 3 months to 12 months and are predicated on UK regulatory standards remaining aligned with the EU’s for the periods in question. A range of issues are covered including;
    • Export Health Certification: will not be required on retail shipments of plant and animal products for three months, provided the organisations involved register as a Trusted Trader.
    • Requirements for some meat products to be frozen: on trade between GB and NI for products such as mince and sausages it will not be mandatory for supermarkets (and trusted traders) for the first six-months. Thereafter, fresh/chilled products will have to be sourced locally from NI or from the EU (particularly the Republic of Ireland).  However, this requirement could be obviated as part of a wider trade deal between the UK and the EU.
    • Veterinary products: will have a 12-month adjustment period to ensure that there will not be a shortage of critical supplies.
  • EU presence in NI: although the EU will not formally have an office in NI, which again caused controversy, its officials will be present to oversee the implementation of the Protocol and the EU will have access to relevant databases to monitor trade flows.
  • State Aid: GB-based firms will not be subject to the EU’s State Aid rules where there is no ‘genuine and direct link’ to Northern Ireland and no foreseeable impact on NI-EU trade.  Further detail will be needed as to what this means in practice but the clarification addresses a key UK concern over its sovereignty in terms of State Aid regulation.
  • Agricultural Support: will continue to be exempted from State Aid, subject to ceilings agreed under the Protocol. The agreement in principle provides that approximately “£380 million of agricultural support” can be provided to NI farming and be exempt from State Aid rules.  Up to £25 million of support not used in one year can be rolled forward to the next year and an additional £7 million will be made available for crisis support when required. Current spending on agricultural support (including rural development elements) in NI is around £330 million annually.  This arrangement provides further flexibility for NI to support its agricultural industry when it sets its own agricultural policy independently of the EU CAP. 

Whilst these temporary arrangements will ease the flow of goods from GB to NI initially, longer-term, there will be a significant increase in bureaucracy as Export Health Certificates (EHC) will be required for animal and plant products and Customs (import) declarations will be required for all goods.  Furthermore, products will also be subject to a wide range of regulatory checks.  Documentary and identity checks will be required for all plant and animal products subject to Sanitary and Phytosanitary (SPS) regulations.  A significant proportion of these products (15% for red meat; 30% for dairy and poultry products for human consumption) will need to be physically checked at a Border Control Post.  Added bureaucracy will lead to increased food costs in Northern Ireland.  However, it must also be acknowledged that the UK plans to introduce a Movement Assistance Scheme to help traders with ‘reasonable costs’ incurred on EHC and official controls on goods moving from GB to NI.  This is in addition to the Trader Support Service launched in August to assist with Customs-related issues.

At least, this grace period, will help to put the necessary infrastructure and systems in place to manage the long-term implementation of the Protocol.  Such an application (adjustment/grace) period on any UK-EU trade deal is also needed to give traders and regulatory authorities the time to implement the new arrangements.  Further detail on the UK Government’s Command Paper on the NI Protocol and supplementary information is available via: https://www.gov.uk/government/publications/the-northern-ireland-protocol

Welsh 2020 BPS Payments

The Welsh Government has announced it paid over 94.6% of Welsh farm businesses either their full BPS or the BPS Support Payment (estimated 90%) during the first week of the 2020 payment window.  This equates to over £219.3m being paid to more than 14,900 claimants.  The Minister for Environment, Energy and Rural Affairs thanked Rural Payment Wales for paying an ‘impressive’ number of claims in ‘challenging circumstances’.  Wales has a good track record in paying claimants early in the payment window.  This year the number of payments made in the first week has exceeded those made last year (93.5%)

Farm Profits Fall

Farm profits slumped by over 20% in 2020 according to Defra.  The Department has just released its first forecast of Total Income from Farming (TIFF) for the year and it shows the twin effects of reduced crop plantings and Covid-19.

The forecast put TIFF for 2020 at £4,151m compared to £5,278m in 2019.  We had been predicting a 10% drop, so the level of decrease comes as a bit of a surprise.  However, these first Defra forecast have a history of quite large revisions, to the figure could get back closer to our level (£4,700m) when the ‘first estimate’ is published in May.  Defra itself states that the forecast this year is more uncertain that usual due to the problems in gathering data during the pandemic.     

The main driver of the fall is a decline in crop output – in monetary terms down 13% compared to 2019.  Livestock output is forecast to actually rise slightly, even with the disruption caused by Covid in the spring.

Looking to 2021, trying to forecast aggregate UK farm profitability is probably as hard as it has ever been – simply because of the uncertainty of Brexit.  Should a UK/EU deal be reached (even a minimal one) then profits could recover back towards the £5bn level as shown on the chart.  If there is No Deal, then profits could slump towards £3bn – a level not seen for over a decade.

 

Organic Standards

UK organic producers will continue to be able to sell their produce in the EU following a vote by the EU Commission.  This extends the recognition of the UK’s organic standards and six organic certification bodies until the end of 2021.  Without this approval, UK produce would not have been able to be sold in the EU as ‘organic’ after 31st December.  This market is reportedly worth over £200m per year.  It would have also affected GB produce sold in Northern Ireland which is remaining in the Single Market.   Whilst this is a short-term reprieve, it does not provide long-term certainty for UK organic exporters.  

AHDB Consultation

The Agricultural and Horticultural Development Board (AHDB) is asking the farming industry to comment on its plans for the future.  The levy board has published a new 5-year strategy (see https://ahdb.org.uk/strategy) and is asking ley-payers to comment on the proposals by the end of January.

The AHDB will focus on two main areas.  The first is assisting levy-payers on-farm.  This will be through using data and analysis to help them make better decisions, investing in R & D and promoting knowledge exchange to get best-practice out onto farms (including on environmental practices).  The aim is to have 70% of levy-payers using the AHDB’s services by 2026.  The second focus area is promoting produce – both in new markets abroad but also domestically.

The organisation has made a commitment to change in a number of areas;

  • Levy-payers will be given more say in setting the priorities for the AHDB.  There will be more transparency in the governance of the AHDB with greater levy-payer involvement.
  • Levy rates will be set at a level that funds the agreed activities, rather than being effectively ‘fixed’ and then the AHDB deciding how to spend the funds available.  There will be a review of how the levies work in the potato and horticulture sectors
  • There will be a focus on cutting costs and delivering value for money.
  • The levy in each sector will be subject to a ballot every five years where the future of the levy will be decided.  The AHDB is in discussions with Defra on how the vote should operate.  

95% BPS Payments Made

The RPA has announced that it paid 95% of English farmers their 2020 BPS on the first day of the payment window.  This equates to £1.671bn (up some 40% on the amount paid on the first day in 2019).  The Agency has also started paying Countryside Stewardship (CS) and Environmental Stewardship (ES) revenue payments for 2020.  A reminder that there will only be one payment under these agri-environment schemes this year rather than split payments as in the past.

Tree Planting Funds

Defra has announced £3.9m of funding to boost tree planting.  £2.5m will go on five pilot projects to boost establishment outside traditional woodland plantings.  This could involve plantings in urban areas, agro-forestry, hedgerow trees etc.  The other £1.4m will go to the Environment Agency to fund ‘woodlands for water’ – projects to plant trees next to watercourses to improve water quality and limit flooding.

EFRA Inquiry into Agricultural Transition

Parliament’s Environmental, Food and Rural Affairs (EFRA) Select Committee has launched an inquiry into ELM and the Agricultural Transition.  This follows the publication of the Government’s ‘Path to Sustainable Farming’ document.  Ahead of the national ELM Pilots in 2021, the Committee will ‘scrutinise the Pilots’ design’ and question how the Government will ensure ‘sufficient support to farmers’ will be available throughout the Transition Period.  To this end, the Committee is calling for evidence on the following questions:

  • Is the Government’s timeframe for the national Pilot, full roll-out of ELM and phasing out direct payments by 2027 feasible?
  • Will the Sustainable Farming Incentive (SFI) be a viable support measure for farmers before the full roll-out of ELM?  Is further support required during the Transition Period?
  • How effectively has Defra engaged with land managers and other stakeholders on the design of ELM, including on the transitional arrangements?
  • How can ELM be made an attractive business choice for farmers and land managers while effectively delivering its policy goals?
  • How can the Government ensure that ELM agreements achieve their intended environmental outcomes, reduce bureaucratic burdens on farmers and deliver value for money?
  • What lessons should be learned from the successes and failures of previous schemes paying for environmental outcomes?

Details on how to submit evidence can be found via https://committees.parliament.uk/work/886/environmental-land-management-and-the-agricultural-transition/.  The initial deadline for evidence is 29th January 2021.

Path to Sustainable Farming

Defra finally released more details on future farm support in England on the 30th November.  Although earlier billed as a consultation, the ‘Path to Sustainable Farming’ document is actually simply a policy statement, with more consultations promised later.  As such, it provides rather less detail on some areas of the Agricultural Transition than we might have hoped.  The 60-page document can be found at; https://www.gov.uk/government/publications/agricultural-transition-plan-2021-to-2024

BPS Phase-Out

Most English farmers will be primarily concerned with how far and how fast the BPS is to be cut.  Only the reductions for the first four years have been announced.  This is due to the budget after 2024 not being known as the ‘Funding Guarantee’ runs out after that.  The table below sets out the figures that are known, and also our predictions for the final years (based on a simple arithmetic progression).  These figures will be included in our BPS calculator which will be updated shortly.

Note that the figures shown are the deductions rather than the percentage being paid.  Also, a reminder that the bands work like Income Tax, so all BPS claimants get the lower deductions on their first £30,000 of claim.

The headline point is that at least half of the BPS will be removed by 2024.  These deductions are larger than we had thought likely for the early years of the Transition.  We had thought that, without ELM launched, Defra would not have a huge need to generate funding.   However, it seems that other policy measures (see below) will require significant funding.

A reminder that from 2021, under simplifying the BPS, ‘Greening’ ends, the requirement to use all entitlements at least once in every two years has also been removed and cross border claims will no longer be treated as one ‘holding’.  Those with land in more than one region of the UK will now make separate claims.

Delinking, Lump Sum & Cross Compliance

Delinking will not now happen until 2024 (it was originally intended for 2022).  This is the breaking of the link between the payment of direct support and the requirement to occupy land.  Presumably, with the link in place, the system of entitlements will continue to operate from 2021 to 2023.

Cross-compliance will also remain in place until payments are de-linked.  The consultation states ‘When we delink Direct Payments, we will stop using cross-compliance as the basis for deregulation . . . ).

Despite the delay in delinking, Defra is still looking to offer lump-sum payments in 2022 as an exit scheme.  There will be a consultation on both lump-sum payments and delinking in early 2021.

ELM

The document devotes 19 pages to ELM and provides a little more detail than what we knew already.  The three tier architecture is confirmed with amended tier names;

  • Sustainable Farming Incentive: this is broad (and shallow) offer that should be accessible to all farms.  It is likely to have a menu of options and be managed online.  It could look similar to the previous Entry-Level Stewardship.  
  • Local Nature Recovery:  this will require more intensive management from farmers. It is likely that a whole-farm plan will have to be drawn up (possibly by accredited advisors).  The focus will be on rewarding farmers for positive management such as biodiversity, flood management, carbon storage, landscape heritage etc.  This will be the ‘core’ of ELM over the long-term.
  • Landscape Recovery:  this aims to get groups of landowners to work together to deliver widespread change.  The focus will be on large-scale woodland planting, peatland restoration and coastal habitats (e.g. salt marshes).

The Sustainable Farming Incentive (SFI) will open in 2022 – probably with only some elements.  It will focus on soils, IPM, and nutrient management.  What is learnt in 2022 and 2023 will inform the full launch in 2024 when further elements are added (including boundaries and tree management).  Initially it will only be available to those in receipt of BPS, including those already with a Countryside Stewardship agreement.  As it is piloted and then scaled up between 2021 and 2024, the aim is to expand the range of options on offer and explore making it available to a wider group of participants which could include smaller farms, horticulture and pig/poultry farms that do not currently receive Direct Payments.

The national pilot for ELM will be testing elements for both the first and second tiers but probably with a greater emphasis on the second – Local Nature Recovery (LNR).  Further details on this, and the ability to register an Expression of Interest in taking part in Pilots, should be available ‘early next year‘.   Applications to take part in the SFI pilot will be by June 2021 with agreements starting in October 2021.  The pilots for the LNR are due to commence in mid-2022.  In total, the Pilots are expected to involve 5,500 farmers.

The naming of the second tier as ‘Local Nature Recovery’ clearly points to the importance being given to Local Nature Recovery Strategies that are to be introduced under the Environment Act.  These need to be closely watched over the coming years.

The third tier, Landscape Recovery will be tested with 10 large-scale projects due to commence in 2022.  Invitations to take part in this will be made later in 2021.

Whilst all this piloting is going on the Countryside Stewardship CS) scheme will remain open to new applications.  The last application window will be in 2023 for a 1st January 2024 start date.  The scheme will be ‘simplified for 2021’.  Existing HLS and CS agreements that are coming to an end can be rolled-over until ELM begins.

Other Support

Various other new schemes are set out in the document;

Farming Investment Fund:  (from 2021 to 2026)  This is the ‘son of Countryside Productivity’.  This is due to open in ‘autumn 2021’.  Like the CPS there will be two tiers;

  • Farming Equipment and Technology Find: a fixed rate of grant for specified items with application online
  • Farming Transformation Fund: for high-value items.  A two-stage process with an EOI then full application

Farm Resilience Scheme: (from 2021 to 2024)   A pilot scheme is already running offering advice to farmers on how to cope with the changes ahead.  This will be built on.  The pilot ends in March and details of the new advice and support scheme will be published after that.

Farming In Protected Landscapes: (from 2021 to 2024)  This is effectively a scheme for upland areas.  It covers National Parks but also Areas of Outstanding Natural Beauty (AONBs).  There will be both farm-level projects including environmental payments and business support, and projects at community scale.  More details are promised in early 2021.

Slurry Investment Scheme: (from 2022 to 2025)  Grants will be available to help farmers invest in stores that must have at least 6-months of capacity and an impermeable cover.  Rates of grant are not yet set.

New Entrants Scheme: (from 2022 to 2024)  The scheme is still being designed, but it looks like funding is more likely to be for things such as matching services rather than direct grants to new entrants themselves.

Skills and Training: (from 2022 onwards)   Firstly, this will see an Institute for Agriculture and Horticulture set up that will be the professional body for farming.  Also, a set of standardised Key Performance Indicators for each sector will be produced, in conjunction with the AHDB to facilitate benchmarking.  In addition, there will be funding for Research and Development in agriculture under an Innovation and Research programme.

Animal Welfare: (from 2022 onwards)  Details of this funding stream are still being worked on.   However, the ‘Animal Health and Welfare Pathway’ will be designed during the course of 2021.  It will offer support for disease eradication programmes, capital grants to farmers for measures to increase animal welfare above the statutory baseline, and a new payment-by-results scheme (to be piloted in 2023)

Tree Health Scheme: (piloted from 2021, fully launched in 2024)  This will build on the Tree health grants under CS.

All in all, there is quite a lost to digest from the document.  We will be providing further information as it becomes available.  

 

 

 

 

Spending Review

The Chancellor, Rishi Sunak, delivered the Comprehensive Spending Review (CSR) on the 25th November.  Originally, this was meant to set out the budgets for Government departments for the next three years.  However, the economic uncertainty generated by the Covid-19 outbreak has seen the budgeting period reduced to just one year.

The general economic news is grim.  The economy is set to shrink by 11.3% this year (2020-21) – this is the largest fall for 300 years.  A recovery is then forecast with 5.5% growth in 2021-22 and 6.6% the following year.  Unemployment is forecast to increase from 1.62 million (4.4%) currently to 2.6 (7.5%) million by the middle of 2021.  It will then decline.  In terms of public finances the UK is forecast to borrow £394bn this year – a peacetime record.  For some context, the maximum borrowed in the wake of the Financial Crisis was around £150bn, and the average in recent years has been below £50bn.  Whilst this money has been raised at low interest rates, the books will have to be balanced at some point – indicating future tax rises.  The Chancellor gave no real indication in the CSR what these might look like – putting-off such decisions until the planned Spring Budget, by which time the Covid situation may be more stable.

Below is a list of some specific points from the CSR with relevance to farm businesses and rural areas more generally.  (However, as the CSR runs to 122 pages we may have missed one or two relevant issues);

  • Defra’s ‘settlement’ will ‘ensure total farm support in England of £2.4 billion in 2021-22 to meet the government’s commitment to maintain the current annual budget to farmers in every year of this Parliament’.
  • Under the Barnett formula, this should mean that farm support funding has also been maintained at current levels in Scotland, Wales and Northern Ireland.  However, a row has broken out with the devolved administrations claiming that their funding has actually been cut.  It is claimed that the Treasury has used a ‘flawed methodology’ that bases the payments on a single year when some funds went unspent.  Also, inter-Pillar transfers have not been properly accounted for and amounts have been ‘netted-off’.  In total Farm Ministers in Wales, Scotland and Northern Ireland believe that they will lose almost £400m of funding between 2021 and 2025.
  • Defra’s capital budget will increase by £0.6 billion in cash terms next year, taking the total to £5.8 billion.  There will be additional investment in flood prevention and science capability.
  • The CSR outlines a lot of new infrastructure spending.  This will affect many landowners in specific locations where new roads etc. are being planned.  There is a new National Infrastructure Strategy (NIS) – see https://www.gov.uk/government/publications/national-infrastructure-strategy.  Also, there will be a New Infrastructure Bank to catalyse private investment in infrastructure projects across the UK
  • There will be a £4bn ‘Levelling-up Fund’ in England for local infrastructure (e.g. town bypasses).  Amounts for Scotland Wales and NI through the Barnett formula.
  • Digital infrastructure will also receive extra funding including Shared Rural Network for 4G coverage, and better rural Broadband connections
  • More details of the Shared Prosperity Fund were announced which is set to replace EU funding (including Rural Development funding).  This will be £1.5bn per year but looks unlikely to be available until 2022; pilots will take place in the meantime.  More details are promised in the spring but it is headlined as supporting ‘ex-industrial areas, deprived towns and rural and coastal communities’.  The focus seems to be more on training than on business grants.  Given this, and the focus on other areas aside from rural ones, the level of ‘diversification grants’ looks set to be much lower than it was under Rural Development programmes.
  • The National Living Wage (NLW) will rise by 2.2% from £8.72 to £8.91 per hour from April 2021.  It will also now apply to those 23 and above.  Other Minimum Wage rates will also increase.
  • Income Tax Personal Allowance and Higher Rate Thresholds for 2021-22 will be increased in line with the September CPI figure.  This figure will also be used for setting National Insurance thresholds
  • The Business Rate multiplier will be frozen for 2021-22.