Category: Policy & Business

Scottish Agricultural Wages

The Scottish Agricultural Wages Board (SAWB) is seeking views on a proposed increase to wages.  The proposal is for a single minimum hourly rate for agricultural workers, irrespective of their age or duties.  This would mean the hourly rate would increase by 21p per hour to equal the UK Government’s National Living Wage of £8.91 per hour.

Other proposed headline minimum rates include:

  • overtime rate – during the first 26 weeks of employment will start after 48 hours is worked in the week and at the rate of 1.5 times the agreed hourly rate.  After 26 weeks of continuous employment will start after 39 hours, at the rate of 1.5 times the agreed hourly rate.
  • workers who undertake an SCQF Level 4 or 5 or equivalent in Agriculture / Horticulture will receive £5.58 per hour
  • an additional sum of £1.32 per hour for workers who have appropriate qualifications
  • those working with dogs should receive an allowance of £6.57 per working dog up to a maximum of four dogs.
  • accommodation off-set for accommodation provided by an employer other than a house, to increase to £8.36 per day

Written representations need to be made to SAWB by 27th January 2021.

AECS Reopens

The Agri Environment and Climate Scheme (AECS) is to reopen in Scotland in 2021 – but on a very limited basis.  The new round will open on 25th January and after an ‘extended application period’, will close on 30th June 2021.  But will only be available for the following types of application:

  • Organic Farming – Organic conversion and maintenance
  • Protected Areas – Appropriate management for designated sites, features, habitat or species
  • Management for Priority Bird Species not in designated sites – Corncrakes, Corn Bunting and Waders within target areas
  • Slurry Storage – Applications for slurry storage provision in priority water quality catchments
  • Improving Public Access – Applications to improve public access provision throughout Scotland

The Scottish Government has said further guidance is being developed and will be published on the Rural Payments and Services website in January 2021. The AECS, the flagship agri-environment scheme for Scotland, was not open for new applications in 2020, although expiring agreements were given a one-year extension.  The industry is calling for more certainty, in order for it to plan and to prevent large areas dropping out of environmental management in the next few years.

Brexit Deal

On 24th December, the UK farming industry has received an early Christmas present as a Free-Trade Deal (FTA) was agreed with the EU, meaning that agricultural goods’ trade with the EU will not be subject to tariffs or quotas.  This Trade and Cooperation Agreement should minimise the disruption when the Transition Period ends on the 31st December.  However, with a whole range of Non-Tariff Measures (NTMs) (checks, paperwork etc.) being imposed from that point, there will be added friction.  In the case of seed potatoes, exports to the EU will be prohibited which is a major blow to regions such as the East coast of Scotland, where seed potatoes is a major agricultural sector.  This article examines some of the top-level implications of the FTA.  However, with the agreement text (including Annexes) running to 1,246 pages, we will digest it further over the coming days and weeks and provide further updates as appropriate.

A mere 1,644 days since the EU referendum, and after a whole series of missed deadlines, the deadlock was finally broken on Christmas Eve.  As previous articles mentioned, the negotiations culminated in a frantic final haggle on fish quotas.  When a breakthrough was achieved on this issue, the remaining level playing field (LPF) and governance issues were quickly addressed so that the Deal could be announced on Christmas Eve.  The key provisions of the FTA are:

  • Trade in goods: will be tariff-free and quota-free on all goods trade between the UK and the EU.  This includes agri-food products.
  • NTMs: will be applicable on UK exports to the EU from January.  For EU imports to the UK new rules will become applicable on a phased basis between January and June 2021, based on the provisions of the UK Border Operating Model (see previous article).  Linked with NTMs, additional provisions of the Deal include;
    • Rules of Origin (RoO): some rules have been relaxed for up to 1 year so that companies have more time to gather the information necessary to meet RoO requirements.  These are basically local content rules which need to be met to ensure that goods traded between the UK and the EU are eligible for tariff-free treatment.  As a rule of thumb for agri-food products, 85% or more of the goods’ contents (by weight) needs to be eligible (i.e. is UK/EU produced and not originating from another ineligible third country).  This relaxation is important and helpful to traders as it goes some way to providing an implementation period to permit companies to adapt to the changed trading environment. 
    • Sanitary and Phytosanitary (SPS) checks: will become applicable immediately on UK exports to the EU.  This means that lamb exports to the EU will be subject to 15% physical checks whilst there will be a 30% physical check rate for dairy products for human consumption.  In the SPS area generally, it is arguable that the UK-EU FTA is lacking in ambition.  There will be a Specialised Committee set-up for SPS within the Governance structure of the agreement, which might bring some further easements in the future.  However, for now, the treatment of UK exports to the EU will not be much better than that of a standard third country, and certainly significantly worse than the level of access that New Zealand enjoys on its exports to the EU.
  • Fisheries: the quotas for EU fishing vessels’ access to UK waters will be reduced by 25% over a five and a half year transition period.  This quota will be repatriated to UK flagged vessels over this same period. Thereafter, annual negotiations would take place on the level of access that EU fishing vessels would have to British waters.  This arrangement has met with criticism from the UK fishing industry which was anticipating a greater Brexit dividend. 
  • LPF: the EU pushed very hard on this issue which relates to upholding existing standards on the environment and labour laws so that the UK for instance cannot gain a competitive advantage in the future by undercutting EU rules.  The agreement includes mechanisms to enable one side to retaliate against the other if it is found that there is a breach of the LPF provisions.  Theoretically, this could mean that retaliatory tariffs could be introduced on agri-food trade in the event of such a breach, even if this violation occurs in another sector. 
  • State Aid: importantly, from a UK perspective, Britain can have its own independent system of subsidy control and neither party is bound to follow the rules of the other.  However, LPF provisions apply to prevent one side from gaining a significant competitive advantage over the other.
  • Ratification: is expected to take place swiftly in the UK, with Parliament being recalled on 30th December to vote on the deal.  As Labour has announced its intention to vote for the deal, its passing should be a formality in the UK.  In the EU27, the process is somewhat more complicated.  Given the limited time available, the EU has decided to “provisionally apply” the deal from January.  However, it will be scrutinised further by both the European Parliament and at Member State level. This process is set to be undertaken during January and February.

Implications for UK Agri-Food

The announcement of a UK-EU trade deal was greeted with a sense of relief by the UK food and farming industry as it provides much greater certainty for the sector.  The major exception to this is the seed potatoes sector as exports from the UK to the EU will become prohibited.  This is a significant loss as the EU is a major export market for the British seed potatoes’ sector, particularly Scotland, which has amongst the highest product standards for seed potatoes globally.

Overall, the anticipated impacts on UK agricultural output and trade are expected to be limited.  Below are the findings of a recent study by The Andersons Centre undertaken on behalf of the Scottish Government using the Agmemod partial equilibrium economic model.  For the sectors analysed (wheat, barley, beef, sheep and liquid milk (dairying)), the impacts of a UK-EU FTA are relatively small, particularly compared with No Deal.  The changes under the FTA scenario are primarily due to the imposition of NTM costs which generally range from 0..1% (wheat, barley) up to 3% (beef) under an FTA scenario.  These findings are corroborated by recent comments from the Tesco Chairman (John Allan) who believes that the Brexit Deal will not lead to any significant effects on consumer prices.

Agmemod Projections of Brexit Impacts on Selected Scottish Farm Sectors (£m)

Sources: The Andersons Centre, Wageningen University and Research (WUR) and the Scottish Government

Other key issues to watch out for include;

  • Exchange rates: these have a major bearing on the competitiveness of UK agri-food produce on international markets.  On the announcement of the UK-EU FTA, Sterling rose by 0.5% against the Dollar.  Generally speaking, a stronger Sterling is bad for UK farming as the prices of British agri-food produce become more expensive on global markets, whilst imports become cheaper.  In June 2016, following the referendum, Sterling weakened by 15-20% against the Euro and has not recovered since.  Where Sterling goes from here will have a major bearing on the UK agri-food sector’s financial performance.
  • Other FTAs: the UK has already made significant progress in negotiations with Australia and New Zealand, as well as the US to a lesser extent.  Some anticipate deals to be struck with Australia and New Zealand in 2021.  Given the extent to which these countries trade in beef, lamb and dairy products, they could exert significant competitive pressure on British producers if they get better access to the UK market.
  • Allocation of EU28 TRQs: now that a UK-EU FTA has been reached, the likes of New Zealand are already highlighting issues with the proposed allocation of EU28 TRQs by the UK and the EU27, who essentially suggested in December 2018 to split the existing TRQs on the basis of historic trade.  New Zealand amongst others objected to this at the time and are now bringing this topic back to the agenda. T his will need to be addressed at the WTO level in the coming months.

Given the extremely limited timeframe during which the UK-EU FTA was agreed, it is inevitable that a whole myriad of other issues will emerge once experts have had time to parse through the 2,000 pages of legal text and annexes.  Overall, the trade deal is historic and marks the beginning of a new era in the UK’s relationship with Europe.  However, as with trading relationships between other close neighbours (e.g. the US and Canada), the UK’s trading relationship with the EU is going to evolve and this will necessitate further negotiations in the the future, both on the implementation and governance of the existing agreement, but potentially on developing new accords.  In this respect, we’ve not reached the end of the road on Brexit.  Whilst the topic might (mercifully) move down the agenda as we move forward, it will not disappear from the news.

Further analysis will be provided in the coming days and weeks on this issue.  On 11th February, The Andersons Centre will also be running a webinar to examine in-detail the implications of Brexit. Further information is available via: https://theandersonscentre.co.uk/webinars-2/

Further information on the UK-EU Trade and Cooperation Agreement, including the legal text, is available via: https://www.gov.uk/government/publications/agreements-reached-between-the-united-kingdom-of-great-britain-and-northern-ireland-and-the-european-union

SAWS Extension

The Seasonal Agricultural Workers Scheme (SAWS) will be extended to 30,000 places for 2021.  The Government has announced that the Pilot scheme, which ran with 2,500 places in 2019, and 10,000 in 2020 will be extended, and expanded, for the coming year.  Whilst the fruit and veg sector has welcomed the news, the numbers still fall short of the estimated 80,000 seasonal workers required.  With the end of the Brexit Transition Period and free-movement of EU labour, there are still fears of a labour shortage.  The Pick for Britain scheme which had modest success in attracting UK labour into the sector will run again in the spring and summer.

Cross Compliance

The 2021 rules for cross-compliance have been published in both England and Wales.  In both cases the requirements are pretty-much identical to those for 2020.  The main change is how the rules and inspected and enforced – with Brexit there is now more flexibility on how the inspection regime operates.  The English guidance can be found at – https://www.gov.uk/guidance/cross-compliance-2021.  The Welsh version at – https://gov.wales/cross-compliance-2021

Brexit Update

Last month, we reported that time was almost up in the Brexit negotiations and last weekend, it looked as if a make-or-break decision on the future of the talks would be made on 12th December.  As is nearly always the case with EU negotiations, and Brexit especially, the talking has continued beyond the latest deadline.  A few days’ back it was suggested that about 97% of the draft legal text had been agreed.  More recently, there have been signs of progress on addressing two of the three outstanding issues – the Level Playing Field (LPF) and Governance.  However, Fisheries remains unresolved.

On the LPF and Governance, the outline of the Deal is taking shape.  EU Commission President Ursula von der Leyen claimed that the architecture of the LPF is based on two pillars: State Aid and standards.  On State Aid, it appears that the common principles around robust domestic governance, and the right to autonomously remedy situations of unfair competition / distortions in trade have now been established.  In terms of standards, the EU Commission President also claimed that a mechanism of non-regression on labour, social and environmental standards has been agreed although there some issues remain around future-proofing such arrangements.

Sources close to the talks suggest that the negotiators’ energies are currently focused on resolving the remaining LPF/Governance impasses.  Thereafter, the final hard bargaining will take place on fish.  This looks set to come down to a pure numbers game in terms of quota access which both sides are able to live with.  The EU appears to be linking access to fisheries with access to its Single Market which gives an indication of how hard it intends to bargain.  There are also rumours that a five-year review mechanism will be included in the trade deal which will take stock of how the fisheries quota share and access arrangements are working on the one hand and whether the playing field has remained level.  A formal review of how any agreement is functioning would seem prudent.

Overall, it appears that the talks are inching towards a Deal, but hurdles remain which could still scupper the negotiations.  The European Parliament is unhappy that it will not have the necessary time to scrutinise the agreement before voting on it.  Although the EU would technically be able to ‘provisionally apply’ the Deal before MEPs get to vote, this is not desirable.  All EU institutions would much prefer an EU Parliamentary vote on 28th December.  To have any chance of meeting this timeline, an agreed text would be needed a few days in advance of Christmas.

If a Deal is not agreed until after Christmas, a short No Deal (interregnum) period in January becomes a distinct possibility.  Some claim that even if both sides agree to provisionally apply such a Deal, a range of procedural measures would still be required.  However, in such circumstances, one would surely think that some sort of brief standstill period could be agreed whilst the required measures are put in place?

From an agri-food perspective, there is a big element of wait-and-see in terms of what Deal might be agreed.  However, irrespective of a Deal/No Deal, major changes are afoot.  Whilst arrangements such as those recently agreed under the NI Protocol (see accompanying article), might provide for a limited grace period, preparations for friction on UK-EU trade in early 2021 need to continue with urgency.  Customs agents need to be booked.  There are reports that some do not want to become involved in agri-food because it is too complicated given all of the additional Sanitary and Phytosanitary regulations which can result in difficulties in getting consignments through Customs.  For agri-food companies trading with the EU, training and upskilling in Customs and other regulatory formalities will also be necessary.  This is especially the case for exporters to the EU, as it appears that regulations will apply to a greater extent from January in comparison with importing from the EU into the UK.

Welsh Farm Support

The Welsh Government has set out plans to replace the BPS with its Sustainable Farming Scheme (SFS).  However, those eager for scheme details still have to wait.

The Agriculture (Wales) White Paper was published on the 16th December; it sets out the intentions for primary legislation and provides the basis of the Agriculture (Wales) Bill.  It describes the Welsh Government’s ambition to reform the way in which agriculture (including farm woodland management) is supported by Government and the policy direction for the next 10 to 15 years, and therefore has a broad scope including;

  • future support for agriculture
  • regulatory reform (including a new enforcement regime to replace cross-compliance)
  • future support for industry and the supply chain
  • forestry and woodland management
  • improving animal health and welfare
  • improving monitoring through the effective use of data and remote technology

The Agriculture (Wales) Bill is planned to be put before the Senedd in summer 2022.  It will provide the framework for future policy with secondary legislation providing the detail.  Included will be the provisions to establish Sustainable Land Management (SLM) as the ‘overarching principle’ for future agricultural policy, including future support.  The proposal is to replace the BPS and Glastir with a single direct support scheme – the Sustainable Farming Scheme (SFS).  The scheme will provide support and advice for farm businesses.  There will be separate support for the wider industry and supply chain beyond the farm gate.

The SFP aims to address climate change, public health and environmental issues associated with agriculture alongside the production of sustainable food.  Although, the White Paper does not offer a time line for this transition, but the Welsh Government has requested a ‘sunset’ clause, so legacy CAP schemes will end in 2024.  No scheme details have been included or an indication of payment rates, but the aim is to make payments by ‘rewarding’ farmers for the delivery of outcomes rather than compensation for the costs of inputs.  A Farm Sustainability Review will be required for each farm to determine the delivery of outcomes.

The full White Paper can be found at Agriculture (Wales) White Paper (gov.wales) a consultation period on the White paper will run until 25th March 2021.

 

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%)