Category: Policy & Business

Defra and the Department for International Trade (DIT) have announced a ‘Bounce Back’ plan for the UK agriculture, food and drinks industry.  The measures being are designed to ensure the sector’s export trade can quickly recover and grow following the effects of Covid-19.  They are also aimed at getting the industry ready to capitalise on any opportunities that may be available through the series of free trade agreements currently being negotiated with Japan, US, Australia and New Zealand.  The measures include a programme of ‘physical and virtual events’; an overseas virtual buyer trial, a ‘Smart Distance Selling Process’ and a package of ‘Ready to Trade’ Exporting Masterclass Webinars.  A SME E-Commerce Accelerator Pilot is also being launched to increase the level of international e-commerce backing for SMEs in the food and drinks industry.  The package of measures have been designed in conjunction with business and the devolved administrations.  It will also see the introduction of Defra’s first Agri-food Counsellor serving the Gulf region.  More information can be found at https://www.gov.uk/government/news/bounce-back-plan-for-agriculture-food-and-drink-industry-launched

The Farming Recovery Fund has re-opened for those who were affected by storm Dennis in February 2020.  Funding of between £500 and £25,000 is available to cover non-insurable items and activities such as re-cultivation, re-seeding, reinstating field boundaries and removing debris from farmland.  Eligibility for the scheme has been pre-determined using satellite data showing the extent of the flooding in February 2020.  It covers land in Herefordshire, Gloucestershire, Worcestershire, Shropshire, Staffordshire, Nottinghamshire, North and East Yorkshire.  A new online application portal is available which will confirm which land parcels have been identified as being affected and are therefore eligible for funds.  Applications must be made by 1st September.  Further guidance can be found at https://www.gov.uk/guidance/farming-recovery-fund-extension-2020

Tractor registrations, often the bellwether for UK agriculture, have shown a sharp decline in April and May according to the Agricultural Engineers Association (AEA).  Compared to the previous year, registrations for these two months fell by 50.6% and 41.9%.  However, April 2019 was a particularly high point for registrations as there was an increase in purchases ahead of the original Brexit date.  Registrations for the year are down in total by 26.5%.  The lack of registrations is likely to be due to a combination of factors.  The Coronarvirus pandemic has seen factories temporarily shut, so orders will have been delayed.  This should mean we see an increase in registrations now factories are re-opening.  But registrations were likely to be have see a reduction, as the lack of winter drilling due to the weather and the uncertainties over Brexit will have had an impact on farmer confidence.

Hopefully, all 2020 BPS claims will now have been submitted on time and correct.  But if this is not the case it is still possible to make a claim and also to make amendments to an already submitted application.  It is possible to make a late claim up until midnight on 10th July, but this will attract a 1% penalty for every working day late.  After the 10th July claims will not be accepted.  For those that got their claim in by 15th June, but subsequently find they need to make an alteration, certain changes can be made without penalty up until 30th June.  These are;

• adding a land parcel
• increasing the area being used to activate entitlements
• changing the land use

These amendments can still be made from 1st July to 10th July but will attract late claim penalties on the amended parcels.

The above changes only refer to increasing the claim.  It is possible to make changes which do not increase the claim at any time.  Via the ‘Notified Error’ provisions it is possible to notify the RPA, in writing, at anytime (although see below) if you find you need to reduce the eligible area of a land parcel or change the land use declared.  It is possible to withdraw land which has become ineligible (i.e will not be used primarily for an agricultural activity for the whole of the year).  Examples might be because it has been sold out of agriculture or utility works are coming through.  Land parcels can be withdrawn from an application, or a BPS claim completely, by notifying the RPA in writing at anytime without penalty.

However, it is not possible to amend or withdraw an application if the claimant has;

• been told about a non-compliance affecting the part of the application they want to withdraw or amend
• had an inspection revealing non-compliance affecting the part of the application they want to withdraw or amend, or
• received notification of an inspection

It is therefore important to let the RPA know straight away if you find a problem with a claim or a client notifies you, as once an inspection is notified it may not be possible to make any changes.

Seasonal agricultural workers coming to England will be able to start work immediately.  Unlike other international travelers, those arriving to work on farms will not have to self-isolate for the first 14 days after they arrive as long as other rules and guidelines are adhered to.  However, before traveling, workers will have to complete a form with their journey, contact details and address of the farm on which they will be living and working.  If they are not staying at the farm they will not be able to work.  At UK border controls workers will have to prove they are are a seasonal agricultural worker.  On arrival into the UK, somebody from the farm where they will be living and working must collect them and take them straight there.  During the first 14 days, workers will need to follow social distancing rules and will only be able to leave the farm under strict circumstances, such as an emergency or to get essential supplies and medicines, only if these can’t be delivered.  The Government has produced strict guidelines for employers and workers to follow, these can be found at https://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farmshttps://www.gov.uk/guidance/coming-to-the-uk-for-seasonal-agricultural-work-on-english-farms

The amount of land managed organically in the UK grew slightly in 2019.  Latest figures from Defra put the organic land area (both fully organic and in-conversion) at 485,000 hectares.  This is a rise of 2.4% compared to 2018.  However, it is 34% lower than the peak organic area seen in 2008.  This means around 2.7% of the total area on UK farms is organic.  There are differences between sectors.  Only 1.2% of the UK cereals area is organic, but this rises to 7.1% for vegetables.  The UK organic dairy herd is 2.8% of the total whilst the equivalent figures for beef, sheep, pigs and poultry are 2.3%, 2.4%, 0.8% and 1.9% respectively.  More details can be found at – https://www.gov.uk/government/statistics/organic-farming-statistics-2019.

The Government has set out plans for a UK emissions trading scheme (ETS) that will operate once the country leaves the EU.  The proposals roll-over many of the features of the EU ETS, but it is stated that the UK scheme will have greater ambition to cut carbon output.  The scheme only applies to sectors that are deemed ‘energy intensive’ which does not currently include agriculture.  However, there is a clear policy goal to bring more sectors into a ‘carbon pricing’ mechanism in the future.  This may eventually see farming having to buy carbon credits or pay a carbon tax.  Further details on the ETS can be found at – https://www.gov.uk/government/consultations/the-future-of-uk-carbon-pricing .

Furlough Scheme

The Government has announced changes to the Covid furlough scheme (officially called the Coronavirus Job Retention Scheme – CJRS).  From the 1st July it will be possible to bring furloughed workers back on a part-time basis.  It will be possible to claim a CJRS grant for the normal hours not worked.

The scheme will close to new entrants from 30th June.  This means that employers will only be able to furlough employees that they have furloughed for a full 3-week period prior to 30th June – i.e. the final date by which an employer can furlough an employee for the first time will be 10th June.

The Government contribution to the CJRS will gradually taper down over the next few months;

• June and July: The Government will pay 80% of wages up to a cap of £2,500.
• August: The government will pay 80% of wages up to a cap of £2,500, but employers will become responsible for paying National Insurance and pension contributions (claimed to be 5% of employment costs for the average worker)
• September:  The Government will pay 70% of wages up to a cap of £2,187.50.  Employers will pay 10% of wages (plus NI and pension contributions) to make up 80% of an employees wages, up to a cap of £2,500.
• October:  The Government will pay 60% of wages up to a cap of £1,875.  Employers will contribute 20% plus NI and pension costs.

For more details see – https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme

Self-Employed Scheme

There has also been an update on the Self-Employment Income Support Scheme (SEISS).

• A second (and final) round of funding will be made available in August.  The grant will be worth 70% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total.  For example, the first round might cover losses during March, April and May of this year, with the second round covering June, July and August. 
• It will still be possible to apply to the first round of the SEISS until 13th July.  This provides eligible individuals with a taxable grant worth 80% of their average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total.
• The eligibility criteria are the same for both grants, and individuals will need to confirm that their business has been adversely affected by coronavirus. An individual does not need to have claimed the first grant to receive the second grant: for example, they may only have been adversely affected by Covid-19 in the later phase.

Further guidance on the second grant will be published on Friday 12th June.  For details see – https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

At one point in May, a toilet roll was worth more than a barrel of crude oil and the Bank of England sold gilts with a negative yield to willing buyers (which has never happened before).  We have all lived through several decades this year already!  As the lockdown begins to ease, this article looks at some of the longer-term effects of the outbreak on the agri-food sector.

Waste and the Environment

In the short term it appears from The Grocer and other sources that food waste in the house has fallen by as much as a quarter.  In the case of dairy, this may be more than the total decrease in consumption, suggesting the decline in demand could be just because we are being more careful with food.  It is an expensive improvement for the food and farming industry, but waste reduction is a good thing; a considerable achievement whilst the country spends two months thinking more carefully about food.  The same is apparently true for other sectors such as bread.  Whether this will last remains to be seen (we have our doubts).  With open-air markets reopening this month, other elements of the food chain are starting reappear and ease the supply through the supermarkets.  Incidentally, the reduction of waste has been seen in other non-food sectors too and of course consumption is down of many resources.  It would be an environmental boon if society could learn at least a few small lessons from lock-down of constraining unnecessary consumption.

Economics

The economic downturn will be the longest lasting part of the pandemic, currently underestimated by the stock market.  Agriculture and food supply will be affected (albeit less than some non-essential industry sectors).  But economic issues including currency, trade facilitation, tax and capital will have a greater and more lasting impact on food supply than the possible shortening of supply chains and introduction of robotics that some have suggested.  Businesses will be expected to share the burden of paying for what has happened, and that includes many farmers and rural entrepreneurs.  However, in times of recession it is good to be part of an industry that supplies a commodity that is necessary and its consumption doesn’t change substantially depending on wealth.  Agriculture does relatively well in recessions.

Around a third of the economy was closed down, with a view to reopening parts of it gradually at Government’s choosing.  Farming carried on.  Government protection schemes cannot last for ever and when they end, we can insolvencies and business failures.  The Financial Crisis of 2007-08 caused a 5% fall in GDP and it took 5 years to return to 2007 economic levels.  This March alone saw our economy shrink by that much.  The Spanish Flu in 1918-19 led to a 27% reduction in world GDP.  The Office of Budgetary Responsibility predicts a record 35% reduction in GDP for the second quarter of 2020, a 300-year record.  We will also inevitably have to start paying for the extraordinary debt the nation has incurred since January, certainly the highest since the last World War.  There are four ways of clearing debt; Default, Economic Growth, Taxation, and Inflation;

Default: No country will opt willingly to default on its debt as it is good for nobody.

Growth: Rapid growth will help get people back into work.  It will require softer business regulations and free market encouragement.  For instance, brewers currently require licences to deliver beer to consumers rather than pubs which prevented many from operating in March and April.  Small business flexibility is required.  Growth of the manufacturing sector will support greater employment and will also build the secondary service sector.  Farming could help here.  Sterling might prove too strong and fall in value here to encourage trade and exports.  Farming would benefit from a weaker Pound.

Taxation: Tax increases on the ‘haves’ are inevitable.  Farmers are generally in this cohort, by assets at least.  Those with income may bear the brunt of higher taxes but also those with property, or other assets could face a larger tax burden – i.e. changes in capital taxes.

Inflation: The only winner from inflation is the borrower.  It erodes debt as fast as assets.  This will not help the landowner, but the farmer, as manufacturer of commodities is owning one of the most inflation-proof assets.  A weak currency, massive quantitative easing and record low Base Rates (especially when oil prices rise) are inflationary.  High unemployment, reduced consumption and spare economic capacity are deflationary.

Adam Smith pointed out that capital in business flows in two directions, to labour or the owners.  Government is looking after the worker, but will not support the capitalists; they will lose value in their shares when the dividends are cancelled or profits fall. Those with capital will suffer from inflation when it goes up and will pay more in tax. If the day of the capitalist is toughening, perhaps the day of the entrepreneur is about to dawn. Free trade is the best way to re-establish supply chains that are not so fragile.  Government policy will presumably refocus on the big economic issues for a while. The farming budget has probably travelled far enough not to have to turn back.  But will HS2 survive?

Trade

An upsurge of protectionism is presumably inevitable.  It was already happening with the US, Chinese spat.  But more locally, irrational protective actions are taking place defending food supplies in a local store for locals only.  We should remember that, whilst it is good to provide business to local firms, becoming self-sufficient would in fact lower our food security.  The optimal food security needs to be calculated and the market allowed to achieve it and trade should be embraced.  Many supply chains will look to reduce the linkages.  Whilst for many it might mean buying more UK food, for others, buying from a single supplier from far away is a smaller supply chain than lots of smaller local suppliers. Economics will retain a key role and relationships too, that is what builds an economy

Opportunities

Innovative people have been using lockdown time being thoughtful and creative.  Many more patents have been registered than usual since January.  This might be because there is time on people’s hands, possibly because the world has suddenly changed, and new ideas are required.  Change creates threats, and opportunity.   Very big parts of the economy were already in the process of radical transformation, and this epidemic will accelerate this.

The world will endeavour to recover whilst undergoing the transition to non-fossil fuels.  This is one of the big issues of the 2020’s.  The virus has helped; whilst in lockdown, fossil fuels have accounted for less than 15% of electricity generation.