Category: Policy & Business

With the Withdrawal Agreement now looking certain to pass following the General Election result, the focus is turning to the next stage of the Brexit process – negotiating a long-term trade deal with the EU.  Talks are expected to formally commence at the start of February, although the two sides are likely to have had informal discussions before then.

The key issue is what can be achieved in less than a year.  The EU-Canada Free Trade Deal (CETA), which is often cited as a model, took 7 years to negotiate.  The fact that the UK and EU start from the same place in terms of rules may help, but it still seems a ‘challenging’ timetable.  The Transition Period can be extended by one or two years, but this decision has to be made by the 1st July 2020 – i.e. it cannot be left to the 11th hour, if a deal has not been done.  Perhaps more importantly, Boris Johnson has stated that he does not wish to see the Transition extended.  Whilst he claimed this during the Election campaign, there was a school of thought that, given the scale of the Tory majority, the hardline Brexiteers within the Conservative Party would be less influential, and this pledge could be quietly dropped.  The Prime Minister has a bit of form in this area – see ‘dead in a ditch’.  However, it seems that a clause may be inserted into the Withdrawal Bill making it illegal to extend the Transition.  Whilst this could always be undone with another Act, it does show a real intent to spend as short a time as possible in the Transition.

The truncated timetable raises some uncomfortable questions.  If an agreement on the UK-EU Future Relationship cannot be reached by the end of 2020, then the UK would simply trade with the EU on WTO terms after the 31st December – thus a version of ‘No Deal’ re-emerges.  Even if a Free-Trade Agreement (FTA) is reached, it seems highly unlikely that the specific arrangements required to operationalise the Northern Ireland / Ireland Protocol in terms of Customs and SPS checks would be in place by that point.  Any attempt to rush it through opens up the strong possibility of it being a botched job.  Finally, to meet the tight timetable, any FTA might be far less ambitious than has been suggested.

A ‘deep and comprehensive’ FTA has been the plan – ‘Canada plus’ in the jargon, going beyond the provisions of CETA.  The EU can ratify an agreement that simply covers trade in goods, but any ‘mixed’ agreement that covers trade in services (plus other issues such as intellectual property rights, procurement, employment rights etc.) has to be signed-off by Member States.  This is how the CETA agreement was held up by the Wallonian Parliament.  Both to make the scope of the talks manageable in the timescale, and to have a chance of the agreement being legal before 31st December, a very cut-down ‘Canada minus’ deal might be the only possibility.  A more comprehensive agreement could be returned to later.  In terms of agriculture, an agreement that covered goods only would be better than nothing. Tariffs would be avoided altogether if the agreement was not subject to any quota limitations. However, quota limitations are frequently features of FTAs, even comprehensive ones. For instance, CETA has quota limitations on tariff-free beef imports from Canada. Similar restrictions would hinder UK-EU trade. 

The personnel involved in the talks will be interesting.  From the EU side, the new Trade Commissioner is Phil Hogan who will know the agricultural sector very well having served previously as Agriculture Commissioner.  At times, he has been scathing in his criticism of the UK position on Brexit.  A key decision that Boris Johnson will need to take in the formation of his Cabinet is who leads on the Brexit negotiations? Will the current DEXEU Secretary, Stephen Barclay, continue to lead or will there be a greater role for Michael Gove, who is rumoured to be set for a much greater role on trade?  Given his previous Defra role, there are arguably advantages to Michael Gove having a greater influence on the future UK-EU trading relationship.  We will keep readers informed as events progress.

Readers may recall that 2019 Countryside Stewardship (CS) and Environmental Stewardship (ES) scheme payments are to be made in one single payment.  Previously there was a 75% Advance payment and a 25% Final payment.  The single payments for both CS and ES are due to commence from 2nd December and be completed by 30th June (the same payment window as the BPS).  However, there has not, as yet, been any indication from the RPA as to how many businesses it expects to pay in December, or any payment targets at all.  All previous annual revenue claims must have been paid before a 2019 payment can be made.  The RPA continues to process historic (2016-2018) revenue claims; a number of businesses received Treasury funded bridging payments over the summer.  These need to be processed into full payments before the 2019 year can be paid.   This process is hoped to be completed by March 2020.

Defra has announced the dates for the first online auction under the Woodland Carbon Guarantee (WCaG) scheme.  Following the launch of the WCaG scheme (see last month’s article https://abcbooks.co.uk/50m-incentive-to-plant-trees/) the first auction, to agree the price at which the Woodland Carbon Units (WCUs) will be sold to government, will take place from midday on 20th January until midday on 31st January 2020.  To participate, landowners must have already registered their woodland project with the Woodland Carbon Code (WCC) and made a WCaG application to the Forestry Commission by 10th January.

A new European Commission starts work on the 1st December.  The Commission is often called the EU’s Civil Service, but it is rather more than that, as it also sets policy and proposes legislation for the Union.  Each Commission has a five-year term and is headed by 28 Commissioners (one for each Member State).  In fact this time there will only be 27, as the UK Government declined to nominate a representative, despite still being in the EU.  The Commission was due to start its term on the 1st November, but was delayed as some of the proposed members were not approved during the confirmation process.  The new head of the Commission is the former German Defence Minister, Ursula von der Leyen.  One of her first tasks will be to handle the UK’s exit, but there are other pressing issues such as European competitiveness, climate change, and the Euro.  The post of Agriculture Commissioner goes to Janusz Wojciechowski from Poland.  The previous Agriculture head, Phil Hogan (Ireland) moves to the high-profile job of Trade Commissioner.

The Welsh Government has confirmed the Basic Payment Scheme (BPS) will continue in Wales in 2021, as long as sufficient funds are made available by the UK government.  The Rural Affairs Minister, Lesley Griffiths has said the decision to continue the scheme for a further year has been made due to ongoing delays in the UK’s departure from the EU.  According to the Minister, plans to transition to the new Land Management Programme have had to be paused and the earliest any move to the new targeted system of farm support will commence will be 2022.  The decision by Wales to continue with the BPS for a further year will put more pressure on Defra/RPA to have a similar delay in England.  The ‘Agricultural Transition’ is due to commence in 2021; there have already been calls from the NFU for a postponement to 2022.

The Welsh Rural Affairs Minister also urged producers to apply for the 2019 BPS Support scheme which closes on 29th November.  If claimants do not receive their full 2019 BPS payment on day 1 (December 2nd), but have applied to the 2019 BPS Support scheme, they will receive up to 90% of their claim value from 9th December.  It appears an application to the scheme may be more important this year than normal.  In the past nearly all applicants have been paid on day 1, but the Minister has said, preparing Wales’ farmers for Brexit has been the top priority in 2019 and therefore the Government will not be able to deliver the same level of full BPS payments on day 1 this year.

With payments due to commence on 2nd December (the 1st is a Sunday), one piece of information was lacking in regard to 2019 payments; the Financial Discipline rate that will apply.  Whilst there has been no formal announcement from the RPA or any of the other Paying Agencies (that we can find), the EU Commission published an Implementing Regulation on the 19th November which set the reduction rate for 2019 at 1.43265%.  This deduction only applies to the element of a claim over €2,000.  The table below contains the updated rates for England

Ahead of the General Election on Thursday 12th December the main Parties have all published their manifestos.  Although farming is far from the forefront of campaigning, a number of pledges have been made that are relevant to our industry.  Below is a quick summary (with links to manifesto websites for any real masochists).

In perhaps the most eye-catching policy directly related to farming, the Conservatives of Boris Johnson have promised to maintain farm support spending at current levels for the term of the next Parliament (i.e. five years).  In return, farmers will be expected to protect the environment and safeguard animal welfare.  Part of this will a shift to pay support on the basis of ‘public money for public goods’ – it therefore seems that Michael Gove’s ideas, as encapsulated in the new ELM scheme, have survived.  There is also a pledge to increase the Seasonal Agricultural Workers Scheme (SAWS) from 2,500 to 10,000 people per year.  For more details in these policies, and more, see https://vote.conservatives.com/our-plan

The Labour manifesto is notably quiet on funding for farming and what support schemes might replace the BPS.  However, under Labour’s plans ‘Remain’ is still on the table (and thus the CAP could still apply) so perhaps it is logical that the party has not set out in detail what a post-Brexit farm policy might look like.  Other policies include a boost for County Farms, re-establishment of the Wages board in England, an end to the badger cull, enhancing national food security, boosting local food and provide more funding for the Environment Agency.  (For more details see – https://labour.org.uk/manifesto/).

The Liberal Democrats have also a funding guarantee (of sorts) in that legally binding targets to improve air, water, soils and biodiversity will be set supported by ‘funding streams of £18bn over 5 years’.  This is more than the UK currently receives under the CAP.  Given that it is LibDem policy to remain in the EU, it is not clear whether this is additional money on top of CAP funds.  the manifesto does state that payments to larger business would be reduced to support the provision of ‘public goods’.  There is also the (apparently mandatory) pledge to increase animal welfare standards, support tree planting and increase the funding for Defra and its agencies.  (See https://www.libdems.org.uk/plan).

We haven’t set out in any detail the policies of the Scottish Nationalists, Plaid Cymru, the Greens, Brexit Party the Northern Ireland parties, or the Monster Raving Loony Party – deciding that life is too short. 

We have received some questions on what is happening for the 2020 BPS.  The previous Government stated (repeatedly) that the Basic Payment Scheme would operate for 2020.  There was talk of some simplification, but with Brexit delays, General Elections etc., the best assumption is that all the scheme rules will be the same as the 2019 year.  A new Government could decide to do something different, but it would now be very difficult to change anything for 2020 – crops have been planted for next year with the ‘legitimate expectation’ of support being the same.  Thus, it becomes a question of BPS amounts for 2020.

Assuming the UK agrees a deal with the EU and enters the Transition Period, we will still be paying into the EU Budget until the end of 2020 (the end of the current Multi-annual Financial Framework (MFF)).  However, BPS years and EU Budget years are one year out of sync – i.e. the 2020 EU Budget pays for 2019 BPS.  Therefore, it appears the EU Budget won’t be paying for the UK’s 2020 BPS – we will be doing it ourselves.

There was the Funding Guarantee until the ‘end of the current Parliament’.  This was meant to be 2022, but with the Election, this guarantee becomes void.  Theoretically, the next Chancellor could cut 2020 BPS funding (or increase it!).  In practice, inertia, tight timescales, and implicit promises made, lead us to think it is pretty safe to assume 2020 funding will be broadly equivalent to 2019.

However, there is a large complication in that there will still be a need to convert Euro-denominated entitlements which producers hold, into Sterling for payment.  To date there has been nothing reported as to how this is to be done.  It seems to us that either of two approaches might be adopted;

• Defra/RPA carry on as now, just using the September average to convert € to £.  This might be problematic for the Treasury, as they could end up funding more/less than in 2019 depending on the precise exchange rate next September.
• they just pay out the same in Sterling terms (both per Ha, and in aggregate budget terms) as in 2019.  Effectively, the exchange rate is locked at 2019 values.

Of course, they could come up with something completely different – using the 5-year average exchange rate for example.  There is a further relevance to all this, in that the 2020 year sets the start point for the phasing out of BPS – if you lower the starting point, you can pay a bit less for the next 7 years.

To summarise, for current budgeting purposes we would assume 2020 BPS payments at the same level as 2019 ones (perhaps reduced slightly to be conservative).  In terms of taking out hedges on exchange rates etc.,  our view is, not enough is known yet to calculate if this is going to be worthwhile.  As always, we will endeavour to keep readers up-to-date as and when further information is available.

Support

Those badly affected by the floods across Yorkshire and the Midlands will be able to apply for grants of up to £25,000 to help cover some of the cleaning-up costs.  Defra has said it will be extending the Farming Recovery Fund, which was available to those affected by flooding in the summer, to farmers and land managers recently affected in the North of the country.  The scheme offers support for those who have suffered uninsurable damage to their property, such as clearing debris or recovering damaged land.

BPS

Temporarily flooded land is still eligible for BPS as long as the land would otherwise be available for agricultural activity.  Claimants should return the land to agricultural use as soon as is practically possible.  With regards to EFA cover crops, these should have been established by 1st October i.e. emerged and growing by this date, not just sown.  Claimants who have had difficulty with this would have to raise this with the RPA on an individual case, but would need to show that the ground had been waterlogged for a period before 1st October.  Claimants are reminded, however, that where an EFA cannot be delivered, it is possible to ‘nominate an alternative feature/area’ as long as the area/feature is on claimant’s land which has already be included in their 2019 BPS application (refer to ‘How many EFAs to declare’ on Page 41 of the BPS rules for 2019).

Cross Compliance

For there to be a breach of cross compliance, the claimant must have been directly responsible for any action or inaction.  Therefore breaches caused by flooding, such as stone walls being washed away, or footpaths being obstructed would not be classed as breaches.  Where livestock are at risk from flood waters, animal keepers should move them to a safe place first and foremost.  On farm records should be kept up-to-date but the authorities will take a pragmatic approach to reporting, having to move animals within the 6 day standstill and those that are unregistered or under movement restrictions.  More information can be found at https://www.gov.uk/guidance/flooding-advice-for-farmers-and-land-managers

Minor Change or Force Majeure

Where flooding means temporarily claimants cannot manage agreements to the Countryside Stewardship (CS) or Environmental Stewardship (ES) option requirements, it is possible to request a minor and temporary adjustment.  Further information on this can be found at https://www.gov.uk/government/publications/minor-and-temporary-adjustment-mta-form-countryside-stewardship.  Where the flooding has resulted in more serious and permanent change to the land, so that the land is not eligible for BPS or that ES and CS claimants can no longer manage the land according the requirements of the options in the agreement, it may be possible to request Force Majeure.  Examples of this would be; under BPS where a stretch of riverbank has been washed away and the field boundary has permanently changed.  Under ES or CS, where a newly planted woodland or hedgerow has been destroyed.

Inspections

RPA has said it will ‘postpone’ any scheduled inspections in affected areas until the situation eases.

For further information go to https://www.gov.uk/guidance/flooding-advice-for-farmers-and-land-managers