Category: Policy & Business

Defra is encouraging farmers and landowners in England to plant more trees and create new woodland to help tackle climate change.  In return, they will receive payments as the trees grow.  The new Woodland Carbon Guarantee (WCaG) scheme will offer successful participants a guarantee the government will buy verified carbon credits, called Woodland Carbon Units (WCUs) at an agreed price.  Under the scheme, land managers will have a guaranteed buyer for carbon units at agreed dates (5 or 10 years over 35 years up to 2055/56).  If participants do not wish to sell carbon units to the Government, they can sell the credits on the open market instead.

A guaranteed price for the WCUs is agreed with the Government through an online reverse auction.  Auctions will take place every six months for five years, beginning early next year.  Once an application to the WCaG scheme has been accepted, the landowner will be invited to take place in an auction.  The auction will operate on a sealed bid process.  Participants will be asked to provide their best offer of the price they require in order to make their woodland creation project viable.  Those who are successful in the auction will see the government buy WCUs for the price they bid.  The price agreed at auction will then be index-linked based on the ONS Consumer Price Index of April each year for the life of the contract.

Before applications can be made to the WCaG scheme, land managers need to register their project with the Woodland Carbon Code (WCC).  This will provide information on how to plan the woodland and importantly will calculate how much carbon it will remove from the atmosphere.  Woodlands need to comply with the UK Forestry Standard.  The WCaG scheme can be applied for alongside applications to the Woodland Creation Grants under Countryside Stewardship, the Woodland Carbon Fund or the HS2 Woodland Fund, where contracts under these schemes were entered into after 29th October 2018.

Once the conditional offer of a contract has been offered after the auction, landowners can begin to plant the woodland and have it validated under the WCC.  As the woodland grows it will be verified every 5 or 10 years through the WCC to confirm the amount of carbon that has been sequestered and therefore the number of WCUs delivered.

The Government has committed to planting 11 million trees by 2022, in order to tackle climate change. Trees are a natural carbon sink which results in carbon sequestration.  Other benefits of planting trees include preventing flood risk, soil conservation and an increase in biodiversity.

Further information is avaialable at: https://www.gov.uk/guidance/woodland-carbon-guarantee and the application form for the WCaG scheme can be found at https://www.gov.uk/government/publications/woodland-carbon-guarantee-application-form

It appears Scotland’s Rural Economy Secretary has already made changes to how the £160m ‘Convergence Funding’ will be allocated.  Our article of 1st November (see https://abcbooks.co.uk/scottish-convergence-funding/) reported on Fergus Ewing’s initial announcement on the distribution of funds, but this received ‘representations’ from crofters and the crofting organisations.  Following a meeting with representatives of the Scottish Crofting Federation, Mr Ewing ‘tweeted’ to say he would be redistributing a further £10m in the 2019/20 financial year (in addition to the £80 already announced), to support those farming and crofting Scotland’s most challenging land.  He also announced he would be commencing work on a replacement for the LFASS to be developed with the involvement of ‘appropriate stakeholders’.  There is no detail yet of the mechanism by which this money will distributed to farmers and crofters in these most challenging areas, the Rural Economy Secretary tweeted he will ‘go further’ in the package of measures to support crofters.

BPS 2019 Payments

The BPS Support Scheme application is available on RPW Online.  The deadline for applications is 29th November.  The scheme ensures those that do not receive their 2019 Basic Payment on 2nd December (1st is a Sunday) receive 90% of the estimated total value within the first couple of weeks of December.  As claimants won’t know until after the deadline if they fall into this category, all are urged to apply to the scheme.

Expiring Glastir Advanced, Commons and Organic Contracts

Landowners whose Glastir Advanced, Commons or Organic contracts are due to expire on 31st December 2019 are being offered either a contract extension or renewal.  The contract offers will be available on customers’ RPW Online account for them to either accept or decline.

Food Business Investment Scheme

The Expression of Interest window for the Food Business Investment Scheme closes on 28th November 2019.  The scheme provides grants of up to 40% for capital investment in equipment and associated costs which help to add value to agricultural products and market them.

From 1st November 2019 new repairing and insuring Model Clauses came into effect in Wales.  The Agriculture (Model Clauses for Fixed Equipment) (Wales) Regulations 2019 (WSI 2019/1279 (W.223)) will apply automatically to many of the Welsh tenancies governed by the Agricultural Holdings Act 1986 and brings Wales more or less back in line with England, which introduced new Model Clauses in 2015.  For Farm Business Tenancies (FBTs), it will depend on whether the Tenancy agreement refers to the new regulations, or if there is an existing tenancy, whether it provides for the new regulations to supersede the ones in place at the start of the Tenancy.  Of course, in FBTs there is more freedom to agree alternative repairing and insuring responsibilities and many agreements will not use the Model Clauses.

Defra has announced the RDPE Growth Programme has opened for a further round of applications.  Funding is available under three areas; Business Development, Food Processing and Rural Tourism Infrastructure.  Local Enterprise Partnerships (LEPs) set regional strategies for the grants and therefore priorities for funding may vary from region to region.  Potential applicants need to see if their local LEP area is offering a grant, this can be found in the relevant handbook at https://www.gov.uk/government/publications/rdpe-growth-programme?utm_source=2ba0ced9-afa6-4c0c-a153-29142419f53c&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate

Grants usually cover 40% of eligible costs.  The minimum grant has been reduced from £35,000 to £20,000 (therefore the minimum project size is £50,000).  The maximum grant varies; for Food Processing projects it is £750,000, whereas for Business Development and Rural Tourism Infrastructure, the maximum fund available is £175,000.  The deadline for Expressions of Interest is midnight on 16th February 2020.  The RPA will agree a target end date with successful applicants.  However the final date by which all projects must be completed, paid and grant claims submitted is 20th September 2021.

The Rural Payments Agency (RPA) has announced the payment levels under the 2019 Basic Payment Scheme (BPS) for England.  As reported in last month’s article, the calculation of entitlement values is undertaken from scratch each year and the rate can vary depending on how many entitlements are claimed in each region.  The fact that rates are slightly lower than our estimates suggests that more entitlements were claimed.

The table below shows the published rates, our estimates and the actual payment that farmers will receive.  This is based on the 2019 conversion rate of €1 = £0.89092 (£0.8928 in 2018) (see last month’s article).  We are however, still waiting for confirmation on the Financial Discipline rate; this is not expected to alter the values too much.  The net payments shown for 2019 in the table below are after an estimated Financial Discipline (FD) rate of 1.5% (last year’s was 1.412%). We will update this table once the FD rate has been confirmed by the EU Commission.  The 2018 rate is included for comparison, which shows a slight increase for all three regions.

* Converted at € = £0.89092, 1.5% Financial Discipline

Revised figures from Defra show profits fell across most farm types in 2018/19.  Taken from the Farm Business Survey (FBS), the data shows the Farm Business Income (FBI) for various standard farm types.  FBI can be thought of as equivalent to the ‘Net Profit’ measure widely used in accountancy.  These results relate to England and update the provisional ones released earlier in the year (see March article https://abcbooks.co.uk/farm-business-income-4/).  The FBS works on Feb/March year ends so the period being reported covers harvest 2018 and the 2018 BPS.  The full release can be found at https://www.gov.uk/government/statistics/farm-business-income

In the chart below, the first column for each sector shows the average FBI from 2010/11 to 2014/15.  The next four columns show the FBI for the next four years, broken down into four ‘profit centres’.  The final, light blue column is Andersons estimate for the current 2019/20 year.  As can be seen, only Cereals and General Cropping farms saw an increase in returns in 2018/19 compared to the year before.

There have been some adjustments from the provisional 2018/19 figures released earlier in the year.  The most significant one being General Cropping which now sees a 20% increase (in real terms) compared to 2017/18, as opposed to a 10% decline recorded in the provisional results.  The change is mainly due to better prices for potatoes, peas and field beans.

Dairy farms have seen a larger drop in profits than was recorded in the provisional figures, down by 39% (in real terms) compared to 2017/18, to average £73,700.  This was driven mainly by an increase in feed, labour and machinery costs as a result of the late, wet spring followed by the summer drought.  Revised figures for Grazing Livestock businesses show even bigger declines than initially reported, particularly in LFAs where agri-environment payments, which are an important source of income for these types of farms, fell. 

The chart shows a breakdown of where the profit comes from for the years 2013/14 to 2018/19.  It can be seen for the two Grazing Livestock farm types the return from agriculture is negative, it takes part of the Basic Payment to return these farms to profit.  This is of real concern when looking ahead to the removal of direct support.  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 2019/20 FBI, shown in light blue on the chart.  These show better returns for the Dairy sector, but poorer performance for Cereals and General Cropping reflecting lower crop prices and a difficult potato harvest.

The Government is teaming-up with the mobile phone industry in a £1 billion deal to banish rural not-spots.  The aim is to bring high-quality 4G coverage to 95% of the UK by 2025.  The deal would see EE, O2, Three and Vodafone coming together to create a new organisation to deliver the Shared Rural Network.  The proposal would see the four operators investing £530m in a network of new and existing phone masts they would share to eliminate almost all partial not-spots – areas where there is currently only coverage from at least one but not all operators.  If the operators agree to these ambitions on not-spots, the Government will invest up to £500m to eliminate areas where there is currently no coverage from any operator – ‘total not-spots’.

Fergus Ewing, Scotland’s Rural Economy Secretary has announced the first £80m of the £160m ‘convergence funding’ will be paid in this financial year (before March 2020).  Those that farm in the marginal uplands, hill farms and island areas will receive a proportionally greater share than lowland farms.

Readers will recall that this is the money announced in the Spending Review (see https://abcbooks.co.uk/spending-review-2/).  Scotland has been campaigning for this for many years after only £30m was given to Scotland by the UK Government out of £190m received from the EU under CAP convergence rules for the budget period 2014-2020 (BPS years 2013 to 2019).  The Scottish Government has always argued the money received by the UK was because Scotland’s area payments were below the EU average and therefore Scotland should have received it all.  The UK Government announced in September that the £160m would be paid to address a ‘historic injustice’.  The separate ‘Bew Review’ looked at future allocation of support funding.  This granted an additional £51.4m to Scotland (and £5.2m to Wales) for the two BPS scheme years, 2020 and 2021.  However, with the end of the current Parliament, the ‘funding guarantee to 2022’ lapses, so future payment levels are up for debate.

The first instalment of £80m will be split into two parts.  £65m will be distributed on an area-basis.  The other £15m will go to top-up coupled livestock payments in 2019.  £13m will go to the suckled beef scheme and £2m to upland sheep.

The £65m for area payments will (again) be split.  £52m will be divided based on 2019 BPS areas, with a weighting towards Region 2 and 3 areas.  The current split of BPS funding between Regions 1, 2 and 3 for the 2019 year is 87 : 9 : 4.  The £52m of convergence funding will be split 50 : 35 : 15.  This produces an additional payment of £15.86, £24.09 and £6.28 per Ha respectively in each of the three regions.  The remaining £13m is being earmarked to top-up the 2019 LFASS scheme, where payments would otherwise have dropped to 80% of previous years levels under EU rules (see https://abcbooks.co.uk/lfass-2/).  The NFUS had been lobbying for the convergence money to be spread equally across all sectors of Scottish agriculture. 

Farmers will not have to apply for any of this money – it will simply be paid as a result of 2019 claims.  It is interesting to note that, although the convergence money relates to the 2013 to 2019 scheme years, this first tranche is all going to 2019 claimants.  The Scottish Government states that this is to enable the money to be distributed quickly.  However, the cynical might think that the Scottish payments system is so unreliable that it is impossible to make back payments to historic claimants.  Those that farmed in the period 2013-2018 might feel a little hard done by. 

The second £80m tranche of convergence money will be paid by March 2021.  The Scottish Government has not stated how this is to be distributed as yet.  However, there are strong hints that a large part of it will be used to offset the drop in 2020 LFASS payments to 40%.

Defra has confirmed all eligible applications to the second round of the Countryside Productivity Small Grants Scheme (CPSGS) have been approved.  Offers are expected to be sent out by the RPA as from 28th October and successful applicants will have until the end of May 2020 to buy the equipment and submit their claim.  This claim deadline has been extended to try and avoid the problems with late delivery of items which occurred in the first round.  Applicants are being encouraged to contact suppliers early to ensure their equipment can be delivered within this timescale.  Offers need to be accepted by 10th November through the CPSGS online acceptance portal.  More than 3,600 farmers applied to the second round of the CPSGS, with total funding reaching £22m compared with £15m in the first round of the scheme.  A final round is expected to open in autumn 2020.  The CPSGS provides grants of between £3,000 and £12,000 towards equipment to improve the productivity of their holding.  There is a set list of eligible items and a fixed level of grant is paid for each one, keeping the scheme simple to apply for.