Category: Policy & Business

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

 

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.

BPS Entitlement Values 2019 – source RPA
	Gross Payments – € per Ha				Net Payments  £ per Ha
	2019 Standard	2019 Greening	2019 Total	2019 Est.	2018	2019*
Lowland	182.70	78.69	261.39	264.2	228.43	229.38
SDA	181.34	78.11	259.45	261.8	226.68	227.50
Moorland	49.76	21.43	71.19	72.6	61.82	62.47

* 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’.