Category: Policy & Business

The National Audit Office (NAO) has raised concerns over Defra’s ability to deliver its post-Brexit policy plans.  The Government watchdog has just published a report into the Department’s ‘Future Farming and Countryside Programme’ which is designed to deliver the new agricultural policy in England. 

The Programme includes support for animal health and welfare, farm productivity, and the rural aspects of the new Shared Prosperity Fund (a replacement for EU structural funds).  However the largest element, and the focus of the NAO’s report, is the transition from the BPS to the new Environmental Land Management Scheme (ELMS).  Some key findings of the report are summarised below;

• implementing the new agricultural policy will be ‘complex, difficult, and high risk’.
• Defra’s estimates for uptake of ELMS look ambitious, with 82,500 farmers and land managers expected to be enrolled by 2028 (similar to current BPS claimant numbers).
• it is not clear how the move from BPS to ELMS will achieve the aim of a ‘thriving farming industry’ when the BPS forms such a large component of profit on the average farm.  The report infers that Defra is placing too much weight on productivity improvements to make up the shortfall from the BPS, although it notes that a pilot study will be undertaken in 2019-20 on how business support can be given to the most vulnerable businesses such as grazing farms. 
• the farming sector is being given little time to prepare for participation in the pilot as the payment methodology is only being set in March 2020, payment rates in June 2020, and the first pilots due to start in late 2021.
• it is not clear that the pilot (which has reduced it’s first year target from 5,000 to 1,250 agreements) will provide sufficiently robust evidence to inform the future development of the scheme
• Defra has already started to specify its digital requirements for the Programme before key decisions have been made.  This increases the risk of significant technology changes late in the Programme.  Defra state that they are using ‘agile’ systems that allow ongoing changes as well as re-using elements of existing systems, and this will reduce risks.  Those that have experienced Defra/RPA computer systems in the past may not be completely reassured by this. 

The latest organic statistics from Defra show that the area managed under this system continues to fall.  Total land both ‘in conversion’ and fully organic fell between 2017 and 2018 by 8.4% to 474,000 Ha.  This means that around 2.7% of the land on UK farms is being managed organically.  The figures continue a long-term trend.  The organic area peaked at over 700 thousand hectares in 2008.  The number of organic producers and processors in the UK fell by 6% year-on-year to 6,188.  For more detail see – https://www.gov.uk/government/statistics/organic-farming-statistics-2018

 

 

 

Farmers in Wales will be supported by a single scheme once the BPS is phased-out.  The Welsh Government has produced a formal response to the ‘Brexit and Our Land’ consultation that was launched last summer (see July Bulletin).

In the original consultation it proposed that there would be a two-strand replacement for the BPS – an Economic Resilience Scheme would support economic activity in Welsh farming whilst a Public Goods Scheme would reward land managers for providing certain outcomes for the wider society.  However, it now proposes that all support will come under a ‘Sustainable Farming Scheme’.  This is in response to replies to the consultation that farms would be artificially split between ‘food producing’ land and ‘public goods’ land. 

The response (see https://gov.wales/brexit-and-our-land-our-response) makes it quite clear that the BPS, or something like it, will not continue – ‘the Welsh Government considers universal income support decoupled from outcomes does not provide an effective way to support farmers’.  The new system will be based on ‘outcome-targeted payments’.   The scheme will be based on ‘Sustainable Farming Payments’ – these will be annual revenue payments in return for providing public goods.  Although, the Welsh Government specifically states that it does not see food production as a public good, it hopes to design the scheme so that ‘the production of food and the production of public goods is mutually reinforcing’.  Within the document it is proposed that ‘payments are set at a level that contributes positively to net farm profits’ – this suggests that they may well be more generous than past ‘income foregone’ agri-environment payments and include an element of margin.

In addition to the annual payments, the scheme also aims to drive ‘business development’.  Support for on-farm investment appears to be a key element of this, although much focus is also on business support, skills and training.  Indeed, there is an implication that farmers will not be able to access grant funding unless they can demonstrate they have the business skills to make good use of it. 

No specific timetable for the introduction of the new scheme (and the phase-out of the BPS) is given.  The previous completion date for reform of 2025 is referred to, but this is now described as ‘ambitious’; perhaps indicating a longer transition.  The next steps of the process will be a further consultation launched in July.  Then there will be a process of ‘co-design’ of the new scheme, starting in the autumn which will involve farmers, foresters, advisors, academics and other stakeholders.

UK landowners look to be getting ‘ahead of the curve’ on climate change.  The predicted warmer summers make domestic wine production less of a marginal activity (indeed, some current famous wine-growing regions may become too hot and dry to grow grapes).  Latest figures from the trade body, WineGB, show there has been a surge in UK vine plantings.  An extra 690 Ha (1,700 acres) were planted last year (this is equivalent to 3 million vines).  This is a 24% increase in the total area under vines, to over 3,500 Ha.  Whilst still a niche land use, it is estimated that 35,000 Ha of the UK might be suitable for wine production. 

Farming has been excluded from the list of occupations that face shortages of labour following Brexit.  The Government’s Migration Advisory Committee (MAC) conducted a review of the roles on the Shortage Occupations List (SOL).  This is the first review of the list since 2013 and aims to take into account trends in the labour market since then, plus the possible effect of Brexit.  The NFU made a submission to the MAC outlining a number of roles where it was difficult to fill vacancies, including dairy herdsman and poultry technicians.  However, no positions in farming were added to the list.  Vets, however, were included.  Being on the SOL makes hiring non-EU migrant workers easier – not having to conduct a Resident Labour Market Test (RLMT), exemption from the £35,000 minimum income threshold for settlement, lower visa fees and priority in the event the migration cap is reached.  At present, being excluded from the SOL is not such a large issue, as posts can be filled by EU workers under the free-movement rules.  However, following Brexit (especially any No Deal Brexit) this route would become far more important. 

 

The UK Parliament will be asked (for a fourth time) to approve Theresa May’s Withdrawal Agreement in early June.  The Prime Minister intends to present the Withdrawal Agreement Bill (WAB) to MPs in the week commencing 3rd June.  With Donald Trump’s visit to the UK in the same week, there will be a plenty of political excitement. 

The chances of the getting the WAB through Parliament looks slim.  At the last attempt on the 29th March, 286 MPs were in favour versus 344 against.  Since then, the Parliamentary arithmetic seems to altered little.  The talks between the Labour Party and the Conservatives to try and find a common position broke down on the 17th May without agreement. However, it is probable that the Government will seek to include bolt-ons to the WAB on issues such as workers’ rights and environmental standards in an attempt to address some of Labour’s concerns and woo Labour MPs from Leave-voting constituencies towards supporting it, but the likelihood of success remains low.

It seems that this will be the final attempt by Theresa May to push through her Withdrawal deal.  Following a meeting with senior backbench MPs, the Prime Minister has agreed to ‘set a timetable’ for the election of her successor after the vote.  If the deal passes, then Mrs May is likely to stay on a while longer to see the withdrawal process through.  If, as seems more likely, the vote is lost, then the rumours are that she will resign almost immediately, thus triggering a Conservative leadership contest.  The candidates are already jockeying for position.  Unfortunately, whilst the leadership race is taking place, actually trying to resolve Brexit is likely to take a back seat – meaning further delay and uncertainty. 

TIFF Falls for 2018

Farm profits declined by 18% in real terms last year according to the latest figures released by Defra.  The first estimate of Total Income from Farming (TIFF) for the 2018 calendar year is put at £4,697m – down £1,034m from the £5,731m seen in 2017.  It must be noted however, that the 2017 was the second highest real-terms profit in the last 20 years.  The chart below shows that, despite the drop, profits in 2018 were still within the range seen for the last decade or so.

TIFF is the total profit from all UK farming businesses for the calendar year.  It shows the return to all entrepreneurs for their management, labour and capital invested.  Readers with good memories may recall that, despite the latest figures being called the ‘first estimate’ a figure for 2018 TIFF was published in December.  This was an initial forecast provided for the EU.  At that time the 2018 TIFF was put at £4,850m, so profitability has been revised downwards.  This is not unusual, as the series has a history of quite large revisions.

The main reason for the fall in profitability was an increase in costs.  The output of the farming industry actually rose between 2017 and 2018 – although only by 0.4% in real terms.  But costs increased by more, with feed, fuel, fertiliser, depreciation and labour all showing notable rises.  The chart below also shows our forecast for the current 2019 year.  Although only part-way through, we predict some recovery in profitability.  However, it will not get back to 2017 levels.

Further details can be seen at https://www.gov.uk/government/statistics/total-income-from-farming-in-the-uk.  A further update to the statistics is due in November.

Productivity

Alongside the TIFF figures, Defra also published estimates of Total Factor Productivity (TFP) for 2018.  This measures how well inputs are converted into outputs and thus gives an indication of the efficiency and competitiveness of the farming industry.  It is one of the measures that Defra looks at closely, as it tries to improve the performance of UK agriculture.  The figures for 2018 are not that encouraging.  TFP is estimated to have decreased by 2.1% between 2017 and 2018.  This was driven by a fall of 1.8% in outputs, combined with a small increase of 0.3% in the volume of inputs.

Again, the weather has had an effect – certainly on the level of outputs.  The 2018 figure continues the pattern of fluctuations seen from around the year 2000 onwards. Whilst there has been some overall improvement in TFP over the last 18 years, it has been at very low levels.  Getting TFP, and other productivity measures, moving upwards more strongly is one of the key challenges of the next few years.  For more details see –  https://www.gov.uk/government/statistics/total-factor-productivity-of-the-agricultural-industry

Welsh Profitability

Figures from the Farm Business Survey in Wales corroborate the wider UK picture outlined above.  This provisional data relates to the 2018-19 year (April to March).  It shows the average level of Farm Business Income (FBI), which can be thought of as profit, for each of the main sectors of Welsh agriculture.  The figures are provisional at the moment and are equivalent to the English FBI figures we reported on in March.  The table below shows that, overall, farm incomes declined by 17%.  All sectors suffered from an increase in costs, especially feed costs, partly related to the hot, dry weather restricting grass growth.

Farm Business Income (Wales) – source Farm Business Survey
Real terms, 2017/18 Prices	2015/16	2016/17	2017/18	2018/19	Change 18 to 19
DAIRY	34,900	32,600	86,000	64,500	-25%
GRAZING L’STOCK (LFA)	23,200	24,000	27,500	24,500	-11%
GRAZING L’STOCK (L/L)	17,300	23,700	24,500	17,000	-31%
ALL FARMS	23,600	25,500	35,500	29,500	-17%

2018/19 Data is Provisional

For more details see – https://gov.wales/farm-incomes-april-2018-march-2019-forecast

The charity LEAF is to run a two-week campaign to help educate schoolchildren about agriculture.  The farming fortnight’ will run from 3rd to 14th June and aims not only to teach the next generation about where their food comes from, but also to highlight the career opportunities available in the sector.  It builds on the work previously undertaken by Farming and Countryside Education (FACE) which merged with LEAF in 2017.