Category: Policy & Business

All seems rather quiet (too quiet?) in regards to this year’s BPS applications.  Usually at this point in the process we are reporting last-minute rule clarifications, data issues, computer system errors or other problems that make applicants’ lives difficult.  Little of this is evident at the moment.  This is probably a result of, five years in, the system settling down.  And also of the Defra/RPA not making any rule changes or major ‘upgrades’ to the system.  Whilst the process of filling-out applications remains a chore, at least the process (however tedious) is now a familiar one.

One point to note is that Drop-In Centres opened as from the 24th April.  These can be used to deliver both BPS and Countryside Stewardship Application forms.   The locations of these, and more details can be found at – https://www.gov.uk/guidance/drop-in-centres-rural-payments-agency

A quick reminder that the deadline for BPS applications without penalties is midnight on the 15th May – this year a Wednesday.  Claims for agri-environmental schemes also need to be in by this date.  It is possible to make a late application up to the 10th June (usually the 9th, but this falls on a Sunday this year), however, this incurs a penalty of 1% per day.  It is advisable to get some sort of application in the 15th May, even if it is not perfect, as certain amendments to a claim can then be made up until the 31st May, without penalty.

The Competition and Markets Authority (CMA) has blocked the merger of Sainsburys and Asda.  The planned £7.3bn merger, announced a year ago, would have created a grocer with around 29% of the market.  The fear was that this would create a ‘duopoly’ with Tesco which has a 27% market share.  Morrison’s, with only 10%, was not seen to be a strong force.  Sainsbury’s was the driving force behind the merger  – effectively taking Asda off Walmart’s hands as the US retailer is keen to exit the UK market.  Sainsbury’s argued strongly that the emergence of the hard discounters such as Aldi and Lidl (with a combined 15% of the market) provided adequate competition.  However, the CMA took a different view.  It was also dismissive of the claim that £1bn of savings would be passed back to consumers – believing that this would be difficult to police in practice.  The ruling is a slight surprise, as many in the City believed that the deal would be allowed – as long as the two groups sold a significant number of stores.  It may herald a more robust approach by the CMA to merger policy.  In general, the CMA ruling was welcomed by the farming sector and the food supply chain, as any further consolidation by retailers looked set to produce even harder negotiating terms.  The future strategy of both supermarkets is now the subject of much speculation – Sainsbury’s, in particular, seemed to be banking on the deal being approved.

The UK is managing to reduce the amount of Greenhouse Gas (GHG) emissions it produces.  Latest figures from Defra (https://www.gov.uk/government/statistics/uks-carbon-footprint) show that the country’s ‘carbon footprint’ declined by 6% between 2015 and 2016 (the latest set of figures).  The analysis includes the GHG emissions of all goods and services consumed in the UK, even if they are produced elsewhere.  This is important, as a country’s carbon emissions can be artificially reduced if it simply exports emissions elsewhere.  GHG emissions arising from UK consumption peaked in 2007 at the equivalent of 997 million tonnes carbon dioxide equivalent.  It is now some 21% lower at 784 mT CO2E.  The percentage of GHG emissions attributable to farming, food and drink within the UK total is around 15%. 

The Government has outlined plans to give tenants greater security of tenure under residential lettings.  There will be a consultation on new legislation which would see Section 21 notices abolished; this is the method by which Landlords can currently bring Assured Shorthold Tenancies (ASTs) to an end by giving at least two months notice after the initial Term (usually six months) has expired.  This could have significant effects across the rental sector, including farms and estates where many ‘surplus’ properties are currently let.

The proposals, which will be part of a complete ‘overhaul’ of the sector, were unexpectedly included in the Government’s response to its 2018 consultation ‘Overcoming the barriers to longer tenancies in the private rented sector’.  The formal consultation will be conducted on later in the year.  The Government has said, the legislation to abolish the Section 21 evictions (so called ‘ no-fault’ evictions) will prevent private Landlords from ‘uprooting’ tenants from their homes with as little as 8 weeks notice and will effectively create open-ended tenancies, providing greater certainty for tenants.

Under the proposals, Landlords will have to provide a ‘concrete and evidenced’ reason for ending tenancies.  In addition the Section 8 eviction process will be amended so that property owners are able to regain their home should they wish to sell or move into it.  But many in the industry are concerned the new proposals will see Landlords discouraged from letting their properties, for fear of not being able to regain possession.  Particularly for the agricultural sector there could be potential problems where farm workers are housed under an AST or where agricultural tenants sub-let farm cottages, as under the new legislation it may make it impossible for the farm tenant to return the farm cottage with vacant possession at the end of the farm tenancy.

Defra has released the results from its Farm Practices Survey held in October 2018.  The survey included questions on business practices, soil management and cattle housing.  Of the farms surveyed, 54% said they had introduced a significant change (innovated) to their farm business in the last year, this included a change in farm practice or introducing a new piece of specialist equipment.  A third of farms intended to introduce a significant change over the coming 12 months.  Those that had innovated in the previous 12 months were more likely to be cereal farms and larger farms.  Grazing livestock and particularly those situated in the LFA are the least likely to have made a significant change to their business in the past 12 months or going to do so in the next year.  New or specialist machinery was the most common innovation over the past year, with about 23% of farms introducing some.  Dairy farms were the most likely to introduce specialist machinery (35%).

When asked what was the motivation for adopting innovation, 67% said to increase productivity; lowering costs (65%) and making work easier for staff and themselves (64%) were also top motivators.  Farm advisors were the main ‘encouragement’ for farm innovation for most farm types, although for LFA grazing and pig & poultry farms it was other farmers and family who were more likely to encourage innovation.

Of those surveyed, 76% thought input prices were readily available, with 84% finding output prices easily accessible.  About 25% of farms do not use market data to inform their business decisions; these are more likely to be smaller farms.  Pig and poultry farms are less inclined to use market information as they are more likely to rear under specific contracts.  The most common source of input and output price information was from markets (76%) and the farming press (63%).  29% of farms surveyed accessed data from the AHDB and just 3% from Gov.uk.

Other results from the survey found 88% of farms positively managed price risks to their business and 29% of those surveyed were members of a buying group.  Larger farms were more likely to use financial or management accounting software, with 38% of those surveyed saying they used one.  92% of those surveyed had applied for some kind of funding from either Defra or the Forestry Commission, the most common scheme being the BPS (86%) with 60% having applied for an agri-environment scheme.  55% had carried out a soil structure survey and 27% of those with cattle said they used outdoor, unroofed, collecting or feeding yards for their livestock during 2018.

The Farm Practices Survey gives an interesting insight into how farmers are managing their businesses.  However, because of the way questions are framed, and the fact that farmers choose how to answer them, it often tends to suggest that management practices are better than they are.  For example, the headline figure from the current survey is that over half of farms are ‘innovating’.  But, if this simply involves buying a new piece of ‘kit’, then the level of innovation is probably not as impressive.   The full survey can be found at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/792165/fps-general-statsnotice-4apr19.pdf

On Thursday 25th April, Natural England (NE) revoked the three General Licences which allow for the control of certain wild birds.  The licences (GL04/05/06) cover 16 species, including Crows, Jackdaws, Magpies and Pigeons, meaning anyone found shooting these as from the 25th April could be committing a criminal offence.  NE’s action follows a legal challenge by Wild Justice on the way the licences have been issued.  Before issuing the licences NE must be satisfied that there are no satisfactory alternative solutions to lethal control i.e. scaring or bird-proofing.  Wild Justice argued that NE failed to satisfy these conditions.

At the time the licences were revoked, Natural England said it was ‘working at pace’ to put in place alternative measures to allow control of these species and it now appears new General Licences will be available to control certain species of wild birds under certain circumstances as from 29th April.  These new licences will eventually cover the majority of the circumstances previously covered, but they will be rolled out on a priority basis over the coming weeks.  If the circumstances in which a landowner wishes to act are not covered by the new licence, they will have to apply for an individual licence from Gov.uk.  More information can be found on the Gov.uk website at https://www.gov.uk/government/publications/wild-birds-licence-to-control-certain-species

The UK is now faced with the prospect of a ‘Halloween Brexit’ after yet another extension of the Article 50 deadline.  With the revised exit date of 12th April looming, and little prospect of the UK Parliament agreeing a way forward any time soon, Theresa May was forced to ask for a further extension.  At an EU Summit on the 10th April, European leaders agreed a further extension to the 31st October, providing that it takes part in EU Parliamentary Elections, otherwise it would exit the EU without a Deal on 1st June.  Although this was longer than the end-of-June date she had originally requested, Mrs May accepted the revised timetable.

What has actually been agreed is a ‘flextension’ – if Parliament accepts the Withdrawal Treaty, then the UK could end its EU membership earlier than the end of October.  In practical terms, this would have little effect as an acceptance of the Withdrawal Act would mean the Transition Period comes into effect (until 31st December 2020) and the UK would remain in the Single Market and Customs Union – thus farm trade would be unaffected.

The date of 31st October (Brexit day 3.0) has been chosen as a new EU Commission takes up its post on the 1st November – the EU is keen not to have a UK Commissioner in place.  Even so, as the UK remains a full member in the meantime it must run EU Parliamentary Elections in late May.  This complicates matters for the EU, as it had already divided-out the UK’s thought-to-be-vacant seats to other countries.

It now becomes a question of whether the UK Government and Parliament can use the extra time to forge a workable consensus on how to move Brexit forward.  Or whether the extension removes a sense of urgency and the politicians can revert to (continue with) grandstanding and intransigence.  Of course, to mix metaphors, this only kicks the cliff edge down the road.  Many businesses in the agri-food sector and in the wider economy, have spent considerable sums making No Deal preparations around the end of March date.  They now have another decision as to whether these are resurrected for Halloween.   

The EU has approved the UK as a ‘third country’.  This means that, in the event of a ‘No-Deal’ Brexit, the UK would be allowed to sell live animals and animal products to Europe.  These would still need to go through an EU Border Inspection Post (BIP) and have an Export Health Certificate (EHC) signed by a vet.  What the third country status means is that the UK has met EU requirements in terms of animal health and biosecurity standards.  With the (further) postponement to Brexit now agreed, another vote on the UK’s status is likely to be required ahead of the new 31st October date.  However, having gained approval once, it is more likely to be re-granted at a future date. 

Defra and the Welsh Government have launched consultations seeking views on reforms to agricultural tenancy legislation.  The proposals aim to assist Tenants and Landlords to adapt to change, access new schemes, improve productivity and enable structural change.

The changes are based on Tenancy Reform Industry Group (TRIG) recommendations.  They are not hugely radical, in that the current familiar landscape of tenancy legislation will remain broadly intact.  However, they are designed to make 1986 Act Agricultural Holdings Act (AHA) and newer (1995) Farm Business Tenancy (FBT) lettings more suited to a modern farming sector.  There are eleven proposals in total.  In addition, the consultation asks for views on non-legislative improvements that could be made such as better advice and training around farm tenancies.  There is also a ‘call for evidence’ on how lending on agricultural land impacts on land availability.

The key proposals are:

• allowing Agricultural Holdings Act (AHA) Tenants who wish to retire to assign their tenancies to a third party (i.e. this would be different to the current succession rules).  The Landlord could prevent the assignment by buying out the tenancy themselves.  An assigned tenancy would by subject to an open-market rent and terminate after 25 years.  This proposal is aimed at helping structural change and giving older tenants an ‘exit-route’ from farming
• changing the rules on succession under AHA tenancies.  There would be no minimum retirement age of 65 (i.e. Tenants can retire earlier).  Also, there might be a maximum retirement age of 5 years after the state pension age – after this time, the retirement provisions would no longer apply.
• updating the retirement provisions for Council farm tenants
• changing the succession provisions under AHA tenancies.  This could see the removal of the ‘commercial unit test’ which prevents those already occupying a commercial farm from succeeding to an AHA tenancy.  There will also be an updating of the ‘suitability test’ to a ‘business competence test’
• a potential extension of the categories of family members who are eligible for succession rights
• a new dispute resolution mechanism that can vary clauses in AHA tenancies that present a barrier to business development (for example, clauses requiring the Landlords permission to erect buildings or change the land use)
• removing barriers which currently dis-incentivise Landlords from investing in their AHA holdings – specifically the risk that a return on investment will be lost through future rent reviews
• giving Landlords incentives to let Farm Business Tenancies (FBTs) for 10 years or more.  This involves shorter and more certain notice-to-quit procedures in certain circumstances
• there are also three ‘procedural’ reforms proposed on arbitration, succession and alternative dispute resolution.

The two consultations will run concurrently for 12 weeks in England and Wales, with deadline for responses being 2nd July 2019.  The full consultation in England can be found at https://consult.defra.gov.uk/ahdb-sponsorship-and-agricultural-tenancies/agricultural-tenancy-consultation/   For Wales the consultation can be found at https://gov.wales/consultation-reforming-agricultural-tenancy-laws-launched

Latest rent data from Defra shows a mixed picture.  Land let under Agricultural Holdings Act (AHA) Tenancies saw a decline in their average rental value, whilst Farm Business Tenancy (FBT) rental values continued to increase.   The average rental value under AHA tenancies fell by 6% between 2016/17 and 2017/18 to £170 per hectare.  For Farm Business Tenancies (FBTs) the average figure increased by 4% to £226 per hectare.  The averages do however mask some large variations between farm types, as the table below shows.  The data is collected via the Farm Business Survey.  It is rather historic as the Survey takes some time to undertake.  The latest figures are for the 2017/18 year (roughly Feb to Feb).  They are shown as ‘2017’ in the table below.

As the table shows, although the average rental value for AHA tenancies fell, most categories actually saw a year-on-year rise.  The 18% decrease in rents for Cattle and Sheep farms in the LFA was mainly responsible for the average decline, with General Cropping the only other category seeing (a marginal 2%) drop in rental values.  For FBT rents, Cattle and Sheep in LFA were the only category to see a decline in rents, by 3%.  In contrast, there were large rental increases seen for Lowland Cattle and Sheep (+13%) and General Cropping +(18%).  General Cropping rents remain the highest for both AHA tenancies and FBTs; these will include a large number of short-term potato and vegetable growers who will be prepared to pay high rents.

The average rent paid under Seasonal Agreements (likely to be largely grass lettings) in 2017 was £152 per Ha compared to £149 per Ha in 2016.  Full results can be found at https://www.gov.uk/government/statistics/farm-rents

The results from this survey show the amounts actually being paid by farm businesses in England.  This will include some lettings that are not at full market value – for example, lettings within families.  Therefore, the figures may not correspond to some of the ‘headline’ rates often quoted.  These usually relate to situations where new land is being let, or there is a review.  The historic nature of the survey means that current trends are not always picked up.