Category: Policy & Business

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.

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.