AgriFacts February 2021
Your monthly roundup of news, prices and other farming matters
New year, new deal, new rules for UK farming Like many, I breathed a sigh of relief on Christmas Eve as the UK and the EU finally reached a trade agreement to take us forward into 2021. Having been close to proceedings and having been focussed on exploring the possible impacts of the various possible scenarios over the past four years, I was delighted that some of those possible worst-case scenarios will not now become a reality. So, is it business as usual for UK farming? The answer is no. We have entered a new era of EU–UK relations and that means change is inevitable. The great news is that the new EU-UK Trade and Cooperation Agreement (TCA) allows for tariff and quota free access to each-others’ markets. This goes further than any previous trade agreement the EU has signed, with agriculture usually being the hardest sector to agree with many key offensive and defensive interests. This reflects the close trading relationship the UK and the EU share, the mutual benefits of access to one another’s markets and the positive impact on economic growth that international trade brings. It is a good economic solution in what was an increasingly tense political negotiation and I think we should all be grateful to the negotiators who managed to conclude this agreement in time for the end of the transition period. However, tariff- and quota-free access are not the same as being part of a single market or customs union. The UK is now trading with the EU as a third country. This means that the so called ‘trade friction’, the additional physical checks, advance notification of loads, export health certificates, labelling requirements and extra time spent crossing borders all add cost in agricultural supply chains that are designed to be ‘just in time’ with little room for slippage and where margins are already squeezed. In addition, new rules of origin (RoO) now exist that stipulate a product imported into the UK from the EU must undergo more than ‘insufficient processing’ in order to be exempt from tariffs if re-exported to the EU. This has huge implications for the agri-food industry. For instance, if Mozzarella cheese is imported into the UK from EU, machine grated and sent back, that counts as ‘sufficient processing’. But if a product is imported into a UK distribution centre, repackaged and sent across the UK, Northern Ireland (NI) and Republic of Ireland, (ROI) as is very often the case, that product
entering ROI would now be subject to full EU tariffs as repackaging is considered insufficient transformation. It is also important to note the deal does not automatically mean market access for everything we export. ‘Sensitive products’ need to secure separate technical listings to continue to trade with the EU and Northern Ireland. While these were achieved for some products before the end of the transition, others such as seed potatoes were not, meaning this trade is effectively banned. In addition, while the trade deal is important for all our sectors, global trade dynamics and changes to farm policy will be more influential on the prospects for cereals and livestock producers in the coming years. While not wishing to detract from the fact that reaching a deal with the EU is far preferable from having no trade deal, these issues will need clarification as we go forward. At the moment, due to the positive mood music, it would appear from anecdotal evidence that the EU is imposing a light touch on the cross channel trade flows. Some loads have been sent back from the EU but this is as much due to drivers not having the necessary negative Covid tests as lacking the necessary documentation. In addition, the volume of trade appears reduced at the moment as traders wait where possible to see how the new arrangements will affect them in practical terms before sending high value and perishable loads. We are all having to navigate this era of change. Here at AHDB we will be monitoring the situation as closely as we have over the past four years and providing information to help you navigate the changes relevant to your business as soon as it becomes available here
Phil Bicknell AHDB Market Intelligence Director
The Path to Sustainable Farming Last November the Secretary of State for Environment, Food & Rural Affairs published a policy statement ‘Path to Sustainable Farming’ which provides a summary of the future of Farm Policy in England following the UK’s departure from Europe. The document sets out the change in policy from direct payments which started with the “IACS” in 1993 through to the current BPS under the Common Agricultural Policy (CAP) toward a policy that pays farmers and land managers for providing “public goods” driving environmental benefits from biodiversity to climate change mitigation toward the Governments Net Zero target by 2050. Through this new approach, the Government is aiming to support a vibrant and resilient agricultural sector, that enhances animal welfare and the environment and to meet ambitious targets such as protection of 30% of UK land by 2030 and Net Zero by 2050. The new approach will include:
to begin to seriously consider their cost structure and evaluate and identify areas where cost reduction can be achieved, and income improved. For the vast majority of BPS claimants, the initial 12 months of reductions will not appear particularly severe, but as we well know the margins in the agricultural sector are slim and direct subsidy has been an important element of farm profitability.
Agricultural Transition (BPS Deductions) Payment band
2021
2022
2023
2024
up to £30K
5%
£30K - £50
10%
20%
35%
50%
25%
40%
55%
£50K - £150 £150K or above
20%
35%
50%
65%
25%
40%
55%
70%
•
Environmental Land Management, paying farmers and land managers to produce public goods through environmentally friendly practices.
•
Grants and other help to improve farm productivity and prosperity.
Est Deductions
2025
2026
2027
2028
New farming regulation and enforcement that will replace EU legislation.
up to £30K
65%
80%
95%
100%
•
Environmental Land Management The document devotes 19 pages to the much publicised “Environmental Land Management” (ELM) but provides little more detail than has already been written about in the press. The three-tier architecture is confirmed with amended tier names:
Sustainable Farming Incentive This is a broad (and shallow) offer that should be accessible to all farms. It is likely to have a menu of options and be managed online. It could look like the previous Entry-Level Stewardship.
Local Nature Recovery This will require more intensive management from farmers. It is likely that a whole-farm plan will have to be drawn up (possibly by accredited advisors). The focus will be on rewarding farmers for positive management such as biodiversity, flood management, carbon storage, landscape heritage etc. This will be the long-term ‘core’ of ELM.
Landscape Recovery This aims to get groups of landowners to work together to deliver widespread change. The focus will be on large-scale woodland planting, peatland restoration and coastal habitats. The Sustainable Farming Incentive (SFI) will open in 2022, probably with only some elements. It will focus on soils, integrated pest management, and nutrient management. What is learnt in 2022 and 2023 will inform the full launch in 2024 when further elements are added (including boundaries and tree management). Initially it will only be available to those in receipt of BPS, including those already with a Countryside Stewardship (CS) scheme agreement. As it is piloted and then scaled up between 2021 and 2024, the aim is to expand the range of options on offer and explore making it available to a wider group of participants which could include smaller farms, horticulture and pig/poultry farms that do not currently receive direct payments. BPS in England will be simplified in the coming years; starting in 2021 there is no longer a requirement to follow previous years greening rules including the Crop Diversification rule and Ecological Focus Areas (EFAs). These have in the past limited decisions on cropping making each claimant of a certain size maintain a mix of crops. This simplification of the BPS is a positive step forward allowing businesses to be more efficient and simplify compliance which has frequently conflicted with the environmental schemes. The reductions are expected to increase over time leaving claimants with approximately 50% of their 2020 payment by 2024 (see table below). It is still relatively unclear how BPS payments will continue to reduce post 2024. However, the below figures at least provide a starting point for farming businesses to begin to plan and budget for future reductions in revenue. Fisher German are strongly encouraging all our clients to use the next 12 months
£30K - £50
70%
85%
100%
100%
£50K - £150
80%
90%
100%
100%
£150K or above
85%
100%
100%
100%
Source DEFRA
Over the last 12 months Fisher German have encouraged the renewed interest in Countryside Stewardship (CS) applications as farming businesses begin to recognise the shift in policy. We submitted a record number of applications last year including one of the largest in England and see it as an effective way to reduce agricultural income volatility for many. The future shape of ELMs is still relatively uncertain, and we currently do not know whether the payments received for ELMs will offer sufficient returns to make up for the income lost from BPS. However, Fisher German strongly advise clients who have not entered into stewardship in the past to certainly begin to think about whether unproductive areas of their holding may be better suited to receiving environmental payments going forwards. Alternatively, those clients who have in the past used fallow or legume crops to meet the Ecological Focus Area (EFA) requirements may want to consider allocating a similar area of their holding for a small CS scheme. The past two years of poor weather have highlighted how marginal areas would have been better in for example a CS Winter bird Food mix returning £640/ha than a break crop. It is widely understood farming businesses will be paid for their benefits to the environment under such schemes and entering into a stewardship agreement in the coming years can help position a business to prepare for future environmental schemes under ELMs. The next eight year period offers possibly one of the biggest transformations for the UK food and farming sector which Fisher German believe offers many positives despite the eventual loss of direct subsidy discussed in this letter. Appraising, re-structuring and analysing new enterprises is something all farming businesses should be considering in the coming 12 months to ensure outgoings are properly understood and ensure value can be added where possible. Fisher German’s Agribusiness team are on hand to discuss any of the above policy changes and how it will affect business performance levels going forward as well as opportunities under new grant schemes and for example carbon sequestration. We are committed to ensuring client businesses are as prepared as possible for the next eight years of transition and are well placed to offer relevant and structured advice on how farm businesses can react and move through this period.
David Kinnersley Head of Agribusiness
Market Prices Month (ex farm) Midlands
Feed Wheat
Feed Barley
Oilseed Rape
Currency
February 2021
£202.00/t
£162.00/t
£373.00/t
£/€ = 0.89
June 2021
£204.00/t
£169.00/t
£375.00/t
€/£ = 1.12
Milk Data
Avg Monthly Price
UK Farmgate Milk Price
30.54 ppl
Fuel/Straw/Silage
Price
Fertiliser
Price
Red Diesel
51.51p/litre
34% N AN (bags UK) £/tonne
£268.00
Big sq Baled Wheat Straw
£98.00/tonne
0:24:24 blend (bags) £/tonne
£245.00
Big Bale Hay
£93.00/tonne
20:10:10 blend (bags) £tonne
£250.00
Finished Steers
Finished Lambs
Finished Pigs
378.00
568.80
146.70
p/kg dwt
Key Dates Date
Regulation
Restriction
1 February
Cross Compliance
If you are in an NVZ, then from this date you can apply organic manure with a high, readily available nitrogen content (for example, slurry, poultry manures or liquid digested sewage sludge) to grassland and tillage land on all soil types if conditions are suitable and you adhere to the quantity restrictions for applying the manures.
28 February
Cross Compliance
If you are in an NVZ, this date marks the end of the quantity restrictions for application of organic manures with a high readily available nitrogen content.
1 March
Cross Compliance
You must not cut or trim hedges or trees from this date, but you can carry out hedge and tree coppicing and hedge laying from 1 March until 30 April. Fruit and nut trees in orchards, or trees acting as windbreaks in orchards, vineyards, hop yards or hop gardens are not included in the ban.
31 March
Cross Compliance
If you hold a water abstraction licence, expect to receive your annual bill (or first part charge if you hold a two-part tariff agreement) for the forthcoming financial year.
fishergerman.co.uk 01858 410200 farms@fishergerman.co.uk
Fisher German is a limited liability partnership, registered in England and Wales. Registered number: OC317554 Registered office: The Head Office, Ivanhoe Office Park, Ivanhoe Park Way, Ashby de la Zouch, Leicestershire LE65 2AB Regulated by RICS Fisher German LLP has tried to ensure accuracy and cannot accept liability for any errors, fact or opinion. Please do not use this as all the advice needed to make decisions.