Spring/Summer 2019 Rural update from Fisher German
2
Meet the team
3
Welcome
4 Farmland market update 6
Agriculture bill
8
A pawfect retreat?
10 Strategic thinking
New beginnings Nurturing new life into rural business
12 Model farm 15 Succession plans
Inside this issue:
Meet the team Our 15 offices provide local experts in all these work areas. If you would like guidance on any rural property matters, please contact one of us and we will ensure you get to talk to the very best advisor.
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David Merton
Stuart Flint
Head of Rural Sector – Estate management and strategic consultancy
Head of Agency Sector – Farms, estates and country house sales
07770 333331
07501 720422
david.merton@fishergerman.co.uk
stuart.flint@fishergerman.co.uk
David Kinnersley
Darren Edwards
Agribusiness
Sustainable energy
07501 720405
07918 677571
david.kinnersley@fishergerman.co.uk
darren.edwards@fishergerman.co.uk
Anna Collins
Charles Meynell
Valuation
Expert witness
07468 860079
07836 212307
anna.collins@fishergerman.co.uk
charles.meynell@fishergerman.co.uk
John Ikin
Kay Davies
Compulsory purchase
Planning
07887 627978
07733 124551
john.ikin@fishergerman.co.uk
kay.davies@fishergerman.co.uk
Ben Marshalsay
Richard Benson
Development
Building consultancy
07771 974322
07768 552827
ben.marshalsay@fishergerman.co.uk
richard.benson@fishergerman.co.uk
William Gagie
Richard Gadd
Minerals
Farm agency
07551 152691
07966 481487
william.gagie@fishergerman.co.uk
richard.gadd@fishergerman.co.uk
Welcome With ever looming uncertainty with regard to the future of subsidies, tariffs and trade deals, it is tempting for businesses to do nothing until they are in possession of definite facts.
We also have an update to the Model Farm, where the Fox family are considering the effect of the Agriculture Bill on their farm profitability and the future generation is keen to take a more active role in the management of the business.
However, it is more important than ever to plan to include the next generation – to bring new expertise, a long-term perspective and to embrace technology.
Ben Sharples from Michelmores gives his thoughts as to how best to navigate through the changes ahead. Any party to a new tenancy or other farm agreement will need to consider how future financial assistance will operate in relation to their arrangement during the transition period. This becomes even more important if the arrangement is due to end during this time.
In this edition of AgriView, we have insight from the Fisher German planning team as to how best to maximise assets; thinking strategically to make the best use of the planning system to enable future diversification and/or agricultural expansion. One Estate that has successfully added to the diversity of its business enterprises is Crosby Hall, in Merseyside. Here a semi-derelict smallholding has been transformed into a state-of-the-art dog hotel. Richard Baker, who handled the letting, takes us through the site’s journey.
Progressive farmers and diversified farming businesses continue to invest in the land market, as will those seeking land from a sporting, amenity or tax-driven perspective. Farmland values continue to widen across most sectors; quality and scale influence value, but location continues to be the most important factor. I hope that you enjoy this edition, there is real energy within the rural sector which we should embrace.
David Merton 07770 333331 david.merton@fishergerman.co.uk
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Farmland market update Whilst awaiting further clarity around the Agriculture Bill, and specifically the proposed Environmental Land Management Schemes, we expect the farmland market to remain calm. With the phasing out of direct payments from 2021, we will start to see many landowners considering their medium-term business objectives. The ability to delink payments from the requirement to farm will see some invest in new technology, some diversify into nonagricultural ventures and others look to capitalise the payments up front and retire from farming. We expect further discussions through 2019 with farmers and landowners regarding these various options as we plan ahead, and consider whether existing land holdings are suitable both in terms of scale and quality for their individual objectives.
As soil health, productivity, environmental enhancement and greater animal welfare take priority under new farming policy, we expect buyers to demand more in-depth evidence of farming practices when looking to acquire new holdings in 2019. Any increase in borrowing costs, with a future reduction in direct payments from 2021, will require farm businesses to really stress-test their operations for long-term stability. Lenders are expected to start requiring more regular business performance figures from borrowers to ensure continued financial strength. The volume of farmland on the open market is expected to increase again in 2019, based predominantly on further retirement sales, possibly incorporating some sale and leaseback structures, and a move
Focus on sale and leaseback structures One area of renewed interest over the last 12 months has come in the form of sale and leaseback arrangements. In short, vendors offer the freehold interest in their farm to the market, subject to a tenancy or contract farming agreement back in their favour; terms of the leaseback including rent payable or profit share division, and lease length dictate the freehold value achievable. There are numerous non-farming investors in the market seeking agricultural investments without the desire to farm the land themselves. Under such circumstances a sale and leaseback can work perfectly. Repairing obligations under a farm business tenancy will need to be agreed, along with the frequency of rent reviews and break dates. Such sale structures may suit those farmers
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looking to retire in the short to medium term, who may benefit from a capital injection in the immediate term. The vendor will often continue to live in the farmhouse, and when such a sale is undertaken privately, few people will be aware that the property has changed hands. Alternatively, where there is a likely medium or long-term uplift in value, through development or mineral extraction for example, and landowners require capital in the medium term, there may be an ability to take part of that latent value up front through a sale and leaseback. Where a landowner has an opportunity to add land to the ‘home farm’ but wants to continue farming their existing acreage, they may consider a sale and leaseback on off-lying
land parcels to raise capital and facilitate the purchase but continue to farm the original acreage. Such arrangements must work for both parties, and it is important for the vendor to propose detailed, attractive and commercially viable leaseback terms, before marketing commences. In some instances, it has been known for the vendor to take a pre-emption to buy back the farm for an increased sum, within a fixed time frame, often linked to a percentage increase in value of the original sale price. This assures the purchaser of a guaranteed capital value increase should the pre-emption be exercised. There are of course tax implications to be considered for both the vendor and purchaser.
away from bare agricultural investments for long-term and institutional investors. Some receipts will be circulated back into farmland where strategic opportunities can be forecast. Our initial forecast places a 5–10% increase in supply of land to the open market in 2019, against 2018 levels. Farmland values continue to widen across most sectors, with arable values ranging from £6,250 to over £14,500 per acre. Pasture prices continue this trend, ranging from £5,000 to £11,500 per acre. Quality and scale, but most importantly location, are driving these price differences. With such disparity and parochial variances in values recorded, it is difficult to forecast values for 2019; every farm or holding must be assessed on an individual basis. Generally, we consider those welllocated, diversified and productive holdings will retain value on the back of increasing demand. We expect a slight softening in values across poorer livestock holdings or where holdings are sited in less favourable locations. We forecast a continued and strengthening interest in smaller residential farms that provide amenity value and non-agricultural development opportunities. Strategic holdings including those with long-term residential and commercial development prospects will continue to attract great interest, as will land with mineral opportunities and mixed-use holdings with opportunities to add value. Rollover buyers will of course continue to drive farmland values in certain areas. Where such funds have been created, those monies are generally directed towards local opportunities, often within 20 or 30 miles where possible. We do not expect the current buyer/seller profile in the marketplace to alter drastically through 2019. Farmers will continue to represent the greatest proportion in both camps. We do expect increased demand from the lifestyle/amenity and some overseas buyers, closing the buyer profile in their favour. Famers and institutional investors will likely represent the majority of vendors through 2019.
no change
2019 average land value predictions 0–4% up
0–4% down
Arable 5–9% down no change
These figures represent the % division in opinion of Fisher German farm agency personnel working across the UK.
0–4% up 0–4% down
Pasture
10%+ down 5–9% down
Fisher German farm agency statistics: • £123,500,000 – value of farm sales and acquisitions in 2018 • 11,700 acres marketed by our agents • 3,204 acres – largest farm marketed in 2018 • 2,000 acres acquired for new and existing clients • Sold or acquired farms in 22 counties across England and Wales • 21 dedicated agents active across the farmland market • 12 offices offering farm agency advice • National Country Agency Team covering the UK • Dedicated farm machinery auction team • Dedicated GIS mapping team • 2,500 registered buyers across the country
Richard Gadd 07966 481487 richard.gadd@fishergerman.co.uk
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Agriculture Bill: Challenges of the Agricultural advisors are facing an all too familiar challenge; draft legislation has been published, which has an immediate effect on farm tenancies and other transactions, but there remains complete uncertainty as to the shape of the final legal provisions. These are uncertain times and the job of advising rural businesses is a tricky one. Like it or not, however, long-term tenancy agreements and other commercial contracts are being completed daily against the backdrop of a draft Agriculture Bill, which is only at report stage in the House of Commons. We are five months into the process, but the Bill has yet to reach the House of Lords.
The Agriculture Bill … is at best a skeleton document, with dozens of new clauses proposed and even more further amendments tabled.
The Agriculture Bill provides some indications of future policy, but is at best a skeleton document, with dozens of new clauses proposed and even more further amendments tabled. It is not known how many of these proposed changes will avoid the cutting room floor, but they provide a useful insight into possible directions of travel. It is very tempting for rural business advisors to sit back and wait until Brexit and the Agriculture Bill are finalised. But to do so would involve ignoring the significant questions raised by the terms of the draft Bill and its
impact on new tenancy, contracting and other agreements. In this article we highlight some of the issues to consider.
The transition period The indications are that the Basic Payment Scheme (BPS) will continue until at least the start of the transition period in 2021. The transition period is currently stated to last for 7 years, but this period can be extended, possibly more than once. The Agriculture Bill provides the framework for financial assistance to be made available for the agricultural sector during the transition period until the new Environmental Land Management Scheme (NELMS) is ready to roll out. Financial assistance may be in the form of BPS payments or delinked payments, but, come what may, these direct payments will be phased out by the end of the transition period. So, any party to a new tenancy or other farm agreement will need to consider how this financial assistance will operate in relation to their arrangement during the transition period. This becomes even more important if the arrangement is due to end during this time.
Delinked payments Most well-drafted farm business tenancies already deal with the ownership of Basic Payment Scheme (BPS) entitlements, their transfer or retention at the end of the tenancy and obligations to preserve the BPS payment. However, whilst under the Single Payment Scheme we faced the concept of payments decoupled from production, we now have to contend with payments being separated from the occupation of land itself. The Bill at section 9 provides that regulations
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will be published, which will specify the description of persons entitled to receive a delinked payment and determine how much that payment should be. It confirms that these delinked payment recipients may be those who were entitled to receive BPS payments in a certain year – but obviously they may not, so we do not know what, if any, impact the holding of entitlements or the identity of claimants over the past few years will have on entitlement to delinked payments. These issues raise some interesting questions for those drafting, for instance, a long-term FBT.
The position of landlords The first draft of the Bill indicated that tenants are intended to be the recipients of any delinked payments, which accords with previous agricultural support policy. However the first draft left open the question of whether landlords would also qualify for delinked payments. Since that draft, however, several amendments have been tabled, reflecting a variety of vested interests and political agendas within the House of Commons; one amendment provides that financial assistance may be given to “those persons with an interest in agricultural land, where the financial assistance relates directly to that land.” This is a broad definition which would include landlords and indeed mortgagees. Another amendment clearly attempts to confine the class of recipients to tenants and active farmers. It goes further, however, and provides that tenants should not be prevented from claiming this assistance by a term of
transition their tenancy agreement. The draft wording allows the tenant to apply for consent for the relevant activity and, if the landlord does not respond within a month, then deemed consent is given. If the landlord objects, then the tenant may refer the matter to arbitration or expert determination. Clearly these proposed amendments are contradictory, at least in part; we will have to wait to see which one wins the day.
Land “at the disposal of” claimant With other amendments we see further similarities with the BPS, and the requirement of that scheme, that the land be “at the disposal” of the claimant. One amendment restricts financial assistance to those operating land where the predominant use is agricultural, as defined by section 96 of the Agricultural Holdings Act 1986. Further refinements are added in that claimants must be in occupation of the land, taking the entrepreneurial risk, and in day-to-day management control. This is effectively a resurrection of the “active farmer” test, which fell by the wayside in 2018 and puts tenants in pole position for delinked payments.
Amount of delinked payment Another part of section 9 of the Bill states that the amount of the delinked payment may be framed by the amount of BPS income the recipient would have been entitled to. This will be a familiar concept to agricultural advisors, who lived through the historic reference periods used for allocation of Single Payment Scheme entitlements.
Lump sum The Bill introduces the further possibility of the rolling up of direct payments into a lump sum during the transition period. It is understood that this measure, if implemented, will provide encouragement and a means for older farmers to retire in favour of the younger generation, a step intended to increase productivity across the industry. The definition of direct payments includes either BPS or delinked payments. The uncertainties set out above as to the intended recipient of delinked payments therefore equally apply here. Further, another tabled amendment
clarifies that any lump sum payment shall only be made to those “active farmers” taking the entrepreneurial risk and in day-to-day management control of the land concerned.
Drafting legal agreements Returning to our example of the draft FBT that needs to be completed urgently, the type of provisions required will depend, to a large extent, on the length of the term to be granted.
Ben Sharples, Partner, Michelmores LLP
Short to medium-term tenancies
both in terms of transfer obligations and compensation value.
If the term is 2 years or less, a properly drafted FBT including the usual BPS clauses will probably suffice and cover most eventualities.
Long-term tenancies
If the term is 2-9 years the agreement will terminate midway through the transition period. Clauses will be required to deal with the gap between the old BPS regime and the new NELMS support. Landlords who currently own BPS entitlements to let out with their holding may expect to retain a holding, which attracts a subsidy during this period. Such landlords might wish to try to secure direct payments for the holding for the duration of the transition period by restricting the ability of the tenant to delink or take a lump sum, or perhaps propose to split the latter. However any advisor drafting such an FBT will need to keep an eye on the tabled amendments (and advise their client landlord of the risks), in case one which trumps the terms of the tenancy gets through and leaves the drafting completely redundant. Even if that amendment does not get through to the Act then public policy arguments could be used against a landlord to prevent contractual barriers to a tenant either claiming a lump sum or accessing the new system of payments. Uncertainty as to qualifying criteria may be resolved by a decision that BPS entitlements are the gateway to delinked payments. That seems entirely contradictory to the concept of delinking, but it would use an existing system which is familiar to everyone. If this did occur then entitlements would have a value and clauses included in FBTs might want to cater for such an eventuality,
An FBT granted for a term of 10 years or more will probably see the parties into the new era of NELMS (although note the potential for extending the transition period). In those circumstances the terms will need to deal with who is entitled to claim what. The longer the term, the greater the uncertainty; good-faith clauses can require the parties to work together to amend the document in the light of unforeseen events.
We have very little detail on NELMS, but will need to keep a close eye on the balance between landlords and tenants over eligibility for claiming under that scheme. The historic control which landlords have enjoyed under a series of longer-term agri-environment schemes governed by recent Rural Development Programmes may or may not remain. The longer the term, the greater the uncertainty; good-faith clauses can require the parties to work together to amend the document in the light of unforeseen events. However such clauses must be drafted in a manner which reflects recent case-law and specifies agreed objectives: vague aspirational drafting is unlikely to suffice and could result in an unenforceable agreement. Ben Sharples, Partner, Michelmores LLP ben.sharples@michelmores.com
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A pawfect retreat? When a Merseyside estate decided to advertise a semi-derelict smallholding to let by tender, little did it envisage a transformation into a state-of-the-art dog hotel. The Crosby Hall Estate was keen to add to the diversity of its business enterprises and when 13.5 acre Moor Farm, just outside Little Crosby, was advertised by Fisher German, there was a flood of interest. The holding required major investment and a tenant with the vision to take it in a new direction. That tenant was Angela Byrne, who was immediately interested; being local she knew the property and it ticked all the boxes for her business dream in terms of location, size and catchment area. However, she was up against numerous other interested parties; Fisher German held an open morning and potential tenants were required to provide their business plan within two and a half weeks. Fisher German’s Chester office partner Richard Baker said: “Moor Farm needed significant investment and in view of its location, I recommended that it be advertised on the open market as a long-term letting as it offered potential for a wide variety
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of uses. The Estate was inundated with offers; however, the successful tender was innovative and provided the opportunity for a long-term letting which is sustainable and provides employment for the area.”
I have three dogs and nowhere was going to give me the environment I would want for them – a home environment. Angela met with the Estate owners, the Whitlock Blundell family, during the tender process. “Mark Blundell said sell your idea to me and suggest a rent. Two hours later I got a phone call to say it was ours,” she said. A 20-year lease was granted which includes two clauses; if the Estate wants to sell, Angela gets first chance to buy and if she proves to be a good tenant, she will be able to continue for another 20 years. Angela, a property developer who is married to a London QC, added: “My scheme involves TVs for dogs and double beds; I did wonder why anyone would buy into it, but we have gone out on a limb as it is all privately funded – we have put £1m of our own money into it.”
She envisages people from as far afield as Cornwall travelling to leave their dogs with her before flying out of Liverpool or Manchester airports. She feels there is a gap in the market and whilst there are other dog hotels in the UK, none are on this scale with comparable facilities. However, the scheme has been plagued with problems. Gaining planning consent took four months; a change of use from the previous agricultural tenancy was required and queries arose over the relevant letting category. “A lot of restrictions were imposed,” said Angela. “I was told I could take buildings down but must replace the footprint. We removed asbestos from some buildings and walls collapsed as there were no footings. The projected 12-18-month build took over two years.” Despite her experience in property, Angela said that had she known the problems ahead of her she would have hesitated. When she took over, only the house had services; she has installed a sewage treatment plant and a new drainage system. Installing a huge underground 15,000-litre septic tank was the only way the Environment Agency would allow a dog facility to operate and Trading
Standards needed persuading that the site was not a kennels, before it would grant a licence. A bespoke hydrotherapy pool was ordered, only for the firm to become bankrupt, taking Angela’s £32,000 with it. At this point she contemplated giving up, and reached the point where she didn’t want to go on site – one contractor told her that he had never known such an unlucky site! However, she decided that she was too far in to go back and a new pool costing a further £32,000 is now installed which holds 20,000 litres of water. The idea of a high-end dog hotel has been a long-held ambition for Angela who said: “I have three dogs and nowhere was going to give me the environment I would want for them – a home environment. I do not want to put my dogs into a sterile concrete environment.” She attends shows around the country as part of a dog display team and found that people do not want kennels. The idea grew of combining a training centre, hydrotherapy pool, shower area and grooming under one roof. Her vision, The Pawfect Retreat, comprises 25 bedrooms and 8 day-boarding rooms. Dogs will be monitored 24/7 by CCTV and there will be security. The land has been levelled, fenced and reseeded to create six paddocks with exercise facilities; different families of dogs cannot be socialised together, they will be rotated. A 24m2 indoor training facility has been built, boasting a ‘Wet Paw’ shock-absorbing surface. There is also an ‘Ingenious Air’ vent and filtration system which pumps fresh air in
and out of each room, meaning that areas can be isolated and the air is changed 10 times a day. The system is being considered for use in intensive care hospitals.
Angela has trained as a canine hydrotherapist so will literally be hands-on at the facility in the pool as well as returning to her job as a property developer.
The Pawfect Retreat is due to open shortly and numerous dogs are already booked in.
Written by Gill Broad
Richard Baker 07786 336925 richard.baker@fishergerman.co.uk
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Strategic thinking to maximise options With Brexit ever looming, landowners and farmers should be looking to maximise their property assets whilst planning for future diversification and/or agricultural expansion. Looking at your landholding holistically and with a long-term vision is something that may appear very logical, yet in reality actions are often taken to meet short-term objectives and in response to immediate needs. These do not always make the most of planning Permitted Development Rights or put a strategy in place to ensure one action does not impede future options. The planning and design team at Fisher German work closely with surveyor colleagues to advise clients on plans for diversification as well as growth of existing businesses. Planning policy is extremely favourable to rural economic development; however, getting a strategy in place can be the difference between a smooth planning experience and a protracted disappointing one. Firstly, being aware of the latest Permitted Development Rights is key; the table opposite shows the remit available. Increasingly Class Q is being used as a fallback position for the conversion of traditional buildings to dwellings, demonstrating to councils that the principle is acceptable; however, a better design and overall quality of development can be
achieved with perhaps a small extension through a planning application. Class Q can also be used to convert modern portal-framed buildings. This is pushing the boundaries of traditional permitted development rights and maximising value in your investment. Thinking strategically can equally mean not using Permitted Development Rights, but submitting a full planning application to preserve future opportunities. Discussing long-term plans with your local planning authority, being open and transparent about the direction your business is going, can be another way to ease the way for future development proposals. Permitted development certainly has its advantages and has increased the development potential for many landowners, particularly with more modern agricultural buildings; however, a traditional planning application can still have its benefits with fewer size restrictions and more flexibility on implementation timescales or where buildings are listed/in a Conservation Area where Class Q, R and S cannot be exercised. So, whether you have a smallholding or a significant estate, take time to plan ahead so that you can maximise your development options and minimise time, costs and stress in the planning process.
Case study Strategic thinking, farm diversification and dairy expansion The YNot festival, Peak District Agricultural Permitted Development Rights were used strategically, together with an urgent planning application to enable 5 new access points, a spine track through the whole site and expansion of the organic dairy farm. The needs of the festival organisers, estate owner and tenant farmer interests were balanced, and the whole project delivered on time through very open communication with the planners; they understood the immediate needs of the festival but also the long-term operation requirements of the organic farm. We were successful in agreeing access points below normal standards, as these were only to be used when the festival was in operation, with marshals in place.
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GPDO Section
Development
Key Restrictions*
Comments
Schedule 2, Part 3, Class Q
Conversion of agricultural buildings to residential
• Building in agricultural use before March 2013
• A Prior Notification application must be submitted to the Council
• Not listed or in a Conservation Area
• Development has to be fully completed within 3 years
• Not in a National Park, AONB, Broads, SSSI, Ancient Monument or World Heritage site
• Does not include equestrian buildings • Conversion within existing building physicality, some demolition allowed
• No tenant (unless in agreement) • Up to 865 sq m max 5 dwellings** • No use of agricultural PD rights since March 2013
• Building must be substantial and majority enclosed (open-sided Dutch barn no longer accepted) • Insertion of windows, doors etc allowed • Excellent way to obtain conversion of more modern buildings to residential
Schedule 2, Part 3, Class R
Change of use of agricultural buildings to flexible commercial use (A1, A2, A3, B1, B2, B8, C1, D2)
• Building in use before July 2012
Schedule 2, Part 3, Class S
Conversion of agricultural buildings to registered nursery (or state-funded school)
• Building in use before March 2013
• A Prior Notification application must be submitted to the Council (unless the building is less than 150 sq m)
• Not listed or Scheduled Ancient Monument
• For small buildings this offers significant flexibility for alternative uses
• No more than 500 sq m
• A Prior Notification application must be submitted to the Council
• No more than 500 sq m
• Development has to be begun within 3 years
• Not listed or in Conservation Area • Not in National Park, AONB, Broads, SSSI, Ancient Monument or World Heritage site
• Building works deemed “reasonably necessary” for the conversion are allowed
• No tenant (unless in agreement) • No use of agricultural PD rights since March 2013 Schedule 2, Part 6, Class A
New Agricultural Buildings (holdings over 5ha)
• Not available if Class Q or S has been implemented within last 10 years
• Now allows erection of buildings up to 1000 sq m (previously 465 sq m)
• 12m height (unless near aerodrome)
• Does not include dwellings
• Over 25m from classified road
• Use of Part 6 (new buildings and extensions) prevents conversions under Class Q and S for 10 years
• If housing livestock, must be over 400m from curtilage of non-farm buildings *Full restrictions set out in GPDO 1995 as amended
**Size restrictions on dwellings, see Class Q of GPDO for full details
Case study Class Q conversion, Derbyshire The modern barn is now the farmer’s dwelling; the conversion enabled him to sell the previous farmhouse, funding the development and raising additional capital. Even though the building is only 25m from his cattle buildings, an agricultural occupancy condition was avoided. A Class R conversion to business use was subsequently secured on the adjacent barn.
Kay Davies 07733 124551 kay.davies@fishergerman.co.uk
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Model farm
TIGER FARM is a virtual mixed farm based in Leicestershire.
240ha Owned 128ha Agricultural Holdings Act Tenancy 40ha Five-year Farm Business Tenancy 111ha Contract Farming Agreement
Tiger Farm is a virtual farm that has been created by the Fisher German agribusiness team to model the different business dynamics and scenarios that are often faced by real farms
Business resilience Like many farming businesses, the Fox family are considering the potential effect of the Agriculture Bill on their farm profitability. Specifically, their expectations are that the current subsidy levels will be decreased gradually from 2021 to 2028. Currently Basic Payment Scheme equates to 58% of the farm profit, and based on the existing claimable land area, the expected reduced payments for the period are as shown on the right:
Year
Expected BPS receipt
2020
£94990
2021
£82492
2022
£70700
Additional income
2023
£58900
18ha grain sales (on marginal land)
£10809
£47100
18ha ‘SW1 – 4-6m arable buffer strips’
£6354
2024 2025
£35400
4ha ‘AB9 Winter bird food’
£2560
£3603
2026
£23600 £11800
4ha ‘AB16 Autumn sown bumblebird mix’
£2200
2027 2028
£0
2ha ‘AB1 Nectar mix’
£1022
6ha grain sales (assumes 4ha of winter bird food replacing existing game cover)
44ha ‘AB15 Two-year sown legume fallow’
£22968
44ha spring beans sales
£30800
SUB TOTAL
£35104
SUB TOTAL
£45212
The current reliance on subsidy highlights the need to assess the profitability of each farm enterprise and justify the level of farm overhead costs. In addition, the Fox family are considering alternative income streams. Nick Fox, who has been working on the farm for five years since leaving university, is keen to take a more active role in the management of the business. He is focused on the technical performance of the arable enterprise and has been closely monitoring field and crop yields over previous years. Nick is keen to improve the average gross margin of the arable land by identifying land consistently achieving poorer yields and taking these out of production. The Fox family have previously been reluctant to enter a stewardship scheme due to concerns about meeting greening requirements and anticipation of an improved scheme being introduced. However, the opportunity to utilise the marginal arable land and enhance the existing small family shoot have persuaded them to consider a scheme. Nick has calculated that 18ha of the arable land is yielding 50% lower than the farm average, reducing the overall gross margin achieved by the arable enterprise. This area also includes land adjacent to watercourses and hedgerows subject to LERAP and arthropod zones. There is currently
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8ha of game cover on the farm, a combination of maize and a wild-bird seed mix, which could be expanded and enhanced using the Countryside Stewardship approved wild-bird or autumn bumblebird mixes to generate an income. Additionally, a viable alternative break crop to replace spring beans in the rotation, improve blackgrass control and increase organic matter has previously been considered. Using partial budgeting can demonstrate the financial effect of the proposed changes and help to support decision making: Reduced income
Reduced expenditure
Increased expenditure
18ha arable inputs
£13140
18ha buffer strip establishment (yr one only)
£1190
6ha arable inputs
£4380
4ha ‘AB9 Winter bird food’
£620
4ha game cover costs
£1500
4ha ‘AB16 Autumn sown bumblebird mix’
£368
44ha spring beans inputs
£23320
2ha Nectar mix
£140
44ha ‘AB15 Two-year sown legume fallow’
£8606
SUB TOTAL
£42340
SUB TOTAL
£10924
TOTAL
£77444
TOTAL
£56136
Overall benefit of £21,308 (all figures are per annum)
OWNED BY THE FOX FAMILY, the parents and eldest son work on the farm along with a full-time farm worker. There are two other children not currently involved with the farm. The farm uses seasonal labour as required.
Potential diversification into commercial let Whilst the best performing farming businesses do not rely on diversified income for profitability, otherwiseredundant farm assets can be used to provide a reliable income stream less affected by commodity market fluctuations. The Fox family have two yards from which they operate: the yard in which the main family farmhouse and farm workers’ cottages are, these are part of their AHA tenancy; and a second yard on the land they own, having a series of outdated farm buildings which are not utilised by their farming operation. The younger generation of the family are keen to explore development options; some initial research identified three options as summarised in Fig.1:
Machinery replacement policy The combine harvester on Tiger Farm is becoming less reliable, repairs are increasing and there has been more downtime due to breakdowns during harvest. Including the contract farming agreement there are 470ha of arable crops to combine (subject to Countryside Stewardship Scheme). This area is enough to justify owning a combine. The family is conflicted about what the future holds and what their options might be when it comes to replacing this vital piece of equipment. There are opportunities for contracting in the local area; there is also a large contract farming business who are keen to work with the Fox family. The family have identified four options, as summarised in the accompanying table. Given the uncertainty over the future of support payments and appetite for capital to diversify income on the farm, option 1 is considered the most favourable. If the existing combine is thoroughly serviced and maintained out of season, downtime and repairs during harvest could be minimised.
A farmhouse, cottage and buildings are located on the Agricultural Holdings Act Tenancy. A separate farmyard is owned.
Current enterprises comprise combinable arable crops and a flock of mule lambs, finished extensively.
FIG. 1 OPTION
Estimated redevelopment cost
Indicative rent
Annual return on capital
Conversion of former stable/period dairy buildings to office use
£40–£50/sq ft
£12/sq ft
25–30%
Conversion of outdated Dutch barn type building to light industrial let
£30–£35/sq ft
£5–£8/sq ft
14–25%
Conversion of former stable buildings into basic holiday letting
£90–£125/sq ft
£10–£14/ sq ft
8–16%
The family must consider a number of factors if considering undertaking this project: • Planning consent for change of use would be required • Landlord permission required if carried out on tenanted property • VAT – not reclaimable on conversion expenses (if the end-use is a let commercial property) unless the option to charge VAT on rent is taken • Business rates will be applied to the development • A cost for provision of services is included in the above but the costs of installing electricity and broadband can escalate in remote areas • Grant funding opportunities
OPTION
PROS
CONS
Option 1 Run the existing combine for a further season.
• Low depreciation • No capital outlay • No long term commitment
• Likely increase in repair costs and machine downtime
Option 2 Purchase new combine with spare capacity to allow extra contracting to be undertaken in future.
• Reliability • Timeliness of harvest preserving crop quality and potentially saving on drying costs. • Opportunity for expansion • Potential to earn contracting revenue
• Increase in depreciation • Capital requirement
Option 3 Sell combine and then hire a combine on a short-term hire for the season.
• Reliability and repair back up and servicing covered in one known cost • No need for substantial capital outlay • Release funds from sale of old machine • Allows the family to consider their options for another year without committing in the long term
• E xpensive
Option 4 Sell combine and collaborate with larger neighbouring farm.
• Release capital from sale of old machine • Benefit from contractor’s economies of scale • Timely, efficient harvest • No depreciation
• Loss of some control over operation
The existing combine will have an annual depreciation cost of approximately £10,000; in addition, repairs and maintenance could be between £10,000 and £15,000. However, if the machine is capable of carrying out the job required, even after the addition of a labour and fuel cost this would still be a more costeffective option than any of the alternatives.
Many farming enterprises are identifying that there is an opportunity to utilise machinery for longer than some have been. As profitability of arable farming is squeezed, it is a sensible way of releasing capital for other means and reducing depreciation. With adequate maintenance, this need not be at the expense of output and efficiency of operations.
13
Model farm (cont.)
Key dates • Higher-Tier – 31st March deadline to request an application pack; 3rd May 2019 deadline to submit application • Mid-Tier – 31st May deadline to request an application pack; 31st July deadline to submit application • Four Wildlife Offers – apply online gov.uk/ rural-payments, deadline 31st July • Hedgerow and Boundary Capital Grant – online application deadline 31st May 2019
Countryside Stewardship – why acting now is key
Key tips for 2019 scheme
Under the proposed Agriculture Bill, the new environmental scheme ELMS (Environmental Land Management Scheme) is expected to be introduced during the UK transition period. Current trials are running from 2019 to 2022 and pilot schemes from 2021 to 2024, allowing the government to review and refine the payment methodology before the anticipated launch of ELMS in 2025. Outlined below are the scheme’s main focuses: • Improved air, water and soil quality • Increased biodiversity • Climate change mitigation
• Cultural benefits • Protection of historic environments
Under the existing Countryside Stewardship (CS) scheme, the application window is now open. Based on current understanding, applying now for a five-year scheme to start on the 1st January 2020 would bridge the gap while BPS payments are reduced and before the commencement of a new scheme. Farmers and landowners must consider a flexible scheme that fits their farming system and helps make their business more sustainable and profitable. Picking the right options to target priority features in your area is key. Options that deliver multiple objectives, such as for water and biodiversity, will score higher. In addition, focusing on quality rather than quantity will help strengthen your application. It is recommended you speak with your local Catchment Sensitive Farming Officer (CSFO) as some options require CSFO approval. Crop rotations must be taken into consideration when picking suitable options, in addition to identifying low-yielding and unproductive land. Successful and economical establishment of options will depend on several factors including seed mix, establishment method, location and ongoing management; seeking advice at an early stage is advised. Key options to consider include: pollen and nectar mixes (£511/ha), flower-rich margins and plots (£539/ha), wild-bird seed mix (£640/ha) and supplementary winter feeding for farmland birds (£632/tonne for every 2ha of winter bird food). It is highly recommended schemes aim to meet the additional Wild Pollinator and Farm Wildlife Packages in order to achieve a higher application score. Capital grant items are also available under Higher-Tier and Mid-Tier schemes. The items aim to protect and improve environmental features e.g. fencing, hedgerow laying and gapping-up, livestock and machinery hardcore tracks and livestock troughs. There are also four simplified wildlife offers, with a basic online application process. These are non-competitive, but offer a reduced selection of management options and are not eligible for any capital works. For all Countryside Stewardship options record-keeping and providing evidence of options forms a key part of the management rules.
14
• Make sure your land is registered with the Rural Payments Agency • Take care when updating your 2019 ‘land use’ code as it can affect eligibility of stewardship options • No double funding; from 1st January 2019 land management options cannot be declared as EFA (Ecological Focus Area) and count towards greening
For more information on anything you have read regarding model farm please contact: Charity Shaw 07501 720420 charity.shaw@fishergerman.co.uk
Tom Paybody 07870 807236 tom.paybody@fishergerman.co.uk
Robert Knight 07557 037903 robert.knight@fishergerman.co.uk
Make succession plans now… to bring new energy into farming businesses We have commented on the expected effects of Brexit and the new Agriculture Bill on farming businesses in the UK. With the lack of any definite facts in terms of the future of subsidies, tariffs, and trade deals, it is very tempting for businesses to do nothing until they get some certainty. However, farming businesses need to plan now to include the next generation in order to bring energy, a long-term perspective, expertise and an ability to embrace technology to the business. There will not be any certainty for some time so farm businesses should plan for what we do know: • BPS will reduce over time and end altogether by 2028. • By 2024 BPS will have halved for most businesses and the new ELMS payment is unlikely to have been implemented. There may be no scheme in place to make up the 50% shortfall. • This shortfall could be offset by suitable applications to the Countryside Stewardship Scheme. • Tenants may be able to offset part of their reduced subsidy receipts by way of reduced rents. • Medium sized owner-occupied farms are particularly exposed in the above scenario. • If businesses are to continue to provide a reasonable living for their owners, they must expand, or reduce the number of people drawing a living from the business. • We still expect that pre-subsidy margins will improve for most farm enterprises except for sheep after Brexit.
• Active farming businesses will need to be able to demonstrate total compliance with all environmental legislation if they are going to receive any form of subsidy going forwards. Any new scheme will have to demonstrate delivery of public goods to justify the funds allocated. If farming businesses cannot do this then there are plenty of pressure groups who are actively lobbying government with a single voice saying that they can deliver public goods with the funds as an alternative. We are currently involved in the reorganising of a number of farming businesses, particularly family partnerships, to meet the challenge of a future without BPS. We are also advising a number of businesses on achieving true economies of scale, or releasing family members to pursue other opportunities, through joint ventures and business amalgamations. Current and future margins simply will not justify the additional cost associated with including the next generation without change; businesses will have to expand, reduce existing labour costs or reduce the reliance of the existing managing generation of the business on farming profits for their income.
David Kinnersley 07501 720405 david.kinnersley@fishergerman.co.uk
15
AgriFacts
AgriFacts March 2019
Your monthly roundup of news, prices and other farming matters
Market Comment ary
Vital information for you every month
It’s now only a few of weeks to go until the UK odds have been leaves the EU. Or consistently predicti is it? Bookies ng an extensio suggest this could has offered to buy n to Article 50. be for a ‘short’ $30bn worth of Some period, others say others fear it could US agricultural eventuate, then until the end of produce. If this extend into an Chicago’s futures July, yet were to indefinite period. in place, the UK markets would notice! Furtherm Would this extensio remains a defacto certainly sit up ore, markets are and take n be member of the obligations that currently pricingcrop conditions. EU, with all the entails. in almost perfect This, before the rights and global world’s largest an element of uncerta The current trade tariff regime be planted. Last crop – US corn will also apply. year, Europe’s crop inty likely to be – has yet to With recover sharply. resolved, this has yields suffered conditions in May Against the euro, allowed sterling from very hot and and most of Contine the pound has to A rece dry nt interproperly ened) a relativel recover ntal Europe and broken through natio y narrow trading nal from the UK have yet benchighly (strength - ance has deficit soil moisture range hmarking September 2017. to world -lead conditions. The negative impact that has been in place since study has ing stand results That said, foun reco is in addition to Consumer UK crop of this on our domesti ards. d gnise that conditions currentl Look ing the sharp price the Red Tract that the groups are c wheat prices Tractor at the y look theare movements oversea recent breadth very good main or Assurtion of tarif and warm opposing nationw secodry inter s. ide, with nd to spelland depthfarmers national allowing World grain prices and food fs being app none the a and repeat , with the thetofacto startrsfieldwor k.schemes, the plunged dramati safetof event of lied to food suggesy. last year’s late-sea sche covered Without son cally in Februar me cons Ukraine and EU heatwa a no-deal season in the last ve,isten by the Red newtly in the y. Russia, Australia values all show crop three Brexit, stati could These cause an bein when be steep , the US, the UK will be a g the world first findingsnstren losses for Februar futures prices are ng that it increase net exporter. The the UK y. Indeed, France’s ket, betwee -leader in £15 lower than gthand the contine will in prices, price spread on British allow at 1st Feb, while traceabilit nt will need to reflect £18/t down. LIFFE ing the cons and reaffi rm putting a cy moveme Consumers. US wheat values the y wheat futures ‘only’ impo nts highly this fact, with currenhigh level umer influenti burden are some to haveal such the price shed £9 over the again. rtance of the Red s of anim confi spread betwee same period. As Shop al welfare They belie dence in Tractor Sche n the UK and France pers Good the -£8, to +£2 in three and ve are news quality of me withi environm that abo ablegreeted has moved from weeks, in doing the grains to look for n the UK food prod lower the the upm enta lishing tarif around l standards so making the UK maragain for imports. the logoindustry recently ostEnsus, that uced, alon price of mea quality, fs would the£13b the thatannoun currently attractiv and be assur , with ethanol While there are gside are factory cement help UK n required t by 3%, enc of British in the north east, e Altho March. the numerous reasons markets occurred, the trigger ed that the to be met products to actively Time will tell how why the global ouraging ugh a world re-open was a poor reading food that by farmers. carry the will be ing in sell-off of the worl much grain compete Generally favoura they are lead for easil they US impr sales will maize er, y use, d. a iden purchasin the study with the few weeks back. ove the sche would seem the ble crop conditio but on tifiabimporte paper le logo. d found area rest g is of ns, slow exports question marks mes to allowmost logical planned choice However from the EU and over the level of s that in the for even developm theshort , it is argu term. US, remaining global Red Tract side the dwindlin high ents that ed that the areas such or coul import demand of a tariff g amount of time the Red Tract er standards to alongas higher introduction is essential before freshly harveste available all contribu be met. Thesed develop in orde or currently welfare, in tion r to d supplies are Red ted to the price orde envir area aga has, r to offer onmenta s covered inst impo declines. Tractor Assu ng towa Somerscales l enhancem lookiRupert protecthe rts that do Standard On the positive rance will ent and Senior rds moving into This will allow not meet side, the world s. be launching organicConsultant specialist balance sheet the UK any mem cally, with a very productio a new confi remains relativel mee ber of the It has bee low stocks/use n. y tight histori- t the high stand dential phon ratio when China ODA-Ag ri n proposed to break the negotia ards of the public or farmer to 24/7, e is excluded. In firmed, that , although tion deadlock report anyo line that will go scheme. an attempt 365 days a year between the US not con live in June This new a potential supply chai and aims ne who they and China, the phon a higher . to assist in policy wou n. latter believe are tarif the improvemeline ‘Farmed with Month (ex farm) ld apply failing to Care’ lamb, whic f to products such Midlands ent of com as beef and h is readily pliance throu will be available Feed Wheat whilst prod available ghout the Feed Barley ucts that in the UK, entire Mar 2019 are such Oilsee
Red Tracto
£161.00/t
Red Diesel
Big Bale Hay p/kg dwt
£135
Available
57.1p/litre Straw
£54.00/tonne £130.0 0/tonne Finished Steers 347.1
Regulation BPS
£303 £304
Tariffs on
rds
food imp orts
not home as citrus produce fruits wou products d, ld be tarif that are f free. Thos trading prices wou e ld have lowe at, or close to worl d r tariffs in compari son.
Currency
£/€ = 1.1583 Restriction €/£ = 0.8633
Online entit leme = nts pleted by $/£ 0.7619 and 15 May 2019 land transfers can now be complete Countrys d, transfers ide Stewards must be 2019. App com ly by 31 July hip 2019 Four Wild life Offers 2019 applicat ions ope Mid-Tier self ned on 18 service app Febr uary May 2019 Available Price lication pac . Applicat nowN ANHedgero 34% ks ava ions close (bags ws £/tonn 31 July 2019 ilable via ema BoundariUK)and il, the requ Hedgero es Grants e £277.0 0 ws and est deadline boundaries should be 1 March 0:24:24 blend (bags) is 31 capital gran made by £/tonne 30 Cross Com t applicat £287.0 0 April 2019 pliance ions are now You must open. App not cut or 13 March 20:10:10 blend (bags) £tonne lications and tree trim hedges coppicin BPS £273.0 g and 0 hedge or trees from this Finished Lambs date, laying from Finished PigsBPS Online 31 March 1 March but you can carr Applicat until y out 30 April. hedge ions availabl 419.7 Cross Complian e from 13 ce143.8 Water abst March. Subm ission dea part tarif raction licence hold dline is 15 f agreeme 1 April May 2019 nts are held ers should expe ct annual VAT & Tax . bills or firstVAT Register part cha ed business rge if two quired to use the Mak es with a taxa ble use softw 1 April ing turn Tax Digit over abo are to subm ve the VAT Cross Com it their VAT al service in orde Threshold pliance returns r to keep are reBan beg their reco ins rds digitally upland areaon burning heather 1 April and , rough gras s Cross Com s, bracken, pliance gorse or 28-day wind vaccinium other than submit read ow opens for wint in er or yea ings to envi r-round wate ronment agency r abstract fishergerm ion licence an.co.uk holders to
Milk Data UK Farmgate Milk Price Price
now
£136
Leading Standa
d Rape
£134
Date
£160.0 0/t
Fuel/St raw/Silage Big sq Baled Wheat
Key Dates
£159.00/t
Apr 2019 May 2019
r has World
Available
Available
£305
nowAvg Monthly Price Countrys ide Stewards
now
29.85ppl
hip
Countrys
ide Stewards Fertiliser hip
01858 4102 00 farms@fisher german.co .uk
Registered
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Fisher Germ Office, Ivanh oe
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an is a limite d liability partnership , registered in England Ivanhoe and Wale Park Way, Registered s. Ashby de number: la Zouch , Leicestersh OC317554 and cann ire LE65 2AB ot accept Please do Regulated liability for not use this by RICS any errors as all the , fact or advice need ed to make opinion. decisions.
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AgriFacts is a summary of important agribusiness information that you can receive free every month from us and includes news, data and comment on a variety of subjects including: • current commodity prices such as wheat, barley and oilseed rape, together with futures prices • currency exchange rates • a round-up of information on EU agricultural legislation, CAP Reform changes as well as consultations • current prices for nitrogen and compound fertiliser, red diesel, straw and hay • dead weight prices for pigs, cattle and lambs
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