Budget 2014: Rural points

Nothing very obvious grabs the rural headlines in today’s budget other than the extension of CGT rollover relief to the new Basic Farm Payments.  This measure is backdated to 20 December 2013, the date the new payment entitlements were introduced.

The single most significant measure for most rural businesses will be the increase and extension of the Annual Investment Allowance.  Currently £250,000 a year this was due to revert to its former rate of £25,000 after December.  In a very welcome extension it is to be increased to £500,000 almost immediately (from April), and to be extended to 31 December 2015.  Complications which arise from straddling account year ends aside, this is most welcome for any farmer with serious investment plans in the next year or two.  The government reckons this will ‘cost’ £85 million in 2014-15 rising to £1,270 million in 2016/17.  However there will be a benefit to government from 2017-18 of £445 million over two years as annual writing down allowances are proportionately reduced.

The property world will also be interested in the extension of the special taxes which now apply to dwellings owned by ‘non-natural persons’ – generally meaning valuable London property held by companies, latterly to avoid SDLT on sales and transfers.  The threshold for 15% SDLT is reduced to £500,000 from £2 million immediately – although there are savings for those unfortunates who have exchanged contracts but not yet completed.  The threshold for ‘ATED’ – Annual Tax on Enveloped Dwellings – will also start to fall from 2015, to £1 million in the first year incurring an annual ATED charge of £7,000 and the following year to £500,000, leading to an annual ATED charge of £3,500.

Environmentalists will want to study the changes to the Carbon Price Floor.  The Carbon Price Support rate has been reduced to £18/tonne through to 2020.  It had been planned to raise it to £30 per tonne in 2009 prices by then.  However the EU Energy Trading Scheme has not worked well, and continuation at the current floor rate was seen as a threat to the competitiveness of the electricity generating industry.  This should take some pressure off electricity bills in the next few years (although marginally so in most cases).

Other more detailed points which may be relevant in the rural economy and to property include: Continue reading “Budget 2014: Rural points”

The Privatisation of Biodiversity

Professor Colin Reid and Dr Walters Nsoh presented the conclusions of their research programme at the University of Dundee on 20 February 2014. Their research has focussed on the legal implications of the development of new ‘markets’ in natural capital. The emphasis tended to focus on biodiversity offsetting and payments for ecosystem services. Law Commissioner Prof Elizabeth Cooke provided an extremely helpful update on progress with the introduction of conservation covenants in England and Wales. The Parliamentary Draftsman is working on draft legislation following the Law Commission’s review last year so we are likely to see a new type of land covenant in the next two years or so. These covenants will be distinct because Continue reading “The Privatisation of Biodiversity”

Prospects for agricultural markets and income in the EU 2013 – 2023

Agricultural income growth will have to rely on restructuring in the next 10 years, rather than growth in commodity prices. This is a key conclusion from the European Commission Report, Prospects for Agricultural Markets and Income in the EU 2013-2023, issued this week.

At farm level, what does this mean for UK farmers?  ‘Firm’ commodity prices are predicted.  This is at least a positive outlook compared with the prospect of falling prices, but it doesn’t offer much prospect for income growth on the farm.  As ever, farmers will continue to be at the mercy of market and natural forces.

But the report does say that ‘restructuring’ will offer opportunities for income growth.  This means yet another long hard look at labour inputs (already well stretched on many farms), continuing attention to detailed management and inputs in order to achieve higher net margins.  There is still a big gap between the best and the rest in farm incomes.  Although the farmers who make up the top 10% every year tends to be a floating population there is nevertheless a great deal that many farmers can do to close this gap.  Fertiliser and fuel inputs also need careful attention given their relationship to the price of crude oil.

If ‘restructuring’ points to the need for new kit, the next year or so may be the best time to buy with capital allowances for Income Tax set at very generous levels until January 2015.

The agricultural economic outlook also means that farmers must continue to look at other options for their assets.  Will the next 10 years see the real emergence of opportunities to profit from natural capital, by getting involved in carbon storage, water management, biodiversity offsetting or any of the other opportunities which are starting to open up in this area?

Key factors identified in the EC report include:

  • Commodity prices stay firm given low productivity growth, growing markets for biofuels and overall global food demand;
  • In the arable sector, biofuels will be the subject of the most dynamic demand factors.  By 2020 biofuel is expected to make up 8.5% of liquid transport fuel, with yield growth expected of 0.6% on average;
  • The maize and wheat area is therefore expected to grow;
  • Isoglucose is expected increasingly to take the place of sugar in processed foods – although no mention is made of the obesity crisis also in the news this week;
  • 2013 saw the lowest meat consumption for eleven years in the EU, at 64.7 kg/head.  It’s expected to be up to 66.1kg by 2023;
  • Beef production is expected to drop, while pigment production is expected to rise from 2014 onwards (but from low levels given the impact of recent welfare reforms);
  • Dairy expansion is expected to be restrained by environmental factors, with prices expected to stay firm but not spectacular;
  • The agricultural workforce is expected to shrink, and to see a widening income gap.

Key risk factors identified in the report include:

  • The success or otherwise of the African Green Revolution;
  • Higher prices for compound feeds;
  • Crude oil prices;
  • Euro/dollar exchange rate;
  • The possibility of a sudden drop in growth coupled with currency depreciation for a major exporting country like Brazil

This highlights a few key indicators that farm businesses should watch carefully.

I was asked yesterday whether farmers should take reports like this seriously.  Not to the extent of reading all 130 plus pages, but the headlines do point to some key issues which are worth following in the next 10 years.

For other coverage of the report, see:

http://www.fwi.co.uk/articles/17/01/2014/142865/eu-forecasts-10-years-of-firm-prices-for-farmers.htm [Farmers Weekly, accessed 18 January 2014]

http://www.euractiv.com/cap/farm-produce-prices-remain-stabl-news-532759 %5BEuropean News website, accessed 17 January 2014]

http://www.globalmeatnews.com/Industry-Markets/EU-economist-predicts-fall-in-meat-consumption [Global meat news, accessed 17 January 2014]

CAP: Agric Fundamentalists v Enviro Fundamentalists – some inconvenient points

Decision week for Defra Secretary Owen Paterson.  He is due to announce the ‘modulation’ rate for England by the end of the week.  Will it be 9% as the NFU wants, or 15% as the RSPB demands?  Modulation is EU-speak for the amount of farming support that is diverted (modulated) into more general rural development and environmental schemes.  So the more money that is modulated, the less the direct farm payments through the Basic Farm Payment which will soon replace the Single Farm Payment.  The BBC provides some of the background here.

Last weekend saw a crescendo of lobbying on the issue, with the RSPB taking out full page national newspaper advertisements and the NFU writing to all MPs.  Some of the mood of the debate is caught in Mark Avery’s Sunday blog: all households will have to pay £400 to support farmers; this is nothing more than a payment for owning land and farming it (whither tenant farmers?).  On the other hand the NFU whinges that German farmers are only subject to modulation rates of 4.5%, French farmers 3% and the proposed Scottish rate is 9.5%.  This will hurt competitiveness, says the NFU, and disadvantage English farmers.

The environment lobby makes much of the ‘value’ that we get for CAP payments.  The more money that goes to Pillar II (EU-speak for the budget that pays for environmental and social goodies), the better. But farmers prefer Pillar I (EU-speak for the budget that pays for direct farm support payments) because that relates directly to the land they farm and how they farm it – and this can be defended strongly on grounds of food security (will you starve or me?).

But of course we are dealing with public policy here, and the reality is more complex that the advocates of Pillar I and II would like us to accept.  The new direct farm payments come with more environmental strings attached – crop diversification and ecological focus areas for example.  And more of the money is moved uphill – where it is desperately needed because much of upland farming is economically marginal at best – at the (moderate) expense of lowland areas.  Whatever Pillar II funding we are left with, will be far more focussed than previously – a better deal on the 35% of rural land which will benefit compared with the previous 70%?  Perhaps so if you are in the lucky areas; perhaps not otherwise – although tougher conditions on the Pillar I funding may make up the difference in some lowland areas.

The RSPB and others have set out their case for the ‘value’ we receive in return for our £400 per household.  This is a compelling and attractive case, immediately attractive to anybody who pays tax.  Given the propensity of Avery and others to dismiss the CAP payments as a mere subsidy on land ownership and farming, I have been pondering what we do get for the money we spend on farm support.

This is an incredibly complex question once you factor in food security and social justice.  To take some dairy figures, our consumption of milk products works out as follows:

Taking our daily consumption of fresh milk, butter, yogurt, cream, dairy desserts we on average consume about 4 litres of raw milk a week.  That’s a little over 200 litres a year.  With an average dairy cow now producing 7,327 litres a year, that means each cow is supporting 36 people.  This typical cow requires 0.5 ha  of land a year, and lives in an average herd of 125 cows.  So the average herd is providing dairy produce for 4,500 people.  At a direct CAP Single Farm payment cost of just over £200/ha, this equates to a cost per consumer supported with dairy products of just under £3.00/year (1).  Doesn’t seem much, but let’s cut the CAP farming support payments altogether.   What happens next?

There is little doubt that the main buyers of milk from farmers have an excellent idea of the costs of production – including the effects of farming subsidies – and set their prices accordingly.   Ergo – exit CAP, enter higher payments from the main buyers.  Despite the hyperbole to the contrary, the main farm produce buyers have no interest in the financial failure of their principal suppliers.  So prices are adjusted accordingly to make it worthwhile – but only just so for better than average producers – to continue to supply milk.  In compensation retail prices increase – for everybody.

So if you are hard up, milk has just gone up and you won’t save much tax if you weren’t paying any or much tax anyway.  But if you are better off milk, yogurt, cheese etc has also gone up, but the CAP isn’t costing you so much through your tax bill.  That’s to say that another element of redistribute taxation has been lost.

Meanwhile at lower rates of modulation fewer farmers are encouraged (forced?) to look at the financial effiency of their operation.  At the recent LEAF conference, Martin Wilksinson (HSBC Head of Agriculture) made the point that many farmers could more than make up their CAP losses with improved technical and financial effiency.  This is one of the real challenges to the farming industry: to move more farmers to the standards of the best.  England was the first region in the UK to move to Single Farm Payments based on the same average payment, away from a payment based on historic payments.  Wales and Scotland have been slower to move in this direction, and there seems a compelling case for England being better prepared for this round of CAP reform as a result.  One fear for the environmental lobby might be the real danger that some of the best lowland farmers may move away from CAP support altogether, joining those sections of the farming industry which have never had it anyway (eg pigs and poultry).

Meanwhile farmers need to promote the value we get from Pillar I payments by stressing any benefits they provide to the rest of the country as consumers and taxpayers.  For example, how many people is your farm feeding?  And at what cost in public support?  Will Santa be coming early for the farming lobby or the environment lobby?

-oOo-

Footnote 1: These calculations were surprisingly hard to source.  The DairyCo website provides daily consumption figures, and the average herd size and milk yield are available from Defra statistics.  DairyCo also provides a diagram showing how the UK’s milk supply is utilised.  My approach was to take the daily consumption of the dairy products listed (a list which is not complete) and work out how much raw milk is needed for each product, eg about 20 litres for 1 kg of butter; 10 litres for 1 kg of cheese.  This ignores some of the complexities of dairy processing, for example milk from which cream has been separated may reappear as another milk product and so on.  Some arithmetic followed based around stocking rates (0.5 ha/cow), total production/consumption figures and lowland Single Farm Payment Rates per hectare in the last year or two.  In short, lots of assumptions; lots of scope for error – but if anybody can highlight any errors or better still existing sources of information like this I would be delighted to know.

 

The Prince of Wales, Country Life and our countryside heritage

The Conversation is a website sponsored by several universities and others, with the aim of combining academic rigour with journalistic flair. Environment Editor Michael Parker asked me to appraise Prince Charles’ editorial in the Country Life, and this is the article published by The Conversation on Friday 15 November 2013.

Charles: the future

king with retro-

vision

By Charles Cowap, Harper Adams University

In this week’s Country Life HRH Prince of Wales writes of the social and economic importance of farming. It is, he says:

the bedrock of our rural communities, making post offices, pubs, public transport and local health care absolutely vital to the production of our food and the protection of the landscapes we all benefit from in so many ways. This is why the countryside’s contribution to the national good has to be cherished and sustained. Without it, we will all be very much the poorer.

Elsewhere in his editorial HRH writes of the British countryside as the backbone of our national identity. Setting aside for a moment just what the 21st century British identity might be, what about the many generations of seafaring, war, empire, trade, or the industrial revolution? We need only go back to 1701 to see Daniel Defoe’s characterisation of “The True Englishman” in his typically satirical way.

HRH identifies several champions or “heroes” of the countryside, and what an interesting and in some ways inspiring group they are. But heroes? Have they unflinchingly stepped forward to meet terror, risking all for their peers? And can we really say that using helicopters to ferry in material for dry stone walls is a sustainable way to manage the countryside? Here are a few others who we might also recognise for championing the countryside:

  • WG Hoskins, 1908–1922, who taught us to understand the countryside, not least through his The Making of the English Landscape.
  • Octavia Hill, Hardwicke Rawnsley, and Robert Hunter, founders of the National Trust.
  • Kenneth Watkins, founder of the Woodland Trust.
  • Countless agricultural pioneers and innovators including the likes of Bobby Boutflour who did so much to revolutionise dairy farming and cattle nutrition.

Who would be on your list?

HRH rightly recognises the vital role farmers have in feeding us and as custodians of the countryside. But there is a contradiction when he goes on to lament the decline in genetic diversity in livestock, the deteriorating condition of soil and the short herd life of some cows. The Irish potato famines are blamed on lack of genetic diversity with no mention of good rotational practice and other vital aspects of crop husbandry. Can this be a description of the “best farmers in the world” as Prince Charles says?

Contrast this with the views expressed by Allan Wilkinson, Chief Agricultural Adviser to HSBC at the Linking Environment and Farming Conference (LEAF) this month. Wilkinson noted that the performance gap between the best farmers and the rest has always been large – it is now enormous. Wilkinson’s menu for success included attention to detail, good up-to-date knowledge, personal development, looking for ways to collaborate, recognising and respecting the competition.

Price pressure

Prince Charles makes the point that the “big retailers and their shareholders do so much better out of the deal” than the farmers they buy from. He also laments the enormous waste of food in the UK every year. Perhaps some of these retailers understand farming and consumers rather more than we recognise. Increasingly we see the big supermarket groups working with preferred groups of suppliers. During the recent milk price crisis, Tesco was recognised for being more supportive of its producers. In addition Tesco has also just produced its own analysis which revealed the waste of 30,000 tonnes in the first six months of 2013, a vast tonnage lost along the supply chain “from farm to fork”. Losses start in the field, and continue right through to the final consumer.

Waste is not the only problem with food: overconsumption leads to health problems, as are changing patterns of consumption in developing countries. But while many have plenty to eat we have also seen the rapid growth of the Food Bank movement in response to a shameful economic and social need. The Trussell Trust has seen its work triple. It is now rumoured that the publication of Defra research completed in the summer is being suppressed because it links the boom in food bank demand with welfare reforms. Perhaps our list of heroes needs to include Carol and Paddy Henderson for establishing the Trussell Trust in 1997 (named after Carol’s mother whose legacy made it possible).

Like much of what HRH has written about the countryside and farming, there is little to grasp in the way of a broad view of the future of the countryside, much less how to get to that future. The countryside as romantic idyll certainly seems central to his view of the countryside, yet how will that idyll be maintained?

Investing in the countryside, but where?

There are some surprising omissions from Country Life’s editorial. For example, the government is currently consulting on the implementation of the latest changes to the Common Agricultural Policy (CAP). Here is something which really does shape the countryside, and Defra has given us 28 days to respond to its consultation exercise.

Should we move the remaining money “up the hill” to support the beleaguered upland farmers mentioned by Prince Charles? HSBC’s Wilkinson and Tesco would both probably tell us that there is plenty more that the lowland farmers can do for themselves to improve profitability and farming sustainability. There is a strong case for diverting more of the public money to the marginal farming areas – not to support agriculture as such, but to maintain its value in supporting the rest of the industry “down the hill”, and for the numerous environmental and social benefits it can bring us all.

It is a shame that HRH does not seem to tackle this central issue of the extent to which public money should continue to support farming, what value we get in return for it, and the considerable amount of work which is currently underway looking at how we can reflect the much wider value of nature in the management of natural capital and the “purchase” of natural benefits from ecosystem services. All vital considerations in establishing a rural vision which builds on the best of a rural idyll.

Charles Cowap is a member of the Royal Institution of Chartered Surveyors, the Central Association of Agricultural Valuers, and non-executive Director of Management Development Services Ltd. He works as a rural specialist and land consultant for various companies and on various projects developing ecosystem service approaches, and providing training.

The Conversation

This article was originally published at The Conversation.
Read the original article.

Jeremy Moody full speech at Harper Adams on CAP Reform

Jeremy Moody spoke to a packed audience of students and staff in the new Weston Lecture Theatre on the subject of CAP Reform on 17 October 2013. This is the full presentation (about 30 minutes with questions).

CAP Reform from Harper Adams on Vimeo.

Jeremy Moody is Secretary and National Adviser to the Central Association of Agricultural Valuers. He is recognised nationally and internationally as one of the leading authorities on the Common Agricultural Policy, in particular its effects in practical farming terms in the United Kingdom. Jeremy is also a member of the group which produced the Future of Farming Review report earlier this year under the chairmanship of former Country Landowners President David Fursden.

Video courtesy of Harper Adams University

Jeremy Moody interviewed on Common Agricultural Policy Reform

Jeremy Moody, National Adviser and Secretary to the Central Association of Agricultural Valuers and a national expert on CAP Reform was interviewed at Harper Adams University on 17 October after speaking to a large audience of students and staff on this topic.

Video courtesy of Harper Adams University