The deadline for applications to the new Woodland Carbon Guarantee (WCaG) scheme has been extended from 10th January to Friday 17th January 2020 (see https://abcbooks.co.uk/50m-incentive-to-plant-trees/ for further information on the scheme). The first auction will be held from 12 noon on Monday 20th January to 12 noon on Friday 31st January 2020. There will be up to £10m available through the first auction.
Former MP Zac Goldsmith will remain as Environment Minister. Mr Goldsmith has been given a life peerage, which means although he lost his seat for Richmond Park in the recent General Election, he has been re-appointed to his old post in Defra. Goldsmith joined the department back in July 2019 and was swiftly promoted from Parliamentary Under-Secretary of State to Minister of State for Environment and International Development, replacing David Rutley, in September 2019.
Following the General Election on 12th December 2019 which heralded another Conservative administration the Pound has strengthened to £0.83 to the €1 (or £1 = €1.20). It has since lost most of these gains as the market worries about the prospect of no or a very limited trade deal at the end of the Transition Period (see other article).
This continues the trend of fluctuating exchange rates seen since the Referendum on EU membership in June 2016. Following the Brexit vote, Sterling immediately weakened against the Euro as shown in the chart below. It then traded largely in a range of €1=85p-90p (£1 = €1.11-€1.18) varying, to a large extend, on the latest political developments. The Pound reached its lowest point in August 2017 at £0.93 and the strongest being the 19th April 2017 at £0.834. The second strongest exchange rate against the Euro since April 2017 was recorded after the recent Election result on 13th December 2019 at £0.835.
Oddly, a broadly similar trend can be seen in 2017, 2018 and 2019, with a weakening of Sterling from the late spring through to the summer and then some recovery thereafter. Why this should be is not entirely clear.
But what does this mean for farmers? When the Pound is weak (closer in value to the Euro) imports become dearer and our exports become more competitive (when the Pound is strong the opposite occurs). To illustrate this, a key UK farming export, lamb can be used. Assume a standard new season lamb is sold to an EU country at the current average price of 191.7p per kg and it weighs 39kg = £74.76.
Exchange rate A = £0.93 : € 1 Weak Pound
Exchange rate B= £0.84 : € 1 Strong Pound
With exchange rate A the lamb would cost an EU country £74.76 / £0.93 = €80.4 per lamb
Exchange rate B would the lamb would cost an EU country £74.76 / £0.84 = €89.0 per lamb
Although the difference in exchange rate is only £0.09, the lamb would cost a customer in an EU country €8.60 more with Exchange rate B, for the same product. Thus the Strong Pound seen in exchange rate B is not beneficial to the UK farmer, making our exports to Europe more expensive. Customers in Europe will look to other suppliers to receive better prices, reduce their demand in the face of higher prices, or negotiate to hold prices in Euro terms, which translates into a reduced Sterling value.
Conversely, a strong Sterling helps UK farmers if they are importing goods from EU countries as they are able to buy more with each of their Pounds. This is quite important in the horticulture sector, for example, where a lot of plant material is purchased from Europe (notably the Netherlands).
It is unlikely that volatility in the currency market will reduce during 2020, at least not until the situation around the Future Relationship talks becomes clearer. If this looks like being resolved satisfactorily, then Sterling is likely to definitively strengthen – perversely, this would then be negative for farming in the short term.
A reminder that, notwithstanding Brexit, the Countryside Stewardship (CS) scheme will be open for applications in 2020, for a 1st January 2021 agreement start date. The application window is likely to open sometime in February with a application deadline for Mid-tier and Wildlife offers of 31st July (as per last year). The scheme itself will be very much like last year’s with no major changes being introduced – any rule changes will be minor tweaks. There may well be more changes in the pipeline for CS 2021 – especially with the Wildlife offers expanded.
Countries attending the UN Climate Change Summit in Madrid have failed to agree decisive new measures to limit greenhouse gas (GHG) emissions. The 25th ‘Conference of the Parties’ (COP25) ran two days over schedule but delegates couldn’t agree on new measures to create a global carbon market or more ambitious national plans to cut carbon. Other countries were not prepared to sign-up to the carbon market rules after the plans were watered-down by Brazil and Australia (rather ironic, given the record-breaking temperatures and wildfires currently being seen in Australia). It was agreed that all countries will come back with new plans to cut emissions at next year’s summit. This will be held in Glasgow (possibly putting pressure on the UK Government to take a lead in GHG reductions over the next 12 months). Around 30,000 delegates are expected to attend COP26 in Scotland.
Latest figures from the RPA show 92.4% of claimants in England received their 2019 BPS by Friday 13th December. According to the agency, 59,600 farmers received payments to a total of £1.2bn on the first day of the payment window. Claimants are advised to check their payment carefully to make sure it is correct. If payment is found to be incorrect a ‘Payment Query Form’ should be submitted to the RPA, this can be found at https://www.gov.uk/government/publications/basic-payment-scheme-payment-query-form.
It is usually not easy to check a payment until a Claim Statement has been received, and these arrive some time after payment. It is reported that some of the first 2019 Claim Statements that have been sent are incorrect – the stated Financial Discipline rate and the payment rates were wrong (although the total payment was correct). To avoid any further confusion, the RPA has halted the delivery of Claim Statements whilst this issue is resolved.
The RPA is also writing to some claimants regarding their entitlements. It appears the one-off entitlement reconciliation in 2015 was not properly executed for some businesses and the RPA has now been looking into this. Readers may recall that, when the BPS was introduced, for the first year (2015) excess entitlements were confiscated if these exceeded the area being claimed. Letters are now being sent to those who did not have their excess entitlements properly removed in 2015 and to those who may have bought or leased entitlements from such a business. It is not exactly clear what will happen, particularly to those who have bought or leased in entitlements which should have been confiscated. The RPA has said 2019 payments have been adjusted accordingly but ‘as you have transferred or leased the affected entitlements into your business, without knowing their past history, we will aim to make sure that you are not unfairly disadvantaged’. The extent of the problem is not yet known but potentially could be a difficulty ahead of 2020 claims.
The RPA has also announced the commencement of 2019 Countryside Stewardship (CS) and Environmental Stewardship (ES) payments. To date £77.8m ES and £4.3m CS payments have been made. Readers will recall these are being made in one full payment this year, between September and June 2020. It is worth noting that, with the new single payments starting around the same time as BPS payments, there may be a view that the payment timetable will be similar – i.e. most paid by the end of December and almost everyone paid by the end of Jan. However, Stewardship payments will run on a different timetable. It is likely to be well into the New Year before many businesses are paid, particularly for CS payments.
The Welsh Government has reported over 93.5% of farm businesses received either their full 2019 BPS payment or a BPS Support Scheme payment during the first week of the payment window. Readers will recall the BPS Support Scheme was put in place so that those who didn’t receive payment on the first day would receive up to 90% of their estimated payment. The Welsh government has said it has been unable to deliver the same level of BPS day-one payments as achieved in the past as preparing for the possibility of a No-Deal Brexit has been top priority this year. Therefore, the BPS Support Scheme has been put in place to help businesses manage cash flows, whilst their payment is being processed.
Scottish upland farmers will soon be receiving an advance on their 2019 Less Favoured Area Support Scheme (LFASS) payments. The Scottish Government is operating a national loan scheme – it is currently writing to farmers and crofters asking if they want to apply for a 95% advance on their payments. Replies need to be made by the 17th January and then payments will commence shortly thereafter. Final top-up payments will then be made in the spring. It is expected that £50m will be paid via the scheme. Although recipients will welcome the timely payment, 2019 LFASS amounts will only be at 80% of the 2018 level due to a change in EU rules.
The Scottish Agricultural Wages Board has recommended that farmworkers wages continue to track the National Living Wage (NLW) from the 1st April 2020. Nationally, the NLW only applies to those aged 25 and above, the under the SAWB it applies to all workers irrespective of age and duties apart from Apprentices. At present the rate is £8.21 per hour. The UK Government has yet to announce what the National Living Wage will be from 1 April 2020 but estimates suggest that it might be around £8.70 – thus a 6% rise. There is also an aspiration to raise it to £9.00 per hour. The Welsh Agricultural Wages Board consulted on its proposed rates earlier in the autumn. It proposed that the minimum rates of pay for agricultural workers increases by 1.8% across all pay bands. However, it is bound by the national minimum wage legislation so rates at the lower grades may well rise higher to comply with the NLW (or the Minimum Wage for those under 25) when they are set.
The 2020 edition of the ‘Guide to Cross Compliance in England’ has been published. This can be found at – https://www.gov.uk/guidance/guide-to-cross-compliance-in-england-2020. Those that have last year’s edition can simply use that however because, as the 2020 version states ‘there are no confirmed policy changes to the cross compliance rules in 2020’.
With the Withdrawal Agreement now looking certain to pass following the General Election result, the focus is turning to the next stage of the Brexit process – negotiating a long-term trade deal with the EU. Talks are expected to formally commence at the start of February, although the two sides are likely to have had informal discussions before then.
The key issue is what can be achieved in less than a year. The EU-Canada Free Trade Deal (CETA), which is often cited as a model, took 7 years to negotiate. The fact that the UK and EU start from the same place in terms of rules may help, but it still seems a ‘challenging’ timetable. The Transition Period can be extended by one or two years, but this decision has to be made by the 1st July 2020 – i.e. it cannot be left to the 11th hour, if a deal has not been done. Perhaps more importantly, Boris Johnson has stated that he does not wish to see the Transition extended. Whilst he claimed this during the Election campaign, there was a school of thought that, given the scale of the Tory majority, the hardline Brexiteers within the Conservative Party would be less influential, and this pledge could be quietly dropped. The Prime Minister has a bit of form in this area – see ‘dead in a ditch’. However, it seems that a clause may be inserted into the Withdrawal Bill making it illegal to extend the Transition. Whilst this could always be undone with another Act, it does show a real intent to spend as short a time as possible in the Transition.
The truncated timetable raises some uncomfortable questions. If an agreement on the UK-EU Future Relationship cannot be reached by the end of 2020, then the UK would simply trade with the EU on WTO terms after the 31st December – thus a version of ‘No Deal’ re-emerges. Even if a Free-Trade Agreement (FTA) is reached, it seems highly unlikely that the specific arrangements required to operationalise the Northern Ireland / Ireland Protocol in terms of Customs and SPS checks would be in place by that point. Any attempt to rush it through opens up the strong possibility of it being a botched job. Finally, to meet the tight timetable, any FTA might be far less ambitious than has been suggested.
A ‘deep and comprehensive’ FTA has been the plan – ‘Canada plus’ in the jargon, going beyond the provisions of CETA. The EU can ratify an agreement that simply covers trade in goods, but any ‘mixed’ agreement that covers trade in services (plus other issues such as intellectual property rights, procurement, employment rights etc.) has to be signed-off by Member States. This is how the CETA agreement was held up by the Wallonian Parliament. Both to make the scope of the talks manageable in the timescale, and to have a chance of the agreement being legal before 31st December, a very cut-down ‘Canada minus’ deal might be the only possibility. A more comprehensive agreement could be returned to later. In terms of agriculture, an agreement that covered goods only would be better than nothing. Tariffs would be avoided altogether if the agreement was not subject to any quota limitations. However, quota limitations are frequently features of FTAs, even comprehensive ones. For instance, CETA has quota limitations on tariff-free beef imports from Canada. Similar restrictions would hinder UK-EU trade.
The personnel involved in the talks will be interesting. From the EU side, the new Trade Commissioner is Phil Hogan who will know the agricultural sector very well having served previously as Agriculture Commissioner. At times, he has been scathing in his criticism of the UK position on Brexit. A key decision that Boris Johnson will need to take in the formation of his Cabinet is who leads on the Brexit negotiations? Will the current DEXEU Secretary, Stephen Barclay, continue to lead or will there be a greater role for Michael Gove, who is rumoured to be set for a much greater role on trade? Given his previous Defra role, there are arguably advantages to Michael Gove having a greater influence on the future UK-EU trading relationship. We will keep readers informed as events progress.
