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Outlook 2021
Andersons Outlook 2021
Contents
Introduction to Outlook 2021 3
Farm Business Outlook
• Farm Profitability Prospects 4
• Economic Prospects 6
• Farm Policy 8
• Finance and Banking 11
• Land Prices and Rentals 13
• Topical Issue – Brexit and Global Trade 15
Cropping
• Combinable Cropping 18
• Potatoes and Beet 20
• Horticulture 22
• Topical Issue – Vertical Farming 24
Livestock
• Dairy 26
• Beef 28
• Sheep 30
• Pigs 33
• Poultry 35
• Topical Issue – Carbon and Net Zero 38
National Administrations
• Scotland 40
• Wales 42
Contributed Article
• Farm Woodland 44
Outlook 2021 has been compiled with contributions from Consultants within the
Andersons businesses. It is published by Andersons the Farm Business Consultants Ltd,
which co-ordinates the presentation of the Andersons businesses throughout the UK.
Andersons® is a registered trade-mark of
Andersons the Farm Business Consultants Ltd Editors: Richard King, Head of Business Research, The Andersons Centre
Copyright © Andersons 6th November 2020
2
Andersons Outlook 2021
Outlook
INTRODUCTION TO
Welcome to Andersons Outlook 2021.
2021
When the previous edition of Outlook was published a year ago, Covid-19
was simply a novel virus in an obscure corner of China. There was little indication
that it would come to disrupt economies and lives in the way that it has. The UK
farming and food sector has escaped relatively lightly – people always need to
eat, and farmers are perhaps natural self-isolators! There have, however, been
significant outbreaks further down the food processing chain. We hope all our
readers have managed to stay safe and well during these unprecedented times.
All being well, 2021 will see a return to some sort of normality.
Whilst it has taken a global pandemic to knock it off the front pages, Brexit
remains a key issue for the agricultural industry. The politicians appear to have
taken little notice of the production schedule of Andersons Outlook, and most
of the articles in this publication have had to be written before the final result of
the UK and EU trade talks are known. Even if a deal has been done, the ‘friction’
in trade between ourselves and our largest trading partner will be much greater
– leading to higher costs, which may well be passed back down the supply
chain. Whatever the trade outcome, 2021 will see the first year of the truly
‘renationalised’ farm policy outside of the Common Agricultural Policy. Although
each part of the UK is doing its own thing and progressing at different speeds,
the overall direction of travel is clear. In the future, there will be less support ‘as
of right’, and land managers will be expected to deliver something to society in
return for the funds they receive.
Andersons’ consultants’ experience is that this should not necessarily be
something to be feared. There are still great opportunities to improve financial
performance in all sectors of our industry. Without the distorting effects of direct
support, there can be a greater focus on the areas of activity on farm that actually
make a profit. Over time a stronger, more resilient industry should result, able to
meet many of the other challenges that lie ahead.
We hope that you find Outlook 2021, written by members of all the
Andersons’ businesses, both informative and stimulating and, as ever, wish you all
the best for a successful 2021.
John Pelham Nick Blake David Siddle Richard King
Directors, Andersons the Farm Business Consultants Limited
3
FARM BUSINESS OUTLOOK
Farm
Profitability
Prospects
RICHARD KING
I
t is always quite foolhardy to try based on a forecasting model run by
and predict farm profitability – the Andersons – the first Defra forecast
weather, commodity markets, is usually made in December. Our
exchange rates, and many other
Our calculations calculations suggest returns will fall
factors conspire to undermine even suggest returns – by around 10% to £4.7bn. This is a
the best-constructed forecasts. For [for 2020] will fall – consequence of lower crop output
this edition of Outlook, further layers by around 10% due to restricted autumn plantings in
of uncertainty have been added with to £4.7bn. 2019, plus the effects of the market
the effects of the global Covid-19 disruptions caused by Covid in the
outbreak and the end of the Brexit first half of the year. Whilst some
Transition Period. costs have been lower (notably fuel),
In terms of Covid, as documented among the different sectors of UK overheads generally keep rising.
elsewhere in Outlook, the effects agriculture. Overall though, returns The chart shows two other data
on agriculture have been relatively in the industry are likely to be lower series. The first, Direct Support, is
limited. After a short period of than those shown. a reminder of the level of public
upheaval when ‘lockdown’ was As usual, Defra’s Total Income support going into farm businesses.
introduced, food markets soon from Farming (TIFF) series is used It covers the BPS plus any agri-
regained their equilibrium. However, to look at the profitability of UK environment income. It can be
with the disease appearing to agriculture. This has been running seen that ‘subsidy’ has comprised
become chronic within society, and since 1973 (when we joined the perhaps two-thirds of farm profits in
the economic fallout from this, there EU) and shows the aggregate profit the last decade. There is a ‘funding
may be more fundamental shifts in from all UK farming and horticultural guarantee’ that should maintain this
food demand to come (see following businesses for the calendar year. until 2024 but, thereafter, amounts
article). In simplistic terms it is the profit of are likely to fall. Also, as payments
Brexit, and especially the Future ‘UK Farming Plc’. More precisely, move to a ‘public goods’ basis, there
Relationship (or not, as the case may it measures the return to all will be less profit in the receipt of
be) between the UK and EU, is also entrepreneurs in the industry for their subsidy as land managers will have
discussed in detail elsewhere in this management, labour and capital to be doing something to earn it.
publication. The forecasts for farm invested. Figure 1 shows TIFF going These changes are still in the future.
profitability that follow are based on back to 1997. Exchange rate movements have an
an ‘orderly’ Brexit with some sort of The latest Defra figures relate to immediate effect and these are also
UK/EU Deal – even if it is minimalist 2019. These show profits rising by shown on the chart. If there is a No
and limited to preventing tariff 6% in real terms after the weather- Deal outcome this is likely to keep
barriers. Should there be no deal, affected 2018 year, to nearly £5.3bn. Sterling weak, which is generally
then there will be winners and losers The data for 2020 and 2021 are good for farm profits (under normal
4
FARM BUSINESS OUTLOOK
Total Income From Farming, Support and
Figure 1
Currency - 1997 to 2021 (Real terms, 2019 prices)
Any No Deal
outcome would
push profits down
compared to 2020 –
probably below
£4bn, or even lower.
circumstances). If a Deal is done
(even a limited one) the end of
uncertainty should see the Pound
strengthen. This can be seen as
a regulating mechanism, perhaps
Source: Defra / Andersons
preventing farm profits swinging too
wildly in either direction whatever
the Brexit outcome - although a No Given the circumstances outlined much in line with recent years. But
Deal is unlikely to be fully offset by above, the profitability prospects for any No Deal outcome would push
currency shifts. For the purposes of 2021 look reasonably good. With profits down compared to 2020 –
forecasting TIFF, it is assumed the more normal cropping conditions probably below £4bn, or even lower.
Pound stays in the range and Covid ‘managed’, profits would
€1 = 85-90p. rise by 5%, close to £5bn – very
5
FARM BUSINESS OUTLOOK
Economic
Prospects
GRAHAM REDMAN
I
n this section of Andersons’ Briefly taking each individually, is fostered, ideas are shared, and
Outlook 2020, published a Government needs to encourage new acquaintances made. For the
year ago, we made all the economic growth and quickly. This more physical work, rules of social
right predictions, but for all the is hampered by ongoing restrictions distancing, cleansing, and covering-
wrong reasons. We talked about and closures to retain a low ‘R’ up will impact productivity.
how the world was heading for number. The depressing state of Less money sloshing about from
global recession, how when the not being able to mix freely with fewer hospitality and hotel workers
world gets sick, so does the UK family and friends will presumably and other badly affected sectors
(it was metaphorically referring continue for some months until will keep the whole economy from
to the economy). We also said we learn to live with Covid-19 (and reaching the somewhat tardy 2019
unemployment would rise and possibly Covid-20 and 21), as we levels probably for 5 years or more.
productivity be poor. Nothing do influenza. Office workers will But new worlds also require
was mentioned about hiding from remain Zoo(m) animals and agree new ideas, innovation and
diseases, furlough and by quite how deals with faces on screens. On change, and the innovator and
much the economy would shrink. paper, this is efficient, cutting out the entrepreneur will do very well out
Perhaps, the UK was going to niceties of asking how the journey of these unprecedented times,
suffer anyway, and so the actions we was and polite coffee chatter, but whether in agriculture or other
took to avert the viral spread has had in fact as much business is probably sectors. Manufacturing (which
a smaller financial impact than they done in these peripheral events includes farming) is a good way
might have done. So many of us as the headline meeting. Trust to get people back to work, albeit
working from home have learned to on lowish salaries; but blue-collar
be productive and, of course, farming work also helps generate white
has so far been largely unaffected. collar, information-based (work
But it will be. We can assume from home) work too. This will be
everybody with income or assets Taxes will presumably important with current projections
might be expected to help bail rise at some point but, of unemployment totalling 8.3% of
out the Government from the currently, the debt the workforce after furloughing ends.
unprecedented debt it finds itself in. has been financed Economic growth in 2021 should be
Short of default, Government debt is by sales of Gilts at the fastest this country has seen for
repaid by either economic growth; exceptionally low decades at potentially 5% or 6%, but
taxation which, for the ‘have’s’, is levels of interest. based on a shrinkage of 10% for the
presumably an inevitability at some 2020 calendar year, will still leave
point; and inflation, which erodes us considerably poorer at Christmas
levels of debt as quickly as it erodes 2021 than we were at Christmas
assets. 2019.
6
FARM BUSINESS OUTLOOK
Taxes will presumably rise at
some point but, currently, the debt
has been created by sales of Gilts at
exceptionally low levels of interest
- for as much as 50 years in some
cases, so the urgency to generate
additional cash may not have hit the
Chancellor of the Exchequer yet.
Only if the fall in economic turnover
reduces revenues beyond his ability
to pay for our teachers, firemen,
police, roadbuilders and, oh yes,
some hospitals too, will taxes rise
sooner.
Inflation is low and probably
will remain so in 2021 as the spare
capacity in the workforce restrict
wage rises. Deflation might be more
of an economic risk. However,
several factors should keep the
UK from slipping into this spiral.
Unprecedented levels of quantitative short term too). Government might be able to swerve
easing (printing money from thin Will the outcome of Brexit, round the fallout from its enormous
air) is inflationary, Base Rates at their whichever way it goes, make impact simply because we are
lowest for 320 years is inflationary any difference in the end to the fighting a Goliath, many times larger.
and a weak Pound would be too. economy? Well yes it will, but having Whichever forecast we align
This last point is contingent on the had an economic body blow in ourselves with, the world, the UK
outcome of the Brexit negotiations, 2020 of 10% of our GDP, it might and British farming has to emerge
but should a UK/EU deal not be just turn out to be only another from Covid and other challenges in
done, then Sterling will probably be 4% or 5% spread over a number of a decarbonised manner. This will
smaller than it was when this was years, so it might not even get to leave economic opportunities for
written and that is inflationary (and the middle pages of the comments those prepared to embrace them
this would also be good for farming section, let alone the headlines. The but stifle the lifestyles of luddites and
environmental rejectors not prepared
to play their parts in removing
UK Growth (Quarter-on-Quarter Change)
Figure 2 carbon from their lives. We should
– 1955 to 2022
consider the 2020’s as the transition
decade, and we are already 10% of
our way through it. More opportunity
beckons for the entrepreneur.
During a period of such
intense change and upheaval,
the entrepreneur will be favoured
over those that passively wait for
investment returns. When change
is in the air, opportunity abounds
for those light-footed and quick-
thinking doers. Modern technology
means few will harvest most unless
policy prevents it. That is unlikely.
Source: ONS / Andersons
7
FARM BUSINESS OUTLOOK
Farm
Policy
CAROLINE INGAMELLS
W
e are entering a period of continuing but, importantly, 2021 Once support is delinked a farmer
significant change in farm marks the start of the seven-year could double the size of their
support. That said, all the Agricultural Transition which will see holding or stop farming completely
devolved regions have announced direct payments reduced, so that by and they would still get the same
the BPS will continue for 2021 2028 there will be no BPS-type of future stream of income (tapering-
although with some ‘simplification’ support. off to 2027). It effectively gives
of the rules. Here we are already At the time of writing (October the claiming business a right to the
witnessing the expected divergence 2020) only the payment deductions future support based on what the
in legislation, as each region starts to for 2021 were known. But it is claimant received in a ‘reference
write their own domestic farm policy expected that, by the time Outlook year’ (or years). The key point is, the
post Brexit. has been received by readers, Defra reference year could determine who
In England, all Greening will have launched its long-awaited gets the support through to 2027.
requirements have been abolished consultation on the Transition The consultation should give further
from the 2021 scheme year; this (originally expected in 2019). This details on this.
includes Ecological Focus Areas will not only give us more of an idea Any Tenancy Agreements written
(EFAs) and Crop Diversification (CD) of the deductions beyond 2021, but pre-2019 are unlikely to have any
– the two and three crop rule. But in also further information on delinking clauses in them which deal with
Scotland, although CD will no longer of the BPS from land and lump sum delinked payments. If a Tenant has
be required, EFAs and the Permanent payments. made a BPS claim which included
Pasture requirements have been the reference year, the right to
maintained for 2021. In Wales, the future income stream would
the Government has launched a become vested in the Tenant. If
consultation on a number of changes All the devolved the Agreement is brought to an end
to the BPS, whilst it transitions to its regions have during the Agricultural Transition the
new Sustainable Farming Scheme. announced the BPS Tenant would still have the right to
Included in this are proposals to will continue for 2021. receive the delinked income stream
remove the Crop Diversification and the land may not have any
requirements for 2021 and move the ‘support’ for the incoming Tenant.
EFAs and Permanent Pasture rules to Lump-sum payments must
the Cross-compliance Legislation. Delinking is a mechanism that not be confused or ‘bundled-up’
Further details of the Scottish and breaks the link between receiving with delinking. It is the idea that
Welsh farm policy are included in the support and occupying agricultural the future stream of income from
regional articles later in Outlook. land. It looks very likely to happen, delinked payments is rolled-up
In England, the Basic Payment but it cannot commence before into one single payment. But it is
Scheme architecture may be the 2022 claim year at the earliest. separate from delinking; it may not
8
FARM BUSINESS OUTLOOK
be introduced in 2022, it may not Farming Incentive (SFI) scheme will
be available to everyone, it may not be the prototype for Tier 1. This
even be introduced at all. More scheme will not be available until
information is (again) expected in 2021 marks the start 2022, but will be one which most
the consultation. The idea is that of the seven-year farmers should be able enter. This
it could be used as a retirement Agricultural Transition is envisaged by Defra as a way for
sum or allow for investments to be which will see direct all farmers to recoup some of the
made. If it is introduced, it is unlikely payments reduced, so BPS money which will be lost as
to be available to everyone at the that by 2028 there will we go through the Agricultural
same time, as there just wouldn’t be be no BPS-type Transition. No details are available
enough budget. There might be an of support. regarding the SFI scheme yet, but it is
age threshold for example. expected to cover areas that will be
As direct payments (BPS) are included in ELM, such as soil health
phased out, they will be replaced and emissions, which are not well
by payments for ‘public goods’ – In terms of timescale for ELM, supported under CS.
services that agriculture can provide the national Pilot Scheme is meant Also in 2022 and 2023, the aim
to society that are not delivered by to open for Expressions of Interest is to ‘drive-up participation in the
the market. This will be through the (EOI) early in 2021 with applications Countryside Stewardship’. The
much-publicised Environmental Land commencing in April. Presumably, scheme will be simplified, and will be
Management (ELM) scheme. Many in order to express an interest, some the stepping-stone to Tier 2 of ELMs.
of the objectives are familiar from details of the Pilot scheme will need Ultimately Tier 2 of ELMs will depend
previous agri-environment schemes, to be published beforehand. This will on having a Land Management
but elements such as climate change, at least give some indication of what Plan for the farm which is expected
air quality and hazard protection ELM will look like in areas such as to be drawn-up between the land
come more to the fore. options, management requirements manager and an accredited advisor.
Defra is working with farmers to and payment levels. It is this element which will be tested
‘design, develop and trial’ the new In the interim, Defra has under the ELM pilots in 2021. In the
approach. At present, it is envisaged announced schemes will be in place meantime, the current Countryside
ELM will be based on a three-tier as ‘prototypes’ for the three tiers Stewardship will remain open in 2021
model; which can be used as stepping- for 1st January 2022 agreement start
w Tier 1 – a broad (and shallow) stones for farm businesses to dates.
offer available to all farms. Likely transition to the new support In addition, the intention is also to
to have a menu of options and landscape. A new Sustainable roll out schemes, again in 2022-23,
be managed online. It could look
similar to the previous Entry-Level
Stewardship (ELS).
w Tier 2 – this will require more
intensive management from
farmers. The focus will be on
rewarding farmers for positive
management such as biodiversity,
flood management, carbon
storage, landscape heritage etc.
This will be the ‘core’ of ELM over
the long-term. It will build on the
current Countryside Stewardship.
w Tier 3 – this aims to get groups
of landowners to work together
to deliver widespread change or
more complex change of land use,
including afforestation, peatland
restoration etc.
9
FARM BUSINESS OUTLOOK
which require more complex change
Possible English Agricultural Support Streams
of land use. These would form the Figure 3
– 2018 to 2030
prototype for Tier 3.
Whilst the majority of funding will
be channelled through ELM once it
is fully launched there will also be
other support streams for farming in
England, especially in the early years
of the Agricultural Transition. These
are likely to be in the following areas:
w productivity improvements in
farming, which may look much
like the current Countryside
Productivity Scheme
w a Future Farming Resilience
scheme which will offer advice for
farming businesses – especially
to help with the loss of direct
payments * previous LEADER & Growth Fund grants Source: Andersons
w schemes for farmers to deliver
animal welfare enhancements that important. emissions by 2050. The Government
go beyond the regulatory baseline If the myriad of new support has also joined the international
It is unlikely that there will be a measures isn’t enough, there will be ’30 by 30’ campaign, a pledge
direct replacement for the EU Rural changes to farm tenancy legislation that 30% of the UK’s land will be
Development programme and the through the Agriculture Bill. These protected by 2030. This will require
suite of schemes it funded. Funding are relatively minor though; the more a further 400,000 hectares of land
for measures such as forestry, contentious issues, which would to be designated and could see
competitiveness and training are allow Tenants to assign their tenancy new National Parks being set up or
likely to come under the main to a third party on retirement or existing areas extended.
‘agricultural’ support system. But extending family members eligible Outlook 2020 gave a ‘heads-up’
in terms of rural socio-economic for succession rights are being on Defra’s National Food Strategy.
development (i.e. a replacement considered further. In addition, An interim ‘Part 1’ report has been
for LEADER and the Growth Fund) the Government is still reviewing produced which provides urgent
this will be funded through the new responses to the consultation which recommendations to deal with the
Shared Prosperity Fund. proposes giving residential tenants effects of Covid-19 and the end of
A new regime will be required to more security – this could present the Brexit Transition period. But Part
replace Cross-compliance, which problems for those renting out 2, due in 2021, is expected to make
becomes ineffective once the surplus farm properties. more sweeping recommendations
BPS is delinked from land. This is The landmark Environment Bill is on how systems should evolve to
unlikely to see much of a reduction currently stuck in the Parliamentary meet the future needs of society,
in the red-tape burden on farming, process, but is expected to become impacting on the whole food chain.
as much of Cross-compliance is law sometime in 2021. This will As can be seen, Policy remains
already law. However, the way it is not only enshrine environmental very busy as we move from the CAP
enforced (legal sanctions rather than principles in UK law for the first to the post-Brexit landscape. There
BPS fines) and the administration time, but also introduces measures will be a period of quite intense
of it (more proportionality and to improve air & water quality and change as businesses adjust to the
‘common sense’?) will be different. It restore habitats. The Bill will see new support schemes. But one thing
also has linkages to ELM and animal the creation of a new independent looks certain, it won’t be as simple as
welfare payments. These will only Office for Environmental Protection just claiming the BPS.
pay farmers for going beyond the which will have the powers to hold
‘regulatory baseline’. Where that the Government to account over
baseline is set is therefore quite its commitment to reach net zero
10FARM BUSINESS OUTLOOK
Finance and
Banking
JAMIE MAYHEW
T
he past twelve months have payback term. With cheap money
been an incredibly testing and changing consumer demand
time for UK farming both whether it be for staycations,
from poor weather conditions and
There is a strong desire to buy local foods, offices
the impact of Covid-19. Many banks appetite for downsizing & moving out of towns/
closed their books for new lending investment into ‘UK cities, new homes requiring storage
due to the predicted negative Agriculture plc’. and green energy, there is a plethora
impact Covid-19 would have on the of opportunities provided that the
economy. However now that they new venture is in the right location.
have reopened, there is a strong Although money is cheap at this
appetite for investment into ‘UK accordingly and where necessary current point in time, new lending
Agriculture plc’. begin conversations with lenders should always be stress tested at a
As mentioned in last year’s article, well in advance of any possible pinch higher interest rate to ensure that
‘cash is king’ – and this is even more points. the debt is affordable – 6% is the
true in challenging times. Businesses With the impending changes to usual base rate figure used. Perhaps
should always analyse the true cash agricultural policy, it is a known fact this is a good time to fix the interest
position rather than focussing solely that subsidy levels are set to reduce. rate while they are low which takes
on the Profit & Loss figure. What What is the cash generation of your the risk out of fluctuating base rates.
is the cash position likely to be in business with the Basic Payment However, be mindful that some fixed
your business on the back of 2020 removed? In some cases, this figure
and the impact on cash flow going will convert from a cash surplus to a
forward? As a reminder, in order to deficit. Therefore, it is essential that
Figure 4 Profit to Cash
analyse the true cash position of a businesses should use the time while Profit/(Loss)
business, one must take into account these support payments are readily Add Back Depreciation (shown in the
Profit and Loss account)
those costs that appear in Figure 4, available to analyse the earning
Add Machinery Sales
the P&L. capacity and the total debt within
Add Capital Sales
Many businesses have the business and look to reinvest
Add HP Loan Income
taken advantage of the various to become cash generative before
Less Machinery Purchase
Government schemes to soften the subsidy. Perhaps the disposal of
Less Capital Purchases
impact of Covid-19, however this some assets could be used to repay
Less HP Loan Repayments
does not mean that the problem existing debt or even to invest in new
Less Bank Loan Repayments
has gone away; merely postponed. revenue streams.
There is a strong appetite from Less Private Drawings
Coupled with the impact of the poor
banks to invest in diversified income Less Tax Paid
weather conditions affecting yields,
businesses must plan their cash flow streams that can show a sensible Equals Cash Surplus/(Deficit)
11FARM BUSINESS OUTLOOK
rate loans come with hefty early
Base Rates and Long-Term Borrowing Costs –
repayment penalties should you wish Figure 5
1998 to 2020
to repay a lump sum.
Due to the various impacts
UK agriculture faced in 2020, it is
expected borrowings will increase
over the coming 12 months. This
could largely be to cover trading
losses rather than new investment.
With the upcoming uncertainties
in the industry, now is the time to
thoroughly evaluate your business
to ensure that it is cash generative
and in a strong enough position to
withstand any potential downturns in
profitability.
Source: AMC / Andersons
12FARM BUSINESS OUTLOOK
Land Prices
and Rents
GEORGE COOK
W
ith so much change in other ‘eco-systems services’ now between landowner and manager to
the current business coming to the fore, including: optimise returns to both. Whether
environment, let us take w Water quality that is to design a scheme for
stock of the market fundamentals for w Biodiversity above and below creating wildlife corridors, habitats
land purchase and rental. ground or nesting sites or whether it is the
The rural land market is influenced w Loss of soil organic matter and potentially exciting opportunities
by several underlying themes; the role of soil in climate change offered for carbon sequestration;
w Land is a finite resource exposed mitigation collaboration between landowner(s)
to increasing and diverse demands w A range of other themes best and tenants will all be important.
w Historic evidence confirms it summarised by the term ‘Public In terms of current land prices,
is a safe long-term investment well-being’ Figure 6 shows average values for
providing steady if not spectacular England and Wales. Unfortunately,
increases in value good data on land prices is
w The non-monetary benefits of becoming ever-harder to obtain.
owning part of the countryside - The benchmark RAU/RICS series
New arrivals will need
buying into the rural idyll has been suspended since 2018.
to remember that the
The latter has been given The figures shown thereafter are
additional Covid-19 impetus. New
countryside is also
Andersons’ figures, based on an
arrivals will need to remember that
a shop floor where ‘index of indices’ from national Land
the countryside is also a shop floor people live and work. Agents’ figures.
where people live and work. They These figures mask significant
will also have to grapple with the regional and intra-regional
challenges of rural broadband. differences where local markets can
In terms of the ever-broader range My reason for this foray in policy be driven by two or three individuals
of demands on rural land area, this is because future income streams with significant surplus funds.
is illustrated by Mr Gove’s concept from Government will be driven Following a period of decline
of ‘Public money for public goods’. by delivery of outputs linked to since 2015, the latest figures suggest
For the majority of the time since the these themes. These will form the there has been an ‘uptick’ in values.
Second World War the main farm backdrop to the new Environmental This may be linked with the general
policies have focused on one service; Land Management (ELM) scheme. increase in property prices since the
the provision of food. This demand The shift from area based to lockdown eased.
has been effectively delivered by outcome-based income streams will Looking to the future, we would
the farming industry. It is now clear in turn have an impact on both land expect neither boom nor bust in
that the pursuit of these policies has and rental values. In time it is likely to land values. General economic
come at the expense of some of the require a closer working relationship uncertainty and affordability issues
13FARM BUSINESS OUTLOOK
will be bearish factors. As discussed
England & Wales Land Prices (Real Terms)
in a previous article, the phase- Figure 6
– 1995 to 2020
out of direct payments will also be
a negative – albeit support has a
relatively small influence on capital
values.
Of more importance are the
capital tax advantages of owning
land. There are almost constant
concerns that reliefs under
Inheritance Tax (IHT) and Capital
Gains Tax (CGT) will be amended
to the detriment of landowners –
even more so in the current climate
when the Chancellor has a big fiscal
hole to fill. However, we would be
surprised if there are any significant
changes in the short term – both Source: RAU / RICS /Andersons
IHT and CGT are pretty ‘small beer’
when it comes to raising revenue and
the Government has larger issues to challenging, not least because
worry about. Landlord and Tenant may have
With borrowing costs remaining The shift from the area differing views on the optimising
low (see previous article) and the based to outcome- of income on the holding. Both
underlying demand for land based income streams parties will therefore need to be very
continuing, all these factors may, to will in turn have an clear on their objectives to enable a
a large extent, cancel each other out impact on both land meaningful discussion to take place.
and values will remain stable through and rental values. This will need to strike a balance
2021. between:
Turning to rental values, rents w optimising income on the most
under the old AHA Tenancies productive land on the holding
remain driven by the earning through farming!
capacity of the holding. I foresee relation to the serving of notices. w enhancing and optimising
some interesting discussions and It is hoped there is an element income from the new income
arbitration decisions around the of common sense and a practical streams from ELM and other
concept of delinked payments and approach remains throughout this possible schemes once the details
the subsequent reduction of land- process. finally become clear.
based income. Once ELM is in place, Moving onto FBTs – standard To this point I have managed to
there could well be some further methods of calculation of the rent avoid the ‘B’ word – but Tenants will
fascinating negotiations between being the Basic Payment plus an need to be careful how they do their
Landlord, Tenant and their respective amount – with that amount being calculations and be mindful of the
agents when assessing the earning determined by the Tenant based on terms of any trade deal with Europe
potential of the holding; what ELM what they think they can earn from and beyond.
income should be included in the cropping the holding.
calculation? – what the Tenant Landlords and their agents tend to
chooses to sign up to, or what the go for the highest open market rent
Landlord considers to be the ‘best’ tendered, which on occasion has left
scheme for the farm? the land at the end of the agreement
Short term, I expect there to be in a worse condition than at the start.
little change in local rental markets Furthermore, the withdrawal of
with the current Mexican stand-off the area-based payment is likely to
in Landlord and Tenant persisting in make the calculation of rent more
14FARM BUSINESS OUTLOOK
Topical Issue-
Brexit and
Global Trade
MICHAEL HAVERT Y
A
t the time of writing (mid- The question of standards, and a
October), the UK-EU level-playing field for UK producers
negotiations are reaching is especially relevant for products of
Irrespective of the
yet another climax. Unfortunately, animal origin, particularly, meat. To
[UK/EU] future
publication deadlines prevent us demonstrate this, Figure 8 on the
from analysing whichever outcome
relationship next page compares the UK (GB)
of ‘Deal’ or ‘No Deal’ emerges. negotiations, there beef price with selected international
However, with the Transition Period will be significant competitors. Brazil, being the
ending in December, irrespective of changes to how lowest-cost major producer,
the future relationship negotiations, UK-EU cross-border effectively sets the world market
there will be significant changes trade will operate. price. In recent years, it has been
to how UK-EU cross-border trade substantially below the GB price
will operate. Furthermore, the UK (often more than £1 per kg lower).
is also negotiating trade deals with The imposition of the proposed UK
several other countries and these on its measures being the basis for Global Tariff (UKGT) would safeguard
could arguably have as much, if not trade under a US-UK trade deal. the competitive position of British
more, of an impact on the future This, of course, is a major point of producers from Brazilian imports in
competitiveness of UK agri-food. contention between the farming the short-term. However, if future
With this in mind, it is worth looking industry and the UK Government – trade deals allow significant volumes
at British farming in a global context. highlighted during the passage of the of Brazilian beef into the UK at low or
Figure 7 shows that the UK is Agriculture Bill through Parliament. zero tariff levels, then UK producers
wealthy, densely-populated and
trades freely, but also emits a lot of
greenhouse gasses (GHG). British
Figure 7 ‘Global’ Britain’s Agricultural Sector
agriculture is pretty insignificant (2018 data unles stated) UK World UK% EU%
on a global scale apart from niche Population (billion) 66.5 7,594.3 0.9% 5.8%
segments such as lamb production. Agricultural Land Area (mHa) 17.8 4,86.3.3 0.4% 3.7%
Whilst the UK will be keen to do GDP ($tr) 2.9 85.9 3.3% 21.8%
trade deals, farming is unlikely to GHG Emissions (mtCO2e) (2017) 546 45,261 1.2% 8.1%
1 2
be prioritised. With a 3.3% share Agricultural Trade ($bn) 70 /32 1,749 4%/1.8% 2.7%/2.7%
of global GDP, the UK’s bargaining Cereals Production (mt) 21.1 2,962.9 0.7% 9.3%
Milk Production (mt) 15.3 683.2 2.2% 22%
power will be limited versus the likes
Beef Production (‘000t) 922 67,354 1.4% 10.4%
of the US, which has a 25% share of
Lamb Production (‘000t) 298 9,498 3.1% 5.8%
global GDP. This is crucial regarding
1 2
standards, as the US is likely to insist Sources: World Bank / OECD / FAO / WRI / Andersons imports / exports
15FARM BUSINESS OUTLOOK
would be severely undermined. The
UK and Selected International Beef Prices –
chart also shows that if US producers Figure 8
2015 to 2020
gain access to the UK market
via an FTA, they will also be very
competitive.
Having a ‘level playing field’ is a
frequently quoted concept in the
UK-EU negotiations. This principle
should equally hold elsewhere
with respect to the standards that
British producers must adhere to
vis-à-vis their global counterparts. A
baseline encompassing food safety,
environmental protection and, animal
welfare is needed, below which, the
UK will not go in terms of acceptance
of imports. This baseline needs to
be set so that British farmers can be Source: Bord Bia and Andersons
competitive whilst safeguarding their
hard-fought reputation as quality and, as long as the products are
food producers. Only then, can UK approved for sale in Britain, they are
farming be best-positioned to exploit automatically approved for export to
the opportunities ahead in terms of It seems likely that any France. From January, as set out in
maximising domestic sales, protecting trade deal struck will Figure 9, a business will be required
its share of EU markets and exploiting be quite basic, given to have a number of ‘registrations’
key export markets with its quality the time constraints. and then follow 11 (at the time of
food value proposition. writing) steps. These cover areas
Turning to the more immediate such as VAT arrangements, export
UK-EU talks, it seems likely that any health certification, customs
trade deal struck will be quite basic, declarations as well as the applicable
given the time constraints. For agri- period’ with the UK Border Operating Safety & Security declarations.
food, this is set to comprise of a basic Model seeing some checks delayed Teething problems seem inevitable.
zero-tariff, zero-quota Free-Trade until July 2021. Many businesses Trade between GB and NI
Agreement (FTA). Whilst this means have been dealing with the Covid will also be affected. Shipments
trade might be ‘free’ in terms of no crisis and have been waiting (and into Northern Ireland will require
import tariffs or quota restrictions, waiting) for the outcome of UK-EU additional documentation relating
future trade would still be subject to negotiations. Therefore, preparation to customs, safety & security and
significant non-tariff requirements. time has been woefully inadequate. sanitary and phytosanitary (SPS)
In last year’s Outlook, Non-Tariff This needs to be recognised, with an checks. In the event of a No Deal,
Measure (NTM) costs were examined ‘implementation period’ for at least the import duties could be applied
in detail. Under an FTA these are six months from January to allow and firms will also have to account
estimated to range from 1-3% for red businesses time to adjust. Such for VAT. The ‘red-tape’ requirements
meat; 5-8% for poultry meat (as it periods are often a feature of other for goods being shipped from NI
is lower priced); 5% or less for dairy FTAs. to GB are still unclear, although
and horticultural produce; and for Businesses still need to do what the UK Government has pledged
bulk cereal and sugar shipments are they can to help themselves and ‘unfettered access’. As NI will be de-
minimal (FARM BUSINESS OUTLOOK
there are frictions on GB-EU trade.
Regulatory Steps on Agri-Food Exports from GB
By the time Outlook 2022 is Figure 9
to France Post-Transition
published the situation with UK-EU
trade should have become clearer Stakeholder Steps Involved
(Haven’t we heard this before? – Pre-Requisites • Economic Operator Registration & Identification (EORI)
No (import/export license)
Ed). The next year could see some • EU approval for both GB (exporting country) and the dispatch plant.
upheaval as the sector adjusts to • FR Importer registered with French authorities importing animal origin products.
GB Exporter 1. Zero rates VAT (Goods leaving UK); creates commercial documentation
the new arrangements. But trade
(invoices etc.).
policy will be an ongoing issue for 2. Organises export health certification (via APHA).
3. Arrange Export Accompanying Document (EAD) export declaration.
farming in the post-Brexit era and
HMRC 4. Use EAD to auto-generate an Exit Safety & Security Declaration (EXS).
new threats and opportunities will 5. Master Reference Number (MRN) generated by EAD/EXS lodged on Goods
be presented as deals with countries Vehicle Movement Service (GVMS) which then creates a Goods Movement
Reference (GMR).
around the world are progressed. In
Haulier/ 6. Obtains GMR (needed at Border Control Post (BCP)), where regulatory checks
this sense, Brexit will be more of a Freight will take place (Documentary, Identity, Physical Checks etc.), and transports
Forwarder the load.
process than an event.
French 7. Creates a TRACES NT (required for SPS goods); arranges import
Importer pre-entry lodgement.
8. Books the BCP (e.g. Calais) if load contains SPS goods.
9. ENS Entry Safety & Security declaration needed 2hrs before goods arrive at
FR port.
10. Pays import duty to French Customs or to agent
(if agent uses deferment account).
11. Accounts for FR VAT either payable at border or through VAT accounting
(if available).
Source: Customs Clearance Consortium and Andersons
17CROPPING
Combinable
Cropping
SEBASTIAN GRAFF-BAKER
AND JOE SCARRAT T
2
020 has been a challenging Stem Flea Beetle (CSFB) pressure led break crop on many farms, as well as
year for all in the cereals to some very poor results at harvest. helping to spread harvest workload
sector, mainly determined by As a result, suggestions are that with an early start. Pulses have well
the lack of autumn sowing in 2019. crop areas for 2021 harvest could known benefits to following cereals
The very dry weather following be below 400,000 hectares, albeit and many have achieved good
the planting of spring crops only the amount written off could be less results with peas and beans in 2020,
compounded the worry, which for than the last couple of seasons due but their yield remains variable and
some has led to financial results to better establishment this autumn. there is thus a risk associated with
many would rather forget. However, Whilst we have seen this coming large areas. Oats have a growing
for others, harvest was not as bad as slowly for a number of years, it really market on their side but only spring
they had envisaged and, combined is a game-changer on many arable crops fit grass-weed situations and
with a buoyant marketplace, it will farms. Crop area figures show it has spring varieties are less favoured by
not be the disaster first feared. been a mainstay crop for many farms the end user. Linseed will inevitably
2020 will see the end of oilseed since the late 1980’s. spark interest again, with some trying
rape on many farms. The dry Despite its inherent high cost winter crops as a direct replacement
period during establishment in 2019 base and other challenges, oilseed for oilseed rape with early sowing and
combined with relentless Cabbage rape has been the most profitable harvesting. Other options might exist
in mixed farming areas with forage
Figure 10 UK Oilseed Rape Area – 1975 to 2021 crops and/or re-introducing livestock
when working with others with the
specialist skills and knowledge.
With alternative break crop gross
margins of £200-245 per Ha less
than OSR, the obvious choice for
many is to extend the rotation to
include a greater proportion of
cereals. This effectively reduces
the break crop area to minimise
the effect of simply replacing OSR
with a less profitable alternative. On
heavy soils, the most profitable (and
sustainable) rotation will be two
wheats after a break crop, followed
by spring barley. Others may even
Source: Defra / Andersons return to continuous wheat / cereals.
18CROPPING
It is perhaps more challenging on
Range in Wheat Cost of Production –
lighter soils where second cereals Figure 11
Harvest 2021
tend not to perform so well. The key
to minimising the financial impact is
to look at the gross margin across
the whole rotation rather than direct
crop replacements.
One point the industry has now
started to realise, as a result of the
unique circumstances of 2020, is
that spring cropping is perhaps not
as ‘dreadful’ as many first feared.
Clearly, if you simply compare
gross margins, in most cases there
is a negative financial impact
compared to winter wheat / autumn
cropping. Businesses need to build
on the opportunity to consider their Source: FBS / Andersons
overhead cost structure (machinery
and labour costs) in light of spring to be a significant shift in incentives
options; the flattening of work over the next decade. The BPS
peaks reduces the need for overall The end of oilseed will no longer be there to maintain
capacity (machine sizes, horse- rape … is really a farm incomes from land where, to
power, seasonal labour etc). As such, date, some businesses have elected
game-changer on
net margin comparisons could be to grow combinable crops on
many arable farms.
more attractive. This is even more poorer areas and incur losses, albeit
pertinent where businesses may be hidden. Support is already targeted
considering whole-field stewardship at land uses such as growing food
options as one of their replacement for wildlife and the permanent
break crop alternatives. AB15 two- continuing with ‘full’ cropping is removal of carbon dioxide from
year legume fallow is an example likely to be the best way forward. the atmosphere (Woodland Carbon
of an option under the current Productivity remains one of the Guarantee Scheme). It is expected
English Countryside Stewardship key differences between business that support will be further targeted
which may, in some situations, act performance, certainly not scale. at such land uses. Combinable
as the break crop. Given the five It is simply understanding land cropping will remain a key enterprise
year term of such agreements (and capability and having excellent where land selection and the
potentially longer if rolled into ELM), attention to detail. Scale and application of resources (particularly
businesses must make the hard the balance between proprietors labour and machinery) can create
decision to cut capacity (and thus vs employees can make a key profits without subsidy. But many
cost) in the machinery and labour difference; incentivisation and businesses may need to be both
fleet to make sure there are positive good management is essential to more selective in what land they
financial benefits. Comparing deliver top quartile returns. These elect to use for combinable crops
gross margins is only part of the are often the result of multiple and also more broad ranging in
story with the medium-to-long- small improvements which when their overall land use. Those that
term commitments such schemes combined deliver large changes start planning for this now, are
give. There is an ability to de-risk to the bottom line. Productivity most likely to create profits from
businesses and improve margins. remains the basic principle if both growing crops and collecting
As a general rule, this will only businesses are to thrive. Cropping subsidy and therefore successfully
work for average performers, or poor land offers low returns and navigate through the next 5-7 years
poorer land, where the risk vs more importantly is high risk. of uncertainty.
reward ratio remains higher. For The changing support system (in
top performers, and good soils, England at least) means there is likely
19CROPPING
Potatoes
and Beet
NICK BL AKE
AND JAY WOOT TON
Potatoes
A
t the time of writing, the will have to be even more carefully
AHDB planting report considered, with no alternative
forecasts the 3rd lowest methods of control. Another
GB potato area on record. Had The range in cost agronomic challenge for 2021 will
the impact of Covid-19 become of irrigation is be the efficacy of storage regimes
apparent any later in the planting becoming wider, and to manage sprout control, with the
season, it is likely that plantings increasingly this is 2020 crop being the first storage
would have been closer to ‘average’, not being recognised season without CIPC.
creating further challenges around where the services In the last Outlook we
supply and demand. are provided. commented on the move towards
The quick reaction of the increased irrigation in the UK potato
processing industry to the pandemic sector. In our experience, the range
will have certainly helped underwrite in cost of irrigation is becoming
the 2020 market, although the
season continues to be a challenge
so far. According to the AHDB there Figure 12 GB Planted Area By Sector – 2016 to 2019
was a reduction in processing area
of 7.1% as the intended market, and
an increase in packing area of 1.6%.
This looks to be a reaction to a lack
of processing demand at the point of
planting.
The further Covid-19 related
impact on the 2020 market remains
to be seen, but it is likely that there
will be more than adequate supply
in the marketplace. Quality issues
are also apparent, with Wireworm
problems being seen in a number
of packing and processing crops.
The loss of Mocap will have
exacerbated this issue. Site selection Source: AHDB
20CROPPING
wider, and increasingly this is not
being recognised where the services
Sugar Beet
are provided. The average charge for
T
irrigation is still around the £100 per his time last year we noted of the following crop will need to
Ha for an application of water which that sugar appeared to be be considered in the context of soil
includes the labour, infrastructure, in a better position than type, rotation, infrastructure, and
energy and water cost itself. The other commodities in the event of approach to delivery.
actual cost can vary significantly a No Deal Brexit, and lack of self-
depending on the following: sufficiency in sugar production
w Cost of water – supported or presented an opportunity for
unsupported supply, winter or the industry. Since then, the The [beet] yield for
summer abstraction, reservoir or Government has announced a 2020 is likely to be
surface water. proposed Autonomous Tariff Quota disappointing
w Type of infrastructure – fully (ATQ) for 260,000 tonnes of raw for many.
automated pressurised plastic sugar. This volume would be
lined reservoir with hydrants allowed into the UK market without
every 72 metres, versus Internal paying the new UK import tariff of
Drainage Board drains, and a £280 per tonne. Depending on how The guaranteed minimum price
diesel pump located adjacent to this is implemented, it could mean for the 2021 contracts remain
the reel. Booms versus rain guns. an increase in cheaper imports which unchanged from the previous year.
w Labour – irrigation labour are likely to leave UK beet sugar The headlines of the Virus Yellow
(employed for the season production uncompetitive in the compensation scheme of £12m are
regardless), versus full time staff market place. This would jeopardise eye catching, but the detail requires
moving irrigators amongst other the viability of UK sugar production. scrutiny, and at the time of writing
jobs. The loss of neonicotinoid seed much of this was unconfirmed.
w Energy – old diesel pumps dressings has resulted in crops A pilot scheme for growers to
versus invertor driven energy appearing to be adversely affected take responsibility for marketing a
efficient electric pumps. by Virus Yellows. Combined with small proportion of their own crop
Often many of the above costs a difficult Spring and late crop through Czarnikow Group is an
have been incurred, regardless of the establishment, the yield for 2020 is interesting concept, and we look
amount of water applied. likely to be disappointing for many. forward to more details on the
Before the season is upon us The trade-off between harnessing results of this initiative.
again, consider the actual costs (both potential yield from the sugar beet
fixed and variable) of irrigation within crop, and protecting the prospects
your own business.
The availability and responsible
use of water will continue to be
important in all forms of agriculture.
As this article is written, there is news
of a new water futures trading option
in the US. This could signal the
future management of this resource
in the UK too.
21CROPPING
Horticulture
JOHN PELHAM
W
hilst some horticultural turnover above the figures in the
crops are highly right-hand column, and with static
mechanised (e.g. (or reducing) sale prices since that
vining peas and carrots), many For some crops labour time, the continuing viability of
have a significant seasonal labour can represent as a number of crops has relied on
requirement for crop establishment, much as 70% of all improvements in productivity. In
husbandry and harvesting. For expenditure. some cases, this has been possible
some crops this can represent as – the development of Long Cane
much as 70% of all expenditure. raspberry production would be an
Because of the volume, range and example – but in others it has not,
complexity of tasks, mechanisation with production now either marginal
is less developed than for, say, more of median earnings, which has or loss-making. The threat to home-
widely-grown crops such as cereals. led to unprecedented wage cost grown supply is clear.
By way of illustration, the labour cost inflation. In the last five years The major issue facing the UK
for wheat production is typically in the hourly rate has increased by grower for 2021, however, is labour
the range £80-150 per hectare; the some 35%, with severe financial supply. As many as 75% of the
equivalent for strawberry production implications for those businesses anticipated annual requirement of
is £40,000-70,000 per hectare. for whom employment is their around 80,000 seasonal workers
Covid-19 has presented a majority cost. Figures 13 illustrates are likely to be new recruits who, to
significant practical challenge to the consequences for a sample of date, have come almost exclusively
those with seasonal workforces, horticultural crops. from the EU; this supply will cease
which has inevitably led to increased Few businesses in 2015 were completely on 31st December 2020.
employment costs for the 2020 creating profits as a percentage of At the time of writing there is still no
season; in some cases by up to
15%. However, it is the twin issues
Figure 13 Seasonal Labour Cost Increases - 2016 to 2020
of labour cost and availability that
have, and will, dominate horticultural Crop Labour Requirement Labour Cost 2016-20 Increase
Hours/Tonne 2016-20 Increase %
economics and, therefore, Meridian £ per Tonne Illustrative Sale Price
production in 2021 and beyond. Broccoli 22 58 8
Since 1999 seasonal wage rates Asparagus 300 780 12
have been set by the National Lettuce 40 104 10
Dessert Apple 30 78 10
Minimum Wage and, from April
Strawberry 140 364 11
2016, the National Living Wage.
Raspberry 350 910 13
It was the introduction of the
latter, with a target rate at 60% Sources: Andersons
22CROPPING
decision from the UK Government requires a significant investment is commercial – which can take up
as to whether it will raise the 10,000 in initial training and subsequent to a full season. In 2020 a number
allowance under its Seasonal coaching. Furthermore, new of UK growers found that, having
Agricultural Workers Scheme (SAWS) employees need to gain experience made this initial investment, they lost
for non-EU workers. before they can operate at a rate that UK workers when they acquired a
Any assumption that the shortfall permanent position elsewhere.
in requirement can be met by UK Without a significant increase in
nationals overlooks the fact that a the numbers allowed under SAWS
significant proportion of horticultural Without a significant it is inevitable that home-grown
production is undertaken in rural increase in the production will reduce at a time
areas (e.g. Lincolnshire, Cornwall, numbers allowed when it is needed more than ever.
eastern Scotland). These are some Perhaps the approach of policy-
under SAWS it is
distance from centres of population, makers may change when the
inevitable that home-
precluding daily travel for UK media-savvy consumer becomes
grown production will
workers. With existing commitments aware of the consequences for both
reduce at a time when
to accommodation and family, choice and cost of home-grown
how many can or will be prepared
it is needed more fresh produce?
to leave home for temporary than ever.
employment? The problem for the
grower is that each new worker
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