Thoughts on the Campaign for the Farmed Environment by Anthony Field

I recently attended the Kent launch of the Campaign for the Farmed Environment at the Montreal Estate hosted by the Farm Manager, James Standen, and by kind permission of the Jaques family.

There is little doubt in farming circles that we are in danger of being choked by excessive regulation and red tape.

In 2009 the Government carried out a consultation on ways to recapture the environmental benefits that had previously been obtained through set-aside. The options were:

1. A regulatory approach enforced by DEFRA.
2. A voluntary approach led by the farming industry.

At the Royal Show Hilary Benn announced a challenge to the farming industry for us to embrace the voluntary approach and avoid further regulation.

The success or failure of this campaign is to be assessed against targets based on:-

• Uptake of the Entry Level Stewardship Scheme (ELS) particularly relating to in-field options
• Retention of uncropped land
• Increased voluntary environmental management

This provides an excellent opportunity to demonstrate the industry’s commitment to the environment through recording fallow land on SPS claim forms and delivering just one extra environmental measure outside of any ELS agreement.

If those targets are not met by 2012, enforced regulation seems certain.

I have been heavily involved with many ELS and HLS applications and am convinced that the Scheme offers an excellent opportunity for farmers and landowners to obtain improved income from less profitable elements of their farms.

I know of no SPS claimant who is not motivated in part by improving the biodiversity on their farm often due to significant sporting and amenity benefits. Many of our clients already invest significant time and money into voluntary measures to improve habitats on their properties, but few shout about this to the Government and relevant pressure groups.

Through making sure the Government are aware of our existing efforts, embracing voluntary measures to improve habitats and by entering the ELS and making unprofitable parts of the farm profitable, we have the opportunity to prove that as custodians of the countryside there is no-one better placed to deliver the healthy environment which is essential for sustainable farming.

There is excellent support available to farmers interested in joining the Campaign from Frances Clayton at frances.clayton@cfeonline.org.uk or on 07778 920616 or alternatively contact me at the office.

Opportunities in a Changing Agriculture by Michael Bax

I attended the Andersons Spring Seminar on 25 March – excellent overview. Joined a focus group in the afternoon to consider the features of the agricultural industry that are not reflected in the general credit crunch scenario.

1. Finance is readily available, albeit at increased margins and with increased fee structures. Fixed rate borrowing is being looked at hard although a difficult decision for existing variable rate borrowers on the slender margins of two years ago.
2. The land market has boomed, once again showing the counter cyclical capability of the agricultural land market. There is still shortage of supply and excess demand, but low commodity prices must have an affect. Higher interest rates would also remove some of the heat. Nevertheless, one reported sale was to a Dutch farmer who had disposed of 500 acres in Holland for £20,000 per acre giving him £10M for a UK farm purchase. UK land prices are still well behind most of Northern Europe.
3. Everyone is noting increased attention from HMRC on capital taxation in the agricultural sector, particularly marginal APR cases.
4. Diversification – views vary from region to region and many consider diversification to be a diversion for farmers who should be focused on food production. Farmers are very “hands-on” in the management of business lettings and tourism has benefited from the weak pound. Development for diversification will continue to make use of redundant assets in the right location.
5. There are concerns over the tenanted sector where a significant disparity is arising as between tenants paying rent on every acre occupied, versus owner occupiers, who have significant collateral in property and lower servicing charges for their business. After rent, the tenant farmer is not generating sufficient cash for reinvestment, and reduced availability of unsecured credit in the industry could create significant problems. A representative from a major feed producer indicated that, whilst the industry is able to provide unsecured credit facilities, it has to be increasingly discerning as to who those facilities are available to. Any new business is now on direct debit terms only.
6. In the machinery sector, it is a fact that UK equipment is now the cheapest in Europe. In many European countries, particularly the Eastern Bloc, there is simply no finance available and whilst there is significant demand, there are virtually no sales in those countries.
7. On marketing, many farmers are seeking to spread risk by selling to a range of market outlets rather than sticking to old favourites. The industry is let down in many sectors by too great a number of selling desks. It was noted that the dairy sector probably only needs three and that effectively New Zealand now only has one, having been nearer 40.
8. In the pig sector, one major producer has a refined production system in place with highly effective input purchasing contracts. He has introduced franchising arrangements with other local producers, which are working well. Similarities with wine growing in France.
   
   

Negative Thoughts by Michael Bax

Sometimes I do just sit and wonder whether farmers have proper tabs on their business, and more importantly, whether land agents have a clue as to what is going on in the industry.

The review of Single Farm Payment is a very critical subject.

Why?

1. We are told that farming incomes are averaging approx. £20K per annum and that Single Payment averages approx. £20K per annum. On those farms therefore, there is no profit being earnt from production.
2. A noted columnist in Farmer's Weekly recently informed us that his latest costings indicated that his 09 wheat crop had cost £125/tonne to produce. He still has 200 tonnes in store worth £95/tonne. At a yield of 3 tonnes (and presumably quite a bit more), his shortfall is £90/acre. There goes his Single Farm Payment!
3. All the time the Single Farm Payment comes through on an annual basis at current levels, the status quo survives.
4. In the meantime the Eastern Bloc want a bigger share, the conservationists want more on Pillar 2, and the European Governments are generally bust and so want to pay out as little as possible.

One day it may not be alright next year!

Some Interesting Bullet Points from the Economic Briefing at AMC Agents’ Seminar 18 March 2010 by Michael Bax

• Current Bank policy is to hold more capital and more liquid assets in the form of gilts/bonds. These liquid assets could have been used for lending. Banks are also looking to extend lending terms and all of this increases costs.
• Equities are not likely to rise in value significantly.
• Oil currently at $70 per barrel will probably rise to +/- $100 per barrel.
• In the residential property market, house enquiries are down after sharp increases last year.
• General view is that house prices in the South East are overvalued by 10%/15%.
• 08 inflation ran at about 4%; 09 at 1% and 2010 forecast at 3% - mainly due to VAT increase, fuel increases and weak sterling putting the price of imports up.
• RPI is at 3.7% with the Consumer Price Index at 3.4% but the existence of massive spare capacity will bear down on inflationary pressure.
• Accordingly, the timing of possible interest rate movements will be very sensitive indeed.
• In the UK economy any growth has been mainly due to the car scrappage scheme and end of year consumer expenditure before the VAT change.
• In 09 consumer spending was actually down 3% with business investment down 15%.
• In the UK household debt is running at about 100% of GDP, corporate debt at 115% and Government debt at 50% - these are the highest figures ever.
• Accordingly, households and companies will try to save and there will be less income available to buy goods and services.
• The proportion of the working age population actually in employment fell to 70% which is the lowest since 1990.
• Nevertheless the public sector has generated 228,000 new jobs out of an overall loss of 799,000 since mid-2008.
• The general view is that fiscal policy is unlikely to change dramatically in 2010.
• The Government will cut spending – consumers cannot afford to spend and companies will be reluctant to spend – accordingly we have to increase exports.
• The forecast is for €1.20/£ and so the climate has never been better for exports.
• A hung parliament would be likely to create fiscal paralysis and foreign investors will stop buying UK debt.
• Accordingly, it is quite possible to see inflation dropping to 1% with the base rate staying at 0.5% through 2011.
• Nevertheless the long-term trend is likely to be increasing inflation but the worse case could be continuing decline and weakening sterling.
• In the exporting sector, we currently stand at 13% of GDP from a high of 30%, but our exports are good on high value items in skilled sectors, such as engineering, pharmaceuticals and professional/financial services.

BROADBAND – Interesting info from KCC by Michael Bax

Broadband coverage is coming to the top of many agendas now with large tracts of Rural Britain as well as many urban areas, still inadequately Broadband enabled. In business, this will become a significant disadvantage and Broadband’s speed and quality is considered essential for all.

Did you know:-

• Radio took 38 years to reach 50 million users.
• It took 13 years for TV audiences to grow to 50 million.
• Internet passed this target in less than five years.
• Facebook added 100 million users in less than nine months.
• Over 25% of the World’s 6.7 billion population now use the internet.
• Facebook accounts for 6% of all internet traffic.
• 1.4M UK pupils have their own web page.
• 50% of 5–9 year olds have mobile phones – nearly 100% of over 9’s.
• The number of text messages sent and received every day exceeds the total population of the Planet.

and yet the UK ranks 25th in the World in Broadband internet availability.

If targets for Broadband capacity set by Digital Britain are not significantly increased and achieved, then the UK’s ranking based on planned investment will slip further.

1.25% of properties in Kent cannot receive Broadband at all.

16.25% cannot receive 2Mb and in Kent we have by far the highest number of businesses in the South East who cannot receive 4Mb per second.

138 properties in Kent are covered by 23 exchanges with an estimated cost of £105M for an interim solution and £452M for a permanent solution. It is likely that many of these will not be addressed within five years.

118,500 properties are covered by 83 small exchanges with £670M estimated as the remedial cost required. This gap will probably be impossible to bridge in the foreseeable future.

The strategy is to make unlimited Broadband available to every property in Kent and wireless services accessible in all public areas.

• Private sector investment has to be encouraged and facilitated.
• Investment costs must be reduced.
• More public infrastructure must be provided.

Schemes have been introduced in the past whereby charges have been levied on utility companies trenching in roads. This was to try to encourage some joined up thinking, but all that happened is that all the costs levied were passed on to the consumer. Surely no road should be significantly opened up without the installation of infrastructure in some form where required. Section 106 planning agreements should also address this as a matter of course. The older surfaces on Kent’s roads have been seriously damaged by the cold weather this winter. Some resurfacing will be necessary as well as extensive potholing. The cost could presumably be huge. Why not investigate the introduction of some benefit at the same time? At present we are informed that there is little coordination in digging up roads and as with everything else in life, achievement of objectives requires ambition and a vision to be set. It is interesting to note that construction processes cost 25% more in UK than in France, almost entirely due to over regulation – but that’s another story.

New Maidstone PPC Makes Her Rural Pitch by Michael Bax

The prospective Parliamentary candidate for Maidstone and the Weald is Mrs Helen Grant, who replaces Ann Widdecombe. She is described as a rising star, and organised a Rural Business Forum at the Weald of Kent Golf Club on Tuesday 26 January. There was an impressive attendance and Mrs Grant will have done her cause no harm at all, with some pretty impressive contributions from her panel of three speakers:-

Richard Benyon is the Shadow DEFRA Minister and was the last remaining dairy farmer in the House of Commons, until he sold his cows in 2009. He opened by stating that farming is fundamental to the rural economy and senses a fundamental disrespect to rural communities in Government circles, with low levels of proactive help for affordable housing schemes, growing rural unemployment and rural poverty. He is appalled at the scandal of the RPA which has so far cost the tax payer £620M in extra administration and costs arising from internal mistakes. He fears the gold plating of Brussels regulations by the current administration and highlights the decline of the dairy industry, by 41% between 1998 and 2008. He points to lack of labelling in the pig industry and the succession of bio-security failures with continued complacency over food security. The one lesson to be learnt from all of this is that domestic production must be fundamental to the needs of the UK and red tape must be removed with four out of five farmers spending over three days per annum in dealing with compliance issues.

Tory policy is to return power to the rural communities with a process of deregulation for small businesses. This will be assisted by Rural Advisory Groups who will monitor transparency on rural funding. There will be more consultation with local authorities in terms of understanding where money should be spent. Housing Trusts will be encouraged and every effort will be made to promote a fair deal and deregulation in CAP reform. The Tories also recognise the value of country sports but there must be an absolute priority in food security. A competitive framework for food in this country has to be established and an “Honest Food” label for food genuinely produced in this country.

Government departments have been encouraged to serve home produced food but Mr Benyon drew attention to the scandal that only 4% of food consumed by the various arms of the Ministry of Defence is produced in the UK. A new Tory Government will tackle bovine TB and a raised profile for research and development will be promoted, involving colleges, universities and the private sector in funding. Mr Benyon wants to see a “golden age for farming”!

Andrew Bowles is the leader of Swale Borough Council and also establishing a significant presence as a Kent County Councillor. Until very recently, he farmed arable and sheep enterprises near Faversham. His opening witticism was that he believes the DEFRA logo to stand for “Don’t Ever F-ing Ring Again” and he wants to see the word agriculture back in the departmental title.

So far as a future for farming is concerned, he believes this fundamentally boils down to food security and in the medium term increased world population is unavoidable, with large areas of production around the world reducing in their productive capacity due to climate change and other factors.

The UK is ideally situated with favourable climate and productive soils, as well as entrepreneurial skill.

He draws attention to the fact that the UK balance of payments is abysmal and largely not referred to in current economic commentary. Reducing food surpluses around the world will mean that food will become more expensive. Because of our economic situation, UK will be less able to afford that food, and the emphasis has to return to home production.

At a local Government level he feels that the focus must be on promoting Agribusinesses, where farming is not the only priority. The wife may be working, there may be on farm tourism, business use and so on where the local authority can provide encouragement.

He recognises that the planning process is stifling and where feasible schemes are put forward which do not necessarily comply with planning policy word for word, they must be allowed.

He points to one problem in the farming industry so far as local government is concerned and that is the fact that whereas 40+ years ago there were Rural District Councils with widespread farmer representation, the modern District or Borough Council will have very little farmer involvement. Indeed Mr Bowles is the only farmer out of 43 Councillors in Swale.

He is involving himself in specific initiatives in relation to the expansion of rural broadband availability. It is essential for businesses to work on a level playing field in the world of IT.

Mark Lumsden-Taylor is Director of Finance & Resources at Hadlow College and formerly a corporate accountant in the City. He is very concerned at the general public’s perception of reality in the countryside. He sees a very definite rural/urban divide fuelled by people’s perceptions rather than the reality of actual situations. The general community must learn that the lovely scenery which they see in the countryside is actually a managed environment arising from farming diversity and the fact the countryside is a workplace. People can manage without many things, but not food and people must be encouraged to understand that the global market involves the import of large quantities of produce that can be grown in UK and countless food miles in getting that produce to our tables. The understanding of seasonality has also been lost to the detriment of the British farmer.

All people are entitled to physical and economic access to food in order to lead a healthy life, but only 60% of this country’s food requirements come from UK producers. That is a huge shortfall and increased consumer demand for British food must be promoted. The “Produced in Kent” label is beginning to work in that respect and membership has tripled.

We must therefore work towards breaking misconceptions, and making the best use of the resources we have by a unified strategy.

“Life ends when we are silent about the things that matter”


This meeting covered a lot of ground and seemed to hit the spot in many areas. The one issue that was not addressed related to the current power of the retailers, but may be it is all about supply and demand and we just have to work on increasing that demand. Whatever we do, little will be achieved by sitting back and moaning.

The message is – get involved!

But I fear there will be many Conservative candidates who are not following the apparently admirable Mrs Grant in getting involved in rural affairs.

Rent Reviews Under The Agricultural Holdings Act 1986 by Michael Bax

The statutory rent review formula in the 1986 Act has caused much consternation during the last 18 months and yet seems to me to be a very helpful guide to practitioners on the issues that require to be taken into account. Effectively, it requires the parties to use commonsense in arriving at a sustainable level of rent taking account of all relevant factors including the productive and earning capacity of the holding and levels of comparable rental settlements.

The autumn 2008 reviews were the first reviews on many holdings for approx. ten years and it is extraordinary how the experience of the profession in dealing with such matters appears to have waned.

Furthermore, landlord’s agents seem to be driven by the aspirations of their clients who are aware of the level of open market rental values on new FBT bare land lettings and appear to expect to see those levels on 1986 Act reviews. The open market is a very different place to the market envisaged by the 1986 Act rent formula and a lot of time and money has been wasted because of the failure of practitioners to recognise that.

When Agricultural Holdings rent reviews were a regular feature of a land agent's year, practice was to make a new rent proposal in June with the hope of agreement prior to harvest. All parties were well acquainted with procedures and there was generally little difficulty.

At the recent rounds of rent review, the vast majority of proposals were only received during the month prior to the review date. Very few were settled and dozens of arbitrator’s appointments were required in order to keep situations open. I myself took on ‘57 longstop’ arbitrator’s appointments for Michaelmas 2008, some of which are still open today.

Budgets on the landlord’s side were produced which did not reflect reality and the greatest angst arose where a pre-rent surplus was identified, from which a rental value would be derived, but to which landlords then sought to attach a residential value for the farmhouse, representing a proportion of open market residential value.

It is true that when analysing comparables, the profession finds it convenient to place a value on house, cottages, land and buildings separately, but that is for the purpose of analysis and enables comparison of different holdings with different features. So far as the farmhouse is concerned, it is part of the fixed equipment of the holding and virtually all tenancy agreements require the tenant to reside in the farmhouse, with an associated burden of repair. A tenanted farm can only afford to pay a proportion of its farming income in rent and it is completely spurious to identify that proportion and then seek to enhance it with a notional residential value. The text of the 1986 Act rent formula does not propose that at any point and would become meaningless if it did so.

Of course, a tenant should expect to share rents received on sub-let cottages, and whilst there is some logic in applying a nominal rental value to employee cottages they are also effectively part of the fixed equipment of the holding and help to generate the holdings earning capacity. No wonder professionals talk about practice – some of our colleagues need a lot of practice on this one!

Big Brother or Oh Brother! by Michael Bax

It was interesting to note the 18 December Farmers Weekly’s report on the findings of MP’s on the Public Accounts Committee in their consideration of the activities of the Rural Payments Agency. £680M of taxpayers’ money appears to have been wasted and the committee charges the RPA with paying negligible attention to taxpayers’ interests.

From this firm’s perspective, it looks as though the 2009 Single Farm Payments are coming out quite well but the mapping debacle was scandalous and is likely to hold up a number of those looking to enter or reapply for ELS over the next couple of months.

At the end of the day words from the Government are cheap. Nothing ever seems to stick on that side of the fence and yet individual farmers suffer highly stressful investigation over what are often very minor issues. We can only hope that the RPA end up with a core of experienced staff, with whom there can be sensible discussion rather than inexperienced operatives who have no choice but to hide behind their big stick in order to conceal their shortcomings in terms of knowledge and experience.