Agriculture Bill

WRITTEN EVIDENCE SUBMITTED BY THE CENTRAL ASSOCIATION OF AGRICULTURAL VALUERS (CAAV) (AB05)

THE AGRICULTURE BILL

THE PUBLIC BILL COMMITTEE OF THE HOUSE OF COMMONS

1. The Central Association of Agricultural Valuers (CAAV)

1.1 The CAAV represents, briefs and qualifies some 2,900 professionals who advise and act on the very varied matters affecting rural and agricultural businesses and property in each part of the United Kingdom. Instructed by a wide range of clients, including farmers, owners, lenders, public authorities, conservation bodies, utility providers, government agencies and others, this work requires an understanding of practical issues.

1.2 Agricultural policy and its operation is fundamental to the work of members and their clients, whether directly involved with the current payments or not, making this Bill and the equivalent processes in the devolved administrations of great significance to us.

1.3 The CAAV does not lobby on behalf of any particular interest but rather, knowing its members will be called on to act for or advise both Government and private interests under developing policies, aims to ensure that they are designed in as practical a way as possible, taking account of circumstances and the interactions with other policies and issues, aware of likely consequences and practical effects , and so enable good advice to underpin sound decisions by clients .

Overview and the Agriculture Bill

2. Overview

2.1 This is a watershed moment for British agriculture, with much opportunity and challenge, requiring a full toolbox of measures from innovation and land tenure change to taxation and advice for each business to make the best of what might be possible. That includes effective financial assistance but is much more than that if we are to manage the coming transition for farming and land management successfully.

2.2 With agriculture enmeshed in European Union (EU) policy since 1973, this is the first opportunity since the 1947 legislation, part of the programme of post-War reconstruction, to set a modern course for farming. As well as public policy goals for climate change mitigation and adaptation and the use of public money for public goods, tackling farming’s longstanding productivity problem is a large and imperative task for its future commercial health and so its ability to deliver other goals and manage more open trade. That will have to be a continuous dynamic process, not a simple step change.

3. The Agriculture Bill

3.1 We welcome the Bill’s provisions for the United Kingdom and DEFRA for England (with schedules for Wales and Scotland) to have the powers over agricultural policy that have been exercised by EU institutions and so the framework for the development of future policy, as set out for England in the policy statement of September 2018. Those policies, focused on markets for food and public goods, are expected to drive processes of change for farming similar to those seen for other sectors that have had to adapt to more open markets.

3.2 In combination, and alongside other Brexit legislation (including the Environment Bill), the Bill and the announcements by DEFRA set a clear direction for policy in England with:

- the phasing out of the Basic Payment to start in 2021 and run to 2027

- the transfer of much of the funds made available by that to the purchase of "public goods", due after trials and pilots to become nationally available from 2025

- funds and policies also supporting productivity, resilience and other goals

- decisions about food production and land use being the farmers’ choices in the market place.

With the proposed Multi-Annual Financial Assistance Plan, those policies will accompany whatever prove to be the United Kingdom’s future trading arrangements with the EU and other countries (including, especially for livestock, any reduction in the current tariff wall) as well as the opportunities of new technology for farming.

Change, Productivity, Public Goods and Advice

4. The Resulting Changes for Farming

4.1 A key practical point is the scale of change and adjustment for farming as it moves from the arrangements inherited from the EU’s Common Agricultural Policy (CAP) to those founded on markets in food production and more of a market place for farmers to sell "public goods" to the state acting as buyer on behalf of society, as well as probable private sector activity.

4.2 Farming has been partially insulated from market pressures by the support schemes of the CAP. In particular, the area payments developed by the CAP since 1992 and then in further steps in 2003 and 2013 have acted to reward land occupation, not business activity, and can be seen to be associated with reduced flexibility in land occupation markets and so with the relative weakness in the United Kingdom’s agricultural productivity growth. [1]

4.3 The progressive removal of area payments and the prospect of more open trading arrangements seem likely to drive an accelerated process of change in who is farming what land and how, both unwinding the protectionist effects of past area payments and responding to the coming changes, while working through the life cycles of those running the small family businesses that predominate in farming. This may particularly affect poorer businesses and more marginal land, whether cropping or livestock. Our concern is that this process of change should be managed to maximise its economic, environmental and social benefits and minimise its costs.

4.4 The economic forces involved in this are large. Basic Payment offers a very large margin over cost to claimants – perhaps £1.2bn in England. The replacement public goods schemes will not receive all the money taken from Basic Payment as some of that money will be needed for the necessary assistance to productivity improvement and other goals. Further, even if freedom from EU State Aid rules enables the financial margins that may make positive environmental options an attractive business choice, these payments will offer much less margin to claimants. It might thus be that, by 2027, English farming will have lost perhaps £1bn from the annual margin it currently receives from the state. With the benefit of the seven year agricultural transition period, a significant fraction of that would be recovered by the pressure that change will place on input costs and for business restructuring and efficiency, working through markets with changing values and individual decisions.

4.5 But farming needs to do better than that. As the AHDB has noted:

"If our rate of growth had kept pace with the US since 2000, the contribution of UK farming to the rural economy would have been £4.3 billion higher by 2013" [2]

That would have doubled "Total Income from Farming".

5. Managing that Change

5.1 The proposed seven year agricultural transition period is essential for the management of that change, allowing businesses to adjust, creating and responding to new prices and with time for farms to implement changes in policy or structure. That is now to start next year imposing an urgency on planning that change.

5.2 While the progressive removal of Basic Payment would indeed be a powerful driver of that process, it does not of itself automatically drive improved performance in all affected businesses; farmers are often cautious about change and some will simply accept the reduction in income. Other measures are needed to harness this pressure to encourage more positive outcomes, and especially a greater and more sustained attention to stimulating the necessary improvement in productivity – farming’s efficient use of resources and its competitiveness, creating the profit for it to thrive and play its full environmental part.

5.3 Productivity – Farming’s adaptation to the new policy and business environment will not be a simple and swift transformation but take much effort and time. The scale of the challenge and the changes associated with meeting it should not be underestimated. Success requires attention to:

- skills and training

- investment

- approaches to sustained innovation in business policy, technology and marketing, all the better if enabled by a new positive regulatory climate after Brexit

- ensuring flexible and open markets in land occupation and use

all supported by effective and practical advice and facilitation.

5.4 Flexibility in Land Occupation to Benefit the Proficient - That fourth point is critical. The task is not solely to help existing farmers to be better but to unlock change in farm structures enabling entry into farming and growth of good businesses, to the benefit of the proficient and so of the land, its owners and the economy. This is not a concern about the ownership of land, which can be for many motives, but about its practical and beneficial occupation and use, including letting and other arrangements. Ensuring the ability to enter farming, progress, reshape business and to withdraw in whole or part calls for basic supply-side measures for a successful sector.

5.5 Farmers are not average: the range of performance between farmers is large in every sector from those making large losses from farming to those achieving useful surpluses, before present subsidies and other income, because of their proficiency. The AHDB sees the top quartile in any sector as the most resilient, setting a benchmark for others while they also improve and take advantage of the new technologies.

5.6 Housing – Other than a wish to farm, the obstacles usually seen to retirement and generational change are income (we comment on "de-linking" below) and housing (often as much for the new farmer as the old). Having recently reviewed the issues here [3] , we see much more can be done by promoting existing measures and stimulating innovative approaches to housing provision as part of toolbox needed to manage change.

5.7 Patterns of Change - Among the changes we foresee, often accelerating and developing existing trends, are:

- those who can and wish to be commodity producers focusing on retaining or seeking the land that will give them a margin, rather than simply on scale

- those seeking ways to produce products that are not commodities, whether by adding value, specialism, differentiation or other means

- those who look at their land, buildings, collateral, labour and other resources as opportunities to develop income and business.

These are not mutually exclusive options; some will pursue all three approaches on different areas. Restructuring to these ends may be much less about scale than financial margin. Land not wanted by some may well be useful to others; signals from changing prices and flexible markets in occupation will assist that.

5.8 Public Goods - Provided that the "public goods" schemes are well-designed and administered, agreements offering a useful financial margin for supplying them could form part of that approach for many:

- sometimes (as with soil improvement) supporting productivity

- sometimes using less productive land as a way to seek a higher margin, complementing that from farming other land, effectively as an alternative in the mix of farming enterprises

- sometimes becoming the central focus of activity, perhaps most often for the more marginal cereals and grazing land.

We welcome the recognition of soil in the new Bill.

5.9 The Outcome - The outcome will be a much less standardised industry than the one we have created since the War, through policies before and under the CAP largely dedicated to full time commodity production. Achieving that will be a major call on all involved, not only government and farmers.

5.10 Advisory Support – Effective practical advice will be the "ghost in the machine" for farmers to achieve the best in the new world. As the national specialist professional association representing, briefing and qualifying agricultural valuers who advise and act for farmers, owners and others across the UK, the CAAV is conscious of the role in this for its members as trusted advisers, helping each business through its discussions, decisions and implementation in these processes. Endorsing the Welsh Government’s observation that:

"… advice should be seen as an investment in the capacity of farmers and farms rather than a cost …" [4]

we see farming needing a climate that is positively supportive of sustained, useful advice with the necessary conversations and time for reflection and delivery of everything from cost control, the adoption of new technology and generational change to repositioning the business, implementing a diversification project, accepting that land should be let out or understanding the value in public goods contracts.

6. Tenancies

6.1 With the importance, as in 1947, of considering land occupation and more than a third of English farmland being let, we welcome the Bill now including tenancy measures for England and Wales in its Schedule 3 from among those discussed in the Tenancy Reform Industry Group (TRIG) and the 2019 consultations.

6.2 We are conscious of the recognition and honour proposed for the CAAV to be a body able to appoint arbitrators on tenancy matters on a unilateral request and are preparing to play our part to serve tenants, landlords and the sector, drawing on our experience of appointing arbitrators and others under contract.

6.3 Other than arbitration, all the measures proposed are to ease matters for old tenancies protected under the Agricultural Holdings Act 1986 rather than Farm Business Tenancies under the Agricultural Tenancies Act 1995. While helping those existing and important lettings, they do not encourage new lettings.

7. The Role of Taxation

7.1 The scale of the challenge for farming and its existing businesses to change requires early action to open up the land occupation market to give the tools to manage that change. With 1995’s strategic legislative reform for new lettings in England and Wales, taxation is now key to encouraging further letting, especially by those now wearying of what will come.

7.2 While recognising that taxation matters are outside the remit of the Bill, we commend the positive experience since 2015 in the Republic of Ireland of the enhanced Income Tax relief (akin to the UK’s Rent-a-Room relief) on rents for farmland on arm’s length lettings for five years or more. Introduced as part of policies to move land into the hands of the "trained", the CAAV analysis of data from the Irish Revenue points to this having moved from an almost non-existent let sector to see 10,000 new landlords and 7 per cent of Ireland now let on agreements for 5 years or more in just its first three years. [5]

7.3 Taxation issues may also deter some from using land primarily for public goods, if this would be seen as neither business nor agriculture.

The Bill’s Specific Provisions

8. Introduction and Definitions

8.1 The general nature of the Bill’s provisions, in the main taking widely defined powers, makes it relatively hard to comment on many clauses as so much will depend on how the powers created will be used.

8.2 The Definitions of Livestock - Also in Clause 1(5), the definition of livestock is a new one:

""livestock" includes any creature kept for the production of food, drink, oils, fibres or leathers, or for the purpose of its use in the farming of land."

and differs from that used over the years in tenancy, planning and other legislation; for example:

"livestock" includes any creature kept for the production of food, wool, skins, or fur or for the purpose of its use in the farming of land or the carrying on in relation to land of any agricultural activity;" (Agricultural Holdings Act 1986 s.96)

With no explanation given in the Explanatory Notes, it would be helpful to know what is intended by the addition of drink, the changed reference to fibres and the addition of oils. It could also add to the end "for the purposes of section 1(1)" to include the delivery of public goods, as by conservation grazing.

8.3 It is also broader than the definition of "creature" for the agri-food supply chain at Clause 22(6), based on "keeping … for the production of food or drink" while Clause 14(4) (c) allows data collection to promote:

"the health or traceability of creatures of a kind kept for the production of food, drink, fibres or leathers".

9. Clauses 7, 8 10 and 11 – Transition from BPS

This transition is a key part of the new approach allowing a period for change to be managed not only by farming but also government as it develops new policies. For the process to be tangible it should not run beyond 2027. With the Environment Land Management (ELM) scheme to unfold relatively slowly; we hope that will ensure a competent and well administered scheme but see that much change might already be underway before it is available.

10. Clause 9 – Simplification

10.1 Simplification is always a welcome aspiration. Experience shows it is hard to deliver, usually turning on having simpler policies when competing pressures tend to result in complexity.

10.2 We support actions such as removing crop diversification and ending the "use or lose" rule for entitlements – if payment entitlements cannot themselves be abandoned. If crop diversification is to go for 2021, farmers looking to sow crops this September will need to know in June.

11. Clause 12 - "De-linking"

11.1 Ahead of an expected DEFRA consultation on de-linking, little is known of how or when it might operate and it is not substantively defined in the Bill. The reducing size of payments may anyway prompt this as a simplification, but we are sceptical as to whether this would deliver much structural change. Farmers have not generally treated the Single and Basic payments as decoupled; de-linked payments might not be seen differently. However, were this more clearly designed as a means for farmers (of any age) to withdraw from farming, whether to retire or to pursue other work, that might have more success.

11.2 Its effect will depend on the taxation treatment of the payment and other farming income.

11.3 We are concerned about the practical mechanics for awarding the de-linked payments:

- claimants will need to be able to review and confirm whatever historic RPA data is to be used to assess the value of the de-linked payments

- the still significant inaccuracies in the RPA’s data for the Basic Payment Scheme require resolution if they are to be the basis for assessing the de-linked payments.

- with the assessment of a farmer’s eligibility for, as well as the value of, a de-linked payment using an historic base or reference period, we caution that all previous such projects have seen major challenges – milk quotas in 1984, livestock premium rights in 1993 and Single Payment entitlements values in 2005. The larger the gap between the reference year(s) used and the start of de-linking (in 2022 or later), the more issues will accumulate with intervening business change and family succession requiring mechanisms to respond fairly to them. A smaller gap would allow more choice as to who will then have the payment and so aid, rather than inhibit, restructuring.

11.4 Where this does accelerate the release of land, some possible users of that land will, as existing farmers, have their remaining de-linked payments, but others, as new entrants starting after the reference year(s), will not. That may be an issue for any policy for new entrants while transitional support for them might reduce any potential turbulence in markets around de-linking.

12. Clause 13 - Possible Lump Sum Payments

This option might, where available, assist some change although it is only re-ordering the timing of payments, not adding new money. Its practical effect will also be conditioned by the taxation treatment of payments which will depend on how it is described.

13. Part 3 - Clauses 21 to 26 (also Welsh and Northern Irish Schedules) - Data for the Agri-Food Chain

13.1 Seeing the positive motives for and possibilities for the proposals here, we do ask that their wide scope be closely scrutinised so that we can all understand how the data required might be used.

13.2 We hope that, if this is followed through, it will enable data from processors and purchasers about demand to be as available as the data on farmers who often sense that their positions are already more transparent than those with whom they deal. That suggests an interaction over data handling with Clause 27 on fair dealing in the supply chain.

13.3 Clause 22(2)(c) and (3)(b) appear to cover game and foraging. Is this intended?

13.4 Clause 22(6) might be clarified to show whether or not it covers intermediate production stages such as breeding or rearing of animals or the early stages of, for example, mushroom production with the product not directly sold for food.

13.5 With a substantial number farming in both England and Wales and much food processing for Wales being done in England, the focus on the agri-food supply chain appears compromised by limiting it to activities in England? (Clause 22 (1) and (2)).

14. Devolution

14.1 It appears useful and efficient for the Bill to make the provisions it does for Wales and Northern Ireland. The Welsh Government is actively developing the policies and schemes it will adopt under these provisions and we are engaged with it. The new Northern Irish Executive will now be able to review the responses to the "stakeholder engagement" there and come forward with policies and legislation. Scotland is carrying forward its own measures to curate the inherited CAP.

14.2 As the return of agricultural policy is to the United Kingdom with devolution and being anxious to preserve the UK’s single market, there are a number of issues (as seen with the 2012 Supreme Court decision on agricultural wages and Wales) where it would be useful to have clarity over the issues that are and are not devolved and those subject to joint procedures.

February 2020


[1] CAAV, Annual Agricultural Land Occupation Surveys for Great Britain 2018

[1] https://www.caav.org.uk/docs/93321%20CAAV%20Survey%2018(1).pdf

[1]

[1]

[2] Horizon, Driving Productivity Growth Together, 2018

[3] Retirement Housing for Farmers in the United Kingdom: A review of the issues, experiences and possible answers (2019)

[3] https://www.caav.org.uk/docs/Retirement%20Housing%20for%20Farmers%20in%20the%20UK.pdf

[3]

[3]

[4] Sustainable Farming and our Land (2019), Paragraph 1.48

[5] Taxation: Agricultural Productivity and Land Occupation - The Irish Republic’s Use of Income Tax Relief to Promote the Letting of Farmland: The First Three Years’ Experience - Lessons for the United Kingdom (2019)

[5] https://www.caav.org.uk/docs/Brexit%20-%20Agricultural%20Tax%20Policy%20-%20Irish%20Lettings%20Update%20V3B%2009%2019%20Final(2).pdf

[5]

 

Prepared 12th February 2020