UK: Land And Farming, Spring 2013 - A Brighter Forecast

Last Updated: 25 April 2013
Article by Smith & Williamson


CAP reform is entering a busy period, although it may still be some time off before any real farm level detail is known.

Readers of this bulletin will be aware these reforms of the Common Agricultural Policy (CAP) have been running in parallel with the setting of the entire EU budget for 2014-2020 and before reforms could gather any pace in earnest, a budget deal needed to be agreed.

EU budget agreed

In early February, EU leaders agreed on a budget for the years 2014-2020, officially known as the multi-annual financial framework (MFF), paving the way for reforms of the CAP to gather pace. In headline terms future spending will be around 3% lower than in the current 2007-2013 seven year period. The table below makes a comparison between the current budget, what the European Commission was originally looking for in the MFF, and what the result is. All figures are spending commitments at 2011 prices.

Total agricultural spending has dropped by around 9% in real terms over seven years – i.e. to around 39% of the total MFF. Pillar 1 (the single payment scheme and then becoming the basic payment scheme (BPS)) and Pillar 2 (rural development) ended up with similar percentage reductions. Direct payments across the entire EU-27 will be €278bn, so around three-quarters of CAP spending. There are no splits of funding by country available as yet. In terms of Pillar 1 though, there is a commitment to close the gap between countries in terms of average payment rates per hectare. As the UK is around the average then there may well not be much re-distributional change for us – i.e. payments would just be subject to the overall 10% CAP cut.


All issues to do with money were incorporated into the discussion on the MFF. Therefore capping of direct aid has been included in the deal. The text states simply that "capping of direct payments for large beneficiaries will be introduced by Member States on a voluntary basis". Defra has, in the past, been against capping.


Again, because it is a monetary issue, 'greening' was also dragged into the budget discussions. The proportion of direct aid going towards greening is to be fixed at the original figure of 30%. Those wishing not to meet the greening criteria will therefore only receive 70% of their BPS.


There will be flexibility for Member States to transfer 15% of direct support funds to the rural development pot. This is equivalent to the current 'national modulation'. This is to be without an obligation for national treasuries to match fund the contributions so total amounts for environmental schemes is likely to fall.

Where next?

The fixing of the budget has allowed CAP reform negotiations to progress. Both the European Parliament (EP) and the farm ministers signed off their negotiating positions by the end of March. The next step will be three way discussions between the EP, Farm and Fisheries Council and EC. Some 30 trilogues have been planned from 11 April to 21 June. This is where negotiations on the finer details of the reform really start. The aim is for political agreement on CAP reform at the Farm Council meeting in Luxembourg on 24-25 June 2013. As ever, the devil is likely to be in the detail. The comprehensive 'Implementing Regulations' setting out this detail are unlikely to be available before the autumn at the earliest. So there is still some way to go before the final shape of the CAP post- 2014 is known.



Defra has released its provisional estimates for farm business income (FBI) by type of farm in England for 2012/13. It will come as no great surprise that the 2012 year has not been as profitable as 2011. The table below shows that all sectors (apart from poultry) have experienced a fall in incomes. This is largely due to the weather making it such a difficult growing season, but also feed cost increases.

Although prices for cereals were higher, average yields were lower and the issue over quality has been well documented, meaning the income many received was lower. The wet weather meant spray costs increased and also fuel due to increased field operations and drying grain. General cropping farms will also have experienced similar problems. The substantial increase in potato prices is expected to offset the fall in yields and output is expected to actually see an increase. However, growing and harvesting costs are forecast to have increased by even more, resulting in an overall reduction in incomes.

Incomes from dairy farms fell by 44% in real terms in 2012. Average milk prices increased by 1% over 2012, taking it to record levels following the dips during the summer of 2012. But large rises in the costs of inputs most notably feed, and also an increase in the volumes of feed purchased due to poor quality forage will more than offset this rise in milk price. Grazing livestock farms saw the largest falls in percentage terms, with lowland and less favoured areas (LFA) units falling by 45% and 53% respectively taking average incomes to their lowest levels for four years.


The Scottish Government released information on two provisional income measures; total income from farming (TIFF) and the average FBI for 2011/12. Initial estimates for 2012 show TIFF falling by £111m to £635m, a 19% fall in real terms. The figures for 2012 show output increasing year-on-year for barley, finished cattle and milk products, but a reduction for wheat, potatoes, OSR, poultry and finished lambs, with the weather impacting on yields and lower prices for lambs. Total input costs for 2012 have risen by £44m (2%) compared to 2011 levels. The main increases are from fertiliser and fuel. Feed costs are actually thought to have fallen but this is due to a projected fall in poultry numbers more than a reduction in unit feed costs.

The second measure of income; the FBI comes from the farm accounts survey (FAS) for Scotland. In 2011/12 502 farms were sampled. The statistics show the average FBI in Scotland for 2011/12 was £44,829 compared to £46,255 in 2010/11 (a 3% increase), although this masks large differences between farm types – the table shows the FBI by farm type.


The Welsh Government has also published its TIFF and FBI figures. These are only estimates and final data will not be released until later in the year. The initial 2012 estimates show TIFF falling by £116.2m to £123.6m, a 6.4% reduction in real terms. Reductions in the Welsh 2012 TIFF figures can be seen across all arable sectors as well as finished lambs, however an increase can be seen across the beef, pork, poultry, milk and egg markets. The 2012 figures also forecast input costs rising by 6.7%. Fertiliser is the only input cost to fall compared to 2011 with the greatest increase seen in feed costs.

The second measure of income from the Welsh Government forecasts average FBI for 'all farm types' in Wales to decrease by 29% to £29,000 for 2012/13. Similar to England all sectors experienced a drop in farm business income. The fall in FBI can be attributed to an increase in input costs, reduced output and a single payment, 8% lower than in 2011. Each factor can be attributed to the pound/euro exchange rate. LFA cattle and sheep farms are forecast to experience the largest fall in FBI at 37%. All the figures can be seen in the table below.


The revelations that have been unearthed by the horsemeat scandal have (in a relatively safe way) highlighted a series of weaknesses in the food supply chain.

Various factors have all come together at once to lead to the inevitable outcome of switching ingredients. Horsemeat is perfectly edible (the Japanese call it 'Basashi' and dip it in soy sauce and the Italians shred it finely for salads and call it 'Sfilacci' for examples). Indeed, horsemeat is only taboo in the UK, as the favoured animal has such strong associations as worker and pet. So the main issue is with renewed distrust of the food chain (although you would be forgiven for questioning the hygiene standards of operators who knowingly switch one meat for a cheaper one).

There is no excuse, but there are plenty of reasons. We all like a bargain, consumers, retailers, manufacturers and primary processors alike. This means that the whole supply chain is looking (particularly when times are austere), to save costs in a bid to retain some margin. Not only does this tempt some to switch ingredients, but it also discourages people from (the costs of) auditing, testing and checking their supply chains. Products are normally priced according to their cost of production plus a profit margin. Commodities are not; their value is unrelated to cost of production but the balance of supply and demand. The point at which commodities are incorporated into a product supply chain causes pricing (and therefore margin) problems as the input will vary in price notoriously more than the product. So, when meat prices continue to rise, the margins become even slimmer or possibly even zero. Bingo, in pops some dubious horsemeat.

While the consumer has a closer emotional link to food than any other fast moving consumer good (FMCG) as it is ingested, we have (or had) a huge amount of trust in the supply chains. Maybe this will change from now on. Errors occur because of ignorance (for example over 50% of tuna is apparently incorrectly labelled in store) but it is the dishonesty that is causing such concern here, and rightly so.

So what is the answer and how can the supply chain improve as a result? Many buyers (including the supermarkets) have already been talking about shortening and simplifying the supply chains, procuring more from local producers (which needs defining) and arranging longer term contracts. All these are fine ideas, however they only provide the opportunity to simplify the supply chain not guarantee quality. Horsemeat has appeared in very local supply chains (meat from a Welsh meat specialist in Wales tested equine- positive), and also in local produce (horsemeat has been found in other UK-only supply chains demonstrating that the UK is not free from rogues). However it does mean that the ability to audit and check the suppliers' credentials is somewhat easier and open the supply chains to greater transparency.

Some suppliers have found this year that making a commitment to source solely from the UK has not been possible in difficult years for farming with both Hovis and McCain recently changing their procurement policies from UK-only. However, the shorter the supply chain and the better known each member is to each other, will surely facilitate the auditing and trust that is shared between the sections. The episode has been great for local butchers, as well as the organic sector. How long lasting this change in consumption patterns continues will depend on whether any health issues are highlighted as a result but the opportunity for the industry to refocus and repair is now considerable.



As the farmgate beef price continues at record levels, the organisation for the English beef and sheep industry (EBLEX) has published its forecasts for 2013 for the UK cattle sector. Supplies available for domestic consumption are forecast to be just under 2% higher in 2013 than in 2012 as a small increase in production and exports is offset by an increase in imports.

Prime cattle slaughterings in the UK were lower in 2012 compared to 2010 and 2011 and EBLEX sees only a small increase in 2013. There was an increase in calf registrations, mainly dairy bull calves at the end of 2011 and the start of 2012, but significantly, for the future of quality beef production, male and female beef calf registrations were down 1% and 2% respectively in 2012. Cow and adult bull slaughterings fell by 1% in 2012, although 2011 was the highest since BSE. Cow slaughterings are forecast to drop by 4.4% in 2013 to 608,000 head due to a younger and fitter herd, although this is still historically high; in 2009 only 497,000 cattle were culled.

EBLEX has forecast UK beef production in 2013 to increase by less than 1% compared to 2012 to 887,000 tonnes. The increase in prime cattle production will be offset by a reduction in cull slaughterings. Exports are forecast to increase by 2% with imports up by 4.5%. There is ongoing demand for cow beef on the continent, but this could be affected by exchange rate fluctuations and the ongoing problems in the eurozone. The increase in imports is mainly due to the expected upturn in production in Ireland. Imports from South America are forecast to remain low as these countries continue to exploit markets outside of Europe.


EBLEX also released its 2013 forecast for the sheep sector with meat production forecast to rise 8% this year. Coupled with the high availability of lamb from New Zealand, competition for sales to buyers is likely to be fierce, suggesting bearish pressure on prices. Over recent weeks the sheep trade has picked-up, primarily as a result of the favourable exchange rate (weaker pound).

Production is seen increasing in 2013 but this will mainly be due to the large carryover of unfinished stock from 2012. The terrible weather in 2012 disrupted marketing. More lambs were recorded on farm in the June census but with slaughter numbers down during the second half of the year these extra lambs are expected to come forward during the first half of 2013. If weather patterns return to 'normality', slaughter patterns and carcase weights would return to 'usual' levels meaning production for the year should be higher.

On the back of a good couple of years the UK breeding flock was expected to reach 15m per head but this is unlikely now. The poor weather compounded by higher disease rates, including the Schmallenberg virus, is expected to lead to a lower lambing rate compared to 2012, but due to an increase in breeding numbers the overall lamb crop for 2013 is likely to be similar to 2012.


By Paul Harris

What were the key items in this year's Budget for farmers and landowners?

Inheritance tax (IHT)

The ability to offset loans against assets chargeable to IHT on death is to be restricted - this came out of the blue and will not be subject to consultation. It has been common practice for many years for the borrowing used to acquire assets that will qualify for IHT business property relief or agricultural property relief to be secured against other assets that will be liable to IHT. For example, when making a loan to an individual for the purpose of buying a new business the bank may prefer to take a charge against the family home. The new rules will require the borrowing to be matched with the asset acquired, thereby resulting in potentially significant extra IHT liabilities for farmers and business owners.

Taxation of high-value residential property held by non-natural persons

Apart from a change in the acronym from ARPT (annual residential property tax) to ATED (annual tax on enveloped dwellings), no substantive changes have been announced to the draft legislation published in January 2013. It is not yet clear how exactly the exemption for farmhouses will apply, and the promised clarification from HMRC is not now expected until July, only three months before the 31 October deadline for claiming the exemption for the current year.

Heritage maintenance funds (HMF)

HMFs can be a very tax-efficient way of providing for the upkeep of heritage property such as historic houses, but so far take-up has been surprisingly low. One disincentive may have been a quirk in the existing legislation which could result in a double tax charge for beneficiaries of HMFs. The easing of this restriction with retrospective effect from 6 April 2012 has now been confirmed. This is welcome news and it is hoped that it will improve the appeal of HMFs.

Real Time Information (RTI) – beaters and harvest casuals

Under the new RTI regulations all people paid a 'wage' are now to be included on the payroll, even if their pay is below the earnings threshold. This means that beaters will have to be treated in the same way as all other employees and therefore included on the payroll.

HMRC has agreed that payments can be made each day but must be reported on the next payroll run and within 14 days. This causes a problem if a monthly payroll is in operation and the National Farmer' Union (NFU) is still trying to reach an agreement with HMRC.

Stop press: HMRC has announced that if you pay weekly or more frequently, but run a monthly payroll and have less than 50 employees, then RTI has been relaxed until October 2013. In the meantime you can continue to report monthly.


By Ben Short,
Associate Director, Savills,

The Green Deal, which launched in January has the potential to offer an affordable solution to creating better, energy-efficient homes for households that will be cheaper to run in the long-term. But is it as good as it sounds for rural landlords, or is the devil in the detail?

The scheme aims to recover the upfront costs involved in implementing energy saving improvements through the provision of loan finance for these measures. As an incentive, the Government is offering up to a £1,000 cash-back payment, on a first come first served basis, depending on the measures installed.

The 'cost' of the loan will be covered through savings on energy bills resulting from the installation of the energy-saving home improvements. The principle is that the bill payer should not pay back more in loan repayments than they are saving on their energy bill.

So far so good, particularly when you consider that from April 2016, landlords will not be able to unreasonably refuse requests from tenants to make energy efficiency improvements, where finance is available through the Green Deal. In addition from April 2018, landlords will be required to ensure minimum efficiency standards, which are likely to be set at an 'E' energy performance certificate (EPC) rating. All landlords are advised to take early action to identify properties which fall below this rating, and to put in place a long-term strategy and budget aimed at achieving at least this level, before the deadline.

This new legislation represents a real threat for landlords with let portfolios and the Green Deal may seem to be a real opportunity to help mitigate the cost. However, interest rates for the Green Deal at about 7% make the 'deal' unattractive to many property owners who may decide to source alternative finance at more competitive rates.

It is worth noting that the Green Deal loan is attached to the property rather than an individual, which has the potential to cause administrative burdens and make a let property less desirable to a prospective tenant. While the outstanding loan repayment is shown on the electricity bill, it is incumbent on the landlord to make new tenants aware of any Green Deal repayment responsibilities. In the event of a tenant defaulting on repayments, the landlord will assume responsibility for any debts and be responsible for the repayments in void periods. On this basis the scheme may be best suited to owner occupied homes, staff properties and long-term lets.

Careful planning regarding undertaking and financing energy-efficiency measures is now required in order to take account of new responsibilities and opportunities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions