UK: Agricultural Bulletin - June 2007

Last Updated: 31 May 2007

The face of the CAP is to change yet again with three separate exercises in the pipeline, in addition to a number of reviews added to the EU Commission’s agenda. There is welcome news for the milk industry and we also look at the draft Climate Change Bill.

Time For A Mid-Term Review Of The CAP?

The EU Commission has flagged up several issues to be addressed in the CAP. Initial proposals are due in the summer and may result in changes for the 2009 SPS year.

The Common Agricultural Policy (CAP) seems to be in a state of perpetual revolution – no sooner has one reform been agreed then the next is being prepared. Currently, there are three separate exercises in the pipeline, planned to change the face of the CAP. At the most basic level is the ‘Simplification Exercise’. This is a relatively minor tidying up of legislation – its main on-farm effect may be simplification of the cross-compliance rules. The other two parts are the CAP Health Check and the Budget Review.

In addition to these, the individual CAP regimes for wine, and fruit and vegetables, are also being reformed. With wine, it is unlikely to affect many in the UK as it concerns its production rather than consumption. However, with the latter, we may see the end of fruit, vegetable and potato authorisations for 2008. Also affecting agriculture are EU plans for binding targets for biofuels use.

The 2005 Fischler Reforms built in a number of reviews, and these are being pulled together with wider analysis of how the Single Payment Scheme (SPS) is working. The EU Commission is eager not to call it a ‘mid-term review’, as the last time that name was used the review turned into a full-scale reform of the CAP. The idea is to tinker with policy rather than radically change it. Initial proposals are due in the summer and may result in changes for the 2009 SPS year.

The Commission has flagged up several key issues for the agenda.

  • It wants to reduce the level of intervention support for cereals. As part of the deal, this may see set-aside removed.
  • With the end of quotas, there may be changes to the level of support in the milk market. They are guaranteed until 31 March 2015, which could be their final day of operation.
  • Once again, the issue of capping aid payments is returning to the negotiating table. A limit of €300,000 has been proposed in previous reforms but never implemented. Such a ceiling might be politically attractive but the Commission is concerned that claimants will just avoid it (and that it will affect few businesses and save little money). Minimum payments may also be introduced, making the administration more simple.
  • Compulsory EU modulation may be renegotiated. The Commission was disappointed about the low level of funds available for rural development in the budget settlement. Higher modulation would be a way of boosting funds. As the UK gets the majority of EU modulation funds back, high compulsory modulation should mean lower UK levels.
  • In other parts of Europe, there may be pressure to reduce (or to start phasing out at least) the enterprise specific direct payments that have been retained.
  • There may be discussion about moving other countries to the regional (flat-rate) system seen in England and Germany.

Big changes like the last point seem destined to be delayed until after 2012, as the EU Commissioner, Mariann Fischer- Boel, wants a period of "stability". These CAP discussions will feed into, and be influenced by, the Budget Review. This review would cover all EU policies, not just agriculture.

As part of the 2005 budget deal that set spending patterns for the period 2007-13, Tony Blair insisted that the entire EU spending be looked at again in 2008-09. The subtext to this is that the UK Government wants a big shift from pillar 1 CAP funding (still over a third of the total EU budget) to other areas. This would mean a drop in Single Payments. Indeed, the UK would like a commitment that by the end of the next budget period (2013-20), direct aid payments would be phased out altogether. This may be unrealistic, but there are certainly further changes ahead.

Rural Development And Modulation

The devolved UK governments have plans for their RD programmes for the 2007-13 period. But more money is required, and so VM will be used to cover the shortfall.

Pillar II of the CAP is rural development (RD). On her appointment, Commissioner Fischer-Boel announced that this pillar would be the primary focus of her term in office. Indeed, at that point, the name of the department quietly changed from ‘Agriculture and Fisheries’ to ‘Agriculture and Rural Development’. In 2005, when EU heads of state decided upon the overriding budget for the financial period 2007-13, these good intentions took a battering. The amounts of funding available for the CAP were constrained, and it was politically more acceptable to squeeze the RD spend for the period rather than the Single Payment.

Furthermore, when the total RD pot was divided among Member States, the UK came off rather badly. The accession countries had already been promised minimum amounts of RD funds. Some other countries also secured specific allocations. The remaining RD funds were allocated on the basis of historical spend, rather than land area or farm numbers. So, although the UK has over 9% of EU agricultural land area, it will receive only 2.2% of total RD funding. Historically, the UK has not made much use of European RD funds, as it would have reduced the budget rebate, which returns unspent UK money.

The various devolved UK governments all have plans for rolling out, or continuing, their RD programmes for the 2007-13 period. In order to do this, more money is required, and so voluntary modulation (VM) will be used to cover the shortfall. This continues a policy used over the last two years, where a portion of the Single Payment has been removed and the money used to fund RD schemes.

The European Parliament opposes VM in principle and, until recently, stalled progress of the entire RD policy in objection to it. However, with one or two negotiating concessions, the objections have now been lifted and each Member State can start its programmes. The RD deal allowed the UK to allocate differing VM rates in each devolved region, and to levy the modulation on all Single Payments (rather than just anything above €5,000). However, the concession was that the VM funds should be allocated with the same criteria as all other RD funds (meaning a maximum of 80% could go to environmental schemes).

The English rates of modulation are set out in Figure 1. The rate in 2007 will be 12%, double that of 2006, and it will rise thereafter to 14%. Remember that the rates of national ‘voluntary’ modulation are in addition to the 5% ‘compulsory’ EU modulation that will apply throughout the period. The money raised through VM will be partially co-funded by the Treasury. The 80% of VM money to be spent on agri-environmental schemes is going to be match-funded at a rate of 40%, i.e. for each £6 raised through modulation, the Government will add £4.

Overall, this will generate £3.9bn for the Rural Development Programme of England for 2007-13. Of this, £3.3bn of the total budget will be allocated to agrienvironment and other land management schemes – mainly Environmental Stewardship, but also hill support. The remaining £600m will be made available to agriculture and forestry through capital grant schemes run by the Regional Development Agencies.

Announcements on the level of VM in Scotland and Wales have been delayed due to the May regional elections, which recently took place. The new administrations will decide on the modulation rate.

All EU members will now be applying to the EU Commission for approval of their RD plans. In the past, it has taken six months for EU approval. Even if the Commission accelerates the process, it is unlikely that it will be completed before the EU summer break in August. Therefore, it is now almost certain to be the autumn before money under the new programmes starts to flow, and various schemes can be launched.

Climate Change

The consultation process for the draft Climate Change Bill, which was published in March, is well underway. The deadline for submissions is 12 June.

The UK Government published the draft Climate Change Bill in March, aiming to set the UK on a path towards a low carbon economy. It was hailed at the time as the first of its kind in any country. As with any major draft bill, a consultation accompanies it, the deadline for submissions being 12 June.

The main features of the bill are as follows.

  • A series of five-yearly ‘carbon-budgets’, planned 15 years ahead. The first of these could be in place by 2008. The aim is to provide certainty in business planning and for businesses investing in low carbon technologies.
  • Mandatory cuts to greenhouse gas emissions of 60% by the year 2050.
  • An interim target of 32% for CO2 emission reduction by 2020.

These targets are to be legally binding, although the legal sanctions should they be missed have yet to be decided. A new committee on climate change will be set up to provide advice and guidance to the Government. The commitee will produce an annual report, which will hold the Government to account on progress towards its carbon budgets. The draft bill and consultation document can be found on the Department for Environment Food and Rural Affairs website: www.defra.gov. uk/corporate/consult/climatechange-bill

EU targets

EU leaders, while meeting at the Spring Summit, endorsed binding targets for renewable energy use for the EU. There will be a minimum target of 10% for biofuels used in road transport by 2020. By the same date, 20% of EU energy usage should come from renewable sources, they decided. This confirms the stance previously taken by EU energy ministers and endorsed by environmental ministers earlier in the spring.

These targets are to be legally binding, although the devil is in the detail. In order to reach agreement, the German presidency accepted that individual countries could have different targets depending on "starting points and potentials". This effectively delays until autumn the arguments over which Member States are going to shoulder the burden of reaching the overall EU target. The 10% road fuel target will contribute to the overall 20% renewables target. But despite some earlier talk, no specific percentage goals were set out in the other two main energy sectors – electricity generation and heating and cooling.

Milk Prices Take A Step In The Right Direction

The announcement by Tesco to give milk suppliers a base price of 22ppl could be a turning point for all involved if everyone in the supply chain is open and transparent.

Extraordinary things have been taking place in the UK milk supply chain. On 3 April, Tesco made headlines with the almost unbelievable announcement that dedicated suppliers would receive a base price of 22 pence per litre (ppl). Tesco currently buys its milk from processors Wiseman (60%) and Arla (40%), totalling a near 900m litre contract. About 500 Wiseman suppliers and 350 Arla Foods Milk Partnership members will be the beneficiaries of the highestpaying contract on the market.

The 22ppl base price is almost all that is known so far. No details have been announced defining any specific membership requirements, or what adjustments for seasonality and quality would be included in the contract. Tesco has said that the contracts will run for 12 months, with the milk price reviewed every six months to ensure it reflects the true cost of production. The retailer insists the price paid will reflect price movements in key variables such as feed, fertiliser, energy and labour.

As outlined in Philip Moody’s profile on the back page, Tesco is also to sell milk under its new ‘local choice’ brand. This is in line with increasing customer demand for regional produce. Approximately 100m litres will be sourced from 150 small family dairy farms through the co-operative Dairy Farmers of Britain (DFB). Farmers fortunate enough to secure these contracts will receive an impressive 23ppl; almost a 6ppl rise on the current DFB contract. Likewise, the criteria is yet to be set, but is thought to centre on family farms with less than 100 cows.

Supermarket supply groups already exist, with Waitrose, Marks & Spencer and Asda already offering premium liquid milk contracts. In addition, Sainsbury’s has begun a Dairy Development Group, although it is yet to return any real benefits to the farmer. Tesco’s announcement, although lacking in detail so far, overshadows these other deals in what has been a huge PR exercise. So why has Tesco done this?

The supermarket has built an empire on providing cheap food to the nation. Perhaps the continued decline in UK milk production concerned the supermarket. Interestingly, in the same week that Tesco made the announcement, the Milk Development Council released a forecast, based on a farmer survey, that milk production will plummet by 900m litres in the next two years. Did Tesco deliberately make this move just before the competition authorities were about to launch a major attack on the supermarkets alleged milk price fixing? Whatever the reason, the cost of the new scheme is small change for the supermarket. The old practice of milk being sold as a loss-leader is gone. The succession of hard-fought retail initiatives since 2000 has largely seen price rises end up in retailers’ hands. There now seems to be a fat retail margin, some of which is, at last, being passed back down to farmers. It is important to remember that only two weeks before the 22ppl announcement, the retail price was raised by the equivalent of 1.76ppl.

The Tesco deal will need to be studied carefully, but if everyone in the supply chain is open and transparent, it will be a turning point for all involved. The ‘big four’ hold 61.3% of the liquid milk market, with Tesco accounting for a colossal 27.2% share of the total. It is hoped that the other major retailers will follow suit, and that the same kind of process occurs with other dairy products such as cheese, thus pulling the whole milk supply chain towards more sustainable prices. Tesco has said that the new contracts will be in place by the end of the year.

Food For Thought
Philip Moody

Smith & Williamson’s Bristol office has more than 20 years’ experience of working with farmer-controlled businesses. The team is led by Philip Moody, head of corporate finance, who specialises in providing strategic planning and advice to businesses in the agrifood sector.

In their most recent deal, they acted as financial adviser in the merger of four leading European fresh berry companies. The transaction, which completed in February, combines the marketing, production and breeding capabilities of fruit companies KG Fruits, Alconeras UK, Berry Alliance and Driscoll European Genetics.

The merger created Berry Gardens B.V., with a head office in Holland and subsidiaries in the UK, Spain and Holland. The new group will market strawberries, raspberries, blueberries and blackberries, selling to major multiple retailers in the UK and Europe. It is expected to generate an initial turnover of about £150m and intends to grow into a truly pan-European marketing company. Philip was appointed non-executive chairman of the new company and is now playing a leading role in helping the business to achieve its plans.

From little acorns grow…

Philip’s involvement with farmer-controlled businesses dates back to 1983, when he set up his own specialist practice in the South West. His first client was Robert Adams & Co, a corn merchanting business based in Westbury, Wiltshire. He was then asked to provide advice to Centaur Grain, a grain co-operative that he still acts for today. Centaur is the largest marketeer of committed grains in the UK, marketing crops worth over £100m on behalf of over 2,000 farmer members.

Philip is a non-executive director of the Centaur business. He engineered a groundbreaking supply agreement with Warburtons, the leading UK family baker, which was recognised by the industry and government. He also implemented an innovative dual membership structure.

A growing reputation in agrifood has led to other opportunities. In 2002, Philip advised on the formation of DFB, a new generation co-operative formed from the merger of The Milk Group and Zenith Milk. Philip was appointed corporate development director of DFB in November 2003 and led the subsequent acquisition of the milk processing division of the Co-Operative Wholesale Society. The Co-Op Retail Group remains DFB’s largest customer.

DFB is the fourth largest processor of liquid milk in the UK. It processes around 1bn litres of milk through its dairies throughout the UK. It has recently announced a unique partnership with Tesco whereby selected DFB members will supply regional milk, to be marketed under a new Tesco ‘local choice’ brand. This will enable consumers to buy local milk, reducing food miles and supporting local farmers. DFB members will receive a premium price for their milk, helping them to build a profitable and sustainable future.

Making a difference

Philip’s reputation for innovation and strategic thinking was recognised when he was invited to join the board of English Farming and Food Partnerships (EFFP). EFFP is a non-profit organisation, supported by the public and private sectors, committed to promoting collaboration across the farming and food industry. Fellow board members include Chris Blundell of Morrison Supermarkets and Steve Ellwood, head of HSBC’s agricultural division.

Philip is also a governor of the Royal Agricultural College in Cirencester. But it’s not ‘all work and no play’. His love of walking and the countryside ensures that he keeps his life in balance, while his energy, enthusiasm and ambition for agrifood means there is always food for thought…

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 Mondaq.com.

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

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.