UK: Agricultural Bulletin - A Briefing For Farmers And Land Agents - Restrictive Regulations, September 2008

Last Updated: 28 August 2008
Article by Susan Shaw

Environmental regulations usually result in restrictions on farming methods and additional costs. Coming at a time when there is a call for increased food production, we ask if EU regulations are too restrictive?

DEFRA ANNOUNCES NEW REGULATIONS - THE DEFICIENT DIRECTIVE

Following a review, Defra recently announced a number of changes to the Nitrates Directive.

The House of Commons' Environment, Food and Rural Affairs (Efra) Committee, a cross-party committee of MPs tasked with continually assessing the Department for Environment, Food and Rural Affairs' (Defra) expenditure, administration and policy, recently published comment on the Nitrates Directive.

In short, the committee believes the directive, which aims to reduce the pollution caused by nitrates, is fundamentally flawed. Its report states that the Nitrates Directive is old fashioned and imposes prescriptive rules, unlike recent European Union (EU) legislation which is more flexible. It also states that the science the figures are based on is 'at best unclear', and questions the basis of the specified nitrates limits (nitrates in ground and surface water should not exceed 50mg/l). But the committee accepts that the directive is unlikely to be replaced in the near future and needs to be implemented.

Implementation of the directive in England has been undergoing review since November 2005. Following public consultation, the Government published its response in late July. The review has been a two-stringed bow: to redefine the Nitrate Vulnerable Zone (NVZ) area and to assess the regulations farmers within the NVZ have to follow.

Since 2002, the NVZ in England has covered approximately 55% of farmland. It was always made clear that the area would be increased either to 70% of English farmland or a 100% blanket cover, as published in a December 2007 consultation. Defra has decided on the former, a saving grace for many who will remain outside the restrictions. A small 1.5% of the current areas will be de-designated.

The UK Government has been under pressure from the European Commission to raise the bar on some of the implementation regulations, as the target nitrate levels are not being met (possibly substantiating the Efra Committee's claims). These changes include:

  • increasing the length of closed periods during which organic nitrogen can be spread on land

  • widening the regulations to cover more land types

  • exempting organic farmers

  • increasing on-farm storage of slurry (farmers are responsible for arranging and paying for this, but a tax allowance on capital costs of up to £50,000 per year will be available).

Some farmers were also concerned about the proposal requiring cover crops on bare ground, but Defra has dropped this.

Defra will release the full action programme in September, along with the revised map illustrating the new NVZ boundaries. Implementation for farmers in existing NVZ regions is planned for January 2009, while those in newly designated NVZ regions will have until January 2010 to comply. All farmers have until January 2012 to implement the slurry storage requirements and the closed period regulations.

The action programme requires re-assessment every four years. Thus, shortly after the closed period regulations come into force, theoretically the whole round will start again.

By then, the timetable will also be in line with the deadlines imposed by the Water Framework Directive, an overriding policy with the sole purpose of improving the quality of water in catchments throughout the EU. This directive requires member states to implement changes by 2012 at the latest and achieve water quality targets by 2015. The re-evaluation and implementation process of the Nitrates Directive could thus be even more complex next time, unless the Efra Committee's voice is heard.

NEW PESTICIDE RULES - HAVE WE LOST THE FIGHT?

The EU's new pesticide rules, if legislated, will reduce crop yields and affect food prices and stock levies. Unfortunately, the UK's lobbying may not be enough to stop them.

The EU Farm Council recently approved of EU Commission's compromise on the new pesticide authorisation rules. However, this is not the end of the matter as the legislation has to go back to the European Parliament for a second reading before returning to council. But, if anything, parliament wants further regulation, which does not bode well for the industry.

The UK Government has been listening to the concerns of the farming industry and was one of only four countries to abstain from the vote – all other member states were in favour of the new rules. Abstaining was a better option than voting 'against' as this would have prejudiced the UK's involvement in the debate when the legislation comes back to council.

The UK's case for abstaining is that the commission has not undertaken a proper impact assessment. A recent study by the UK's Pesticide Safety Directorate shows that the new rules would result in a major loss of commonly used insecticides, herbicides and fungicides. This would almost certainly result in reduced yields of cereals, potatoes and field vegetables.

The UK industry's argument is that this is taking place during a time of increasing food prices and fears of food shortages. Furthermore, and most importantly, the chemicals likely to be banned have been proven safe in risk assessments under current strict rules. Added to this is the concern that reduced production within the EU will only lead to additional imports from the rest of the world, where these same chemicals will not be banned. If additional imports are shown to have measurable residues of 'banned pesticides', the commission will have to block imports, which would trigger World Trade Organisation trade problems.

Having lost the first round in council, UK lobbying will need to reach even higher levels in order to prevent this potentially disastrous legislation from taking effect (possibly passing into law by March 2009). If this were to happen, we would not feel the impact for several years because of transitional arrangements. Nevertheless, the UK industry and European consumers will be heading for a rather different crop production scene, with little time to find alternative ways to maintain yields and quality.

CATCHMENT SENSITIVE FARMING - ANOTHER STEP CLOSER TO CLEANER WATER?

Defra's initiative to tackle water pollution has been extended for three years. The programme has also been enhanced to better meet its objectives.

As part of its effort to implement the Water Framework Directive, Defra has announced the next stage of its programme to tackle water pollution.

The England Catchment Sensitive Farming Delivery Initiative (ECSFDI), which was launched in April 2006, is now set to continue for a further three years. The main objective remains the same: Natural England and the Environment Agency will continue to provide advice through farmer events and farm visits. Other elements of the next phase include the following:

  • A further 10 priority catchments will be added to the original 40 this autumn. The existing 40 cover approximately 40% of English agricultural area and affect as many as 50,000 farmers.

  • An additional 5 Catchment Sensitive Farming officers will join the existing 42 in the autumn.

  • A capital grant scheme in 2008/09, similar to the 2007/08 scheme, will provide grants for capital investment in low-cost infrastructure to tackle pollution. The application period closed on 30 June 2008.

  • Nine regional co-ordinators will be responsible for enhancing delivery of the programme and linking the initiative with River Basin Planning and other regional schemes.

  • A new strategic programme involving national and regional partners outside the priority catchments will be implemented in the autumn.

  • The agreement for technical support from the Pesticides Voluntary Initiative will be extended.

  • Defra will provide the ECSFDI with £12.9m in 2008/09; £5m of this will be for capital grants. Funding for 2009/10 and 2010/11 have yet to be confirmed.

CHINA'S BOOM

When it comes to producing grain, livestock and dairy supplies, China remains self sufficient. But it's demand for soybeans affects world markets.

The global increase in grain and oilseed prices over the past 12 months can be explained by the world's lowest-ever grain-stocks-to-use ratio. Demand for grain has been increasing each year at an accelerating pace since 2000, so grain stocks have been liquidated globally to provide the balance between consumption and production. Producers have been responding to the rise in demand and, despite some poor yields (particularly in the EU and Australia), the largest world grain crop on record was harvested in 2007.

Grain

More than half of the grain stock drawdown over the past eight years occurred in China, where central reserves fell by two-thirds by 2007/08. Yet China has not started importing grain. If anything, it is a net grain exporter and is forecast to remain so in 2008/09 (USDA). Compared with its total grain consumption (over 380m tonnes per annum), volume of trade is minimal. Thus, China's drop in grain stocks has had little impact on grain values in the UK (or, indeed, anywhere else).

Meat and dairy

The Chinese population is rising by 0.5% per year. But simply increasing yields (and this is one thing China has been very good at) can meet this demand. Another issue is the impact of economic growth. China has doubled its wealth since 2001, and the population has built up an appetite for higher-value foods. Meat consumption has risen by a third in the last decade, led by beef, which has increased by 75%. Meanwhile, the consumption of dairy products has exploded by 400%. But China's livestock and dairy industries have managed to grow to meet this demand and remain self-sufficient, thus not affecting the UK's livestock market prices.

This self sufficiency raises the question of whether the country is impacting on the UK's agricultural prices at all. However, despite its commitment to food security, there is one commodity that China has not managed to grow in-house – soybeans.

Soybeans

China's imports of soybeans have mushroomed. Before 1994 it exported them, but it now imports over 35m tonnes, more than twice its soybean production and almost half of the entire international soybean trade. This quantity takes an area greater than the size of the UK to produce. This is where China has impacted on our grain and oilseed markets.

Over the past 45 years, China has invested heavily in agricultural research and development and now has over 60 research institutes. As a consequence, it has doubled its wheat yield twice (no other country has matched it), perfected double cropping with maize, cotton and rice, and raised agricultural output. Furthermore, every year, 2% of the rural population emigrates to urban life.

The Chinese have now invested in another agricultural research centre to study the biotechnology of maize and soybeans. One wonders what potential will be achieved when new soybean varieties are rolled out in a few years. Whether China ever manages to achieve self sufficiency in soybeans is anybody's guess but, in the mean time, its contributions towards supporting UK combinable crop prices remains firm due to its dependence on soybeans.

PIGS CAN'T FLY BUT THEIR PRICES MIGHT - LIVESTOCK PRICE UPDATE

The weaker sterling is affecting the UK's export/ import balance, which is, in turn, strengthening demand for local beef and lamb prices.

Until recently, the red meat sector has not experienced the rapid increase in output prices that the dairy and most of the arable sector have enjoyed. But it did experience the same fuel and fertiliser input cost increases, with the added burden of much higher feed costs from cereals and protein.

However, for much of the current year beef and sheep prices have steadily moved up, with pig meat recently joining in. This is not to say that all red meat enterprises have become profitable, but there is at least some chance for more efficient farmers to profit.

Beef

Beef prices have increased healthily since the beginning of the year (Figure 1). The weakening sterling has helped, making our exports more competitive on the continent and imports dearer. For example, Irish beef once destined for the UK has been diverted elsewhere in Europe. Furthermore, Brazilian beef has been subject to import restrictions, further strengthening UK domestic sales.

Despite this, total imports to the UK declined by only 1% as supply from Argentina and Uruguay compensated. But it seems that restrictions on supply will continue through 2008, helping to keep prices buoyant. This is all good news for beef producers, but as we do not expect the price of feed, fuel and fertiliser to ease, further price rises are necessary to cover the increase in these inputs as most beef producers are still losing money.

Sheep

As with beef, declining imports and rising exports (thanks to the weakening pound) have helped lift the lamb price from the lows that can be traced back to last autumn's foot-and-mouth disease scare (Figure 2). The volume of UK exported sheep meat rose by 16% from January to March 2008 compared to 2007, with France remaining the largest export market.

Furthermore, an increase in supply of home grown sheep meat has reduced the demand for imports, while drought and meat being diverted to other EU markets has also played a role.

Pigs

Breeding sow numbers have been falling for the last decade. This has now led to a reduction in domestic supply. At the same time, global numbers have been falling and input costs rising rapidly. This has resulted in an increase in pig meat prices.

Indeed, in the first half of 2008, a 20% rise of the deadweight (DAPP) UK average price has pushed pig meat values into new territory (Figure 3). Domestic supply is expected to remain tight as the upturn in prices has come too late for many who have already quit the industry. Looking forward, the rise in EU pig meat prices should continue as the Danish herd shrinks. This should enable UK prices to continue giving better returns.

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.

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