When Boris Johnson prorogued Parliament the previous Agriculture Bill fell. Following the general election a new Agriculture Bill has been introduced with many similarities to the previous Bill. Does this new Bill give us a better vision of the future? Read our thoughts below to find out.
The Agriculture Bill paves the way for a fundamental change to the agricultural industry. Whilst the Bill does not give us a clear insight into the future of agriculture, it allows us to see the direction of travel. The vast majority of the detail will come in via Regulations to be made by the Secretary of State. Much of the direction is known; the removal of direct support and replacing it with a system of “public money for public goods” (although the phrase “public goods” is not used in the Bill). However, Government has responded to previous criticism by referring to food production, something almost entirely absent from the previous Bill.
The Bill does have some technical elements, for example implementing some of the less controversial elements from last year’s consultation on agricultural tenancy reform.
As with the previous Bill, the Secretary of State is empowered to give financial assistance for a range of purposes. These purposes include the environment and climate change, public access, animal welfare and animal and plant health. The new Bill includes additional purposes- protecting and improving soil quality and conserving plant and animal genetics. Also, the Secretary of State may provide financial assistance to start, or improve the productivity of, agricultural, horticultural or forestry activities. There is also power to support “ancillary activities” being the sale and distribution of products derived from agriculture, horticulture or forestry. There is still no power to give financial assistance to sustain existing food production but the Secretary of State must have regard to the need to encourage food production and its production in an environmentally sensitive way when creating any financial assistance scheme.
The Secretary of State has to prepare a “multi-annual financial assistance plan” setting out its plans for providing the financial assistance. The first plan is to be for seven years running from 1 January 2021 and subsequent plans should cover at least five years. This should help give the industry a degree of certainty as to funding to be made available to allow businesses to plan. There must also be an annual report on financial assistance given.
The Bill sets out a timetable for the phasing out of direct payments. Current direct payments will continue until the end of 2020. Then there will be a transitional period from 2021-2027 (although this can be extended) during which payments will be phased out. The Government’s 2019 policy statement set out how this would be done with cuts at different rates for different payment bands; the highest percentage cuts falling on those who receive £150,000 or more in Basic Payments. During this period, the Government can modify direct payments. Subject to any extension, at the end of the transitional period, direct payments as we now know them will cease.
There is a power to ‘de-link’ payments which we interpret to mean converting to direct payments which are not linked to an area farmed by a claimant. Current recipients of direct payments may have the ability to take two or more years’ payment as a lump sum. The definition of payments and the ability to take a lump sum may have a particular impact on farm rents if BPS is not taken into account on rent reviews.
Food and Agricultural Markets
Current EU legislation dealing with the support of fruit and vegetable producer organisations and the rural development programmes can be retained and modified.
The new Bill includes a duty on the Secretary of State to report to Parliament on food security at least once every five years. Whilst this is welcome a lot depends on the attitude to food security held by those in Parliament at that time.
Whilst the Government’s emphasis is on farming businesses being exposed to the market (and not being paid for production), it has recognised that there may be circumstances where it may need to intervene. Therefore, the Bill gives power to make extraordinary payments in times of ‘exceptional market conditions’. The power is limited to “market disturbance”, not other exceptional events such as extreme weather conditions or the outbreak of disease unless they have an adverse effect on prices.
The Bill allows for the collection of data on the agri-food supply chains. The data is, amongst other things, intended to promote transparency within the supply chain and assist those within it to manage potential market volatility.
The Secretary of State is empowered to create regulations specifying key terms that must be included or excluded in contracts for the sale of agricultural products to business purchasers. This is important because the policy behind the Bill is not to directly support food production, so farmers have to rely on the market for their products. Accordingly, it is important that farms can trade on fair terms.
Linked to the concept of levelling the playing field, the Bill allows for the regulation of marketing standards, including packaging and food labelling. Also, it allows for regulation of carcass classification.
The new Bill includes some additional powers that were not in the previous Agriculture Bill. These provisions:
- Widen the definition of fertilisers that can be regulated and amend the basis on which regulation can be made;
- Allow the Secretary of State to establish a new body to deal with the collection and management of data relating to the identification and movement and health of animals;
- Allow the payment of red meat levies to be distributed between different red meat levy bodies.
EU Regulations made a number of agriculture producer organisations exempt from certain aspects of competition law. These exemptions will continue as the EU legislation will hold over after we leave the EU. Provision has been made to allow the Secretary of State to create its own exemptions when we no longer rely on the carried over EU Regulations.
Regulations can be made to ensure the UK will comply with the WTO Agreement on Agriculture. This is a recognition that post Brexit the WTO rules may assume greater significance in respect of our dealings with the rest of the world.
The Bill makes some specific changes to agricultural tenancy legislation: rent reviews under the Agricultural Holdings Act 1986 (“AHA”) can be to be determined by an expert as opposed to arbitration. This brings them in line with FBTs.
Parties to an AHA tenancy or FBT now have the choice of referring the rent review to an expert or arbitrator appointed by one of the RICS, CAAV and the Agricultural Law Association. This broadens the scope of available parties to determine rent reviews.
The AHA will be amended to allow the Secretary of State to create regulations which would enable the tenant to request the landlord to vary the tenancy, with such request being referred to arbitration or an expert where the landlord and tenant do not agree. This would apply to requests in respect of matters where the tenancy requires the landlord to consent, or where the variation will enable the tenant to obtain financial assistance or comply with a statutory duty.
Under the AHA if the landlord makes an improvement, then, if the landlord and tenant have agreed, a contractual payment mechanism the improvement is disregarded in the statutory rent review.
Councils can serve a notice to quit on tenants using Case A. The notice currently can only be served after the tenant reaches 65. Now the age limit is increased to the statutory retirement age (currently 66).
The minimum age for service of a retirement notice under an AHA tenancy is removed so the tenant can serve a notice at any time. The commercial unit test in succession cases is to be removed.
The Secretary of State is given powers to amend the suitability test in succession cases. This would pave the way for a more modern test to assess a potential successor’s ability to farm to high standards of efficient procedures and to care for the environment.
What have farmers and landowners learnt from the Agriculture Bill?
The Agriculture Bill shows that the direction of travel is still to provide public money for public goods. There is no direct support for food production, but food production does now need to be considered when putting in place the various support schemes.
Certain provisions of the Bill may suggest that Government recognises that the market is not currently working properly. By giving itself power to:
- Collect market information,
- Regulate contracts offered by supermarkets and to regulate food marketing (particularly labelling of packaging); and
- Allowing for the formation of producer groups like co-operatives
It suggests that Government has an eye to “level the playing field” when it comes to selling agricultural products. However, if low tariffs are imposed on imported agricultural goods all the regulations may do is encourage supermarkets to buy more from abroad.
Ultimately what this Bill does is set out a broad a framework. More detail is needed to allow farmers and landowners to plan for the future.
What can landowners and agribusinesses do to plan for the future?
Stress test your business. We know direct support will end so how will your business function without that income? The economy is likely to be in a state of flux for a few years, costs may increase yet prices may drop if agricultural products face WTO tariffs. Are you ready for any changes?
Consider your documents. In particular, how will landlords deal with de-linking of support payments? If a tenant asks for payments to be de-linked, the land is no longer required to claim payment. This may result in the payment ceasing to be considered in a rent review. Do you want to put in provisions to control this?
If you are a tenant, consider asking for an extraordinary break clause or rent review in your tenancy agreement. With direct support coming to an end you may find that the current rents become unsustainable when the changes come into force.
How will your legal documents deal with new schemes offering the financial support suggested by the Bill? A tenant may want the flexibility to enter into those schemes that are suitable to its business. A landlord would want to ensure that the scheme, and the management required by the scheme, does not reduce the value of the holding and impose onerous obligations on future tenants. In a contract farming arrangement will the farmer enter into these new schemes? How will it affect the contractor’s obligations? Will the receipts form part of the divisible surplus? A tenant under an AHA tenancy may be able to vary the tenancy to allow it to take advantage of the new schemes, but all other agreements are based on the terms agreed between the parties.
Check your records. No one relishes the thought of paperwork, but the new schemes will come with new requirements and having historic records may help in future claims. This may be particularly the case with “de-linked” payments.
It is clear the agricultural sector is going to undergo a fundamental change and businesses need to prepare.