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17th September 2018

The Agriculture Bill 2018: a new climate for agribusinesses?

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Brexit raises numerous questions for the food and farming sector. It was hoped that the Agriculture Bill would answer many of those questions.  Does it live up to those hopes? Read our summary to find out.
  • The Bill does not give the detail of what will happen when the UK leaves the EU. As is common with many statutes today it sets out what DEFRA, or the relevant devolved administration may do. So we will have to wait for the regulations to see much of the detail.
  • The Bill does set out a timetable for the phasing out of direct payments. Current direct payments will continue until 2021. Then there will be a transitional period from 2021-2028, although this can be extended. During this period, the Government can modify direct payments. There is reference to ‘de-linked’ payments which we interpret to mean converting to direct payments which are not linked to an area farmed by a claimant. At the end of the transitional period, direct payments as we now know them will cease.
  • Current recipients of direct payments may have the ability to take two or more years’ payment as a lump sum.
  • The Bill allows the Secretary of State to give financial assistance for a range of purposes. These purposes relate the environment and climate change, public access, animal welfare and animal and plant health. Also the Secretary of State may provide financial assistance to improve productivity which is defined as improving the quality of products and the efficiency of production. However there is no power to give financial assistance to sustain existing food production.
  • Current EU legislation dealing with the support of fruit and vegetable producer organisations and the rural development programmes can be retained and modified.
  • The Bill allows for the collection of data on the agri-food supply chains and the greater regulation of the contracts for the buying of agricultural products.
  • The Bill allows for the regulation of marketing standards, including packaging and food labelling. Also for the formation of producer organisations that will be exempt from certain provisions of the Competition Act.
  • Whilst the Government’s emphasis is on farming businesses being fully exposed to the market, 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.
  • 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
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, and food production has to stand on its own in the market place.

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 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. It lacks the real detail that agribusinesses and landowners need 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? Also if the UK does leave with ‘no deal’, 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?
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.

It is clear the agricultural sector is going to undergo a fundamental change and businesses need to prepare. Hewitsons with its long history of working with the agricultural sector is on hand to assist with that preparation.

For more information on this article please contact Gareth Williams on 01604 233233 or click here to email Gareth. Alternatively you can also contact Stephanie Dennis on 01604 463372 or click here to email Stephanie.