Agriculture Update

Agriculture Update

| S C R U T T O N B L A N D | W I N T E R 2 0 1 7 | AGRICULTURE www.scruttonbland.co.uk

Investments, forecasts, risk management

Your farm is your fortress Brexit and cereal prices Grant opportunities for new technology

bland

Wet, Wet, Wet – Changes to water

abstraction on the way 2018 will see changes to water abstraction licences. New regulations will require farmers and land owners to apply for a water resources abstraction license from the Environment Agency where more than 20 cubic metres of water is abstracted each day to be used for an activity that was previously exempt from licensing. For farmers in low rainfall regions such as East Anglia this may mean they now need a license for activities including trickle (or drip) irrigation, and other forms of horticultural irrigations such as flood irrigation of cultivated land, or hydroponics. Farmers who wish to sell water from their land to a neighbouring farm will also need to take guidance and advice on the new water management rules. For farmers intending to set up a new abstraction, or planning to increase their current volumes of water abstraction, they will need to have a new licence in place before extraction can commence or increase. More information is available from the Environment Agency

D efra forestry minister Thérèse Coffey recently announced a scheme to boost the timber sector, reduce flood risk and encourage the planting of more than three million trees across the UK. Landowners who apply for the scheme will be offered up to £6,800 per hectare, and the minimum threshold for applications has been reduced from 30 hectares to 10 hectares to encourage more farmers and landowners to take advantage of the scheme. According to Ms Coffrey: “Our forests and woodlands are vital for providing timber, improving the environment and protecting our wildlife. The announcement demonstrates the government’s ongoing commitment to the forestry sector and to biodiversity, which afforestation delivers.”

The fund falls under the Countryside Stewardship scheme as part of discussions surrounding potential opportunities for Brexit. Application forms are now available from DEFRA and the fund is open from January 2018. “This could be a great time to be investing in woodland creation,” commented Gavin Birchall, Tax Partner at Scrutton Bland. “Creating woodland has a number of tax benefits, and if managed on a commercial basis there are possible tax benefits for Income Tax, Inheritance Tax and Capital Gains Tax. However these reliefs are not always straightforward and we recommend that you speak to a tax professional and independent financial planner before any decisions are made. At Scrutton Bland we provide a joined up solution for clients and this advice can be provided concurrently for effectiveness.” More information on the funding options is available from the Forestry Commission website. For more information on tax advice please contact [email protected] or tel 01206 838400.

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The UK is currently officially free from bird flu, whilst this is great news for our Agricultural industry and a relief for free range egg producers, the reintroduction of the disease is a constant concern for both farmers and DEFRA.

M ichael Gove’s speech at the Oxford Farming Conference gave an indication of the direction policy reform may take, but it prompted more questions than answers regarding quantum and timescale to afford farmers any certainty of subsidy entitlement following the UK’s withdrawal from the EU. It is therefore crucial to ensure your farm finances are in good order. The financial check known as EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is likely to be a part of the accounts which will have greater prominence for your bank manager when, for example, looking at a lending decision. T he winter months are a period of concern for free-range egg producers as the risk of avian flu increases when wild bird migratory pattern move to over the UK. The current position from the Government is that: ‘The current risk of incursion (of bird flu) in the UK is medium for wild birds and low for poultry, although this depends on levels of biosecurity on individual premises”. It is not just the period during an outbreak which can have an impact on the poultry industry. Until now, producers of free- range eggs could continue to market the eggs as free-range for a period of 12 weeks

recommend taking professional advice from an independent insurance broker to make sure you have the best product for your circumstances at a competitive price.” Scrutton Bland act as the approved insurance broker for the British Free Range Egg Association (BFREPA). To find out more contact [email protected] 01379 643444.

EBITDA is a measure of adjusted profit but care must be taken as to how it is calculated. “If all your farm staff are on your payroll then this is more straightforward to quantify,” commented Nick Banks, Business Advisory Partner at Scrutton Bland. “However if the cost of your labour force does not show up on your payroll, for example when it is a family partnership and members of the family are not formally classified as employees and paid by drawings or as a limited company dividends are paid, then the calculation becomes more complex. A common scenario may be where you are negotiating a financial package to invest in farm machinery, and without a clear EBITDA figure, there may well be a funding gap.” after a local outbreak of bird flu even though the hens were legally required to be kept under cover. DEFRA has now extended the window for free-range eggs to be marketed to 16 weeks, after which the eggs will need to be classified as barn eggs. “Bird flu remains a huge worry for free- range egg producers” commented Ed Nottingham, agricultural director at Scrutton Bland. “Any help from DEFRA has to be welcomed in mitigating the prospect of economic losses for farmers. There are also insurance products which may be helpful in providing cover for egg producers, but we

Subsidies and Brexit

EBITDA is not a figure reported in the annual accounts. Farmers need to work with their advisers to understand their EBITDA and how this stands up against existing borrowing commitments or those which may be required for investment. Sensitivity analysis can then be undertaken to see the impact of a reduction or withdrawal of subsidy. Scrutton Bland’s team of professional advisers can advise agricultural businesses of all sizes on all aspects of managing your business and personal finances. Contact [email protected] or 01473 267073.

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How will the impact of Brexit affect cereal prices over the next few years? Nick Banks, Business Advisory Partner examines this year’s harvest prices and looks ahead to possible threats and opportunities.

With the cereals harvest complete, work commences to establish the crops for harvest 2018 and marketing of the 2017 crop that remains in store. Challenging weather after a good start disrupted last year’s harvest, and whilst yield has held up, moisture content has necessitated drying which has eroded profit margin.

2014

2015

2016

2017

2013

16606 16444 14467 15163

11921

Thousand Tonnes

Source: 2013-2016 Defra farming statistics published Oct 2016 and Dec 2016 2017 AHDB

higher forward prices of feed wheat offers farmers comfort, especially given the uncertainty of Brexit negotiations influencing the sector over that time frame. The impact of Brexit not only threatens the level or existence of direct support through subsidy, but also the market conditions in which commodities are traded. In the absence of a trade deal with the EU, tariffs may well be imposed which will impact on the volume of grain traded on the domestic market and with non-EU countries.

The latest estimate for the UK’s 2017 wheat harvest is 15.163Mt (ahdb.org.uk) substantially higher than initial forecasts, thanks to upward revisions in both yield and planted area. This output will need to be measured against forecast demand and the balance of the import and export market, but wheat futures prices currently indicate substantially stronger prices over the next two years.

The fact that the futures market is indicating

UK (LIFFE) Feed Wheat Futures Prices

130 135 140 145 150 155 160

£ / Tonne

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Wheat ‘000/t

Barley ‘000/t

Export 2015/16 2014/15 Import 2015/16 2014/15

EU

Non EU

EU

Non EU

2,292 1,237

566 711

1,338

656 641

854 EU 157 135

EU

Non EU

Non EU

1,010 1,262

494 414

2 4

Net

EU

Non EU

EU

Non EU

2015/16 2014/15

1,282

72

1,181

654 637

- 25

297

719

Source: AHDB

Scrutton Bland have almost one hundred years’ experience in advising farmers, landowners, and those working in the rural industries in all areas of their business and personal financial affairs. For more information please contact Nick Banks on nick. banks@scruttonbland. co.uk or tel 01473 267073 .

The development of new markets outside the EU is another opportunity for UK agriculture; Algeria and Tunisia were the two countries that imported the most UK wheat in 2016. Our ability to grow crops of the right quality and specification may inhibit the extent to which new markets can be developed notwithstanding the strength of sterling. UK trade with certain non-EU countries is currently only possible through EU membership, so new relationships will need to be forged and it might be that it is price that enables us to compete against the negotiating strength and continuing trade agreements of the EU. To maximise the benefits of the UK market, farmers will need to continue to monitor their costs and maximise efficiency through precision farming. They will need to be seen to be the preferred producer to the UK supply chain – this might require better collaboration to engage with buyers and producers to provide assurance of quantity and quality of supply. Such collaboration will also stand producers in the best position to maximise any opportunity that the export market presents. Adding value and successfully growing premium crops will also maximise the opportunities to benefit from the UK market – 85% of the wheat used by UK flour millers is home-grown (source NABIM); subject to quality the shortfall is in the main imported from Germany and France. With a timetable which aims to complete negotiation of the UK exit from the EU by March 2019 it does mean that crops being planted now could well be sold in a post Brexit market. It is vital to evaluate how best your farming enterprise can benefit from the opportunities and take action now to mitigate the threats that new era will bring.

In 2016 the UK was a net exporter of £1.3m/t of wheat to the EU, although in 2015 the volume imported was only slightly in excess of that exported. The higher output of 2015 may have led to more commodity being available to export which would suggest, given the forecast 2017 harvest, much of what has been produced will be consumed within the UK market. In both years the UK exported a significantly greater amount of barley than that imported. In 2016 the volume of wheat exported represented 20% of the UK wheat harvest, and the volume of barley was 30%; but of the total tonnage exported, 80% of wheat and 67% of barley went to EU member states. The volume of trade with the EU is clearly a major factor influencing commodity prices in the UK, but what might a post Brexit marketplace look like in the event of a trade deal not being agreed? The overriding issue is supply and demand – will the UK output be sufficient for UK demand in which case will there be any surplus for the export market? There are a number of influences which may restrict supply: weather; the growing demand of the UK bioethanol sector; land coming out of production for development, and diversification to alternative crops and vines. The futures prices may support the view that the UK volume will remain tight and prices will reflect this. Long term concerns about limitation of supply could lead to genetic modification to enhance yield from a smaller cropping area.

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A cross the UK, farmers are increasingly fortifying their homes and business in response to the rise in rural crime. Rural crime has historically been a hot topic. Farms are often seen as soft targets with low levels of security, and items such as expensive vehicles, machinery, scrap metal and high quality tools vulnerable to theft from both criminal gangs and opportunists. Combine that with a rural police force rarely able to provide a rapid response due to many factors such as geography, and it is no wonder that many farming and rural communities feel isolated. The overall cost of UK rural crime according to recent statistics is around £40 million per year. Within these statistics, the items that are stolen follow trends with quad bikes, power tools and tractors remaining firm favourites. This year, Land Rover Defenders have been added to thieves’ shopping lists following their production being terminated in 2016. Livestock theft Most weeks there are press reports of large numbers of lambs and sheep being stolen for illegal slaughter. Besides theft, there are also concerns from livestock farmers for their own safety and that of their staff from ‘animal activists’ and campaigners. It can be very intimidating when groups of people trespass on to your property with their faces covered, intent on creating a disturbance so as to spread their own views.

the famer to pinpoint the location of their animals. The same fencing can also be used to keep people out and send an alert when unwanted visitors trespass onto farmland. Temperature sensors are also effective when used within buildings where there may be an increased fire risk, and we have seen level sensors combined with heat sensors to monitor feed temperatures for beef calves. Don’t put yourself at risk Personal safety is paramount. If you are aware of anything suspicious on your farm or a neighbour’s premises then the best thing to do is to contact the police. If you spot any suspicious vehicles then call the non-emergency number 101 to report them. Revenge attacks do happen and it is best to try and distance yourself from risk where possible. Scrutton Bland have almost a hundred years of experience in working with clients throughout the agricultural sector. Our independent teams of accountants, financial planners, tax advisers and insurance brokers are on hand to assist you at every step of the way. If you would like to discuss any aspect of your home or commercial insurance, please contact one of our team on 01473 267000 or email amanda. [email protected]

All of these criminal acts have to be paid for, and it usually results in farmers having to make claims on their insurance policies to cover their losses. This in turn can lead to higher premiums, increased excesses or refusal to provide cover for re-occurring losses. What can be done? Farmers can take precautions to protect assets which can also lead to reductions in insurance premiums. Each farming business is unique and by working with an independent and knowledgeable insurance broker who understands your needs, together with an agricultural security specialist, it is possible to put measures in place which will deter the thieves and intruders. Physical assets such as vehicles and equipment can all be tagged with trackers and this has been known and widely practised for a long time. At Scrutton Bland we work with a company who use a slightly different system, resulting in an outstanding asset recovery rate of over 90%. There are no ongoing monthly fees for each individual tracker fitted and the set-up is not prohibitively expensive. In fact the savings on insurance premiums may even cover the cost of the equipment. Trackers can also be fitted to livestock, and insurers can also offer bolus (a device placed within the animal) to measure the temperature of animals for health and welfare monitoring too. Geo-fencing can be set up so that animals learn where they can and cannot go, and this system also enables

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F armers and food processing businesses can apply for grants under the Countryside Productivity scheme. Under the scheme, grants are available to help livestock, dairy, arable and horticultural farmers improve farm productivity through investing in new technology, such as robotics, to reduce cost or improve product quality. The funding can be used on diverse investments, from robotic milking machines to green technology. Environment Secretary Michael Gove said: “This new funding is a wonderful opportunity for our farmers and food processors to invest in the technology they need to boost productivity, competition and, of course, sustainability as a key factor in future proofing our world leading food and farming industry.”

Jason Fayers, Tax Partner at Scrutton Bland explained: “Tax relief on R&D projects is an area that is often underutilised by businesses but with some careful planning there are considerable saving that can be made. It is also worth remembering that R&D tax credits are only available to Companies and not to traditional Partnerships. We recommend that you speak to a tax professional and independent financial planner before any decisions are made. At Scrutton Bland we have both tax and financial planning advisers who specialise in the agricultural sector who can assist you with these and other areas such as accounts and succession planning.” If you are considering a project which you think could qualify for research and development relief contact [email protected] or tel 01473 267047.

Farmers may also be able to benefit from tax relief on research and development (R&D) projects provided that they meet criteria including that you can demonstrate • The project was set up to create an advance in science and technology • Your business had to overcome uncertainty to proceed with the project • How your business tried to overcome this uncertainty • The aim of your project couldn’t be easily realised by a professional in the field

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We’re delighted to say that Scrutton Bland will be taking a stand at the 2018 Suffolk Show again this year. Enjoyed by tens of thousands of people across two days, the show at Ipswich’s Trinity Park is one of the most popular family events of the year, whilst building on the region’s food, farming and agricultural heritage. This year’s show runs from 30-31 May 2018 and you can find out more by visiting www.suffolkshow.co.uk

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