Monday, 30 June 2014

Potential threats to farmers as the British Economy strenghtens

As the British economy strengthens this may pose threats to farmers because it is likely the pound will strengthen and interest rates will rise.

The strengthening pound is a particular threat for two reasons; first because it will impact on the value of European support payments which are defined in Euros and converted to pounds before being paid to farmers and second because it will make exports less competitive and imports comparatively cheaper.

The exchange rate in particular has been identified in recent years as one of the most important factors influencing the profitability or otherwise of British farmers and for livestock farmers in particular the receipt of European support can often make the difference between profit and loss.

These livestock farmers are also potentially vulnerable to the impact of increased imports which have been implicated in the recent slump in beef prices as beef is being imported from destinations such as Ireland and Poland. As a result the value of beef cattle in this country have fallen by approaching 25% in the last 6 months or so which is posing a serious threat to many livestock farmers.

This has lead to criticism being directed at farming leaders where many farmers feel the National Farmers Union (NFU) has not been doing enough to “beat the drum” for British beef producers. But the NFU has explained it has been encouraging the public to buy British beef and to back the “Red Tractor” logo.

The Red Tractor logo was introduced in 2000 in the wake of the BSE crisis to give the public confidence in British produce. The Red Tractor is a food assurance scheme which covers production standards developed by experts on safety, hygiene, animal welfare and the environment amongst other things. The Red Tractor logo means the food or drink has met these responsible production standards and is fully traceable back to independently inspected farms in the UK.

The NFU are also highlighting where supermarkets have not made enough effort to differentiate between British and Irish beef. But, the Chairman of the NFU Livestock Committee has admitted it has been incredibly difficult to gain traction on this due to the combination of an over-supplied market and soft demand for beef in this country which is giving the retailers the chance to ‘drive down’ farmgate prices.

However, NFU President Mr Meurig Raymond said that, “Confidence, particularly among beef finishers, is at rock bottom. This is a crisis. It is our top priority,” He added that, “Next Tuesday’s beef summit, hosted by Farming Minister George Eustice, would be an opportunity to reinforce these messages and encourage DEFRA to promote beef exports.”

So it appears a lot is hoped of this high level meeting next week but it remains to be seen what effect political influence will have on market forces and the often obscure world of the meat industry from the predominantly Irish owned abattoirs to the supermarket dominated retail sector.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

Friday, 27 June 2014

PRS - A political hot potato

The private rental sector (PRS) is in danger of becoming as hot a political potato as the EU.

Labour currently has no intention of a referendum on EU membership while Ukip has driven the Tories to despair with its relentless campaign to abandon the EU - and a referendum policy as a populist idea.

But what could be more populist than introducing controls for the PRS, driven by the urge to do highly visible things such as ending letting agents’ fees, which Labour has failed to push through before the General Election in May 2015 but which it promises will be on its agenda, along with three year tenancy terms and fixed rents?

Rent caps in places of high property values are one of the biggest fears that could drive the PRS into terminal decline. Yields become ever smaller as rents are constrained during periods of strong capital growth. Many owners would find it more beneficial to cash in and invest the money somewhere more sensible. Even a bank deposit account with three per cent interest could be better than renting at two per cent yield with all the accompanying risks of repairs, dilapidations, and the costs of regaining possession when yesterday’s dream tenant becomes tomorrow’s nightmare as their economic circumstances change.

Figures from ARLA show that 17 per cent of landlords are expected to sell one or all of their properties in the next 12 months, the highest proportion since 2008. The same source also revealed 59 per cent of lettings agents are reporting more would-be tenants than properties available. Just as the PRS needs to retain landlords, many are plotting their escape route to reap the benefits of the property price surge.

When you talk to lawyers and owners of high end properties in London’s prime quarters it becomes apparent that what interests buyers more is long term capital growth than short term low yield income. Buy to let is out, buy to reap substantial profit could well be coming in if it’s not here already.

Rent caps across the country are unrealistic because there are so many regional variations in property prices and therefore what seems like a fair return on investment. Are we to return to the days of the regional Rent Tribunals as the first avenue of escape for tenants served with notice to quit? The Tribunals, chaired by lawyers, could fix rents as well as deflect a notice to quit and were readily accessible to tenants with some savvy and no lawyer.

With commentators predicting that in very short time there will be more private sector renters than owners, restrictions on landlords and lettings agents could be as good for Ed Miliband as the right to buy council houses turned out for Margaret Thatcher.

Longer tenancies are also a real issue. A tenant who seems heaven-sent on day one could be the tenant from hell by month seven but then it would be too late to serve notice so easily. Employers, who see their staff and assess their performance every day, get four times the trial period it’s proposed to give landlords even though contact with the tenant is frequently non-existent and, at best, sporadic. Three year tenancies by default with a six month trial period will be seen as too risky to be realistic by many landlords. What is designed to protect tenants could actually reduce their chances of finding a home in the first place if availability shrinks. Rents would then rise because the cap is intended to be assessed through market conditions.

Lettings agents’ fees are another conundrum. It’s wrong, it’s said, for agents to charge for referencing or administration such as the inventory but under current plans landlords, and their agents by default, will soon be responsible for checking the immigration status of tenants and their right to live and work in the UK. This would need to apply to every tenant, with a birth certificate and some form of photographic identification to be safe even for those claiming UK birth and lifelong residence. Let to the wrong person and there’s a £3,000 penalty. If that person is working without the right to do so the penalties are stiffer still. When a tenant with the right to live in the UK arrives on the doorstep and it then transpires they don’t have the right to the employment they are using to pay the rent what does the landlord do - allow the tenancy because there’s no right to deny it and then report the tenant for paying the rent?

Someone has to fund the lettings agent’s time in processing all this as Civil Service substitutes because few landlords will want to undertake the task. If there are no fees for tenants, only for landlords, then rents will have to rise to cover the cost. But when the rent is capped, how can the cost of fees be applied?

There is too much fag packet planning and not enough real thought going into all this regardless of which political party happens to be having another bright idea today. Everyone is agreed on the importance of the PRS, everyone agrees it could be fairer all round, but who is going to sit down and work it all out as a policy and not a series of knee-jerk responses to the latest comment article?

Lisa Simon, 
Head of Residential Lettings
T: 020 7518 3234 

Tuesday, 24 June 2014

The rumblings of the Superstrike case continue

The rumblings of the Superstrike case continue, with a tenant defeating a notice to quit in a hearing at Birmingham County Court.

It’s not clear from reports of Gardner v McCusker 3BM70525 whether the notice served was under 21 (4) (A) for a periodic tenancy or a 21 (1) (B) for a fixed term and whether the Section notice was invalid simply because the agent had used the wrong one.

What is clear, however, is the landlords or their agents must ensure they re-serve prescribed information when a tenancy changes from an assured shorthold to a periodic.

The tenant, McCusker, agreed a fixed term for six months in November 2009. There was a deposit of £600, protected in the MyDeposits scheme in January 2010. There were various attempts to serve the prescribed information between November 2009 and September 2012. In May 2010, the fixed term tenancy expired and a statutory periodic tenancy arose. In March 2013, a notice under s.21, Housing Act 1988 was served. Possession proceedings were issued and met with a defence and counterclaim contending that there had been, inter alia, no service of the prescribed information in respect of the statutory periodic tenancy.

The court regarded the failed attempts to serve as non-service, the claim by the landlords (Gardner) for repossession failed, and they were ordered to repay the deposit and a penalty, a total of £1,800, plus costs, some of which were offset against rent arrears.

The moral of the story is that after an AST ends and the tenancy becomes periodic it must be regarded as a new tenancy and although the deposit is not subject to any specific transfers between parties again and remains with the deposit scheme it is regarded as a new deposit in law.

Superstrike and its ramifications are still under consideration by the Government with a view to legislative change but until this occurs a belt and braces approach must be taken with all prescribed information served again successfully in order to protect the landlord’s rights should repossession become necessary.

Lisa Simon, 
Head of Residential Lettings
T: 020 7518 3234 

Monday, 23 June 2014

Farm borrowings increase by almost 9%

Latest figures released by the Bank of England indicate that Farm borrowings have increased by almost 9% in the year to April 2014, reaching a new record high of £15.2bn. Farm borrowing has also risen in the last two year; by 10% to April 2012 and 9% to April 2013.

The question is whether this is a sign of a sector under pressure causing cash flow difficulties or whether it is a sign of confidence giving rise to new investment; my guess is that it is a bit of both.

Livestock farmers, particularly beef fattening units, will be struggling at present and they may well find their finances are being stretched as beef prices have plummeted in recent months. These farmers will be increasing their level of indebtedness because of the difficult market.

On the other hand many dairy farmers, who have seen good milk prices over the last year, may be investing in their farms with cautious confidence in the future.

There is no doubt we are seeing a lot of interest from farmers who are looking to borrow money to purchase land. However, the problem is that land is changing hands at prices of up to £10,000 per acre or more and even at historically low interest rates, the annual cost per acre of this borrowing can be eye-watering and it is significantly higher than the rental value of the land.

As a general rule banks are keen to lend money to farmers, not least because the value of agricultural land has more than doubled since 2007. However they are also very conscious that borrowings must be affordable and this is often the stumbling block for some farmers who may be capital asset rich but whose profits may be very modest indeed.

Having said that, there are some very good lending rates available in the market at present. For example the specialist “farmer’s” bank, the Agricultural Mortgage Corporation (AMC) is currently offering 0.8% off their standard lending rates for certain qualifying capital investments on farms.

The AMC is able to fund this discount because of money they have secured from the European Investment Bank. The idea is to encourage farmers to develop farm improvement projects, examples of which include new or improved crop storage and processing facilities, livestock housing, parlours, farm shops and other diversifications as well as wind turbines and solar panels.

If anyone is interested in looking at the availability of this funding for a project they may have in mind they are invited to contact me for free initial advice.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

Wednesday, 18 June 2014

"Green Measures" will be introduced

Last week saw DEFRA announce the long awaited rules on Ecological Focus Areas (EFAs) which are part of the so called “Greening Measures” which will be introduced as part of the new Basic Payment Scheme (BPS) which replaces the existing Single Payment Scheme.

The Greening Measures will be worth 30% of a farmer’s support payment and in addition to the EFAs farmers will be required to observe rules on crop diversification and the retention of permanent pasture(at a national level) but it is the EFA rules which are causing most concern. This is because within a month or so farmers will be staring this year’s harvest and will be hoping to replant next year’s crops almost immediately but without knowing the EFA rules, this will be difficult.

In simple terms the new rules will require arable farmers with over 15 hectares of crops to “set aside” 5% of their land in to EFAs. The big question has been what these EFAs will involve and last week it became clear there will be five options. These will include land lying fallow, buffer strips, ‘catch and cover crops’ used to manage soil fertility and quality and Nitrogen Fixing Crops such as legumes and hedgerows.

The first option to leave land fallow is obviously costly for farmers in terms of loss of income and the government are also concerned about the loss of production at a time when we have falling rates of self sufficiency of home grown food. However, this is a straightforward and relatively easily monitored prescription.

The ease of administering the new system and proving to Europe that we have systems in place to monitor claims and payments is a real concern to the Rural Payments Agency, being the body charged with delivering the BPS. They remember the disaster that engulfed them when the Single Payment Scheme was introduced in 2005 and they do not want to see anything like that happen again.

Therefore, the inclusion of hedgerows as an EFA will no doubt be of concern to the RPA because in order to monitor this they will effectively have to digitally map every hedgerow which will be an enormous task between now and 1st January 2015 which is the start of the new BPS.

As a result DEFRA have warned in there press release that, “ To ensure that the RPA can process all claims accurately, farmers taking the hedgerow option may be requested to submit claims earlier and may need to expect payments later. This is because hedgerows will need to be digitally recorded and verified by the RPA to meet EU requirements and avoid the risk of penalties for farmers or the taxpayer”.

So, although matters have been clarified I think it will take a little while before the implications of the new EFA options are fully understood although the clock is ticking and farmers will need to make a decision on which prescriptions they intend to employ to within the next few months if they are not to jeopardise 30% of their agricultural support payments next year.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

Monday, 16 June 2014

Stay safe with electricity

Electricity is a powerful thing - we all rely on it being there and assume it is, even though we can’t see it.

But all electrical installations deteriorate with age. If things go wrong we can certainly feel it and its potential to be instantly lethal is perhaps greater than any other source of danger in a domestic property.

The most recent figures available, for 2010, reveal that 422 people died in England, Scotland, or Wales from electrocution and/or fatal electric burns suffered at home. Electrical fires in homes resulted in 48 deaths and 3,324 injuries.

Landlords are required by law to ensure:

  • That the electrical installation in a rented property is safe when tenants move in and maintained in a safe condition throughout its duration
  • The appliances supplied, such as cookers and kettles, are safe
  • That a House in Multiple Occupation (HMO) has a periodic inspection carried out on the property every five years
  • That any appliance provided is safe and has at least the CE marking (which is the manufacturer’s claim that it meets all the requirements of European law)

To meet these requirements, a landlord will need to regularly carry out basic safety checks to ensure that the electrical installation and appliances are safe and working.

Carter Jonas recommends an Electrical Installation Condition Report (EICR), a condition report which confirms as far as reasonably practicable whether or not the electrical installation is in a satisfactory condition for continued service and suggests it is carried out every five years on every rental property rather than just HMOs. This is in line with recommendations from both the Government and Electrical Safety First. The report will also identify any damage, deterioration, defects and/or conditions which may give rise to danger.

We also recommend an annual test delivering a Portable Appliance Testing certificate (PAT) on all portable appliances in furnished properties.

When appliances are supplied with a property, it’s important that operating instructions are also supplied and that they are still at the property when there’s a change of tenants. Best advice is to minimise the number of appliances.

There is no statutory obligation on landlords or agents to have professional checks carried out on the electrical system or appliances. However, under Common Law and various statutory regulations: The Landlord and Tenant Act 1985, The Housing Act 2004, The Electrical Equipment (Safety) Regulations 1994, and the Plugs and Sockets etc. (Safety) Regulations 1994, both of which come under the Consumer Protection Act 1987, there is an obligation to ensure that all electrical equipment is safe.

Lisa Simon, 
Head of Residential Lettings
T: 020 7518 3234 

Wednesday, 11 June 2014

Market trends for the price of farm commodities

Looking at market trends for the price of farm commodities when compared to a year ago does not make for particularly happy reading. The Farmers Weekly magazine publishes these figures each week and when compared to the prices achieved a year ago most commodities are significantly down.

I have written about beef prices before which have fallen sharply. The price quoted in the Farmers Weekly for last week was 345p per Kg deadweight which is down 50p per Kg on the price achieved this time last year although in this area I am reliably informed that one would struggle to achieve 325p per kg in this area. This indicates that the price being achieved for beef across the country varies significantly and we do not seem to be well placed in this area to achieve the highest prices.

These low prices have stimulated the Farmers For Action (FFA) group to launch protests at meat processing plants in the Midlands where there is concern about the amount of Polish beef being imported and processed in this country.

However, it is not only beef which has seen prices fall in the last year. Arable crops have also dropped sharply in value with Winter Wheat down from £180/tonne to £147/tonne and oilseed rape down from £380/tonne to £268/tonne. At today’s prices, profit margins for arable farmers are likely to be squeezed hard although on the reverse side of this particular coin, this should mean the cost of cereal based feed stuffs for livestock will fall.

In contrast lamb prices have remained steady while milk prices are well ahead of those being achieved this time last year but the trend in milk price is now distinctly downwards as the industry is hit by a number of milk purchasers cutting their farmgate milk prices.

For example, Dairy Crest has cut its liquid milk price by 1.25p/litre from July and Arla has dropped it direct-supplier price by 1.5p/litre. Similarly, earlier last week First Milk reduced its manufacturing contract price by 1.15p/litre.

All these price cuts have come on the back of falling world dairy commodity prices where Fonterra’s Global Trade Auction saw prices fall by 4.2% on 3rd June which is the eighth drop in a row for these auctions. Having said that, cheddar cheese prices rose by 8% and skimmed milk powder by 2.1% and so although milk prices are falling sharply at present there is hope they will stabilise and not fall to the desperately low prices which were witnessed two years ago which forced farmers to take direct action, blockading milk processing plants across the country including here in Somerset.

So what can we read in to all these “tea leaves” – well probably not a great deal other than the fact that markets do go up and down and farmers are exposed to the vaguaries of world markets now more than they have been at any time since the end of the Second World War. Therefore in order to survive, successful farmers will always need to keep their costs under control so as to make money in the good times and survive the hard times because market volatility is most definitely here to stay.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

Friday, 6 June 2014

A bitter pill for some to swallow

Some party political interests piled in to the recent Pfizer/AstraZeneca corporate tussle and this has made Will Mooney, Carter Jonas partner and head of its commercial agency and professional services in the eastern region, think about how potent a mix international business and national politics can be.

In the weeks which preceded Pfizer’s accelerated courting of AstraZeneca – which, appears, for the time being, to have peaked in mid-May with its delcined offer to AZ shareholders of £55 per share - there were almost as many reviews of the translation of a 2013 book by a radical French economist being undertaken by economic and financial journalists as those of their literary and cultural commentator peers.

The book was “Capital in the 21 Century” by Thomas Piketty and it was even reviewed in the Daily Telegraph by the immediate-past governor of the Bank of England, Mervyn King. While Lord King appeared not view the book as one of those works which changes the way we should look at the world, it pricked his interest enough for him to argue a different viewpoint to that of Monsieur Piketty.

The guiding premise of the book - not that I have read it, you understand – appears to be that, in this century, capitalism works in presumption in favour of inherited wealth over earned wealth because capital’s rate of return outstrips that of growth.

It’s a view. And not one a mere property agent is equipped to examine further.

My comment is only the coincidence of the timing of the book’s publicity and what might well play out as one of the biggest corporate capitalist battles of this decade. National politicians were struggling to keep up with a bigger battle than they could possibly control when it came to the AZ/Pfizer business. They knew it and most of us interested in the adventure knew it too. Yet the politicians couldn’t resist feeling they had to make some kind of pronouncement on it and take a position. It wasn’t edifying to see them operate their analogue arguments in this digital age.

In knowing that they couldn’t sanction whatever outcome there was going to be to Pfizer’s approach to AstraZeneca – save changing a tax regime which gives such R&D business interests a favourable home in UK PLC – the national body politic held court as the CEOs of both companies were questioned by a Westminster parliamentary committee for two days in a week which must have been one of the busiest in those two CEOs’ executive lives.

Those whose interests it suited likened the AstraZeneca situation to that of the recent sell-off of the Royal Mail and talked, wistfully, in terms of the selling off the nation’s crown jewels.

AstraZeneca and its work is one of the jewels in the corporate crown of the UK scene but it’s not a nationalised industry and it’s not ours to sell and never has been. Although in the mists of corporate time, there was a connection with the once mighty UK chemical institution ICI before ICI Zeneca was formed as part of a de-merger in the mid 1990. But it was never a state-owned operation. The Astra was put into Zeneca in 1999 as the result of a merger with Swedish company Astra AB and it then set off on a programme of acquisitions of its own which is still current.

The point is, in the 21st Century, fluffy and patriotic feelings about PLC companies are irrelevant. Whether Anglo-Swedish or American in origin, international companies are corporate citizens of the world and can, and will, choose to domicile themselves in whichever location suits them and their shareholders’ interests best at any one point in time.

To attract the best of business it seems, the best any single nation’s politicians can do is create an environment and circumstances in which as many of these companies as possible feel welcomed enough to locate and recruit and certainly not adopt a political posture which might put-off such companies in future.

Will Mooney MRICS

Commercial, Cambridge

Monday, 2 June 2014

Progress since last winter's floods

Last week, as the agricultural correspondent of this paper, I was privileged to be invited by James Heappey, the Conservative candidate for Wells, to meet the Secretary of State for the Environment, Food and Rural Affairs, Owen Paterson MP.

Mr Paterson was in the area to visit the Bath and West Show and to investigate what progress has been made in the aftermath of last winter’s devastating floods on the Somerset Levels.

Having never met Mr Paterson before, my overriding impression was of a man who is committed to and knowledgeable about rural issues. He was questioned hard by a small group of farmers, landowners and rural professionals and he demonstrated that he had an in depth knowledge of a variety of subjects although the conversation was dominated by the ongoing impact that TB is having on so many livestock farmers in this area.

On this subject Mr Paterson was quite clear that the culling of badgers will remain part of the ongoing policy to eradicate the disease in cattle. The culling will continue in the two pilot areas in west Somerset and Gloucestershire and in the longer term he would like to see these areas extended widely throughout the counties which are badly affected by the disease.

He did also emphasise the need for continued bio-security measures in cattle which already involves a strict testing regime and culling of infected animals but this alone, he explained, will simply not eradicate the disease.

Other measures including vaccination of both cattle and badgers may become part of the strategy in the future but further research in to diagnostic tests and vaccinations and changes to European legislation will be required before such measures can be employed widely and cost effectively.

On the matter of flooding, which was another hot topic, he emphasised the need for local farmers, landowners, the Internal Drainage Boards, County and District Councils, the Environment Agency and conservation organisations to work in partnership to set up a Rivers Board to manage the rivers and other waterways in the long term to prevent a repeat of last winter’s problems.

He was keen to know how the EA was getting on with the initial dredging works on the Parrett and the Tone which has been funded by government. He was concerned that such work should not be held up by local bureaucracy, whether that be because of unnecessary health and safety or environmental hurdles but equally he emphasised the point that in the longer term it will be up to local organisations to sort this out for themselves.

He noted that in other parts of the country such as in Lincolnshire, landowners and farmers seemed to work well in partnership with the EA and he saw no reason why such arrangements cannot be put in place more effectively on the Somerset Levels. It seemed to me he was clearly setting down some parameters for the future in that although government have been willing to help with funds to “pump prime” the initial capital works, the ongoing responsibility will fall to local organisations to work much more effectively going forward with each other.

So, all in all, it was a fascinating insight in to the thinking of government at a high level and I came away with the feeling that we at least had someone in charge who understood the needs of the countryside which is a far cry from the dark years of Margaret Beckett’s leadership of DEFRA under the last Labour government.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381