Elizabeth Truss blinded by last year's stats

Last week I read a news item released from a recent government report entitled “Making the food and farming industry more competitive while protecting the environment”

The headline was that, “The UK agricultural industry is going from strength to strength in its contribution to economic growth, with new statistics revealing that increased production and prices boosted farming income to £5.6 billion last year”.

It was stated that total income from farming rose by 15%, between 2012 and 2013 as the industry stepped up its output of top-quality food.

Environment Secretary Elizabeth Truss said, “These figures underline that food and farming really is a powerhouse of the UK economy. From potatoes to poultry, our farming industry is showing that it is leading the way in producing top-quality food that is desired across the world. Our farming sector employs over 400,000 people and their success is helping us deliver the government’s long term economic plan.

We know British consumers value British food but we want UK farming to be a world-leader, exporting quality products far and wide as well as thriving on the home front. Our push for better food labelling across Europe is just one of a host of ways we are working to help this crucial sector to grow and drive growth.”

However, I do hope that Elizabeth Truss understands that this rosy picture represents a “snapshot” from the past, before the world commodity markets took a nose dive plunging many farmers in to a very different situation today from that which existed only a year ago.

It is true that in 2013 commodity prices were reasonably high and the weather in the UK was certainly better than was experienced in the very wet summer of 2012. So in general farm incomes did rise in 2013, but 2014 has proved to be a very different scenario.

First the beef sector plummeted during last spring and summer which was followed by dramatic falls in cereal prices. Both these markets have made modest recoveries in recent months but the dairy sector is in freefall, with many farmers now being paid 8-10p/litre less for their milk than they were being paid in the spring.

So I trust Elizabeth Truss is not being blinded by last year’s statistics and that she has real grasp of the difficult situation which is affecting many farmers in the UK at present. There may be little that she can do about world market prices but there are things government should do to ensure the retail giants are prevented from passing cost savings down the food supply chain in an unfair manner so as to bolster their dwindling profits at the cost of primary producers.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Taking Stock

Last week saw three different professional firms come together at the Bath and West to address the problems currently facing the dairy industry as milk prices have plummeted in recent months.

The seminar entitled “Taking Stock” was hosted by land agents, Carter Jonas, the Shepton Vets and the Farm Consultancy Group (FCG). The aim of the event was to assess the strategies farmers can employ to survive the current difficult trading period and in general, despite the current problems the message was reasonably up beat.

The overriding message that came across from all three firms was the importance of a farmer understanding his business inside out and managing all aspects to keep costs of production under control.

In the last year or so, while milk prices were reasonably high it seems some farms may have taken their eye of the ball in this respect and Hollie Savage of Carter Jonas and James Shenton and Phil Cooper of the FCG all emphasised the need for farmers to analyse their business carefully, benchmarking their costs of production against competitors so as to identify where improvements can be made.

Similarly Paddy Gordon of Shepton Vets explained the importance of a farmer understanding all aspects of the herd’s health and importance of using your vet to provide regular consultancy advice rather than just calling the vet when an animal falls ill. In so doing Paddy illustrated how the cost of regular advice will be far outweighed by an increase in profits as mastitis can be brought under control and pregnancy rates increased.

Tom Ireland from Carter Jonas addressed other opportunities in relation of renewable energy issues in particular where he explained that there are still significant opportunities for farmers, although obtaining planning consent and locating an appropriate grid connection remain significant obstacles. However he also emphasised that as subsidies begin to fall, the profitability of a renewable energy installation will become increasingly reliant on understanding the farms energy needs and matching that to the electricity generated. This is because it will be increasing important to use your own electricity rather than exporting it to the grid because this will produce a much higher return.

So in conclusion, although it was acknowledged that some dairy farmers may leave the industry, the speakers were confident that the majority will survive. However, in order to receive a sensible return for the massive financial and time commitment required to run a successful dairy farm, hard work alone will not be enough; farmers will need a thorough understanding of their business and act to control costs in particular.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Catch me if you can

Last Friday I considered myself beyond privileged to meet the racing legend Frankel, my hero horse. It was a magical day made possible by the wonderful Jim Power who, not only was the Stud Groom for Banstead Manor Stud for many years but also, significantly, brought Frankel into the world. Frankel, the progeny of Galileo and Kind, was foaled at the stud on 11 Feburary 2008. In chocolate terms, my day with Jim Power and Frankel and, later, at the Newmarket Foal Sales was like winning the golden ticket for the Willy Wonka Factory. I was in horsey heaven.

I asked Jim when Frankel started to stand out amongst the crowd and he described him as "a lovely natured foal who owned the paddock”. He has described him as a “straightforward yet sensitive horse, with a slight air of arrogance about him - really top class racehorses often have that character.”

On Friday, Jim was quick to spot the high earners of the day as the fluffy foals were led around the paddock including top selling foal, son of Sea The Stars, purchased by Shadwell for 450,000 guineas.

Frankel raced 14 races and won all of them. Owned by Prince Khallid Abdullah, he is the first horse to be Champion at two, three and four-years old as well being crowned the Cartier Horse of the Year for two successive years in 2011 and 2012.

Frankel’s unquestionable supremacy translated into the exceptional prices achieved when his first two foals were sold: the first in June 2014 for £1.15m, whilst the second broke Irish records a week ago when it sold for 1.8m Euros (about £1.45million).

Yes, so much is down to the dam as well as the stallion, and Ireland’s success was much owing to the talent of the filly’s mother, Finsceal Beo (‘Living Legend’ in English) who won The 1,000 Guineas in 2007.

But what does this have to do with the residential sales market? Friday - my amazing day – was, surprisingly, a slow day for Frankel’s foals. The TV cameras were poised, the hype had been mounting, but out of his four foals due to be sold, the first was withdrawn following an over-excited jig in his stable and the following three did not meet their reserve prices, albeit one was subsequently sold to a privately increased bid.

I asked Jim Power what would happen to these adorable un-sold off-spring? How could they have not sold, despite their parentage and the amazing selling skills of three, non-stop-incentivising-supremely-knowledgeable auctioneers?

The talent was there, the genes were excellent, what more could one want? I truly felt for the owners and the auctioneers. It was no different to how I feel when I have launched an exceptional house to the market but I don’t find the buyer immediately, despite knowing the quality of what I am selling and promoting it with absolute gusto.

Jim’s answer was that the owners would probably wait until the Yearling Sales to re-present Frankel’s offspring to the market in order to achieve their deserved sum.

This is the property market too.

There are absolutely beautiful houses which have been brought to the market this autumn but have failed to sell. This isn’t down to their quality, however. Ask any estate agent (who really knows their salt) and the resolute answer to the question of “when is the best time to buy?” is: “NOW!”

We’re not saying this because we’re keen to get Christmas sales up, it’s because for a fourth year in a row we have not experienced the autumn market we were expecting.

We are in a new cycle. January and February are now key selling months.

January takes off at a gallop following the Christmas family ‘get-togethers’. Country Life, Rightmove & Zoopla report an annual peak of website hits in the latter part of Christmas Day. Decisions are made around the roast turkey and crackers and the newly-focused buyers want immediacy. They do not want to wait until the daffodils come out before a house is launched to the market.

This is why NOW is the right time to buy. Like Frankel’s unsold foals, look at what is out there now - don’t let the great and the brilliant pass you by - your ideal house may have already been withdrawn from the market only to be launched to the market in a few months time for a higher price. Call your agent now to discuss what is currently ‘hidden’ from the market. Vendors are more likely to consider genuine and unambitious offers this side of Christmas before the starting gates open in January. Unlike the retail market, you are likely to find your better purchase deal in the run up to Christmas - if you are waiting for the January sales you need not apply.

Finally, in estate agency, we often hear the expression “if it’s not meant to be, it’s not meant to be” – this expression frustrates me more than any other. If you want something don’t let it lie in the hand of fate - go for it. If you want a house - don’t hang about. Don’t be reserved in showing your agent your keenness to buy. It is your enthusiasm that gives us confidence in you and your genuineness which we, in turn, convey to our vendors. Enthusiasm also puts you at the top of our contact list for our ‘discreet’ properties which we are lining up for early 2015.

So, whilst I’m throwing fate out of the equation with my previous paragraph, I have noted something interesting: Frankel was born on 11 February 2008; his first foal was born on 11 January 2014 and our racing hero was trained by the legendary trainer, Henry Cecil, who was born on 11 January 1943.

Noticed anything? Apparently number 11 is considered to represent the Master Teacher which is believed to be an inspirational guiding light - someone who is highly charged, very powerful and leads the world.

Caroline Edwards
Partner
Residential Sales, Long Melford
T: 01787 888622
E: caroline.edwards@carterjonas.co.uk

Quietly confident about the introduction of the BPS

DEFRA has recently published its latest update on the CAP reform rules which surround the introduction of the new Basic Payment Scheme (BPS) next year.

It is ironic that farmers are being urged by DEFRA not to delay registering themselves for the new Basic Payment Scheme (BPS), and yet the registration rollout programme itself has been delayed. With the memories of the disastrous introduction of the Single Payment Scheme (SPS) back in 2005 still heavily imprinted on the mind of most farmers and land agents, one hopes the current delay is not a portent of things to come.

However, a DEFRA spokesman has commented, “We have learned a lot of lessons from the past. What happened in 2005 is still in everyone’s mind – but that is not going to happen again”. Indeed having met a number of the senior Rural Payments Agency team myself earlier in the year, I genuinely think they have a much better grasp of what is required than was the case back in 2005.

Therefore I am quietly confident that the introduction of the BPS will go better than its predecessor scheme, but equally farmers should not underestimate the time that may be required getting registered on the new system and then learning how to use the online mapping tools and the new application process.

The most important initial step will be for farmers and land agents to verify their identity on line. This will involve logging on to the Gov.uk Verify website where your identity will be verified by one of five third-party identity assurance providers.

In order to do this farmers will be asked a number of questions about their personal circumstances and finances and to make this process go smoothly you will need either a current driver’s licence or passport and details of at least two of the following; bank account/credit card, personal loan or mortgage, gas or electricity bill, mobile phone contract or voter registration information.

It is understood that if you have all the necessary information to hand the registration process can be relatively simple and will only take 10 minutes or so but if not you will be directed to a telephone helpline and in extremis you will be able to contact a digital support centre, the nearest of which in this area is currently in Exeter.

However, unlike when the SPS was introduced in 2005, DEFRA has recognised the importance of the professional advisors who for many years have played a vital role in assisting farmers complete their application forms. Thus, with everything now having to be submitted online, DEFRA is encouraging professionals, such as land agents like myself, to help farmers get set up for the new digital era which is upon us whether we like it or not.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Latest update on the CAP reform

DEFRA has recently published its latest update on the CAP reform rules which surround the introduction of the new Basic Payment Scheme (BPS) next year.

There are still areas of uncertainty but the long awaited rules concerning hedges and how they can be used to contribute to a farmer’s “Ecological Focus Area” (EFA) requirement have been clarified.

Any farmer who has more than 15 hectares of arable land will have to “set aside” 5% of their arable land as an EFA. There are some exemptions to this rule for farmers with a high proportion of grass but if these exemptions do not apply farmers will have to incorporate the appropriate EFAs in to their farming system.

There are five different types of EFA:

1.Fallow land
2.Hedges
3.Buffer Strips
4.Catch crops and cover crops
5.Nitrogen fixing crop

It is the rules concerning hedges which have been exercising farmers’ minds in this area because they are an obvious ecological resource which many would like to use towards their EFA requirements and now the rules have been clarified in what appears to be a reasonably sensible manner.

Basically every metre length of hedge is to be regarded as providing 10 sqm of EFA and so farmers will need to measure the length of qualifying hedges on their land to calculate the deemed EFA area. But importantly DEFRA have also clarified the definition of what will be considered to be a hedge and which hedges will qualify as an EFA.

As far as the definition of a hedge is concerned, there are no maximum or minimum width or height limits but the hedge must be more than 20m long and there must be less than 2m from the ground to the lowest leaves. Gaps of up to 20m, including gateways are allowed in hedges.

However, not all hedges will qualify as an EFA. It is only those hedges which are on or adjacent to arable land in the farmer’s control that will qualify although hedges which are separated from the arable land by an ineligible feature under the BPS rules, such as a ditch of more than 2m wide or a hard track will not qualify. If the hedge is separated from the arable land by a fence only the hedge will qualify.

If the farmer is responsible for farming both sides of the hedge, even if one side is in permanent pasture, then the full 10 sqm per m length of hedge can be claimed but if the other side of the hedge is farmed by another farmer then only 5 sqm can be claimed. If the other side of the hedge is a road, the farmer can make a full claim.

Finally DEFRA had originally stated that using hedges to contribute to a farmer’s EFA requirements may result in a delay in the farmer receiving payment of the BPS in 2015. However, DEFRA have now said there may not be delays as they are looking into an ‘approach’ to prevent this. What this will be we do not know but it seems DEFRA are backtracking a little on their previous warning.

Therefore, although there is still plenty of work to be done before the first BPS claims can be made next year, some of the crucial detail is beginning to become clear.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Our ping-pong recovery

It was exactly three years ago when I was advised that ‘being on the brink is the new normal’ for what, at the time, was the foreseeable future. In 2011, many weren’t willing to assign a specific number of years to ‘the foreseeable future’ but I think we can say that, three years on, we are back from the brink, economically.

Yet as many economic and financial commentators judge, the country is still in a strange state of being where one set of indicators suggesting positive news is offset by another giving a gloomier gloss to our recovery. Yes, the economy is growing but there will be a shortfall on the deficit above £100 billion by the end of this year.

One Eurozone economist recently characterised the UK’s growth as ‘the wrong type of growth’. Much like the seasonal ‘leaves on the line’, it’s probably the best explanation for the feed of ping-pong, back and forth, contradictory economic data this autumn and the balancing act those politicians charged with running the country are having to perform day-in and day-out as our recovery plays out.

Perhaps the bruising economic experience the UK has endured since 2008 has changed our perceptions of what amounts to recovery. Pre-crisis, debt-levels being 40 per cent of national output were considered high but now it’s 80 per cent which is the trigger point at which the credit rating agencies talk about withdrawing our triple AAA status.

The shortfall on the deficit by this year’s end would have been considered big in times past at 6-7 per cent of national output but it is not as big as it was at its 9-10 per cent peak in 2008/2009.

In October, published figures recorded that unemployment had fallen below the 2 million mark for the first time in six years. But in this current tax year of 2014/15, income tax receipts are up by just 0.1 per cent yet outlay on social benefit payments has gone down.

Wage inflation runs at just 1 per cent at this point in our recovery but the Bank of England is anticipating 3 per cent wage inflation by the end of next year and therefore tax receipts will be up.

It may feel like a heavy trudge through the recovery now but many analysts are convinced there is good news in the pipeline and, thankfully, the wisest market operators will always invest for the long term.

Before that, we have the General Election in May and all bets are off that the Chancellor of the Exchequer’s Autumn Statement – scheduled for early December – will be anything else but a necessary political and economic balancing act of ‘Austerity Lite’. There is likely to be further squeezing of public expenditure but the pinch will not be as nippingly sore as it was in the early years of this administration.

In this ping-pong recovery of ours – in which we are growing faster than Germany - whether it’s politics which is the foil to economics or vice versa, balancing is not an act: it is the reality.

Much as we did in 2011, we are going to have to accept this new reality of our recovery for the foreseeable future.

Will Mooney MRICS
Partner
Commercial, Cambridge

Continue to be battered by bad news

Dairy farmers continue to be battered by bad news as the milk price continues to tumble although it is not an even playing field across the many different milk supply contracts on offer.

Worst hit at present appear to be farmers supplying First Milk which is a farmer owned co-op whose suppliers/members seem to be badly exposed to the world milk commodity prices which also continue to fall. Suppliers of First Milk have received the unwelcome news that the price for their liquid milk and manufacturing contracts will be falling by 1.4p/litre and 1.8p/litre respectively in December to 22.7p/litre for liquid and 24p/litre for manufacturing milk.

Many of the other milk buyers have also announced cuts including Arla, which has reduced the price for its farmers on their “direct supply” contract by 3p. These farmers are not Arla members and perhaps as a consequence of this, Arla has chosen reduce their price milk rather than that paid to its members, explaining that the direct supply milk was surplus to retail demand and was therefore only attracting commodity prices.

Thus, although all farmers will be affected by the fall in milk prices some farmers are being disproportionately badly affected. In light of this it seems to me that getting on the right milk contract is probably one of the most important business decisions many dairy farmers should be considering and I cannot see how farmers supplying a buyer such as First Milk will survive for any length of time with a milk price as low as 22.7p/litre.

Indeed I would imagine this must bring in to question the sustainability of First Milk as a business because I can only imagine many of their suppliers, despite being owners of the business as well as suppliers, will be seriously looking at their options, whether that be looking to switch to another milk purchaser, or perhaps even stopping dairy farming altogether.

The Chairman of First Milk, Jim Paice who previously served as farm minister in DEFRA during the peak of the milk price protests in 2012, blamed the price cuts on a drop in returns for liquid milk and cheese in the past month.

“With cheese specifically, this impacts not only on what we are selling now, but on the price that we can sell our cheese stocks for in the future,” added Jim Paice.

But even so, it must be galling for First Milk members to see other dairy farmers still being paid nearer 30p than 20p/litre for producing exactly the same product.  

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk