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UK200Agricultural Group Specialist Training Course

UK200Agricultural Group Specialist Training Course. Wednesday 23 June 2010. FARM SUPPORT AFTER 2012. RICHARD KING. June 2010. THE IMPORTANCE OF SUPPORT. SOURCES OF FARM INCOME. FBS England – 2004 to 2009. 2004/05. 2005/06. 2006/07. 2007/08. 2008/09. 3,500. Diversification.

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UK200Agricultural Group Specialist Training Course

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  1. UK200Agricultural GroupSpecialist Training Course Wednesday 23 June 2010

  2. FARM SUPPORT AFTER 2012 RICHARD KING June 2010

  3. THE IMPORTANCE OF SUPPORT

  4. SOURCES OF FARM INCOME FBS England – 2004 to 2009 2004/05 2005/06 2006/07 2007/08 2008/09 3,500 Diversification Agri-environ. Payments 3,000 Direct Subsidies 300 400 Single Payment 2,500 280 30 Agricultural Income 330 20 2,000 430 1320 340 420 1,500 280 30 1370 180 200 120 1,000 1430 1520 1380 500 980 630 £m 0 -130 -360 -320 -320 -500 Diversification excludes off-farm employment, investment, agricultural contracting etc. Source: DEFRA / Andersons

  5. LOAM FARM MODEL £ per Ha 2009 Result 2010 Budget 2011 Budget Gross Margin 418 Overheads 332 Rent and Finance 142 Drawings 110 Margin From Production(167) 556 338 143 110 (34) 267 233 561 347 142 110 (38) 265 227 • 600 Ha of combinable crops (W. Wheat, W. OSR, S Beans) • 240 owned, 360 FBTs; owner, 1 FT worker, & harvest casual Single Payment and ELS 283 Business Surplus 116

  6. FRIESIAN FARM MODEL ppl 2008/09 2009/10 2010/11 Milk 26.2 Total Output 28.2 Variable Costs 11.7 Overheads 9.7 Rent, Finance & Drawings 5.1 Total Costs of Production26.5 Margin From Production 1.7 24.7 27.1 12.0 10.5 5.0 27.5 (0.4) 2.6 2.2 25.2 27.6 10.4 10.5 5.0 25.8 1.8 2.4 4.2 Single Payment and ELS 2.4 Business Surplus 4.1 • 150 cows averaging 7,500 litres on 100 Ha (part rented). • Year-round calving, liquid contract. Owner + worker.

  7. MEADOW FARM MODEL £ per Ha 2010/11~ 2008/09 2009/10* 455 150 605 471 305 (171) 249 78 Livestock Gross Margin 407 Crop Gross Margin139 Total Gross Margin 546 Overheads 490 Rent, Finance & Drawings 305 Margin From Production (249) 440 121 561 460 301 (200) 261 61 Single Payment and ELS 234 Business Surplus (15) Source: Andersons * estimate ~ budget • 154 Ha mixed lowland farm (114 Ha owned, 40 Ha on FBT) • Beef (suckler cows, and finishers) sheep and arable • Proprietor, 1 FT family worker + casual

  8. BACKGROUND TO THE NEXT REFORM

  9. THE PROCESS AND TIMETABLE • Future of support under the CAP will be determined by next EU budget for period 2014-2020 • Single Payment 2012 is paid for out of 2013 budget - Current Intense lobbying (public debate to June) - Autumn 2010 ‘Budget Review’ published (no figures) - November 2010 EU Commission White Paper on CAP reform - Mid 2011Formal proposals on 2014-2020 Budget - July 2011 Legislative proposals on CAP reform - Mid/Late 2012 EU Farm Ministers & EU Parliament agree farm support reform ? - Late 2012/Mid 2013 EU Heads of State agree budget ?

  10. NEGOTIATING ISSUES • What is agreed for CAP (by Farm Ministers) may be over-ridden by (later) budget deal (Heads of State) • Potential policy vacuum for 2013 SPS year - roll-over of present system for one year? • Attitude of new Farm Commissioner (Dacian Ciolos) • Under Lisbon Treaty European Parliament now has a say in agricultural policy – slower reform? • Discussion tends to focus on future of direct payments (SPS) • as largest proportion of aid • UK government wants phase-out of direct support (unlikely) • other areas such as market support and Rural Development also important

  11. CURRENT EU SPENDING 1B. Structural and 2A. CAP - Pillar 1: Cohesion Funds: (SPS & Market Support) 35.6% 33.8% Source: Commission / Andersons 2B. CAP - Pillar 2: (Rural Development) 8.7% 1A 5&6. Competitiveness 3. Freedom, Security Administration (& and employment: and Justice: 0.8% 4. EU as a Global Compensation): Citizenship: 0.5% 9% Partner: 5.7% 5.9% 2007 to 2013 Budget Period • Average spend €139bn (£118bn) per year - CAP €59bn • Total Budget 1.1% of EU Gross National Income (GNI)

  12. WHAT ARE DIRECT PAYMENTS FOR? • Compensation – for higher costs faced by EU farmers • Public Goods – habitats, landscapes etc. as a side-effect of farming activity • Income Support/Social Policy – allowing farming businesses to survive that otherwise wouldn’t – prevents land abandonment • Food Security – retains a critical mass of agriculture and a certain degree of domestic production • Transitional Support – helping farmers adjust to a market environment – how long? Or a mixture of the above? No clear idea of what they’re for  difficult to design a scheme A fundamental question without a simple answer.

  13. CURRENT SPS Ave. Single Payment per Ha of Agricultural Land 600 500 400 300 200 100 0 € per Ha UK Italy Spain Malta EU-27 EU-15 Latvia L'burg France Greece Poland Ireland Cyprus Estonia Austria N'lands Sweden Finland Belgium Slovenia NMS-12 Slovakia Lithuani Portugal Bulgaria Hungary Czech R. Romania Germany Denmark Source: EU Commission / Andersons

  14. WHAT MIGHT HAPPEN

  15. SIMILAR / LESS MONEY FOR CAP • A continuation of current budget (at current prices) best that might be expected • Any cuts phased through to 2020 • CAP to fund more Member States (Balkans, Iceland etc.) • Co-financing (of Pillar 1) a possibility - • Member States part-fund the SPS • Compulsory or Voluntary – ‘renationalisation’ of the CAP

  16. RE-DISTRIBUTION OF PILLAR 1 • Direct Payments / SPS / Pillar 1 to continue through to 2020; • Recognisably the Single Payment Scheme • Entitlements to support, activated by occupying eligible land, and cross-complying • More equal distribution (in per Ha terms) across EU Member States • Switch to New Member States (little effect on UK?) • Allocation not just on agricultural area – a formula bringing in costs, agricultural employment, land type etc. may be used • MS allowed to pay differential regional rates • Historic payment basis ended

  17. SWITCH OF FUNDS TO RURAL DEV. • Share of CAP funds going to Rural Development to rise • Implies ‘2 Pillar’ model CAP remains • Partially occurred already in the UK through high voluntary modulation • Fairer allocation of RD funds among MS - similar to SPS – benefit to UK • Any shift of funds phased through to 2020 – rebalancing of Pillar 1/Pillar 2 may remove need for modulation • Targeting of larger SPS (and RD?) recipients to continue

  18. OTHER POSSIBILITIES • A ‘third Pillar?’; • EU Commission – Climate Change (including renewable energy) • NFU – Research and Development • More ‘market regulation’?; • more interventionist approach as trade-off for less direct aid • insurance funds, counter-cyclical payments? • derogation for agriculture from EU competition laws? • import restrictions – animal welfare, health, carbon etc.? • How would this fit with Trade commitments? – WTO, Mercosur etc.

  19. UK IMPLEMENTATION Regional Rates • In England, relative values of 3 existing regional average rates may be altered Net Estimated 2012 SPS Lowland SDA Moorland £ per Hectare £225 £162 £33 • A mechanism for moving money from lowlands to the hills? • Scotland and Wales to move to regional system – regions, rates, timing etc. • Within EU framework, MS will continue to set precise rules • More scope for the industry to influence at this level?

  20. UK NATIONAL ENVELOPES • ‘Article 68’ allows funds to be skimmed for specific purposes; • improving quality and marketing of agricultural products • enhancing animal welfare • supporting farming that is important for the environment • contributions to insurance funds – risk management, animal and plant diseases • others may be added post-2013 • Not widely used in the UK under the Health Check • Will DEFRA be tempted to use this if money is tight? – unlike Rural Development needs no co-financing • WFD and Hill Support mentioned • Would the industry support any such use?

  21. UK RURAL DEVELOPMENT • What should be the balance between Pillar 1/Pillar 2 in UK? • Should/will the UK be able to shift money to Pillar 2 with continued voluntary modulation? • Schemes for 2014-2020 need to be put forward • Change in balance of English RD programme (currently 70% environmental)? • Environmental Stewardship likely to remain largest beneficiary of RD money • Does the ES need changing? • higher (ELS) payments - move away from ‘income foregone? • scheme between ELS and HLS?

  22. FUTURE SPS IN FIGURES Payment on English Lowland Arable Hectare • With full claims in reference period, 2009 net payment will be around £225 per Ha (£90 per acre) (€1 = 85p) • 2012 payment very similar • For 2013 assume a) reduction in UK SPS funds; b) a re-distribution of funds to the hills; c) lower voluntary mod. • Gives a payment of £200 per Ha (£80 per acre) • By 2020, larger cut in SPS funding phased-in plus other deductions to pay for new members • Possible payment down to £110 per Ha (£45 per acre) (€1 = 85p) • If Pound strengthens then £85 per Ha (£34 per acre) (€1 = 65p) • Scots/Welsh businesses likely to suffer steeper reductions

  23. EVOLUTION OF THE CAP Pre MacSharry Post MacSharry Agenda 2000 Fischler Post Fischler pre 1993 to 1999 to 2004 2005-2012 2013 onwards? 31 bn ECU €40 bn €45 bn €53 bn inc. RD €35 bn inc. RD? Direct Mkt Support Direct / Direct / Coupled Single Coupled Payments Single Payment - Payments: Payment: Decoupled: Arable Area Market Pillar 1 Regional Ave. Historic or Aid, Support: Regional Livestock Intervention, Average Headage Export Rural Dev. Payments Refunds, Agri-env. Hill Mkt Support Import Duties Market Pillar 2 farming, Support Rural Dev. Diversification etc. Rural Dev. Structural Funds Structural, inc Agri-envirnmt EU-12 EU-15 EU-15 EU-25/27 EU-30?

  24. CONCLUSIONS / IMPLICATIONS

  25. WHY THIS REFORM MATTERS Fischler Reforms (introduction of Single Payment) - • Radical change in the subsidy system (decoupling) • But no great change in the amount of money received • Therefore, no great impetus for business change Ciolos Reforms - • Subsidy system largely unchanged • But substantial shift in the amount of money received

  26. SUMMARY • Single Payment at current levels time-limited • More RD money available – but more ‘cost’ involved in accessing this • Reduction in SPS will remove profitability on many farms • To replace lost SPS, businesses can; • hope that market prices improve, or • reduce costs / improve efficiency

  27. CONTACT INFO Richard King Partner – Andersons Research Team 01664 503200 rking@theandersonscentre.co.uk

  28. FARM SUPPORT AFTER 2012 RICHARD KING June 2010

  29. UK200Agricultural GroupSpecialist Training Course Wednesday 23 June 2010

  30. Renewable Energy:Grasp the Opportunity David Harries Head of Renewables Aaron & Partners LLP

  31. Renewables are not new…

  32. … and closer to home

  33. So why is renewable energy such a hot topic? Climate Change Technical Developments Recognition of Resource Ageing Conventional Generators Energy Security

  34. Existing Generation Coal supplied over 50% of winter consumption 2008/9 70% of our coal imported 50% from Russia Average coal station over 40 years old 6 of 19 coal stations scheduled to close by 2015 1/3rd of UK generation to close within 10 years

  35. Energy Security

  36. Government Policy UK government targets: 10% by renewables by 2010 15% by 2020 80% reduction in carbon emissions by 2050

  37. Government Policy In reality, economically driven: “3 square meals from anarchy” In response, Government policy has made renewable energy a good investment

  38. The Economics You sell your energy… You get paid the market price plus ROCS and LECS or FITS A levy on the power generation industry Ultimately paid for by higher consumer prices

  39. ROCS Economics ROCS: “Renewables Obligation Certificates” Base price set by government but can be traded Targeted to encourage particular developments

  40. ROCS Economics What is paid for generation: Base price currently c. £45/MWh ROC price up to c. £50/MWh LEC price £3.50/MWh

  41. ROCS Economics Number of ROCS for: Onshore Wind: 1 Offshore Wind: 1.5 Hydro-electric: 1 Wave / Tidal: 2 Solar Photovoltaic: 2 Anaerobic Digestion: 2 Landfill Gas: 0.25

  42. ROCS Economics Energy from Waste with CHP: 1 Co-firing of Biomass: 0.5 Co-firing of Energy Crops: 1 Co-firing of Biomass with CHP: 1 Co-firing of Energy Crop with CHP: 1.5 Dedicated Biomass: 1.5 Dedicated Energy Crops: 2 Dedicated Biomass with CHP: 2 Dedicated Energy Crops with CHP: 2

  43. ROCS Economics Assuming wholesale, ROCS and LECS at up to £100/MWh: 1MW AD plant at 80% efficiency = 7,000 MW pa = £700,000 pa

  44. ROCS Economics 1MW wind farm at 33% efficiency = 2,890 MW pa = £289,000 10MW = £2,890,000

  45. Feed-in Tariffs Aimed at smaller generators Maximum 5MW Will run alongside the ROCS system Came into force 1st April 2010 Can apply to retrospectively to schemes built after 15 July 2009

  46. Feed-in Tariffs Payable in two components: Generation Tariff according to type Export Tariff @ 3p/kWh regardless of type

  47. Feed-in Tariffs Generation Tariffs (pence / kW) for: Hydro-electric <15 kW: 19.9 Hydro-electric 15-100 kW: 17.8 Hydro-electric 100kW – 2MW: 11.0 Hydro-electric 2MW – 5MW: 4.5 (Note: >5MW = ROCS)

  48. Feed-in Tariffs Generation Tariffs (Pence / kW) cont’d: Wind <1.5kW: 34.5 Wind 1.5 – 15kW: 26.7 Wind 15 – 100kW: 24.1 Wind 100 – 500kW: 18.8 Wind 500kW – 1.5MW: 9.4 Wind 1.5 – 5MW: 4.5

  49. Feed-in Tariffs Generation Tariffs (Pence / kW) cont’d: Anaerobic Digestion <500kW: 11.5 Anaerobic Digestion 500kW – 5MW: 9.0 Solar PV retrofitted <4kW: 41.3 Solar PV new build <4kW: 36.1

  50. Feed-in Tariffs Payments linked to RPI Income tax exempt for energy used domestically Intended to deliver “approximate rate of return of 5 – 8% for well sited installations”

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