NFU South East's meeting on Farming, Tenancy and Brexit earlier this month proved popular, writes NFU South East's environment and land use adviser Tom Ormesher. NFU members filled the meeting room at Ashford livestock market for this event, chaired by NFU South East Tenants Representative John Marland and kindly sponsored by Agrovista. It featured talks from NFU vice president Stuart Roberts and Defra team leader Claire Williams, whilst Sam Snart, Managing Director of Hobbs Parker, provided insight on possible land and rental shifts over the months ahead.
A key issue that quickly arose is the chronic under-investment in farm infrastructure, which has beset the tenant sector for many years. Mr Roberts said “Many tenant farms need a decent dose of investment to make them fit for the future.”
Defra spokesperson Claire Williams outlined how the forthcoming Agriculture Bill will make provisions for grants, loans and loan guarantees for farm productivity and animal health and welfare. However NFU Rural Surveyor Louise Staples countered that many tenant farms haven’t seen any capital investment for many decades, stating: “The need is not just about innovative and precision technology, basic investment is needed on building renewal, drainage, sheep handling – nothing fancy, just replacement of ageing forty year old infrastructure.”
It is well recognised that there have been constraints with bank lending due to lack of asset security and short term tenancies, which is one of the reasons why the NFU has long been calling for tenancy reform. It was therefore welcome news to learn that Defra has begun talks with the Tenancy Reform Industry Group (TRIG), which includes the NFU as they prepare for a tenancy reform consultation this year. Topics on tenancy succession, commercial unit tests and retirement packages will all potentially be under consideration.
The audience asked Claire Williams further questions about how Defra’s introduction of a “public money for public goods” system will impact on tenant farmers. She told the meeting that whilst BPS this year will be unchanged, payment reductions will be introduced for all farms from 2021 onwards. As the new ‘environmental land management’ system becomes more established, direct area-based payments will be phased out completely. Defra is currently undertaking a series of ‘Trials and Tests’ to compare the advantages and disadvantages of different approaches, possibly including how the new system will impact tenant farmers.
Ms Williams also highlighted how payments will be ‘De-linked’ from BPS entitlements during the transition “giving farmers the freedom to choose how they spend their remaining direct payments”. Defra is preparing to consult later in the year on the reference period for calculating de-linked payments and whether they’ll offer a lump sum payment for the full seven year transition period up front.
Finally, the meeting also included many astute observations from Hobbs Parker’s Sam Snart. Mr Snart highlighted how previous major reforms (notably the McSharry CAP reforms in 1992 which reduced support by 29% for cereals and 16% for beef) had very little impact on land values and rents. In this light Mr Snart went on to urge caution over some of the wilder predictions for land values and rentals reported in the press. In particular in the South East, Hobbs Parker are predicting only modest reductions in land values of 5-10% with prices likely to be kept high from non-farmer and large farm demand.
In terms of rentals, Mr Snart suggests FBT values could be resilient due to strong competition for arable land and may only suffer post-Brexit reductions in the range of 10-20% depending on location and quality. Nonetheless AHA rents are likely to be more impacted due to reductions in farm incomes and as direct payments are reduced, so that rent reductions of 20-30% may be achievable at review. Going forward into the uncertainty of Brexit he highlighted the need to consider more flexible rent formulas that are linked to price or gross margins; and the need to review any break clauses in existing agreements that may expose the tenant to unforeseen costs.
The NFU offers a comprehensive Tenants Service to our members, including NFU Tenants First Advice which provides a £600 up front contribution towards all rent reviews. Further details of our service can be found at www.nfuonline.com/membership/your-nfu-member-services/the-nfu-tenants-service/