All change in the countryside – The Property Chronicle
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All change in the countryside

Investor's Notebook

Farming in the UK is changing faster than anyone realises. There will be winners – and losers…

The UK farming industry is facing a period of radical change that most farmers are underestimating both in extent and speed. There will be winners and losers, with the split between the two largely determined by how quickly individual farmers can adapt. The changes in the farming industry will themselves have profound impacts on the environment.

What are the main catalysts of change, and how can farmers best embrace the opportunities that will arise?

Some adaption strategies can be implemented gradually while others will require urgent action. The good news is that central government can assist with grants – and in some cases there will be scope for private investment capital. 

Successful farmers will need to be wholly open to ideas, invest time to investigate the options, and change elements of their lifestyle to succeed through this period of unprecedented change.

The UK’s exit from the EU 

Assuming the UK exits the European Union (either by way of a no deal or after a two-year transition period), farming support from Europe in the form of Common Agricultural Policy (CAP) grants will end at some point – potentially very soon. 

The UK’s Department for Environment, Food and Rural Affairs (DEFRA) will then determine how farming is supported rather than Brussels. The Rural Payments Agency (RPA) that currently administers the application, assessment and payment processes for DEFRA will be paying out money directly from the Treasury. One upside to farmers of the change will be the removal of exchange rate exposure, as RPA grants are currently calculated in euros and converted to pounds for payment. While the sums involved – around £2 billion per annum – appear modest, these grants are often the difference between absolute annual losses and the most modest of surpluses. The average grant is just under £20,000 per annum.

DEFRA’s current secretary of state, the Rt Hon Michael Gove MP, has stated that while the pool of grant money hitherto received from the EU will be maintained by the Treasury after Brexit, he wants DEFRA to grasp a generational opportunity to restructure the way grants are awarded. It has long been recognised that the way CAP grants are awarded does not recognise the idiosyncrasies of British farming’s practices. The fact that the majority of British farmers voted to leave the EU in the 2016 referendum shows that they were keen for change.

Gove has said that public money should be used for public benefit and intends to use RPA payments to achieve environmental enhancements – even hinting that the blanket support of CAP payments will be realigned to promote farming that supports biodiversity and the fight against climate change. 

While fuller details are needed, it seems clear that big, successful farmers will see a reduction or perhaps an elimination of grants altogether. Smaller farmers, however, may receive more support – but only if they can demonstrate public benefits, such as strong green credentials in perhaps the form of biodiversity programmes, carbon capture initiatives or green energy production. 

One central conclusion to emerge from these changes is that smaller, less profitable, marginal farms that cannot demonstrate public benefit in the form of environmental enhancements should be very worried. 

25-year environmental plan

DEFRA released its 25-year environmental plan in early 2018. The following of its aims are going to disproportionately impact farming:

  1. reducing the damaging abstraction of water from rivers and groundwater
  2. increasing woodland in England to 12% cover by 2060 
  3. improving soil management so that by 2030 all of England’s soils are managed sustainably using natural capital thinking to develop appropriate soil metrics and management approaches
  4. ensuring that food is produced sustainably and profitably.

It seems clear that financial support for farming is going to be allocated in ways that support the aims of this 25-year plan – something that would have been impossible under the CAP.

Changes in consumer demands

Consumer demand is changing more rapidly than ever, accelerated by a more open society, social media and a realisation that the production of different foods have a very varied impact on the environment. Add to the high-octane mix various health and lifestyle factors and change is not easy to over-estimate. For example, these facts about veganism are remarkable:

Investor's Notebook

About Michael Walton

Michael Walton

Michael Walton founded Rynda Property Investors LLP - an independent FCA regulated real estate investment house - in September 2005. Michael is a Chartered Surveyor with over 30 years’ industry experience. His skill-sets include structuring real estate joint ventures and funds in Europe for institutional, shari’ah and high net worth investors and the subsequent deployment of capital. Rynda establishes investment products across the risk spectrum and via local teams proactively manages the assets acquired to maximise net operating incomes and investment performance. Rynda always seeks to back its judgement by co-investing with its clients. Though focusing primarily on Western Europe, Michael is also familiar with both Scandinavian and Middle Eastern markets. Prior to setting up Rynda, he was a Managing Director at Citigroup Property Investors (1998-2005) where he was responsible for all investment strategies throughout Europe. Michael has previously worked at Lazard Brothers & Co. Ltd (1994-1998) and Touche Ross (1992-1994) and holds an MBA from Cass Business School and an MA from the University of Cambridge.

Articles by Michael Walton

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