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Covid-19: Top Questions 05.6.2020

In these challenging times, our teams have been receiving a high volume of queries from clients in the agricultural sector about the impact of the Covid-19 pandemic on their business and supply chains.

To help this important sector navigate a way through the key issues, Helen Mellors, partner in our Agriculture and Landed Estates team has collated some of her most frequently asked questions from this week, with her responses, in the hope that this information is useful to you. Each week, we publish an article with a new set of questions but if you have any queries, at any time, please talk to the team for more detailed advice that is specific to you and your particular requirements.

 

What issues have arisen in the agricultural sector as a result of Covid-19?

Farmers are classed as key workers and are responding to a difficult situation involving unusual circumstances in unprecedented economic conditions. The entire food service sector (including the supply of produce to restaurants and coffee shops) was effectively shut down overnight. This has particularly affected a numbering of farming sectors, most notably dairy and the meat sector, where the demand for prime beef cuts has fallen. This, combined with new buying habits and shopping timings has put a huge strain on the short supply chain. Farmers at the end of the supply chain have been left with no option in some cases than to dispose of produce despite increased demand.

For example, in the dairy sector farmers sell most of their milk to processors under a contract which will typically supply specific sector e.g. hospitality or retail. As a result of reduced demand, producers to the hospitality sector are facing a significant over supply of raw milk, which has a short shelf life. The cost of disposing of this milk responsibly has resulted in additional expense to farmers.

However, help is at hand. In both England and Wales it has been announced that eligible dairy farmers will be able to access up to £10,000 each to help them overcome the impact of the coronavirus pandemic. Other sectors are similarly affected, e.g. horticultural businesses with the government imposing mandatory measures closing businesses at the peak time for selling annual products.

Farm labour is also an issue with the lack of seasonal workforce and shortage of labour for fruit and vegetable harvests which will become more critical with skilled seasonal workers unable to travel to the UK. There are also difficulties with regard to social distancing and the measures which farmers will need to take in order to ensure that their farm workers remain safe. To tackle these challenges, some of our clients have invested in further machinery (tractors) so that each farm worker has their own individual tractor reducing issues of the spread of Covid-19 through shared equipment.

What about wider issues such as Brexit and the Agriculture Bill?

The Agriculture Bill provides the legal framework for the UK to leave the EU’s Common Agriculture Policy and establish a new system within the UK. It sets out plans to phase out direct payments by the end of the agriculture transition period, which is currently stated to be until the end of 2027 and replace it with a new system of environmental land management.

From 2021, the government will phase out direct payments in England giving farmers time to adjust to the change to the new land management system. Direct payments will start to be reduced in 2021 and will be phased out completely with last payments being made in 2027. Some, however, are calling for a delay in cuts to direct payments to the end of at least 2022 in the light of cash flow problems caused by the Covid-19 pandemic. The Tenant Farmers Association is also asking for a period of reflection before significant adjustments are made to transition to a new food and farming policy in 2021. The government has, for the moment, paused its online consultation which was due to close on 5 May 2020 however no new closing date has been set.

Before the pandemic, some of our clients were looking at succession planning for their own farms in view of changes following on from Brexit and the proposed Agriculture Bill and, in particular, the decrease in direct payments. They are therefore looking at possible sales of farms, particularly where they have no family to succeed them or if they espouse the lifestyle, selling land around the farmhouse or letting it on a farm business tenancy may be an option. We have also had a number of our clients who have been enquiring about Wills and this has been brought into sharp focus during the pandemic.

What financial help is available to farmers and rural businesses?

Farmers are having to restructure businesses, increase borrowings or face insolvency as a result of falls in agriculture commodity prices, the food service sector shut down and decline in demand for certain products.

For those businesses or individuals with existing borrowing or mortgages, there is the possibility of payment holidays

There are also loan schemes available to rural businesses affected by Covid-19 to include the coronavirus business interruption loan scheme (CBILS) or the new bounce back loan scheme for small and medium sized businesses, which is perhaps easier to qualify for. It offers government backed loans of up to £50,000 interest free for the first 12 months.

The government has also announced bridging payments for stewardship claimants so that payments of 75% of the estimated claim value will be paid to applicants for the countryside stewardship and environmental stewardship payments. These payments aim to improve cash flow for applicants. It is worth noting that there are different support schemes in Wales under the basic payment schemes.

What about farming subsidies and support schemes?

Farming subsidies and support schemes are also available and include payments to dairy farmers of up to £10,000 as mentioned before, bridging payments due to farmers under the basic payment scheme and agri-environment schemes. A new private storage aid scheme is also available to support the dairy and meat industry, for which the applicable window is open until 30 June 2020.

In addition, both England and Wales have extended their deadlines for the basic payment scheme and relevant agri-environment scheme applications by a month to 15 June 2020 in recognition of the disruption caused by the Covid-19 pandemic and there has been some relaxation of the crop diversification rules.

The government has also introduced ‘time to pay’ schemes, which can be accessed by agricultural businesses. Bespoke arrangements will be offered to enable tax payers to defer tax liabilities for a time limited period and time and interest penalties arising from late payment of tax as a result of Covid-19 or administrative difficulties in contacting HMRC will be waived.

Has the sale and purchase of rural land been affected?

Rural property transactions are less affected than commercial property sales. Most farming completions take place in September or the autumn.

What other issues are there?

Social distancing measures are relevant even in the countryside. There are different measures in Wales but DEFRA and Natural England have issued guidance on access to public rights of way in England. Public rights of way are not closed. It is recommended that walkers avoid where possible footpaths that might go through farmsteads or other rural businesses. Natural England has made it clear that landowners do not have the legal right to block or obstruct public rights of way. Measures are suggested to help reduce disease spread, such as tying gate open so that walkers do not need to touch them. Obviously subject to safe keeping of livestock.

How has Covid-19 affected Landlord and Tenants in the agricultural sector?

As with tenancies both in the residential and commercial sectors, if tenants are in financial difficulties it is suggested that they try to negotiate a rent suspension, rent reduction or other similar arrangements with their landlord. They are not, however, in the same position as many commercial properties as (for the most part) they can still use the property despite government restrictions imposed on the control of the spread of Covid-19. Remember that the landlord also has commitments and cannot simply afford to waive or even reduce the rent. For more details, you may find it useful to have a look at my colleague, Adrian West’s Top Questions article here on commercial and residential property where he outlines various approaches for both landlord and tenant.

The Department for Digital Cultural Media and Sport published guidance for providers of telecommunications infrastructure in England during the pandemic, which emphasised the importance of maintaining the telecommunications network; and suggest that landowners and occupiers continue to allow emergency access rights to property where these have been agreed with telecommunication providers.

Summary

There are some significant challenges facing rural businesses and landed estates. Production of food is seen to be absolutely essential within the UK so help is available. Farmers continue to produce food for us in spite of Covid-19. It is welcome that there is an increased recognition of the importance of farming and the need for the UK to increase self-sufficiency in the production of food. The sustainability of local food networks has been tested and provenance of food has also been highlighted. Farmers are recognised as essential workers and the NFU suggests that we should not be importing food that can be grown in the UK, where we have the highest animal welfare standards in the world.

Our team is on hand to help you, your business and your family however we can, so please get in touch with us on 01482 325242 or email enquiries@andrewjackson.co.uk

Correct as of 1pm 05.06.2020

 

 

 

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