The Knight Frank Rural Property and Business Update – 4th January

In this week’s update:

• Commodity prices – 2020 round up
• Brexit trade deal – Agreement at last
• Farm incomes – First estimate shows 2020 slide
• New Year’s Honours – Rural Report contributor knighted
• Global news – World can feed itself

Commodity markets – 2020 round-up

No updated commodity prices are available due to the Christmas period, so I thought it would be of interest to review how values changed during 2020. Overall, output prices ended the year higher than they started, with wheat performing particularly strongly. Although, as noted below, this wasn’t enough to boost farm profitability. Pork producers, however, saw prices fall while a fall in global consumption due to Covid-19 also pulled back oil prices.

Brexit trade deal – Agreement at last

They say a watched kettle never boils and the same was true of the trade negotiations between the UK and EU. On 24 December, just as everybody had given up on a deal before Christmas and was getting ready for the holidays, agreement on the world’s largest ever free-trade deal, worth over £600 billion a year, was announced.

The 1,246-page Trade and Cooperation Agreement provides for tariff-free movement of goods, which will come as a huge relief to the agricultural sector fearful of the imposition of large tariffs on things such as meat and dairy products. It does not, however, offer frictionless trade. As a third-country, the UK’s importers and exporters will be subject to much more form filling than previously required.

Certain agricultural products such as seed potatoes and sausages are also not part of the deal having been denied third-country equivalence – the process whereby the European Commission decides whether a non-EU country’s regulatory, supervisory and enforcement regime is equivalent to its own.

Affected producers will be hoping that further negotiations will ensure trade can continue in the not-too-distant future.

Although the deal is good news, it should not divert food producers from the wider challenges that lay ahead says Ross Murray, Chairman of Knight Frank’s Rural Asset Management team. “Trade disruption of agricultural commodities has been largely averted, but the UK’s farmers must now focus on the fundamental changes to support and regulation that have been repatriated indefinitely.”

The government needs to quickly show farmers that the benefits of leaving the EU will outweigh the disadvantages. But rural businesses must also be proactive in adjusting to life outside the Common Agricultural Policy, in particular the removal of their Basic Payment Scheme safety net, which will have disappeared by 2028.

Read the full Trade and Cooperation agreement

Farm incomes – First estimate shows 2020 slide

The government’s first estimate of farming profitability for 2020 shows a drop of over 20% compared with 2019. Total Income from Farming (TIFF) is set to fall to £4.2 billion, down from £5.2 billion.

Poor weather conditions, which reduced the output from the arable sector by 13%, were to blame, says the government.

Farm business consultant Andersons said it was surprised by the extent of the drop – it had been expecting a 10% decline – but noted that the government’s early forecasts were often subject to significant revisions.

Now that a trade deal had been agreed with the EU profits could rise back to £5 billion in 2021, Andersons predicts. Without a deal they could have slumped further towards £3 billion.

New Year’s Honours – Climate change economist knighted

Dieter Helm, the economist and chair of the government’s Natural Capital Committee, has received a knighthood in the New Year’s Honours List.

A fervent campaigner for more concerted action to combat climate change, Sir Dieter had some tough messages for the food and farming sector when I interviewed him for last year’s edition of The Rural Report, our annual publication for farmers and landowners.

Read my interview with Sir Dieter

Global news – The world can feed itself

The perceived wisdom is that as its population grows - it is predicted to hit 10 billion by 2050 - the world will run out of land from which to feed itself. I was, however, interested to read some new research conducted by Bloomberg that suggests otherwise.

In fact, even if no more land was cleared, there is the capacity to provide enough food for double the world’s current 7.8 billion population.

According to research cited by the UN, 2.2 billion acres of degraded former farmland could be restored through more responsible use of fertiliser and irrigation. Cutting out waste – 40% of food is wasted between farm and fork in developing countries - and eating less meat, shedding excess calories and throwing away less food in richer countries would also help.

All of the above are of course aspirational and will require concerted and joined-up action along the food chain to be delivered.