The Knight Frank Rural Property and Business Update – 14 December
Our weekly dose of news, views and insight from the world of farming, food and landownership
Wow. There’s a lot for farmers and estate owners to get their heads around this week. From a potential no-deal Brexit, to the mooted imposition of a wealth tax, to even more ambitious climate change targets, it’s difficult to know where to start. Oh, and fuel prices are also heading up and transporting livestock could be much trickier in the future.
Please do get in touch with me or my colleagues mentioned below if you’d like to discuss any of the issues covered. We’d love to hear from you
Andrew Shirley, Head of Rural Research
7 minutes to read
In this week’s update:
• Commodity markets – Oil prices up as vaccines come on stream
• Brexit – Odds of a deal slipping
• EU trade issues – Organic producers have their say
• Paying for Covid – Wealth tax proposed
• Animal transport – New proposals could hit food chain
• Climate change – Committee launches new targets
• Overseas news – Food price hikes could see Russian grain exports cut
Commodity markets – Oil prices up as vaccines come on stream
Oil markets have reacted positively to the Covid-19 vaccination rollout that kicked off in the UK last week. Despite increasing US inventories that reveal there is no shortage of supply, optimistic traders pushed Brent Crude to US$51/barrel on Thursday (10 December) – its early-March high. Any weakening of sterling off the back of a potential no-deal Brexit will also add to pump prices in the UK.
Talking of a no-deal, lamb prices continue to strengthen despite being the UK farming commodity with the most to lose from the imposition of tariffs. As a takeaway staple, demand for lamb held firm during lockdown and home-dining took up much of the slack from the restaurant trade, according to the analysts at AHDB. From a supply point of view, the domestic market is also tighter so far this year compared with 2019, due to lower sheep meat production and imports.
Brexit – Odds of a deal slipping
It seems that a cosy tête-à-tête over dinner didn’t do the job. Boris Johnson has warned businesses to get ready for a no-deal Brexit, while EU President Ursula von der Leyen has said a no-deal is now the more likely option.
More posturing before a deal is eventually agreed at the very last minute? By the time you read this we may well know. We will of course update you on the ramifications of whatever transpires.
EU trade issues – Organic producers have their say
Even if an EU trade deal is announced it won’t offer completely frictionless trade for the UK’s food producers after 31 December.
Organic farmers are the latest to point out the implications of Brexit. Although a last-minute 12-month deal with the EU that recognises UK organic certification just been agreed, complications around labelling and having to cope with domestic, EU and US standards will remain post 2021, according to Roger Kerr, CEO of Organic Farmers and Growers.
"This is a short-term gain for the industry and the news will be a relief to the organic sector that’s been living with uncertainty for so long, but it still doesn’t deliver the robust national organic equivalency agreement between the UK and EU we’re calling for,” he says.
Read the CLA’s handy guide to life after the end of the Brexit transition period for food producers
Paying for Covid – Wealth tax proposed
Just in time to provide a bit of timely Christmas cheer, a new report from a heavyweight tax commission has just proposed a one-off 5% wealth tax on the estimated eight million or so UK residents with net assets of over £500,000 (including pensions and primary residences) to help pay off the huge bill the government has racked up battling the Covid-19 pandemic.
Although both Rishi Sunak and Boris Johnson have said in the past such a tax is off the table, the authors of the report point out that we are in unprecedented times. Some commentators are speculating that the nuclear option of a wealth tax will be used to pave the way for other alternative tax hikes.
If adopted, such a tax raises a number of issues. How will those who are asset rich, but disposable income poor – a group that many rural businesses like farms and estates fall into – pay their bills? Will there be the confidence that it really will be a one-off tax?
The suggestion comes hot off the heels of the Office of Tax Simplification’s review of the Capital Gains Tax (CGT) regime that could also have significant implications for rural property owners. Next year looks to be an interesting one for tax planners and valuers and will make long-term strategic planning even more important.
“Given the findings in this report and the previous reports on Inheritance Tax and CGT, I would anticipate that seeking revenue from reforming existing taxes on wealth is likely to be preferable both logistically and politically compared to an unwieldly administrative and bureaucratic headache of a wealth tax,” reckons my Valuation team colleague Alice Huxley.
“We have a window of opportunity to prepare for the changes recommended for IHT (by ensuring assets qualify for 100% BPR relief) and CGT (by restructuring before the rates are increased) and now is the time to carry out a strategic review, and consider the options available,” she adds.
Read the full UK wealth tax proposals
For valuation advice please get in touch with Alice
Animal transport – New proposals could hit food chain
In last week’s update I wrote that Defra is banning the export of livestock from the UK for fattening or slaughtering. As ever though the real devil is the detail.
Closer inspection of the government’s plans reveals some more fundamental proposals that could, if adopted, have a widespread impact on farmers, markets, livestock hauliers, meat processors, retailers and, ultimately, consumers.
Livestock, for example, will not be allowed to be moved more than 40 miles on days when temperatures drop below 5 degrees or rise above 30 degrees. Given the vagaries of the UK’s weather this would make planning particularly difficult. Only air-conditioned and heated lorries will be exempt, but the cost of upgrading existing kit would be prohibitive, according to the industry.
Although the proposals are open for consultation until 28 January the farming industry feels that the government has not engaged sufficiently with it before making such a fundamentally wide-reaching announcement.
Read and respond to the Improvements to Animal Welfare in Transport consultation
Climate change – Committee launches new targets
Parliament’s powerful Committee on Climate Change released its sixth Carbon Budget last week.
Its ambitious recommendations require a 78% reduction in UK territorial emissions between 1990 and 2035. In effect, bringing forward the UK’s previous 80% target by nearly 15 years.
Some of the budget’s key milestones are set out below and they clearly have significant implications for many aspects of rural property ownership. A large number of rural homes, for example, will struggle to hit the target EPC rating regardless of how much is spent on them.
• 2028 – Oil boilers phased out. Private rented homes to reach EPC band C at point of sale (or 2033 if mortgaged)
• 2030 - Consumption of high-carbon meat and dairy products reduces by 20%
• Early 2030s - all new cars and vans and all boiler replacements in homes and other buildings are low-carbon – largely electric.
• 2033 – Gas boilers phased out
• 2035 – UK electricity production is zero carbon. Almost 500,000 hectares of new mixed woodland are planted to remove CO2
• 2040 - All new trucks are low-carbon. UK industry shifts to using renewable electricity or hydrogen instead of fossil fuels, or captures its carbon emissions, storing them safely under the sea
• 2050 – Off-shore wind accounts for over 100GW of power. Low-carbon hydrogen supplies as much power as electricity production today. Woodland rises from 13% of UK land today to 18%. Zero greenhouse gas emissions from buildings
Read the sixth Carbon Budget
For advice on renewables please contact our energy guru David Goatman and for advice on making your country home more energy efficient please do have a word with our Head of Building Consultancy James Carter-Brown. To discover how to farm in a more carbon friendly way our Head of Agri-Consultancy Tom Heathcote is the person to speak to
Overseas news – Food price hikes could see Russian grain exports cut
Last week we reported that the Chinese government, concerned about rising imports, was banning farmers from growing non-grain crops. Now Russian premier Vladimir Putin is getting in on the act.
He has criticised officials and market participants over rising prices for essential foodstuffs, such as wheat and flour, which are reported to have reached record levels.
Tariffs could be applied to Russian wheat exports in a bid to reverse the situation. This would add to the already significant volatility of global grain markets.
Main photo by WORKSITE Ltd. on Unsplash