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AHDB/HGCA assessment of the impact of greening to combinable

cropping farms

June 2014

David SwalesHead of Strategic InsightDavid.Swales@ahdb.org.uk

Richard VeitSenior AnalystRichard.Veit@ahdb.org.uk 1

Greening

From January 2015, farms will need to adhere to the greening requirements.

With the exception of organic farms, these are compulsory

These are:1. Ecological Focus Areas2. Crop diversification3. Maintenance of permanent grassland

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1. Ecological Focus Areas (EFA)

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Most farms with an arable area greater than 15ha will need an area of EFA that equates to

5% of arable land

EFA application in England Farms will be able to use the following towards their EFA requirements:

buffer strips, land laying fallow, areas with catch crops or green cover, areas with nitrogen-fixing crops and hedges.

Farms will be able to count nitrogen-fixing crops towards their EFA allocation at a rate of 1ha of a nitrogen-fixing crop equivalent to 0.7ha of EFA.

A list of crops that can be used to meet these requirements is not yet available but is expected to include leguminous crops such as field beans and peas.

AHDB EFA analysis

Source: AHDB

If EFA takes land out of production, this will represent lost income to producers.

However, farms may be able to mitigate these losses, such as by applying the reduction to the poorest performing crop or through the introduction of nitrogen-fixing crops (eg field beans).

Impact on gross margins

Impact to a 100ha farm in a rotation of:

1st Wheat, 2nd Wheat, Oilseed Rape

5% reduction applied evenly across crops

-33/ha to -41/ha -4,000

5% reduction applied to poorest performing crop

-21/ha to -37/ha -3,700

If farms mitigate EFA through nitrogen-fixing crops (eg field beans) at a rate of 0.7ha = 1ha EFA

-2/ha to -10/ha -1,000

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EFA exemptionsIt is important to note that some farms will be exempt from EFA rules: Those where more than 75% of the arable area is fallow land, temporary grassland, and/or used to

grow leguminous crops AND the remaining arable area is less than 30ha. Those where more than 75% of the total eligible agricultural arable area is permanent grassland,

temporary grassland, and/or used for the cultivation of crops grown in water AND the remaining arable area is less than 30ha.

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2. Crop diversification

Farms with 10-30ha arable land

Farms with more than 30ha arable land

Minimum number of crops

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Principal crop To cover no more than 75% of the eligible area

To cover no more than 75% of the eligible area

Main two crops n/a To cover no more than 95% of the eligible area

A recap of the main rules:

Useful additional information: Farms with less than 10ha arable land will be exempt. Winter and Spring crop are to considered as distinct crops even if they belong to the

same genus. However, Defra has not yet announced the method for determining winter and spring crops.

Source: AHDB

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Number of crops on combinable cropping farms

For farms with an arable area greater than 30ha, 71% are growing three or more crops, meeting greening criteria on the minimum number of crops grown. They

may still, however, fail other aspects of the greening requirements.

Source: AHDB/HGCA Planting SurveySurvey size: approximately 3,300 farms

0%

5%

10%

15%

20%

25%

30%

1crop 2crops 3crops 4crops Morethan4crops

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The analysis below focuses on farms with an arable area greater than 30ha in GB.

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Farms affected by crop diversification regulation

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Average impact to gross margins (/ha)

Farms with more than 30ha arable land

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Source: AHDB

The average impact per hectare from changing farm practices to meet crop diversification rules is low.

However, there is a significant range and some farms will be heavily impacted (see slide 8).

It is not possible to estimate farms under 30ha affected by greening rules as the AHDB/HGCA Planting Survey does not record permanent grassland. Some farms with 10-30ha of arable area could be exempt from greening criteria due to areas of permanent grassland on the holding.

Approximately 31% of farms with an arable area greater than 30ha in GB are affected by crop diversification rules (8,500 farms). The average impact is as follows:

Cost to farm business from crop diversification

Most farms greater than 30ha affected by crop diversification rules will see only marginal change in gross margins.

However, there is a small proportion of farms which will see a significant fall in income (15,000). These tend to be large farms (>100ha), producing only 1 crop.

0%

5%

10%

15%

20%

25%

Nochangeorpositivegains

Cost:upto200

Cost:200500

Cost:5001000

Cost:10003000

Cost:>3000 Cost:>15000

Impacttogrossmarginsforfarmsgreaterthan30ha

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Source: AHDB

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Additional costs to the farm

It is important to note that some farms will face additional burdens from adhering to CAP greening regulations. These burdens and costs are not included in the analysis on slides 7 & 8.

Examples of these could be: Changing practices from block farming:Business that plant one crop and rotate each year will have to change their business model to adhere to crop diversification rules. This may mean more time spent setting up; more time spent planning fertiliser and spray applications; potential costs of storage to differentiate between crops.

Learning how to farm new cropsFarmers that have to increase the number of crops grown may need to learn best practice for planting new crops. This may mean lower than average yields in initial years, as well as time spent learning new practices.

The hassle factorThere may be additional transport costs or time costs to the farmer, such as the need to travel back and forth more at different times.

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Q&As

When do the new rules kick in?The new rules will start from 1/1/15. This will affect farmers planting decisions this year.

How should I change my current business to be compliant with the greening regulations?The issues and best course of action will vary from farmer to farmer. It is important that they understand all the options available to them. Farmers can get further information through NFU briefings and meetings, farming advisers, as well as the RPA and Defra themselves.

What will happen if I dont adhere to the greening regulations?Thirty per cent of a farmers payment will depend on meeting greening requirements. An additional 20% financial penalty (on the 30% payment) could be applied from 2017, rising to 25% from 2018. Defra has, however, yet to release full details on greening penalties.

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Conclusions

From January 2015, farms will have to adhere to the new Greening requirements of CAP.

The introduction of EFA requirements represents the biggest potential cost to farms with an arable area greater than 30ha. Farms can prevent a worst case scenario by taking land from the poorest performing crop out of production, at a cost of 21-37/ha depending on crop rotation. The cost can also be mitigated by introducing nitrogen-fixing crops, which could reduce the impact to between 2-10/ha.

Crop diversification rules for combinable cropping farms will have, on average, a low financial cost to farms but some farms will be significantly impacted.

There are other costs associated with complying with crop diversification requirements, such as increased time spent managing the farm business, which are difficult to quantify.

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Where to go for more information

Information will also be released as and when available on the Defra website.

The NFU will be hosting CAP seminars in the NFU tent at cereals for their Members at the following times:

Day 1: 10:15, 12:30, 2:00 Day 2: 11:30, 1:00, 2:30

To follow the latest updates from Defra, go to:

https://gov.uk/government/collections/common-agricultural-policy-reform

https://capreform.blog.gov.uk/

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Methodology notes

13Disclaimer: - AHDB seek to ensure that the information contained within this document is accurate at the time of printing. However, subject to theoperation of law AHDB accept no liability for loss, damage or injury howsoever caused or suffered directly or indirectly in relation to informationand opinions contained in or omitted from this document.

Sources and assumptions used in the AHDB MIs analysis on the impact of greening to combinable cropping farms are detailed below: The data used in AHDBs analysis of the impact of crop diversification for combinable cropping farms is

based on the 2012 AHDB/HGCA Spring Planting Survey. It does not allow for comparisons of a farm business over more than 1 year. Farms with non-combinable crops (eg potatoes) have been excluded from the analysis.

Although the 2013 AHDB/HGCA Spring Planting Survey is available, abnormal weather conditions affected planting decisions. It was decided that the 2012 Spring Planting Survey would provide a more accurate reflection of the industry.

The survey does not take into account any permanent grassland that may be present on the farm. As it is likely that a significant number of farms with an arable area less than under 30ha in the survey meet exemption criteria, this analysis only examines farms with an arable area greater than 30ha.

Gross margins are sourced from the John Nix Farm Management Pocketbook, 43rd Edition, 2013. AHDBs analysis on EFA does not take into account existing areas of the farm that would count towards

compliance. Gross margins for temporary grassland are based on gross margin estimates for lowland sheep farms.

Gross margins for rotational fallow are based on the difference for gross margin estimates between first wheat and second wheat crops, less management costs. These estimates allow for the financial benefits of temporary grassland and rotational fallow to be quantified.

The analysis assumes that each of the devolved states in GB introduces Greening as set out by the EU Commissions proposals. This has been confirmed for England and Wales but is still under consideration in Scotland. The analysis will be updated if appropriate should greening be implemented differently in Scotland and Wales.