Milk Quota for Dairy Farmers

Dairy farmers have been feeling the pinch recently but they should still ensure they are keeping up to date with all the latest professional advice because failure to do so could be costly. In this context Milk Quota springs to mind.
  
Milk Quota is an invention of the European Union (EU) which was introduced in 1984 in order to limit production and nearly 30 years quotas are still with us but how the farming landscape has changed in the intervening years. Back then farmers were subsidised to produce food and the markets were underpinned by intervention support which meant the EU (or EEC as it was then) used to purchase produce when the price fell below a certain level thereby underpinning the market.

This not unsurprisingly led to massive over production as supply was not linked to “demand” and as a result huge stocks of milk and milk products were stockpiled in intervention stores across the EU giving rise to the so called “milk lakes” and “butter mountains”. As a consequence the EU introduced Milk Quotas on 2nd April 1984 which prevented farmers producing more than their allocated quota by imposing penal fines for overproduction.

In the early years following their introduction, the volume of Milk Quota held by a farmer was the most significant limiting factor on production because almost overnight the amount of milk UK farmers could produce had been cut by approaching 20%. This was a hard time for dairy farmers and if they wanted to sustain their level of production they needed to acquire Milk Quota.

Thus a market to buy and sell Milk Quota soon developed and by the mid 1990s when milk prices were high in the immediate aftermath of the de-regulation of the milk industry in 1994, the price of Milk Quota rocketed. Farmers facing fines for overproduction were forced to buy Milk Quota at prices as high as 80p per litre.

However, since then the EU has decoupled subsidies from production and farmers are now exposed to world markets and as a consequence the rules of supply and demand are the primary drivers influencing production and therefore the EU intends scrapping Milk Quota in 2015. But herein lies a potential opportunity for dairy farmers because as production has fallen so too has the demand for Milk Quota which is now only worth in the order on 0.2 p per litre – less than a quarter of one percent of its peak value.

This may not seem like an opportunity but it is in that if a farmer can crystallise this capital loss by selling his Milk Quota and then purchase it back, this capital loss can be “banked” now and can be offset against any capital gains in the future. So, dairy farmers who have not already taken advantage of this opportunity should do so without delay although tenants should be aware that consent of their Landlord may well be required to sell Milk Quota.


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Let’s go fly a kite…

08 October 2012, With apologies to Mary Poppins, Will Mooney, Carter Jonas partner and joint head of its commercial agency and professional services in the eastern region, is not in the party mood this conference season.

The mainstream political parties are in conference mode but these events are not, in modern times, the kind of seaside shindigs of old. Metropolitan locations of Birmingham and Manchester are preferred to Blackpool these days with just the Liberal Democrats sticking to the seaside tradition in Brighton this year.

But that’s not to say there isn’t breeze enough in these cities to encourage as much kite-flying on the policy front in the coming month as in the past one.

There’s been the great hope that the country’s fortunes can be revived by up to 8 metres worth of building extensions. Capitalising on the fervour of our victorious summer of Jub-Olympics, you’d be forgiven for thinking that it’s the patriotic duty of every householder and landlord of a small business unit to build on this success.

This is an offer for a limited period only and to no more than 25 ft or so, and as long as the property’s not in a conservation area or the owner of a listed property and other caveats which include not annoying neighbours.

Unfortunately, this kite is now being firmly tethered by local authorities who, although of the same political hue as central government, just don’t want to play that particular game.
You have to wonder whether this policy won’t go the same way as that plan to sell off the country’s publicly owned woodlands. If you remember that from last year. I had to be prompted myself.

Then we had another dusting down of the proposal for a British Business Bank (BBB). Vince Cable, as Business Secretary, advised that it would be a bank for ‘gazelles’ – those young, agile companies who were fleet of foot (or hoof) and would be looking for ‘patient lending’ over a 20 year period.

News of the BBB was received quite coldly by hardnosed financial commentators, not least because it was announced on the very same day that the Public Accounts Committee aired the failure of the Regional Growth Fund.

Launched by the Deputy Prime Minister in September 2010, with a target of making 36,800 jobs through a fund of £1.4 billion to ‘real’ companies, two years on from its launch, just £60 million of the Fund had been taken up by companies with less than one in fifteen of the jobs target reached so far (2,400 jobs).

Aside from ‘events, dear boy’, it’s all about timing in politics.

For on the same day (11 September), I attended the official launch of the Cambridge & Counties Bank (CCBank) - which is owned by Trinity Hall, one of the oldest of the Cambridge colleges, and Cambridgeshire County Council’s pension fund -and on whose attributes I’ve commented on before.

At the risk of sounding like an A level question, BBB and CCBank: compare and contrast. There wasn’t a national politician in sight at the CCBank launch, thanks to the Cabinet re-shuffle the previous week which saw both the former and the new Financial Secretary to the Treasury unable to fulfil the gig commitment made previously.

What there was, encouragingly, was the reaffirmation by the CCBank that it recognised that business finance is a long game. As a start-up business itself, it’s geared-up to lending for up to that same patience period of 20 years that the BBB would do.

Mingling with the great and the good of Cambridge - and beyond - at the CCBank launch, I sensed that is the very model of a modern business bank and I couldn’t help but feel sorry for the Business Secretary who’d floated his BBB proposal that very morning.


Will Mooney MRICS
Partner
Commercial, Cambridge

Single Farm Payment rate change

Last Friday saw the rate at which farmers are paid the so called “Single Farm Payment” set and it will not make particularly happy reading. This is because the 2012 payment will be approximately 8% less than last year.

Single Payment, as it is more properly described, is the primary source of support farmers receive from the EU via the Common Agricultural Policy and is defined in Euros. The payments are then converted to pounds at the exchange rate prevailing at the end of September, which this year as was last Friday as 30th September was a Sunday.

The 2012 exchange rate was 79.805p per Euro which compared to 86.6665p per Euro last year, hence the unwelcome fall in income. This comes on top of a poor growing year and difficult harvest which has impacted on both arable and livestock farmers alike but it is probably the beef and sheep farmers who will feel the loss in EU support payments the most. This is because such payments still remain a vital source of income for livestock farmers, many of whom would lose money without them.

However, of perhaps more concern to most farmers is the ever increasing stringency of the Rural Payment Agency’s (RPA) farm inspections. The RPA is the body charged in England with running the Single Payment Scheme on behalf of the government and their inspectors seem to be becoming more and more exacting.

In particular their harsh interpretation of the Cross Compliance rules is becoming a matter of great concern. There are a vast number of such rules and ensuring compliance with every single one, however trivial they may seem, would be a challenging task even if one employed a full time member of staff dealing with this alone. However, the reality is that ensuring compliance with such rules is just one of the many tasks that farmers have to deal with on a day to day basis and I would suggest very few of them will ever be able to ensure 100% compliance 100% of the time.

Failures at inspections can lead to significant sums of money being withheld from and individual farmer’s Single Payment and there is little doubt in my mind that as time goes on these “fines” will become more and more significant. So farmers are advised to dust out the Cross Compliance guidance books and refresh themselves on what is required because failure to adhere to the rules may prove expensive.


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk