28. United Kingdom

The Common Agricultural Policy (CAP) defined support to agriculture in the United Kingdom (UK) during its transition out of the European Union (EU) in 2020. Eighty per cent of support to producers originates in the CAP, whereas the national budget funds three-quarters of general services to the sector.

Producer support (PSE) is estimated at around 20% of gross farm receipts for 2018-20.1 Market price support (MPS) accounts for 24% of farm support, and originates entirely from EU border measures during 2018-20. Almost half of farm support comes through payments decoupled from current production. About two-thirds of Exchequer-sourced expenditure go to schemes that may incentivise outputs and increase environmental pressure through on-farm investments and input use, including tax rebates for agricultural fuel. On the other hand, domestic expenditure also supports environmentally friendly production.

Public expenditure for general services to the sector (GSSE) is estimated at around 4% of agricultural value-added, slightly below the OECD average. Expenditure on agricultural knowledge and innovation services, mostly from the national budget, accounts for more than half of total support to the sector. Other significant expenditures support inspection and control services, and the marketing and promotion of farm products. Total support to agriculture (TSE) represented around 0.3% of GDP in 2018-20.

The year 2020 was marked by: (1) negotiation with the European Union over future trade and co-operation relations, (2) preparation and adoption of laws to govern agriculture in the United Kingdom after withdrawal from the European Union, and (3) bilateral trade liberalisation negotiations with third countries. Short-term measures covered the immediate transition out of the European Union, and response to adverse events, including wet weather and the COVID-19 pandemic.

Agricultural policies are devolved to the UK’s nations: the governments of England, Northern Ireland, Scotland and Wales. Three acts of agricultural legislation were approved in 2020. The Agriculture Act 2020 governs agriculture in England with provisions for Northern Ireland and Wales (UK National Archives, 2020[1]). The Act became law on 11 November 2020, shortly after Scotland’s Agriculture (Retained EU Law and Data) (Scotland) Act (Scottish Parliament, 2020[2]). The legislation authorises national expenditure for agricultural policies, establishes flexible continuity for the EU CAP, and foresees transition periods to introduce the next generation of measures that phase out the CAP. The transitory Direct Payments to Farmers (Legislative Continuity) Act 2020 ensured the continuity of CAP direct payments in the United Kingdom during 2020. Concurrently, a common administrative framework was jointly set up between the UK Government and the national administrations for co-ordinating agricultural policy.

Policy measures also responded to adverse events in 2020. As a response to wet weather conditions, direct payments were paid up-front in Northern Ireland. The crop diversification condition under greening was relaxed, while greening was suppressed permanently in Scotland from 2021.

Trade policy developments focused on enabling the United Kingdom to maintain and develop trade relations post-Brexit. Under UK membership in the World Trade Organization (WTO), the Agriculture Act 2020 gives power to the Secretary of State to legislate for the UK to comply with the WTO Agreement on Agriculture.

In 2020, the EU-UK Trade and Cooperation Agreement was achieved. It lays down the rules governing relations between the two (EU and UK, 2020[3]). Of relevance to agriculture, the trade component of the agreement includes duty- and quota-free imports of all goods that comply with rules-of-origin provisions.

Trade negotiations with third countries continued, and nineteen agreements were fully ratified. Provisions also introduced to extend existing relations under the EU agreements to avoid any disruption while negotiations were ongoing.

  • The United Kingdom is at the beginning of a seven-year transition out of the Common Agricultural Policy. The next generation of policies is being developed, building on lessons learnt. On-going consultations with stakeholders are important to identify sector needs, tailor policies to these needs and ensure buy-in. If institutionalised throughout the transition process, consultations can prove effective for defining next-generation measures, and assessing their efficiency against targets and continued relevance as they are implemented.

  • Short-term measures have consisted of so-called simplification, waiving the entire greening requirement or its crop diversification component, and easing penalty payments. Digital technologies can be harnessed to reduce the administrative burden of reporting and ensure that sustainability outcomes are safeguarded.

  • To achieve agricultural productivity and sustainability, next-generation policies should strengthen agricultural innovation systems and the sector’s resilience to adverse events. These require information systems that enhance risk awareness, measures that support both prevention and ex ante approaches minimising exposure to multiple risks, and preparedness that prioritises business continuity. Research and development, and extension and advisory services have a role to play, as does emphasis on continued public support for these activities.

  • The current policy mix supports farm holdings through decoupled payments and payments that promote environmentally friendly practices. At the same time, market measures and tax rebates on agricultural diesel incentivise output and may encourage environmentally harmful practices. Evaluation of the policy mix against well-defined objectives would improve policy coherence for sustainable productivity growth.

  • The United Kingdom is in active negotiations to ensure continued co-operation and trading relations with the European Union and third countries. The ambition could be to achieve greater openness, as the current level of trade restrictions in the European Union triggered approximately one-fifth of support, on average, this past decade.

The United Kingdom joined the European Economic Community in 1973. Since then, its agriculture was shaped by reform of the EU CAP, as described in Chapter 11.

The 2009 CAP Health Check allowed member states to adopt a selection of measures under their Pillar 2. Subsequently, elective measures were also allowed under Pillar 1 of the CAP 2014-20, covering 2015 to 2023. The UK nations’ choices of elective measures were generally aligned in this context, while specific payments were sometimes picked, such as the redistributive payment in Wales and Voluntary Coupled Support in Scotland. The United Kingdom opted to transfer 10.8% of its broad-based direct payments envelope to targeted longer-term expenditure under Pillar 2.

Legislation (Agriculture Act) adopted in 2020 foresees the implementation in England of schemes that prioritise farm sustainability, productivity and competitiveness.

The main policy instruments described below relate to measures implemented in the United Kingdom within the framework of the Common Agricultural Policy2 that continued until 2021, and domestic measures decided at national level. Agricultural policy in the United Kingdom is devolved to the UK nations: the governments of England, Northern Ireland, Scotland and Wales. As a result, different elective schemes apply in these jurisdictions, as described below.

The CAP funded 80% of support to agricultural producers in the United Kingdom. In addition to output support delivered through markets, the largest envelopes under the CAP fund per-hectare payments decoupled from production (Figure 28.4). The Basic Payment Scheme (BPS) accounts for 66% of direct payments, the payment for greening (agricultural practices beneficial for the climate and the environment) accounts for 30%, and the so-called young farmer scheme accounts for 2%. Only Wales offers the elective decoupled redistributive payment for first hectares of farmland (EC, 2016[6]). Together, these absorb 99% of direct payments under the European Agricultural Guarantee Fund (EAGF). Output-linked Voluntary Coupled Support is limited to three schemes that support the Scottish suckler cow and upland sheep sectors (EC, 2019[7]).

Measures funded by the CAP’s European Agricultural Fund for Rural Development (EAFRD) are co-financed by the national budget and require a minimum five to seven years commitment. From a budgetary standpoint, the top three elective measures under EAFRD support in the United Kingdom are: (1) agri-environment and climate measures, (2) agricultural investments, and (3) payments to areas with natural constraints. Organic farming is also supported, although with smaller budgets.

In addition to the CAP, national measures promote on-farm investments through capital grants, credit concessions and guarantees. National measures also reduce the costs of farm inputs. Public revenues foregone under the rebate on excise duties for agricultural diesel (so-called red diesel) represent the third-largest element of support after the BPS and greening. At the same time, Exchequer-sourced output payments support environmentally friendly production.

National measures are prominent in funding sector-wide general services, as three-quarters of the spending comes from the national budget. These mainly support research and development to underpin the UK’s knowledge and innovation system. The national budget also funds inspection and control services. CAP funding supports knowledge, advisory and extension services which ensure on-farm innovation uptake and capacity building, farm and business development, and marketing and promotion of farm products and producer groups.

Until 31 December 2020, the United Kingdom was part of the EU Single market, with its trade governed by the overarching settings of EU trade as foreseen in the Withdrawal Agreement (HM Government, 2019[8]).

The year 2020 was marked by the negotiation with the European Union of future trade and co-operation relations, by the legislative preparation and adoption of the laws that govern agriculture in the United Kingdom after withdrawal from the European Union and by bilateral trade liberalisation negotiations. Shorter-term measures ensured the immediate transition out of the European Union and responses to adverse events, including wet weather and the outbreak of the COVID-19 pandemic.

Domestic legislative developments in 2020 included the adoptions of three agricultural acts. The Agriculture Act 2020 governs agriculture in England with provisions for Northern Ireland and Wales (UK National Archives, 2020[1]). The Act became law on 11 November 2020 shortly after Scotland’s Agriculture (Retained EU Law and Data) (Scotland) Act which became law on 1 October 2020 (Scottish Parliament, 2020[2]). These pieces of legislation authorise national expenditure for agricultural policies and establish a flexible continuity of the EU CAP. The Agriculture Act 2020 legislates for a seven-year transition period, beginning from 2021, during which the next generation of measures are to be introduced in England to phase out the CAP. Year 2024 is announced as the first year when England fully introduces the new schemes, including the three new Environmental Land Management schemes (DEFRA, 2020[9]). The schemes are under development through collaboration with farmers and a range of environmental and agricultural stakeholders (DEFRA, 2021[10]). The Sustainable Farming Incentive is the first of these three schemes to begin roll-out in mid-2022, with the other two, the Local Nature Recovery and the Landscape Recovery, to be launched in 2024. In Wales, proposals are being developed to reform the way in which government supports agriculture, including farm woodland management.

The transitory Direct Payments to Farmers (Legislative Continuity) Act 2020 ensured the continuity of the CAP direct payments in the United Kingdom in 2020.

A common administrative framework has been set up to ensure the co-ordination of agricultural policy between the UK Government and the devolved administrations.

Under so-called simplification, the EU financial discipline was not applied and the BPS advance payment condition relaxed in 2020 in Northern Ireland. Penalty calculations were simplified for small over-claims of the BPS and made proportionate in England and Northern Ireland.

Similar simplification measures were also introduced in 2020 to respond to adverse wet weather. Direct payments were advanced and paid in full in Northern Ireland. The crop diversification condition under greening was relaxed in England, Northern Ireland and Wales.

Simplification will be continued and, from 2021, greening will no longer be required in England, Wales and Northern Ireland, while crop diversification will be suppressed in Scotland. Penalties under England’s Countryside Stewardship Scheme will be replaced by payment reduction.

Sector specific payments were announced to alleviate the effects of price drop and income losses in dairy (England, Wales, Northern Ireland), beef, sheep, ornamental horticulture and potato (Northern Ireland).

In response to the disruptions caused by the coronavirus outbreak, deadlines for applications for the BPS, the Countryside Stewardship and the Environmental Stewardship schemes were extended in England to allow for late applications. Inspection requirements were eased and physical checks replaced by new technologies in Scotland.

After 31 December 2020, the free movement of people, goods, services and capital with the European Union was ended and EU trade agreements no longer applied to the United Kingdom. Therefore, the United Kingdom actively engaged in negotiating trade agreements during 2020 to maintain and develop its trade relations post-Brexit. As a member of the WTO, the Agriculture Act 2020 gives power to the Secretary of State to legislate for the United Kingdom to comply with the World Trade Organization (WTO) Agreement on Agriculture.

The EU-UK Trade and Cooperation Agreement was achieved on 24 December 2020. It lays down the rules governing the relations between the two. Of relevance to agriculture, the trade component of the agreement includes duty and quota free imports on all goods that comply with rules of origin provisions. Terms of the free trade agreement include duty and quota free imports on all goods that comply with rules of origin provisions (EU and UK, 2020[3]).

Trade negotiations with other countries and regions were continued and 19 agreements were fully ratified,3 including with Japan and Ukraine (DIT, 2021[11]). The bilateral trade agreement with Japan entered into force on 1 January 2021. The UK-Japan Comprehensive Economic Partnership Agreement (CEPA) parallels the market access and tariff commitments provided for agricultural products under the Japan-EU Economic Partnership Agreement (which entered into force on 1 February 2019). Similarly, Geographical Indication products of both countries are listed for protection in the CEPA. The Political, Free Trade and Strategic Partnership Agreement between Ukraine and the United Kingdom came into force in January 2021.

Agreements with Albania, Canada, Jordan and Mexico were signed. Mutual Recognition Agreements were signed with Australia, New Zealand, and the United States. Under MRAs countries recognise the results of one another’s conformity assessments. Provisions were also introduced to extend existing relations under the EU agreements to avoid any disruption while negotiations are on-going with Albania, Algeria, Australia, Bosnia and Herzegovina, Cameroon, Ghana, Moldova, Montenegro, New Zealand, Serbia, Turkey, and the United States.

The United Kingdom is a high income advanced economy. The country’s GDP per capita is more than twice the average of the countries covered in this report. It accounts for less than 1% of the land and agricultural land in the countries included in this report. Agriculture has a small share in the economy and employment while the agro-food sector has a larger importance in trade (Table 28.2).

The outbreak of the COVID-19 pandemic put an end to a decade of moderate economic growth in the United Kingdom. The economy shrank by 10% while the unemployment rate increased to 4.6% in 2020 after eight years of uninterrupted decline (Figure 28.5).

The United Kingdom is a net agro-food importer. Agro-food exports account for more than 6% of total exports and imports are close to 10%. Processed agro-food products make most of both exports (86%) and imports (70%). Most of those are destined for final consumption (Figure 28.6).

Over the 2007-16 period, total factor productivity in the United Kingdom grew by 0.7% per year on average, more than double TFP growth in the 1991-2000 period but well below the global average. The decline of primary factors was compensated by intermediate input growth (Figure 28.7).

Environmental indicators indicate an improvement from 2000 to 2016, the nitrogen balance fell by nearly 20%, the phosphorous balance declined by about 40%, and the share of agriculture in water abstractions fell by 18% as the agricultural irrigated area was halved. At the same time, the sector’s share in the country’s energy use was increased by 20% and the share of its greenhouse gas (GHG) emissions grew by nearly 40% (Table 28.3).

References

[10] DEFRA (2021), Environmental Land Management scheme, https://www.gov.uk/government/publications/environmental-land-management-schemes-overview/environmental-land-management-scheme-overview.

[9] DEFRA (2020), Agricultural Transition Plan 2021 to 2024, Government Digital Service, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/954283/agricultural-transition-plan.pdf.

[11] DIT (2021), Department of International Trade, UK trade agreements with non-EU countries, https://www.gov.uk/guidance/uk-trade-agreements-with-non-eu-countries?utm_source=14c7edef-37e8-490a-934c-4ccecb9b8944&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily.

[7] EC (2019), Voluntary coupled support - Member States decisions. Informative note, https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key_policies/documents/voluntary-coupled-support-note-revised-aug2018_en.pdf (accessed on 8 April 2021).

[6] EC (2016), Redistributive payment, https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/key_policies/documents/ds-dp-redistributive-payment_en.pdf (accessed on  2021).

[3] EU and UK (2020), Trade and Cooperation Agreement, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/948119/EU-UK_Trade_and_Cooperation_Agreement_24.12.2020.pdf (accessed on 10 April 2021).

[8] HM Government (2019), Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840655/Agreement_on_the_withdrawal_of_the_United_Kingdom_of_Great_Britain_and_Northern_Ireland_from_the_European_Union_and_the_European_Atomic_Energy_Community (accessed on 12 April 2021).

[4] OECD (2021), “Producer and Consumer Support Estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en (accessed on 13 April 2021).

[5] OECD (2016), PSE Manual, OECD, https://www.oecd.org/agriculture/topics/agricultural-policy-monitoring-and-evaluation/documents/producer-support-estimates-manual.pdf.

[2] Scottish Parliament (2020), Agriculture (Retained EU Law and Data) (Scotland) Act, https://www.parliament.scot/-/media/files/legislation/bills/current-bills/agriculture-retained-eu-law-and-data-scotland-bill/stage-3/agriculture-retained-eu-law-and-data-scotland-bill-as-passed.pdf.

[1] UK National Archives (2020), The Agriculture Act 2020, UK Legislation, https://www.legislation.gov.uk/ukpga/2020/21/contents/enacted/data.htm (accessed on 10 April 2021).

Notes

← 1. Support calculations in this chapter combine UK national payments and EU-CAP expenditure to the United Kingdom, UK production quantities and values, and EU domestic and border prices. More details are provided in Box 28.1.

← 2. Chapter 11 of this report provides a detailed description of the European Union’s Common Agricultural Policy.

← 3. Agreements were fully ratified with Central America, Chile, Côte d’Ivoire, Eastern and Southern Africa (ESA) trade bloc, Egypt , Faroe Islands, Georgia, Israel, Japan, Kosovo, Lebanon, Liechtenstein, Palestinian Authority, Singapore, South Korea, Southern Africa Customs Union and Mozambique (SACUM) trade bloc, Switzerland, Tunisia, Ukraine.

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