Horticulture and Potatoes activity update

13 December 2021

The following are answers to questions we have received from levy payers

1. Why do we have to still pay a levy this year (2021/22) when we voted to end the levy? / why am I being sent invoices to pay the levy when most levy payers voted to end it and activities in these sectors have stopped/are stopping?

   
   Ministers were clear there would need to be a final 2021/22 levy. AHDB must fund operational liabilities associated with the wind-down of contracts, people and assets and levy payers have a responsibility to cover the costs of winding up levy supported activities. This means a levy is needed in 2021/22 to supplement horticulture and potato sector reserves to cover these costs, and the statutory levy in the horticulture and potato sectors remains in place as a legal requirement for this financial year (2021/22). We recognise the outcome of the ballots and the end to the statutory horticulture and potato levies has been proposed by Ministers in their industry consultation on intended changes to the legislation that governs AHDB

2. Defra SoS said the government would respect the outcome of the ballots and the AHDB is winding down activities, so will this be the last year of the Horticulture and potato levies?

   
   The UK Government and the Devolved Administrations have a duty to consult on any changes to the statutory levies before finalising decisions. They issued an industry consultation on 17 November 2021. Within this, Ministers are proposing to respect the outcome of the recent ballots in horticulture and potato sectors in Great Britain by ending the statutory levies in these two sectors from the start of the financial year in 2022. The consultation closes on 10 January 2022. If industry responds to the consultation confirming the proposal, then 2021/22 will be the last year of the statutory horticulture and potato levies. The AHDB has already started winding down activities in these areas as part of its response to the ballots.

3. When deciding on the approach to wind-down, did you consider any other options or alternative models like transferring staff to third parties to avoid redundancies?

   
   We considered a number of approaches and where industry organisations have shown interest in taking on products, tools or services then staff expertise have also featured in those discussions, when appropriate.

4. Why is the horticulture levy rate lower this year but the potato levy rate the same?

   
   For AHDB Horticulture it will cost c. £10.6 million to meet all the liabilities through the planned transition of activities and the wind-down process. AHDB horticulture reserves at 31 March 2021 were £6.05 million. The reduced 2021/22 levy rate is expected to raise £4.55 million.

   For AHDB Potatoes it will cost c. £7.4 million to meet all the liabilities through the planned transition of activities and the wind-down process. However, AHDB potato reserves at 31 March 2021 were only £1.2 million. These reserves are relatively low because over the last three years the sector has run an annual deficit, thereby reducing its reserves. AHDB sector reserve levels were never set to fund a sector specific wind-down situation. The 2021/22 potato levy rate is expected to raise £5.6 million.

5. Where you have shared costs with levy payers for leases, redundancies, EAMUs and Emergency applications in horticulture, and to see out existing research contracts can you provide a breakdown of these by panel?

   
   AHDB Horticulture has historically sub divided the horticulture levy income between six main crop groupings, each represented by a sector panel. The allocation of budget to each panel has been in proportion to the income generated by each crop sector using optional data provided by most growers in the levy returns. This has given capacity to deliver research, knowledge exchange and the EAMUs and crop protection regulatory work across the varied needs of a diverse sector.

   Horticulture’s share of cross AHDB costs, such as leasing office space and the redundancies associated with restructuring have been broken down using the same principles. These principles also apply to the central staff costs for collecting levy etc.  

   For technical work, such as the EAMUs and emergency authorisations workstream, including the underpinning data collection through residue and efficacy trials as well as budget committed to completing contracted research (see  https://ahdb.org.uk/horticulture-and-potatoes-activity-update), costs are allocated for each project at a panel level.

    

   Panels and the Horticulture Board have been provided with full breakdown of costs to panel level.

Should you require any more information about how this service is provided, please feel free to contact the team at EAMU@ahdb.org.uk.

6. How have the costs for EAMUs and related services been calculated?

   
   The 2022/23 EAMU programme consists of the following main elements of work:

   Staff time:

   • Working with horticulture industry on identifying key crop protection priorities
   • Liaising with crop protection companies to find products they are willing to support for EAMUs and emergencies and forecasting potential withdrawals of plant protection products
   • Keeping industry representatives up-to-date on expected outcomes
   • Working with European grower organisations to share and co-generate data packages
   • Managing and updating risk registers
   • Managing the final research contracts and publishing the results to the industry

   Writing and submitting applications to CRD for both EAMUs and Emergency approvals, including working with industry to construct a credible case for each application

   Project managing EAMU and emergency applications through the system and facilitating CRD to complete these with a positive and timely outcome for levy payers

   Providing underpinning data to support the applications, largely through commissioning and managing residue trials

   Identifying the prospects of new products working in practice in commercial crops, largely as commissioning and managing efficacy trials.

   The breakdown of the £1.8m costs to maintain this programme at full strength during 2022/23 is given below.

Staff and support costs include the staff to manage and communicate the final contracted projects in 2022/23 and there is an additional cost budgeted – input VAT which AHDB may not be able to recover in 2022/23, depending on the outcome of HMRC decisions. In addition, we have budgeted sufficient funds to cover emergencies as there will be no reserves to dip in to for emergencies.

7. To what extent have you used previous evidence (2019, 2020 and 2021 activity) to anticipate EAMU costs by panel?

   
   Using records of costs over the last 3 years, the EAMU budget has been calculated using our knowledge of application fees for EAMU and Emergency applications set by CRD, of typical costs for residue trials and also of efficacy trials.  We have similarly used the data from the last 3 years to estimate the number of applications and residue and efficacy trials the team can normally process in a year to arrive at the final cost. This is how we have calculated budget in previous years with ongoing management of the budget as changes occur e.g. a higher than average cost efficacy trial might be offset by a lower cost residue trial.

   It is typically difficult to anticipate with real accuracy, before identifying what the applications will be, how involved any one EAMU or emergency application might be or how much supporting data will be required. The team will therefore continue to use their experience and ongoing discussions with industry to maximise the value from the budget allocated to this programme of work.

   CRD application costs are anticipated to rise over the coming year to take account of changes to the UK regulatory regime. It is currently unclear how this will impact EAMUs and emergencies, but it may affect the number of applications we are able to fund.

   The tables below set out the actual costs for the EAMU programme over the last 3 complete financial years and how this has fed into the budget calculated for 2022/23.

8. When BPC was handed over to the AHDB £4million pounds of potato growers funds went with it, where has it gone? 

   
   When AHDB was set up and BPC operations moved from Oxford to Stoneleigh there were a number of exceptional reorganisation costs involved which were funded through those reserves. All of the AHDB Annual Report and Accounts (ARA) are available at https://ahdb.org.uk/reports-reviews. In the 2008/09 ARA you will see an opening reserve of £4.16M for the Potato sector, which reduced to £1.36M at 31 March 2010, in the 2009/10 ARA Annual Report and Accounts. Subsequently the Potato sector has run board-approved deficits in some years, spending the reserves money on research, Knowledge Exchange, Marketing and Market Intelligence work to benefit potato growers.  Previous AHDB boards took a view that farmers would not want more reserves than necessary to operate cash-flow and a small contingency reserve.

9. In detail what are the contractual liabilities which lead to a £4million liability on the research programs for potatoes.

   
   There are 17 non-storage research projects that run throughout 2021/22 financial year (four of which extend into the following one or two financial years) along with Strategic Potato (Spot) Farms final liabilities, and our Market Intelligence products that ran until June 2021. A few smaller contract commitments were included where we are part of cross sector arrangements (e.g. paying for a share of the contract with British Nutrition Foundation for the schools education programme). Expenditure is £2.5m and staff costs £1.5m which brings the total to £4M). Research project titles are included on the website https://ahdb.org.uk/horticulture-and-potatoes-activity-update

10. What are the Lease commitments at Sutton Bridge?

    
    British Potato Council owned it before it was transferred to AHDB. Sutton Bridge Crop Storage Research is 100% owned by Sutton Bridge Experimental Unit Ltd, which is a wholly owned subsidiary of AHDB. The only lease commitments in relation to Sutton Bridge Crop Storage Research are a small number of items such as a photocopier and a forklift truck etc.

11. What other leases are horticulture and potatoes contributing to?

    
    Cost of leases are the horticulture and potato contributions to the AHDB buildings and for remaining vehicle leases for those staff made redundant. These commitments were entered into on behalf of (or partly on behalf) of the Horticulture and Potato Sectors.

12. Work on existing contractual work on potato storage programmes (£0.6M) - with Sutton Bridge closed down and the team very soon leaving - where is the money going?

    
    Storage projects don’t profile precisely against the financial year with crops in store as late as Aug 2021 and project data processing/reporting taking place until December 2021. We've included expenditure of £0.1M against six projects which when added to staff costs of £0.5M brings the total to £0.6M. Project titles are included on the website https://ahdb.org.uk/horticulture-and-potatoes-activity-update

13. Sutton Bridge - costs of write downs and closing? (£1.1M). We are aware Sutton Bridge is on the market for £1.85M - how is this value being reflected in return to potato levy payers and contribution to the 'pot'?

    
    We have used the book value as a prudent estimate of income where appropriate in calculations. We appreciate these are lower than the market value indicated on the sales website. We have indicated on our website that any excess funds at the end of the wind-down process will be held for a period of up to 6-years to fund any residual potato liabilities which may arise. After this period the utilisation of any funds remaining would be discussed with the industry and government. However, you will be aware that there is a £0.6M estimated shortfall in the AHDB Potatoes wind down budget once the final 2021/22 year of levy has been collected – although this has been underwritten by Defra, any additional funds will initially be used to cover this shortfall.

14. What happens if it costs AHDB more than estimated to wind-up its horticulture and potato operations, will another year of levy be charged?

    
    AHDB has built a small contingency into the budget to cover any such eventuality, however AHDB is tightly managing the wind down process to ensure it is completed within budget, funded by the sector reserves and levy money from this year (2021/22).

15. If I refuse the pay the levy in 2021/22 what will happen?

    
    AHDB encourage all levy payers to act responsibly and pay the levy this year which is necessary to cover the wind-down costs of the activities in these sectors. AHDB remains legally obliged to pursue all overdue levy payments and AHDB will use its powers to pursue levy debtors through the courts if necessary.

16. If there is money levy left over at the end of the 2021/22 financial year will levy payers in the horticulture and potato sectors get a refund?

    
    We do not anticipate any significant amount of horticulture or potato funds remaining at the end of the wind-down process. Any excess funds will be held for a period of up to 6-years to fund any residual liabilities which may arise in the horticulture or potato sectors. After this period the utilisation of any funds remaining will be discussed with the industry and government.

17. What is the justification for holding these funds for 6 years?

    
    The legislation that governs AHDB stipulates that the levy raised from an industry sector must be used for the benefit of that sector. This means that the levy money from AHDB's other sectors cannot be used to settle any horticulture or potato liabilities that come to light over the next few years. Therefore, AHDB needs to retain any residual funds for this purpose. Six years is deemed an appropriate period in which any such liabilities will have been revealed.

18. What is happening to potato staff?

    
    Many redundant potatoes staff are currently working their contractual notice period, carrying out work to ensure levy payers can continue to access the historic information. They will leave AHDB at the end of their notice period.

19. What is happening to horticulture staff?

    
    Many redundant horticulture staff are currently working their contractual notice period, carrying out work to ensure levy payers can continue to access the historic information. They will leave AHDB at the end of their notice period. A small number of staff will continue to work during 22/23 to deliver the EAMU/EA service and manage out the final contracts.

Governance

• The wind down programme has been put together following detailed advice from AHDB’s Potato and Horticulture Sector Boards.

• The potato sector board has oversight of the potato activity wind-down process. Alison Levett remains as interim chair and attends the main AHDB board as an observer. This arrangement will be reviewed in March 2022, when the current levy period ends.

• The horticulture sector board has oversight of the horticulture activity wind-down process. Peter Judge is the interim chair and attends the main AHDB board as an observer. This arrangement will be reviewed in March 2022, when the current levy period ends.

• Recognising the need to provide oversight of the remaining horticulture research projects (51 in total currently which will reduce to 28 running in 2022/23, 11 in 2023/24 and 3 in 2024/25), the most efficient way for us to achieve this will be agreed with the panels and sector board over the coming weeks.

AHDB Potato and Horticulture work is in the process of being archived and will be made accessible online to levy payers by March 2022 to ensure the industry can continue to benefit longer term from its investment.

Results from Horticulture and Potatoes work concluding in 21/22 or later will be made available on the AHDB website. This will be supported with a limited number of events which are part of a contractual commitment. All other events for levy payers stopped from the beginning of July.

Communications to levy payers from July onwards are limited to in-season EAMU notifications, potato storage results and essential updates such as emergency pest and disease communications.

AHDB is in ongoing discussions with Defra, the Devolved Administrations, industry representatives and levy payers about the possible transition of services to other providers. 

Initial expressions of interest from companies, organisations or industry groups in taking on existing work or packages of stopped work should be registered via email to Rob Clayton. Email: rob.clayton@ahdb.org.uk

The following research and knowledge exchange projects will be funded until the end of the contract.

Click on the links below for more information: