The challenge to farmers from the Government is to produce food whilst simultaneously protecting the climate and biodiversity, all the while earning a livelihood and generating profit to invest in business development.
Not a new challenge, but financial support from the Government will increasingly hinge on delivering things other than food, such as minimising emissions, protecting habitats, and improving natural capital. The Government has taken the opportunity of Brexit to review the basis on which English farmers receive subsidies; similar reviews are on- going in Wales and Scotland. But because agriculture is a devolved matter, the resulting frameworks will be different.
In each case, the new framework for farming support links new payments for farmers to actions that will cost farmers to deliver but will help the Government to achieve its legally binding environmental and climate targets. This is set out as part of the 25 Year Environment Plan now revised as the Environmental Improvement Plan (EIP 2023) for England. The EIP 2023sets out how the Government will work with landowners, communities and businesses to deliver goals for improving the environment, matched with interim targets to measure progress. These actions aim to co-ordinate action to restore nature, reduce environmental pollution, and increase England’s prosperity.
For most farmers, this is not the first experience of subsidy changes. Eight years ago, the Basic Payment Scheme (BPS) replaced the Single Payment Scheme (SPS). Ten years prior to that the SPS was introduced to counteract over-production of various agricultural commodities, replacing subsidies linked directly to production. These schemes were all part of the EU Common Agricultural Policy (CAP), introduced in 1962 to provide affordable, safe and high-quality food for all European Union citizens. When the SPS was introduced, it removed the link between subsidies and specific agricultural production. This allowed market forces to steer production whilst giving farmers a more stable income which was linked (albeit loosely) to the stewardship of land in good agricultural and environmental condition. Together with BPS, there were additional greening payments, which made up 30% of the total farm support budget, linked with positive environmental delivery by farmers.
Basic Payment Scheme (BPS) reductions
In England, the direct BPS payments are being gradually phased out from 2021 to 2027. On average, over the period 2014-2017, direct payments made up 9% of revenue across all farm types. The proportion of revenue from direct payments was highest on average in grazed livestock systems. Direct payments to arable farms (cereals) made up 15% of revenue on average, equivalent to 79% of the average farm business income. Irrespective of farm size and type, the impact of reducing direct payments on farm businesses is huge. By 2024, depending on area, BPS payments will have reduced by 50-60%. A 250 ha farm which had received £57,500 in 2020 will receive just £26,625 in 2024 and nothing in 2028 (Figure 1). With wheat prices unlikely to reach the highs of 2022 and fertiliser prices up 100% from 2020, farms have been left wondering if the schemes will be able to fill the gap left by the loss of BPS.
BPS annual payments (£) on a 250 ha farm
New funding replacement
As the BPS is phased out, Defra has confirmed that the same overall spend of £2.4 billion is availableto farm businesses until the end of this parliament 2024/25, through a programme of interlinked schemes including: the reducing BPS payments, the emerging Environmental Land Management scheme (ELMs), together with grants to support farm investment in new technology and business support and technical advice funded via the Future Farming Resilience Fund (FFRF). To ensure financial resilience, farmers need to explore all the options available to see how they can be stacked to bring the most value and strength to the farm business.
It should be noted the very public goods that farms are now being incentivised to deliver through ELMs are not mutually exclusive from direct benefits to the farm. Being paid to improve soils can reduce input costs, reducing the use of insecticides can increase the beneficial insects on farm. Taking actions to baseline and then increase organic matter in the soil may also pay off once the carbon credit market becomes more regulated and secure.
Environmental Land Management scheme (ELMS)
ELMs provide payments to reward environmental land management: “public funds for public goods”. Defra’s aim is to support the rural economy as well as contribute to the commitment to meet netzero emissions by 2050. ELMs is made up of a number of schemes that gradually increase in theirlevel of ambition and scale, starting with the Sustainable Farming Incentive (SFI) targeted at all farms which focuses on sustainable environmental food production.
Some, but not all farms, will also benefit through Countryside Stewardship Plus (CS plus) which targets actions to ‘make space for nature’ within farmed landscapes. This will now be delivered by enhancing the existing Countryside Stewardship scheme by:
existing CS standards are likely to be retained but are under review and will be more outcome focused;
payments are increasing by 10% on average with some capital grants with increases of 48% compared with 2022 levels;
an additional 30 actions will be added by 2024 to deliver the intentions of the Local Nature Recovery scheme proposed originally.
The final tier is Landscape Recovery which will fund long-term, large-scale ecosystem recovery across catchments and landscapes. The first round of applications was funded in autumn 2022. Most projects involved groups of land managers and farmers, including tenants, working together to deliver a range of environmental benefits across farmland and rural landscapes. Together, they aimed to restore nearly 700 km of rivers and protect and enhance 263 species across over 40,000 ha. Defra’s intention over the next couple of years is to merge all the SFI and CS plus applications into one easy to use online format to minimise the amount of administration and paperwork required by farm managers.
The Sustainable Farming Incentive
The SFI focuses on helping farmers manage their land to simultaneously improve food production as well as be environmentally sustainable. SFI is the first of the three tiers; it is designed to be as accessible as possible, with Defra allocating the main portion of the farming budget in the hope that the majority of farmers will sign up. SFI is intended to encourage farmers to go beyond regulatory baselines. Individually, the payment rates for each SFI standard may look unappealing, however, when you start stacking the various standards, as intended, the overall payments begin to look more attractive.
Exploring the options for the earlier 250 ha arable farm, by taking a pick and mix approach to the SFI standards, the business can start to bridge the funding gap resulting from the diminishing BPS payments. For example, by implementing a few additional targeted actions to plan and monitor soils, nutrients and crop health as well as focusing on hedgerow management, the farm business can receive payment for a number of new SFI actions.
Sustainable Farming Incentive actions
Examples of the range of SFI standards
The Soil Standards
Paying between £20-£58/ha aim to improve soil quality naturally, mitigating the risk of extreme weather on crops and increasing fertility naturally, with payments for soil testing, cover crops, minimising bare soil and the addition of organic matter. For a 250 ha arable farm entered into the intermediate agreement an income of £10,000 could be achieved. With many farms already completing the actions required for the introductory standard, and with an additional administration payment of £20/ha for the first 50 hectares entered, it is certainly an option worth considering.
The Hedgerow Standards
Paying between £3-£10 per 100m, designed to increase provision of food and nesting resources, increasing biodiversity by managing hedgerows to ensure a variety of widths, heights and increasing the number of trees in hedgerows. Studies suggest that UK farmland bird populations are now less than half of levels seen in the 1970s.
The Integrated Pest Management Standards
Encouraging a sustainable approach to pest management to minimise environmental risks and have a £45/ha payment for non-use of insecticide, potentially bringing in £12,239 for a 250 ha farm, if the payment of £989 made for completing an integrated pest management plan is included. With the addition of a £55/ha payment for establishing a companion crop, this standard has certainly attracted attention.
Enhanced Animal Welfare
To be provided through a yearly funded vet visit to carry out diagnostic tests and provide bespoke advice to improve animals’ welfare for an individual farm’s context.
Defra has taken a fair and flexible approach to encourage farmers to participate. The way in which it has been structured means that the SFIs are a very low risk option to enter:
three-year agreements with no penalty for exiting;
paid quarterly to help with cash flow;
some of the actions are rotational so that farmers can incorporate them where they fit best into their farm system and crop rotation;
farmers can enter SFI if they expect to have management control for 3 years. This means more tenants can access SFI compared with previous schemes. This includes farmers with tenancies on a ‘rolling’ year by year basis;
eventually SFI applications will be able to be submitted at any point in the year and new SFIs can be added on as they become available;
SFIs can be paid on land already entered into Countryside Stewardship (and CS plus) if the actions of both schemes are met and payments are not made for the same outcome;
farmers and land managers have the option to exit current CS agreements without repayment in order to apply for a new SFI agreement.
One-off grants
In 2023, more than £168 million of funding will be available through a variety of grants. This year’s Farming Equipment and Technology grant for various pieces of equipment designed to save time, improve efficiencies and productivity ended on 4th April 2023 but more grants will be coming available throughout this year, including: cattle housing, infrastructure projects, technology and innovation trials. It is worth subscribing to updates relating to the latest grants and funding (search online for Defra ‘Funding for farmers and land managers’).
Funded support and advice – Future Farming Resilience Fund (FFRF)
Defra has set aside money in the form of the FFRF to ensure that farmers can get access to the support needed to make the most of the new grants and on-going payments replacing the BPS. The support is also intended to allow farmers to assess, adapt and improve their farming systems and business models. Any farmer or land manager with an SBI number receiving BPS payments is eligible for the support. Register for support even if you took part in the interim phase last year, or if you have applied for the exit scheme.
NIAB has teamed up with farm business consultants AKC Agriculture and Savills, to provide broad technicaland management support to farmbusinesses within FFRF support. It covers all areas of farm business management across all sectors of agriculture and land management. So far, we have had many farm businesses sign up to receive free advice and are on track to supporting 1,000 farm businesses by the end of 2023.
This article first appeared in NIAB Landmark Issue 52 Spring 2023. If you would like to read the original or other articles in this edition click here >>