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Jeremy's Blog 6th January 2023: Policy Certainty - Farming as a Business

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 5th January 2023.

Jeremy Moody is the Secretary and Adviser at the Central Association of Agricultural Valuers (CAAV)

While a commonplace point in much end of year commentary has been uncertainty over agricultural policy, this is an area of relative certainty. Area payments are being phased out in England, are to be removed in Wales and made much more conditional in Scotland with strong climate change objectives. Only Northern Ireland, with no Ministers, Executive or Assembly, is not taking a new policy forward though the outgoing minister outlined a course last March.

These changes emphasise improving farming’s productivity, the business efficiency that is necessary for income, but which has lagged competitors over the years of area payments. That withdrawal of their comfort is combined with capital support for investment and innovation. The message is that the business of farming is to be farming as a business.

The other leg of policy is environmental improvement with ever more pressing objectives including climate, biodiversity, water, and air quality. This is across the economy but bears on rural land management. It is this year that will see substantial money released from Basic Payment for re-use in schemes (including an enhanced Countryside Stewardship) to buy change (and support practices above what is legally expected). That will include habitat, woodland and peatland with the NPPF consultation pointing to other uses for less productive land. Intended to be “something for something policies”, these will not be attractive to all and involve costs for most.

Offering options to be considered on their merits, not salvation, they are not income substitutes for Basic Payment – but many still talk as though they are just that. More widely, the talk of such schemes and private markets risks being a displacement activity when the focus should be on the business.

Farming’s income overwhelmingly comes from production. Of the £25bn or so of total income, £22bn comes from production, £3bn from legacy support – in reality, much of that has been passed on in costs. Support is more important for grazing livestock and combinable crops but barely relevant to a third of our output and relatively minor for the further fifth that is dairy.

That £3bn will not be matched by carbon. The Green Alliance paper for last year’s Oxford Farming Conference suggested that, even at £50/t (perhaps three times values now seen), carbon would only meet half of that, “assuming it is all measurable, verifiable and paid for”.

DEFRA’s expectations of private finance for the environment are the very round figures of £500m by 2027 and £1bn by 2030, likely to want to buy change but not limited to agricultural land or rural work and less than current support. Biodiversity net gain, potentially offering larger values per acre, might have a market of less than 10,000 acres a year.

On the production side, commodity farmers as price takers have to control unit costs. For others, the task is to find ways to be price makers for produce. When AHDB figures show the bottom quartile losing money on winter wheat, efficiency and competence will be key. That makes it important for proficient farmers to have access to the land they need.

The focus has then to be on produce markets, where price and terms are currently challenging many high value unsupported sectors with rewards not matching cost, commitment, and risk. Farmers need to win and then hold financial margin. Yet purchasers, under their own pressures, are likely to require climate and environmental standards. The stage should be set for a major re-appraisal – we wait to see what markets and actions under Agriculture Act powers may achieve.

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