THE FUTURE OF AGRICULTURE: NEW OPPORTUNITIES IN THE RURAL SECTOR
The Department for Environment, Food and Rural Affairs (Defra) has recently published their November 2020 post Brexit Transition Plan.
The publication, The Path to Sustainable Farming: An Agricultural Transition Plan 2021 to 2024 sets out policies to help farmers adapt and plan for the future in a post Brexit world. Anglia Rural Consultants (ARC) has reviewed the plan in detail. We believe there has never been a more opportune time to future proof farming activities to make them more agile and able to respond to changes.
This includes reviewing and re-structuring finances, managing carbon footprints and protecting natural assets such as soil and water.
As the UK nears the end of the Brexit transition period, Defra is preparing to create a new domestic agriculture policy to replace the Common Agricultural Policy (CAP).
The CAP currently provides nearly €4 billion (£3.32 billion¹) of support annually to farmers across the UK, in addition to consumer support derived from tariffs and Tariff Rate Quotas (TRQs), which protect the sector from flooding the food market. This gives the UK Government and devolved Governments the opportunity to rethink rural policy, and redesign farm subsidies and incentives.
The policy environment for farmers and the food sector is uncertain. This is compounded by limited funding in a strained economy.
Farmers and landowners will be less able to rely on the cushion of farm support under the Basic Payment Scheme (BPS) and other schemes. To move forward, farm businesses need to review their business objectives, structure and improve efficiency, as reducing operational costs will be key to placing the business in a stronger position.
ARC’s specialist consultants have a wealth of expertise in business planning, re-structuring and ways to make operational and efficiency savings, to help your farming business survive and grow.
There will be opportunities to secure new sources of income, where ARC’s finance and grant experts can provide you with insight, advice and support. These new income sources include delivering emerging Government schemes which have a positive impact on climate change, biodiversity and productivity.
The impact of policy changes on farm profitability, and possible responses
The new domestic agricultural policy change is likely to be accompanied by a crisis in farm profitability. Farms which have grown dependent on the BPS and other farm support may be unable to supplement farm incomes by participating in replacement schemes like the Sustainable Farming Incentive (SFI) and the emerging Environmental Land Management Scheme (ELMS). These will not be suited to all farm businesses, as payments will be limited to costs incurred, not profits.
The BPS will be phased out by 2027 in England. Larger farms receiving over £150,000 in support will face a 25% cut in support in 2021, increasing to 70% in 2024. This will only be partially offset by the abolition of the greening requirements. These are EU payments for farmers who adopt or maintain farming practices that help meet environmental and climate goals.
For some farmers, the offer of a lump sum to leave farming from 2022 in place of any further BPS and delinked payments, may be worth considering. Delinked payments are made, regardless of levels of production, size of land and even if farming is ceased, altogether.
Some land may need to be taken out of food production and transferred to environmental schemes where the payment levels are justifiable. New sources of funding will need to be explored to make up the inevitable funding gap from these schemes and ARC specialists are on hand to advise on the most suitable options. For example, this may include securing payment for carbon sequestration (the storage of atmospheric carbon) and conservation activities to compensate for biodiversity losses, known as ‘biodiversity offsetting’.
Farmers will need to revise their business structure, particularly for family partnerships, and give careful consideration to succession issues before making long-term commitments to the revised structure. Issues which may have proven difficult to address within a family farming structure may need to be assessed and resolved. ARC can provide clear, objective, expert advice to help with this transition. In addition to lump sum payments for those leaving farming, there will be a support scheme for new farmers entering the sector, from 2022.
Farm profitability and the reduction in farm support will be reflected in land price changes in the long and medium term. Farm rents could fluctuate – going down as well as up.
This could lead to new farm structures, for example, the merger of tenants’ land or joint ventures, in addition to contract farming, which are better suited to the more diversified nature of the land management businesses.
Future support for farmers
The proposals set out by Defra, for agricultural transition after leaving the EU have three key strands.
These are new policies which aim to:
- Help farmers reduce their costs and improve their profitability
- Help those who want to retire or leave the industry and do so with dignity
- Create new opportunities and support for new entrants coming into the industry
ARC’s grants and finance experts speak to colleagues at Defra on a regular basis and are here to provide you with the latest information, advice and support on funding opportunities.
Through the proposed Farming Investment Fund, Defra will support innovation and productivity projects. This will open for applications 2021 and will offer grants for “equipment, technology and infrastructure for the future.”
Eligible investments could include:
- On-farm water storage infrastructure, including reservoirs
- Precision agriculture equipment (low emission and variable-rate nutrient or pesticide application)
- Robotic or automated technology
- Items to improve animal health
- Specialist forestry equipment
- Equipment and technology for storing, sorting, or processing products
- Large-scale precision agriculture projects
- Precision agriculture and low-emission nutrient application equipment
The new initiative, Nature Recovery Network (NRN) will be delivered mainly by Natural England with representatives from over 600 organisations. The NRN is intended to secure the restoration of protected sites and landscapes and help provide at least 500,000 hectares of new wildlife-rich habitat in England, delivering a commitment in the government’s 25 Year Environment Plan.
For some farmers, the incentives available from the fund may make it worth placing less productive land currently in Ecological Focus Areas (EFAs) into the scheme. Meanwhile, farmers may benefit from taking up existing Countryside Stewardship schemes on at least a proportion of their land as a way of testing the water for future schemes.
UK Shared Prosperity Fund
The Spending Review announced increased funding for the UK Shared Prosperity Fund (UKSPF). This fund aims to boost productivity and tackle inequalities, so that total domestic UK-wide funding will “at least match receipts from EU structural funds”, at around £1.5 billion per year. In addition, to help local areas prepare for the introduction of the UKSPF over the next two years, the government will provide additional UK-wide funding to support communities, pilot programmes and develop new approaches, which is likely to be available as a pilot in 2022.
Although the Local Enterprise Partnerships, which help to drive business growth in local areas, are not mentioned in the Spending Review, it is likely that they will be responsible for distributing a significant share of these funds.
Read our summary table here of transition issues shaping farm business decisions – Transition Issues Shaping Farm Business Decisions
To find out how we can help you navigate the future, maximise opportunities and secure funding, do get in touch.
Anglia Rural Consultants
¹Conversion at exchange rate £1: €1.205 (as at 20th November ’20).