Subsidy losses heighten farmers' need for more diverse incomes
- Credit: Brown & Co
Amid all the uncertainties surrounding agriculture, one thing is for sure - farms will no longer be able to rely on subsidies to support their bottom line.
At the end of last year, the government outlined a seven-year timetable for phasing out the Basic Payment Scheme (BPS), which previously distributed EU subsidies based on the amount of land farmed.
It will be replaced by the Environmental Land Management Scheme (ELMS), which will instead reward farmers for "public goods" such as work to improve landscapes and protect ecosystems.
But with that scheme still in development and not due to begin its full roll-out until 2024, there are concerns of a funding gap.
The financial impact has been illustrated on a hypothetical model farm devised by rural agents at Brown and Co. This typical 420ha eastern counties unit, producing cereals, legumes and sugar beet, currently has a BPS payment of £90,552 which will reduce by an estimated £11,610 in 2021, £25,193 in 2022, £38,776 in 2023 and £52,359 in 2024 - more than half its current level. By 2027 it will be gone altogether.
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Andrew Fundell, a partner in the agricultural business consultancy in the Norwich office of Brown and Co, urged farmers to use the seven-year transition window to plan for this change - and explore new potential revenue streams.
"When it comes to 2024 we're losing 50pc of BPS," he said. "Whether businesses can take that on the chin depends on what alternative income streams they have identified in the meantime - whether that's tourism, commercial property, letting the farm out for storage, light industrial units, or whether they have used the advantageous planning environment to realise some under-utilised assets and sell those off to reduce debt.
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"People have also geared up, borrowed more money and invested in other enterprises outside agriculture, whether that's commercial, residential or other options.
"You've also got people investing in pigs and poultry, completely separate enterprise on the farm, but using the skills they have already got.
"Most people realise that, in all bar a few situations, to replace the total of your basic payment and any minor stewardship scheme you have on the farm with ELMS income by 2024 onwards is unlikely - particularly on productive Norfolk agricultural land."
Mr Fundell said he expected more government funding opportunities to be launched to help farmers "plug the gap" by investing in new technologies, large machinery, reservoirs, robotics or packing lines.
He added that while recent bad weather has highlighted the volatility of traditional farming operations, it had also resulted in unexpectedly high prices for wheat and other commodities - but that temporary relief must not be a distraction from the need for sustainable incomes.
"It would be wrong to base your five-year plan on commodity prices as they are now," he said. "We need to have a Plan B. While we like to make hay while the sun shines, having a Plan B, especially for more marginal areas, is important."
Susan Twining, senior policy adviser for the Country Land and Business Association (CLA) said there was still a "frustrating" lack of detail over the new payment schemes, which was making it difficult for East Anglian farmers to plan for their financial future.
"While we are supportive of the principles of the new schemes, transitioning from the old system to the new one is fraught with dangers," she said.
"By the time the ELMS is fully operational, farming businesses face losing at least 50pc of the financial support they previously received. The reliance on BPS for farming businesses of all sizes is very obvious, and it seems clear that some will struggle.
"A lot of work is continuing behind the scenes at Defra and we are expecting notice of a number of consultations and pilot schemes on different aspects of the new schemes in the next few months.
"However, for farming businesses, it can all feel quite daunting, with confirmation of the what the cuts are going to look like, but a frustrating lack of detail on the new schemes and how they will work, making it difficult for businesses to plan with any confidence."