Farms in England are set to see substantial falls in business income due to dwindling commodity prices, sharper subsidy cuts following Brexit, and increased competition from cheaper imports, while uptake of natural capital payment alternatives has been lacklustre, industry experts said Thursday.
Relatively high commodity prices influenced by the war in Ukraine have largely shielded UK farmers from the real impacts of the agricultural transition following Brexit so far. However, this is unlikely to last as prices decrease, and direct payment cuts increase sharply, said James Kane, associate at think tank Institute for Government during a webinar hosted by Westminster Forum Projects.
“We haven’t yet seen the kind of uproar that was sometimes suggested we might see from the agricultural transition, given cuts of already over 30% to farm subsidies,” following the transition away from the EU’s Basic Payment Scheme (BPS) towards results-based payment schemes for English farming, said Kane.
“But this looks all about to change,” due to a number of factors, he said.
These factors include: a return to more normalised commodity prices including wheat, which shot up sharply in recent years on the outbreak of the war in Ukraine; the steepest cuts yet in 2024 under the BPS; and rising beef imports from Australia and New Zealand increasing pressure on UK farmers, he explained.
Reductions to basic payments for farms in England range from 50-70% this year, depending on the payment band of the farm.
The UK Department for Environment, Food & Environmental Affairs (Defra) is projecting substantial cuts to average farm business income for 2023-24, compared to 2022-23, particularly from cereals, dairy, and general crops, following a couple of years of strong performance prior, according to charts shown by Kane.
Farmers also have to contend with increasingly erratic English weather made worse by climate change, and the upcoming general election, with unknowns about funding levels to farming following the end of the current Parliament. The UK is due to hold general elections by January.
England’s £2.4 billion annual budget for farming is only guaranteed through the current Parliament, with no assurances on the level afterwards.
Agriculture is responsible for 10% of UK greenhouse gas emissions, from sources such as ruminant livestock, fertiliser use, and food waste. However, agricultural land can also act as an important carbon sink if managed in the right way to promote soil carbon sequestration and agroforestry.
Average farm business income in England, 2014 – 2023. Source: Institute for Government
GREEN UPTAKE IS WEAK
The transition away from direct payments towards more results-based income, such as the government-funded Sustainable Farming Incentive (SFI) and Environmental Land Management Schemes (ELMs), is still relatively weak, speakers said during the webinar.
There is lots of potential for privately funded natural capital schemes like biodiversity net gain (BNG) and the voluntary carbon market to help plug the funding gap faced by farmers, but market awareness and understanding of these opportunities is still lacklustre, said Cameron Hughes, senior land use adviser at Country Land and Business Association.
“We have seen a substantial increase in the number of applications for the SFI and the other Environmental Land Management schemes, but the uptake is still fairly weak compared with direct payments,” said Kane.
Only around one in eight eligible farmers under these schemes took advantage of them in the past year, far from the number required to make up the difference from losing direct payments, he said.
More investment is needed in advising farmers on how they can access sustainable payment schemes in England, including in on-the-ground advisors and peer-to-peer learning networks, said other speakers during the webinar.
Farmer cooperative the Environmental Farmers Group (EFG) aims to amalgamate farmland in England to achieve landscape-scale change and to more easily access natural capital markets, with the hope of achieving better prices for farmers.
CHALLENGES FOR TENANTS
Difficulties faced by tenant farmers to access ELMs is one of the factors preventing increased uptake of these schemes, said George Dunn, CEO of the Tenant Farmers Association (TFA).
Tenant farmers in England also face difficulty in accessing the voluntary carbon markets, largely due to the often shorthold status of their tenancy and lack of approval from landlords to enter such schemes, said Dunn.
Landlords are often concerned about the potential impact on their tax status from entering into such schemes, and often remove land from productive farming managed by tenants in order to access environmental payment schemes themselves, he explained.
As much as 85% of farms rented out in 2023 were for less than five years, according to the TFA, thereby preventing land managers from making long-term changes to the land as required by nature-based revenue schemes.
Around 70% of UK land area is actively farmed either as arable or pasture land, presenting a huge opportunity to deliver environmental uplift and improved biodiversity by both landowners and tenants engaging with the natural capital market, through schemes such as the Woodland Carbon Code (WCC), Peatland Carbon Code (PCC), and BNG.
However, significant hurdles prevent the majority of tenanted land from entering into such revenue-generating opportunities. Average farm tenancy lengths are too short to make long-term schemes viable, aspirations between landlord and tenant often differ, and underlying restrictions in lease agreements can block initiatives.
The TFA is calling on Defra to ensure that all ELMs and productivity schemes are accessible and open to tenant farmers, and to consider ways to prevent landlords entering schemes where they have resumed land from a tenant farmer for the purpose of tree planting.
Dunn called for the government to think more strategically about the country’s security of food, environment, and energy when developing agricultural policy. The three need to be considered holistically given the many crossovers, such as placing solar panels on farmland, he said.
CONTRADICTIONS
Institute for Government’s Kane highlighted some potential contradictions between the government’s aim to spend on environmental incentives for agriculture, while also exposing the market to more competitive pressures through its trade policy, which opens the door to increasingly cheap meat imported from abroad.
“The government’s proposals for reformed agricultural policy are principally focused around delivering environmental benefits from farming. At the same time, the trade policy being pursued by the government, which eventually materialised in the form of the trade deals with Australia and New Zealand, among others … was likely to lead to reasonably sharp declines in prices for certain agricultural products, especially meat,” he said.
“There is a certain contradiction in saying that you want farmers to spend money on delivering environmental incentives, while at the same time exposing them to much stiffer competitive pressures.”
The government has also not fully considered the interplay between its net zero goal and agricultural policy, particularly around livestock farming, he said.
Methane emissions from ruminant livestock including cows is a leading driver of GHG emissions, with particular short-term potency.
Although there are very good political reasons for not considering measures like meat taxes, “the government doesn’t seem to have fully considered how the drive for net zero and the reduction in meat consumption that that does probably imply is going to interface with future agricultural policy”, Kane added.
“We are expecting to see less livestock on the uplands and so we need to think about how that land can be used for other purposes and incorporate that into our agricultural support schemes.”
By Bryony Collins – bryony@carbon-pulse.com
