With the Agriculture Act 2020, the farming industry is set to change. The impact will not be immediate for many businesses, but what will the future look like for farming?
Here are seven questions that businesses should ask now to prepare themselves for the changes ahead.
|①||How will you replace the income lost when direct payments end?
The budget for farm support will be maintained until 2024 but, over the next decade, farmers will receive less subsidy and have to do more for it. The Basic Payment Scheme (BPS) will be phased out and replaced by the Environmental Land Management scheme (ELM), with deductions from BPS of between 5 per cent and 25 per cent already announced for 2021. Payments will no longer be linked to land occupation and will instead be dispensed under a new three tier system, with most likely to qualify for tier one and tier two likely to be equivalent to the current countryside stewardship scheme. Many businesses are starting to prepare and plan for replacing lost income from direct payments.
With only 25 per cent of farming businesses profitable without direct payments, it will be more important than ever to generate income from other business activities. New farming activities such as controlled environment agriculture and vertical farming present opportunities, along with rural offices, tourism and renewable energy, to list a few. This change to the agricultural landscape presents farming businesses with opportunities to rethink and reinvent.
|②|| How will public goods payments feature in your business?
From 2024 ELM payments will start to feature on farms. These will be different to the BPS in that every farm will sign up to different schemes, receive different amounts of income, and do different things to receive this income. Tier 1, 2 or 3 will determine how much farmers will need to do and how much they could get paid.
What’s certain is that businesses will have to do more in order to receive these payments. What will the profitability of such schemes be like after all relevant costs have been incurred? If public goods payments are lower than current support payments, then businesses need to start planning for this shortfall.
|③||How will you reduce your carbon footprint?
The ELM scheme is likely to be much wider-reaching than current environmental schemes, covering biodiversity, emissions and carbon footprint. The Climate Change Committee (CCC) has released advice on how to deliver the Government’s net-zero greenhouse gas emissions target by 2050. It estimates emissions from agriculture can be reduced by 64 per cent, and recommends a 20 per cent reduction in the most carbon intensive foods such as beef, lamb, and dairy.
This cannot be achieved without changes in farming practices with forestry being responsible for half of the greenhouse gas savings and increased energy crop production. Whilst these are long term aims, now is a good time for farmers to get ahead of the curve by understanding what their carbon impact might be now. Businesses should calculate their carbon emissions and then consider ways that this could be reduced.
|④||How is your business is performing now?
It is difficult for businesses to plan if they do not fully understand how they are performing now. Do they know where their profits or losses are coming from? Which parts of the business are the most profitable? How do they compare with their neighbours and peers?
The availability of data and analysis - be that financial, physical or from the field - should allow businesses to better understand their strengths and weaknesses. It is more important than ever that time is taken to understand these.
|⑤||What else could you do with your existing assets?
What ambition do businesses have and what direction do they want to take? While it is not easy to plan for the future when agricultural policy is unclear, farms and estates need to look at all the assets available to them, such as:
- land and property;
- technology, and
- natural capital.
Understanding all of their assets will better help businesses to understand where they are now and what they might be able to do going forward. Change is inevitable, but what other opportunities might this present? Businesses will need to continue to consider collaboration, joint ventures and look at what income streams can be generated by using their assets.
|⑥||If there’s less support from rural businesses, how will this affect you?
The changes that will affect agriculture will have further impacts on the wider support industries. With rural businesses having to act smarter, reduce inputs and emissions, there are likely to be fewer businesses supporting the industry in the future. This will have a knock-on effect on how rural businesses operate.
|⑦||With all this change, will you still want to continue farming?
With payments no longer linked to occupation and the possibility to take a lump sum payment of the remaining subsidy, some farmers may decide it is time to stop. An outgoers’ scheme is also likely to be available. This could present an opportunity to sell up, retire or pass down to the younger generation. Careful financial planning will be required when making these decisions.
In summary, a large amount of change looks likely as a result of future proposals. Businesses need to be ready as very few will be untouched. With so few businesses profitable without direct payments, the core rural business must be sound. Will landowners continue with food production or look at other sources of income? A lot of questions need to be asked and it is important that this process starts soon in order to be best prepared for the future.