Strutt & Parker has produced an impact assessment which models how the move away from the Basic Payment Scheme (BPS) and the introduction of new Environmental Land Management (ELM) schemes will impact profits across seven different farm types, depending on whether a farm is in the top 25%, middle 50% or bottom 25% of performance.
This suggests that for an average livestock farmer in a Less Favoured Area (LFA), net profits could fall by as much as 31% by 2028, even if profits from ELM payments are double those generated under existing agri-environment schemes and assuming a 3% per annum rise in profits from farming and diversification.
The impact on an average arable farmer or average mixed farmer could be even bigger. They could be looking at more than a 50% drop in net profits because they traditionally have been more heavily dependent on BPS to support profits.
“Our analysis shows that generating a positive financial return from agricultural production is going to become increasingly challenging as BPS payments are phased out, and major new legislation – much of it associated with mitigating climate change and fostering environmental benefits – is phased in,” says Richard Taylor, who is responsible for Strutt & Parker’s farming department based in Yorkshire.
Profit will be lower
“Some people are hoping that the ELM schemes will allow them to make up for the loss of BPS. However, even in the unlikely event that farmers are able to secure similar levels of payments to BPS, the net profit from ELM schemes will be much lower than that generated by Basic Payments, due to the associated costs of carrying out environmental management work.”
Mr Taylor says despite the challenges, there will also be plenty of opportunities for the best operators to grow their businesses if they apply innovative thinking and a proactive approach.
Farmers need to be thinking in terms of a step-change in what they do and how they do it, to take advantage of opportunities as they arise.
This might involve looking at whether new business structures could help to address any issues around improving efficiency or bringing in people with the right skills to move enterprises forwards. Businesses could also be looking into whether they could generate new income streams through the delivery of environmental services, or by unlocking the planning potential of land and buildings. Another strategy could be to grow income from diversification, although not everyone will have the right skills, assets, capital or location to make diversification work.
“Marginal adjustments to production are important, but they are not going to be enough to make up for the loss of BPS support,” explains Mr Taylor. “Now is a critical time for farmers to evaluate their wider options if they have not already started to do so, identify where there might be new opportunities and then turn their plans into action.”
Mr Taylor says farmers may need support in making the right choices when it comes to navigating the complex web of new support schemes on the way through ELM, including the Sustainable Farming Incentive (SFI), Landscape Recovery Scheme and Local Nature Recovery Scheme. Accessing some of the private and public investment available for public goods will also require careful thought, given the long-term nature of agreements.
Help is available
“Navigating the changes that lie ahead is becoming an increasingly complicated business. There are now over 15 different elements within Defra’s Agricultural Transition Plan and on top of that there are changes to existing schemes to consider.”
Strutt & Parker has produced a simple poster to help land managers navigate the different options open to them, which provides the latest information on when each scheme is likely to open and how long it will run for. For a copy of the poster visit https://struttandparker.online/defra-new-farm-grants
Strutt & Parker has a BPS calculator to help farmers understand how phased cuts to support payments will impact their businesses. To run your own figures through it, or if you would like support to help you evaluate your future options, please contact Richard Taylor at [email protected] or 07702 317287.