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Agricultural Engineers Association

UK - Agricultural Engineers Association
Phasing out of Direct Payments in England
Phasing out of Direct Payments in England
Farm Business Income by source
Farm Business Income by source

Big changes ahead for farm policy in the UK

Agrievolution readers will know that at the start of 2021 the UK completed the process of leaving the European Union (aka Brexit). That has resulted in many changes affecting businesses in the UK, and also those doing business with the UK– a new trading relationship with our closest and largest trade partner, the end of free movement of people for work and new requirements for product marking, for example. However, for farming the biggest change is probably that the UK will take over responsibility for agricultural policy for the first time in nearly 50 years.

In fact, there will be not one but four new sets of agricultural policy, as it is devolved to the governments in Scotland, Wales and Northern Ireland, with the UK government only responsible for England. That will mean differences, both in the pace at which change happens and in the details of the final policy mix which is arrived at.

The direction of travel at the moment, looks likely to be similar, though, with the phasing out of subsidies in the form of direct payments, previously made through the EU’s Basic Payment Scheme (BPS). These will be replaced by the principle of ‘public money for public goods’. That mainly means paying farmers to protect and enhance the environment, including contributing to reducing greenhouse gas emissions. It will also extend to animal welfare, animal & plant health, access to the countryside and supporting innovation. The government has committed to maintaining the total level of funding, at least until the next General Election, due in 2024.

The move to the new policy will happen quickest in England, with the phasing out of the BPS starting this year and taking seven years. All farms will see at least a 5% cut in subsidy payments in 2021, with larger ones taking a bigger hit. After that, everyone will lose 15% a year for the next three years, with phased reductions continuing after that at a rate yet to be determined. With BPS payments accounting for an average of 60% of farm incomes (after costs, see chart below), it will mean big changes are needed to current business models. That could have implications for the machinery market, as BPS payments have been a big contributor to farms’ investments until now.

Piloting of new environmental land management schemes is already underway, with the full roll-out expected from 2024. There will be three main schemes, ranging from the Sustainable Farming Incentive (SFI), which will be suitable for most farms, to the Landscape Recovery scheme, which will focus on large-scale habitat restoration, involving several landowners working in partnership with conservation organisations. The SFI will initially focus mainly on actions to improve soil health but will quickly expand to cover other aspects like water and air quality, habitat restoration and biodiversity.

The government hopes that 70% or more of English farms will get involved in the SFI. However, unlike BPS, farmers will have to do something for the money they receive, although payments may be large enough to allow them to make some ‘profit’, even after accounting for costs and loss of income from any land taken out of agricultural production. Therefore, even if the payments they receive are the same as before, they will make a smaller contribution to farm incomes.

To help farmers during the transition to the new policy environment, there will be various funding streams for capital investment and farmer-led research & innovation. Details of how these will work are only now beginning to emerge but they will be of interest to machinery manufacturers, so no doubt we will return to this topic in the future.

Stephen Howarth, Agricultural Economist, AEA, November 2021

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