Farmers should prepare for change after the government confirmed that basic payments will be halved by 2024 – and phased out completely within seven years.
The loss of the Basic Payment Scheme will see profits fall across the dairy, livestock and arable sectors, according to financial forecasts prepared by agricultural business consultants Brown & Co.
Calculations suggest a 306% drop in net profit compared to 2020 for a typical 420ha eastern counties farm producing cereals, legumes and sugar beet – although 2020 was an unprecedented year for the arable sector.
A typical 81ha dairy farm milking 150 cows plus youngstock, could see a 21% reduction in net profit. Meanwhile a 142ha (350 acre) lowland beef and sheep farm with a bed and breakfast diversification could see a 113% drop in net profit.
“The basic payment reduction will have a big impact on overall profit even in a normalised year,’’ says Brown & Co consultant Paul Waberski. “In summary, nearly every sector will be impacted by the change to a greater or lesser degree.’’
Mr Waberski says there will be “real opportunities’’ for farmers to exploit during the transition period. But there will also be difficult decisions for businesses to make – and farmers should be prepared to plan for the future.
Brown & Co has developed a free web-based tool so farmers can see the effect that the withdrawal of basic payments will have on their own individual business. They can then plan ways of mitigating the impact.
Once farmers have registered and entered their data, the tool calculates basic reductions over the next seven years. It also allows farmers to understand the opportunities of changing cropping and introducing new incomes streams.
Alternative land use
Brown & Co consultant and natural capital specialist Greg Beeton says: “This tool aligns closely with the work we are delivering with Defra to prepare farmers for the changes ahead – and provides a real opportunity to start planning right now.’’
The tool also has a facility that allows farmers to look at alternative cropping and land use, including Countryside Stewardship, to optimise their returns and help to mitigate the reduction in basic payments.
Under the current system, farmers are paid £232/ha for every hectare they control for the 12-month claim period. But this will be removed and the emphasis will be placed on paying farmers for undertaking environmental work.
The government says farmers will be able to offset some lost income by signing up to Defra’s forthcoming Environmental Land Management (ELM) scheme. But the scheme won’t be fully up and running until 2024.
Key targets under ELM include the delivery of environmental benefits such as improving soil health, cleaner air and water – as well as helping to mitigate climate change by capturing and storing carbon.
An interim Sustainable Farming Incentive is due to launch before then. But the details are unclear. Grant funding is also expected to be made available for farmers to improve productivity and invest in their businesses.
Defra has said it wants to “move beyond” compensating farmers for losses and reward them for the true value of the services they deliver. Numerous pilot schemes are being tested but payments to farmers have yet to be calculated.
The government says an early retirement scheme will enable older farmers to leave the industry with dignity. Defra says this will also encourage new entrants into agriculture – including innovative younger farmers.