Loss of Common Agricultural Policy Subsidies and the New Agriculture Bill
Before the UK left the European Union, subsidy payments were made under the Common Agricultural Policy (CAP). These were mainly under the Basic Payment Scheme (BPS), which has been paid directly from the British government since September 2021. Over the next few years, CAP payments will be phased out and replaced by different schemes in the devolved nations.
Total Farming Income also includes subsidy payments (Basic Payment) and this will fall by nine per cent this year as part of the phasing out of payments.1Defra.2022. Agriculture in the United Kingdom. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1094493/Agriculture-in-the-UK-27jul22.pdf We can see how important subsidy payments are, particularly to grazing animals, in the following graph from 2017-18 to 2019-20:
Mixed and grazing animal farms made a loss on income from production as costs overshadowed the value to their output. Over 80 per cent of income for these farms come from direct subsidies. This is contrasted against poultry, horticulture and dairy farms where three-fifths of the income came from production. Subsidy payments were valued at £3.2bn in 2020.2Defra.2022. Agriculture in the United Kingdom. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1094493/Agriculture-in-the-UK-27jul22.pdf
Due to Defra accounting, we can only see estimates for 2022. Total direct payments were expected to decrease by £48m to £3.3bn (-1.4 per cent). On the other hand, BPS payments would increase by £47m to £2.8bn (+1.7 per cent). Last year’s figures can be seen in the table below. Notice the payments made for animal disease compensation:
Under the current BPS system, 95 per cent of farmers receive subsidies and it is estimated that farmers will receive only a third of their BPS payments under the Environmental Land Management scheme (ELMS) which replaces the old subsidy system.3Marianne Landzettel. 2021. Things will only get worse: Post-Brexit reality is hitting farmers hard. Sustainable Food Trust. Available at: https://sustainablefoodtrust.org/news-views/things-will-only-get-worse-post-brexit-reality-is-hitting-farmers-hard/
Farmers Weekly report that three-quarters of farmers do not know how they Under the current BPS system, 95 per cent of farmers receive subsidies and it is estimated that farmers will receive only a third of their BPS payments under the Environmental Land Management scheme (ELMS) which replaces the old subsidy system.  Farmers Weekly report that three-quarters of farmers do not know how they will survive without it4Tasker, Johann.2021. Securing a sustainable future – where should farmers start? Farmers Weekly. Available at: https://www.fwi.co.uk/business/business-management/agricultural-transition/securing-a-sustainable-future-where-should-farmers-start and the following graph explains exactly why farms are not profitable:5Defra. 2022. Agriculture in the UK Evidence Pack. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1106562/AUK_Evidence_Pack_2021_Sept22.pdf
This means that, when subsidies are excluded, farms only made £9 profit for every £100 spent.
Defra is “…phasing out subsidies so that we can invest the money in farm productivity, the environment, and animal health and welfare”. The aim is to:
- change how government works with farmers, including improving their approach to regulation of scheme rules and legal standards
- provide funding for farmers to invest in technology, equipment and innovation
- provide regular income for farmers to improve the environment, as part of their farm business
- provide access to information, guidance and free advice
Payments will be in the form of one-off grants or ongoing schemes.
Grants will be offered to invest in technology, equipment and innovation to help farmers boost farm productivity, adopt new practices and improve the climate, environment and animal health and welfare.
Available from 2022:
Farming Investment Fund (FIF)
Provides grants to improve productivity and the environment. It is made up of two separate funds:
- Farming Equipment and Technology Fund
£2,000 to £25,000. The grant is a contribution towards the cost of buying new technology or equipment from an approved list that improves agricultural productivity, contributes to improved animal health and welfare, encourages more sustainable pesticide usage, improves air and water quality, reduces greenhouse gas (GHG) emissions in line with Net Zero targets, reduces unsustainable use of abstracted water and encourages sustainable management of woodlands. A list of eligible items can be found here.
- Farming Transformation Fund
£25,000 – £500,000 for large capital items (slurry storage, etc).
Adding Value Grant
The Adding Value grant is available for growers or producers to add value to eligible agricultural products after they have been harvested or reared. It is competitive, so the Rural Payments Agency (RPA) will score your application based on merit. RPA will award a grant to the strongest applications. A grant of between £25,000 and £300,000 can be applied for. Eligible capital items include:
- equipment for preparing or processing edible agricultural products for added value sales
- equipment for ‘second stage’ processing of grain – for example, colour sorting, blending
- equipment for processing non-edible agricultural products into new products (for example, flax, hemp, wool, hides and skins)
- equipment for retailing eligible agricultural products (for example, vending machines or display facilities)
- premises for the preparation or processing of added value agricultural products, including associated integral storage areas
This grant could be used to turn oats into oat milk through funding the bottling and processing equipment, or turning hemp into fabric, for example. It can also be used for equipment to retail plant-based products to the public.
RPA is also looking for projects to provide wider benefits to other businesses, including new collaborations or partnerships and the environment. Environmental benefits could include using renewable energy, increased energy efficiency, introducing savings in energy or water usage or in waste management, increasing use of sustainable packaging and reducing harmful emissions or pollutants.
Read more information here.
Slurry Infrastructure Grant
Available to pig, beef and dairy farmers whose farming systems produce slurry. It will help to replace, build new or expand existing slurry stores to provide six months storage.
Water Management Grant
For capital items to improve farm productivity through more efficient use of water for irrigation and to secure water supplies for crop irrigation by the construction of on-farm reservoirs and the adoption of best practice irrigation application equipment.
Improving Farm Productivity Grant
For improving the efficiency of farm production, reducing GHG emissions and automation.
Farming Innovation Programme
The Farming Innovation Programme provides funding for farmers and growers who want to work to develop and use innovative methods and technologies. This funding is being run as a competition, which means that all the applications will be judged and only the successful ones will be funded. It is for projects that cost between £28,000 and £56,000 and farmers can apply to cover up to 70 per cent of their costs.
Applications will be judged on how far they solve a real-world problem for farmers, growers or foresters, increase productivity, reduce emissions and environmental impact of farming and improve the resilience of farming businesses in England. Several different rounds and projects are proposed and can be used by farmers, businesses and research groups.
Farmers could take advantage of research projects in sustainable proteins, for example. For more information see here.
Animal Health and Welfare Grants
Smaller grants for items valued from around £50 to £10,000 will be available, as well as larger grants for bespoke infrastructure investments to support farmers who want to improve the health and welfare of their animals.
Countryside Stewardship (CS) Grants
For boundaries, trees and orchards, water quality and air quality projects. These grants are suitable for rewilding projects, peatland restoration and organic conversion.
Tree Health Scheme
There is tree health funding available through a pilot scheme for those who manage certain trees or woodlands affected by some pests and diseases in some regions of England.
Farming in Protected Landscapes Programme
Funding to farmers and land managers in Areas of Outstanding Natural Beauty (AONB), national parks and the Broads to support nature recovery and projects which mitigate the impacts of climate change; provide opportunities for people to discover, enjoy and understand the landscape and its cultural heritage; and protect or improve the quality and character of the landscape or place. This could be used for wet farming projects. For more information see here.
UK Shared Prosperity Fund
As part of the levelling up agenda, additional funds have been given to Defra for rural communities. It is too early to tell what will be available but it is expected to pay for grants for the development, promotion and upkeep of local tourist attractions; research and development grants for new products, services and markets; funding for net zero initiatives for local business; the development, restoration or refurbishment of local natural, cultural and heritage assets and sites; and funding for cultural, heritage and creative events.
6Defra.2022. New farming policies and payments in England. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1096744/payments-for-farmers.pdf
There are ongoing payments available that reward farmers for producing environmental outcomes. Farmers will need to think not just in terms of food but also the income they can generate from producing environmental outcomes.
Environmental Land Management Schemes (ELMs)
The aim of the three schemes is to look after and improve the environment by conserving and restoring wildlife habitats, flood risk management, reducing widespread water pollution from agriculture, keeping the character of the countryside, preserving historical features in the landscape and encouraging educational access. It is made up of three separate schemes:
- Sustainable Farming Initiative
Farmers will be paid to provide public goods, such as improved water quality, biodiversity, climate change mitigation and animal health and welfare. Farmers will be paid per hectare for ‘actions’ they take which correspond to these categories.
The introductory level actions are:
- action one: complete a soil assessment and produce a soil management plan
- action two: test soil organic matter
- action three: add organic matter to all land in the standard at least once during the three-year SFI standards agreement
- action four: have green cover on at least 70 per cent of land in the standard over winter
The intermediate level actions are:
- action one: complete a soil assessment and produce a soil management plan
- action two: test soil organic matter
- action three: add organic matter to all land in the standard at least once during the 3-year SFI standards agreement
- action four: have green cover on at least 50 per cent of land in this level of the standard over winter and multi-species cover crops on an additional 20% of the land
For more information see here.
- Landscape Recovery Scheme
This scheme supports action at farm level and complements the Sustainable Farming Initiative. It is for landowners and managers who want to take a more radical and large-scale approach to producing environmental and climate goods on their land. The scheme will initially focus on biodiversity, water quality and net zero. Landscape Recovery is open to any individuals or groups who want to come together to deliver large (500 to 5000 hectares) scale projects. There is the potential for large scale rewilding and reforesting programs to benefit from this. For more information see here.
- Local Nature Recovery Scheme
This scheme is focused on local projects rather than individual farms and landowners. It replaces the Countryside Stewardship Scheme and pays for projects that reverse the decline in biodiversity, improves water quality, reaches net zero, builds resilience of the environment to climate change, improves air quality, introduces natural flood management, mitigates coastal erosion and enhances heritage and access.
Lump Sum Exit Scheme
The optional Lump Sum Exit Scheme provides flexibility for farmers, enabling those who wish to retire or leave the industry to do so in a planned way. They have to transfer their agricultural land in England but can keep five hectares. They can also keep the land but plant trees under the Woodland Creation Scheme. Farmers can still work as contractors to other farmers. The amount paid depends on a farmer’s ‘reference amount’ based on their average BPS payments (capped at £42,500). This figure will then be multiplied by 2.35 – the equivalent to the amount they would have received in Direct Payments for 2022 to 2027.
- If a farmer’s reference amount is £40,000, their lump sum would be £40,000 x 2.35 = £94,000.
- If a farmer’s reference amount is £50,000, their lump sum would be £42,500 (as the cap is applied) x 2.35 = £99,875.
7Defra.2022. New farming policies and payments in England. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1096744/payments-for-farmers.pdf