How do you resolve the conflict between political short-termism and an industry that works on long-term planning? I suspect that most farmers have given up trying to factor government policy into their plans, given the lack of detail around the introduction of ELMS, the lump sum exit scheme and the delinked payments, and are just getting on with it.
The first tangible sign of how the future might look starts this autumn with the Sustainable Farming Incentive pilot (although expressions of interest in taking part has fallen well short of Defra’s target of 5000). The scheme roll out is planned to start in 2022 but long crop rotation and livestock breeding cycles may mean that farming businesses will not be able to take immediate advantage of it when it becomes more widely available. Inevitably, with BPS gradually tapering off, some businesses will be left with a shortfall in income.
Plugging the gap
As the phasing out of the BPS really starts in earnest next year, most calculations (based on indicative Defra figures) seem to indicate that the gap between ELMS payments and the income received under the old BPS is likely to be substantial – and not in the right direction. This matters as, on average, subsidies represent the profit for many farming businesses. Farm incomes may also be further impacted by the outcome of various trade deals as the limited ability of the Trade & Agriculture Commission to influence the Secretary of State’s negotiations with countries with lower food production and husbandry standards than Britain, becomes apparent.
The likely shortfall means that farmers must get to grips with the mechanics of their business now by reviewing how they are structured; how the farming assets are owned; profit and loss; cash flow; and where productivity gains, such as reducing inputs and using more technology, can be made. Additional grant schemes are also coming on line including the Farming Resilience Fund, which has awarded grants to 19 organisations so they can advise current recipients of the BPS, free of charge, and the £17.5m Farming Innovation Programme which opened in October.
Diversification into non-farming activities is increasing as businesses capitalise on a captive, and more-environmentally aware, population that has (largely) holidayed in the UK this year. Choosing the right path to diversification will depend on the plan for the rest of the farm and on having the right structure in place to support any new business venture. Diversifying does bring challenges: tenants are likely to need their landlord’s permission before making infrastructure changes; planning permission may also be needed; and tax considerations may also play a part in the decision-making process.
Plan to stay viable
Business planning is on the lips of every consultant, professional adviser and industry representative. Even the press is involved: Farmers Weekly has created a Transition Hub complete with various resources to help farmers prepare for the phasing out of BPS, including recording the experience of farmers who are actively grappling with how to bridge their post-BPS income gap.
Not all farms undertake a formal business planning exercise; as a result, many farming businesses continue doing the same thing from one year to the next, largely out of habit, without proper regard for the business’ future viability. In our experience this often leads to inter-generational tension as younger members of the family want to introduce new techniques that sit uncomfortably with the more risk-averse approach of senior family members who are more inclined to ‘asset protect’. Ultimately everyone in the business wants it to thrive but resolving the stand-off may require the involvement of an experienced third party to help arrive at a mutually satisfactory outcome.
Fail to plan, plan to fail
This well-worn adage has never been truer for the farming industry. Although many aspects of farming are out of farmers’ direct control (climate, political decisions, market prices etc), all farmers need to understand the health of their business so they can make informed decisions about their future. There is no doubt that the government incentive to encourage older farmers to retire may suit some; for others, dealing with succession will become urgent; and for others, restructuring the business to accommodate alternative income streams will be the priority. Regardless of the route chosen, the legal and financial implications of any decision must be factored in if the law of unintended consequences is to be avoided.