Don’t kick the can down the road – BPS warning

30th September 2020

With the transition to a new agricultural subsidy regime about to get underway, farmers are being urged not to ‘kick the can down the road’ when facing up to the fundamental changes it will usher in.

The current Basic Payment Scheme (BPS) is supported by EU funding and will be phased out by the end of 2027, to be replaced by new policies including the Environmental Land Management Scheme (ELMS). Annual direct BPS payments will start to taper off from next year. However, farm business consultants at George F. White are concerned many farmers are failing to comprehend the scale of the changes and the need to begin preparing their businesses now in order to be ready in time.

“The loss of direct support payments will represent the biggest change in farm finances for almost a century,” said Simon Britton, an equity partner at George F. White.

“It has been on the horizon for the past three years but there is an understandable tendency among farmers to concentrate on the day-to-day jobs, rather than looking ahead, and we fear many have only given this issue a fleeting glance.

“However, the time to plan for 2028 is now: leaving it too late could mean many businesses might be in serious trouble.” He added that because BPS is a direct payment, removing it from the top line of a farm’s accounts also takes the same figure straight from the bottom line, resulting in an immediate hit to profitability with no means of cushioning the effect.

This prognosis may sound a gloomy one, yet both Simon and fellow equity partner Elliot Taylor also believe the new system will provide opportunities for farmers prepared to look for them.

“On average, farm profit for Yorkshire and the Humber in 2018–19 comprised 54 percent BPS money, six percent agri-environment payments, 13 percent from diversification and 27 percent from the actual profit on their agricultural activities,” said Elliot.

“This leaves them very exposed to the loss of direct payments but, by playing to their strengths, by looking at cost savings and productivity enhancements, we believe they can come through this transition and be in a stronger position to take advantage of opportunities provided by the new system.”

George F. White is urging farmers to undertake a detailed business review in order to identify strengths and weaknesses in their farm’s operation, point out threats and opportunities, and help them prepare for the transition to 2028 and beyond.

“The review is all about how best to use their assets,” said Elliot. “We help farmers look at their land, buildings, labour, and importantly, themselves.
“We focus on how to make cumulative marginal gains across their operation and how to identify and exploit new income streams. “Farmers are resilient, they are accustomed to change, but they need support to move forward, which is what we are offering.”

ELMS payments should not be seen as a direct replacement for BPS income, George F. White is at pains to emphasise, and, furthermore, BPS payments will be reduced at a predetermined rate regardless of when a farm business opts to receive ELMS money.
Consequently, they argue, farmers need to start planning over a longer timescale, while banks and landlords are already starting to become more cautious and to take a longer view of prospects.

“Look at things over a longer period,” is Elliot’s advice. “Funding organisations increasingly want to see a three or four-year budget, so farmers need to make themselves ‘bank ready’ and have this information at their fingertips so they can react quickly when an opportunity arises. “If farmers stand still, don’t plan and don’t budget, the likelihood is they will find themselves going backwards.”

“Farmers know their business well,” said Simon. “Change is not as difficult as it might seem, but it is making the decision to take that first step which is often the hardest part of it. We want to help them take that step. “Although we believe farmers need to get out of their comfort zone and need to do it quickly, we also believe that, once they do, it will be surprising how many opportunities are out there.”

To discuss this or any farming-related matter contact your regional office:

Northumberland, Cumbria & Borders – 01665 603231
County Durham – 01833 690390
Yorkshire – 01677 425301

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