Tag Archive: Environmental Land Management Scheme

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

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

Proposed ELMS Scheme will not bridge the gap

The proposed Environmental Land Management scheme (ELM) will not bridge the gap left by the withdrawal of the Basic Payment Scheme (BPS) and farmers are sleepwalking into disaster, advisers have warned.

Simon Britton, Head of Farm Business Consultancy at George F. White, said the three-tier system recently outlined by Defra was reminiscent of the environmental stewardship triad introduced in 2005, of base-level BPS, entry-level stewardship (ELS) and higher-level stewardship (HLS). However, he believes even the higher echelons of ELM will not be a substitute for the direct payment. On a whole-farm basis, currently ELS works out at about £30/ha, with HLS ranging from £74-£124/ha, based on George F. White’s clients.

Based on these figures, the bottom tier of ELM could be about £12-£49/ha, which would not be a replacement for the £222/ha that lowland farms were broadly getting for BPS.

“ELM is not going to be a magic silver bullet,” says Simon. “Time, money and effort will need to be spent on works in order to get this money. You’ve got to be eligible for it and want to go into it and it doesn’t even start until 2025, so we’ll already be well through the transition period.”

See the tables below showing Defra’s proposed percentage reductions for BPS during the transition period and George F. White’s analysis of what the accumulative effect will be on farm businesses.

 

Transition Payments
BPS Income Bands Proposed percentage reduction in 2021
Up to £30,000 5%
£30,000 to £50,000 10%
£50,000 to £100,000 20%
£150,000+ 25%

 

Profit and Loss
Year Payment (£) Payment (£) Payment (£)
2020 30,000 70,000 160,000
2021 28,500 62,500 134,000
2022 22,800 50,000 107,200
2023 15,960 35,000 75,040
2024 11,172 24,500 52,528
2025 6,703 14,700 31,517
2026 4,022 8,820 18,910
2027 2,011 4,410 9,455
2028 0 0 0
Total value of BPS payments at current rate with no reduction 2021-2027 210,000 490,000 1,120,000
Projected BPS income 2021-2027 after assumed reductions 91,168 199,930 428,650
Difference between income at current rate and income at reduced rate -118,832 -290,070 -691,350
Table shows confirmed percentage decrease by payment rate for 2021 and then a George F. White prediction of gradual decrease to 2027. The percentage decrease is based on a tiered reduction system, similar to how income tax is applied. These figures do not include any potential agri-environment income.

The agricultural subsidy transition period is due to end in 2028, with BPS being phased out from 2021. Reduction percentages for 2021 have been announced and range from 5% for BPS claims up to £30,000, to 25% for claims of £150,000 plus.

Our table predicts how much farmers could expect to receive if the payments declined gradually for the following seven years, and the overall loss compared with receiving the full payment. This does not take into account any additional payments through the phasing in of ELM income. On this basis, a £30,000 claimant will see an accumulative reduction in support income of £118,832 over the transition period, while a £160,000 claimant will record a difference of £691,350.

Many agricultural businesses are heavily reliant on BPS support, and the latest Defra farm business survey shows that even with a five-figure annual subsidy payment an overall loss was recorded. “It doesn’t matter how you skin the cat on the way down, the accumulation is significant,” he said. “All farmers are going to need to be businessmen to get through the next 10 years.”

The average age of farmers means they have spent the majority of their working life building a business based on subsidy support.

“There is a massive amount of business planning work to come, which will include restructuring and succession. Farmers are sleepwalking into this and if we don’t manage this, this is going to be a big problem.”

If you would like to discuss the above in more detail please contact:

Simon Britton
01677 458202 / 07866 721146

Bill of Change, what’s to come for UK farmers

For the first time in my life, the UK is not a member of the European Union. As a result, on 15th January 2020 the Government published the second iteration of the Agricultural Bill. In summary the Agricultural Bill sets out a framework of new Agricultural Policies and transition measures for England, Wales and Northern Ireland. The Bill is a crucial cornerstone of the Governments’ future farming and land management policy.

Practically, what does this mean for farmers and land owners?

The Bill clearly sets out that direct subsidy payments (BPS) will be phased out between 2021 to 2027. This means that the current application window to the Basic Payment Scheme will be the last under the current subsidy scheme as we know it. In 2021 reductions in payments will begin. Although there is nothing specifically set out in The Bill, a DEFRA policy statement released in September 2019 clearly sets out the payment bandings and percentage reductions, these operating in a similar way to Income Tax with the reductions only applying to the claim amount within that band. It is likely that further reduction percentages will increase over the transition period until the final payments are made in 2027 scheme year.

Unfortunately, as we know many farming businesses, since the early 90’s, have based their business models on the receipt of IACS, SPS and more recently BPS. To put this into some sort of perspective, according to the FARM BUSINESS SERVICE DATA 2018-2019 the average English cereal farmer relies on BPS income for 58% of their Profit. Within the same survey a less favoured area, grazing livestock farmer relies on 186% of its profit from BPS income, this is a startling figure and would mean the average LFA livestock farmer would be making a significant loss when the BPS payment is phased out in 2027.

The Bill also sets out that it could be possible to roll up a number of future BPS payments and these could be taken as a lump sum. It is clear that the Governments’ intention with this is to assist farmers to either retire, diversify, improve efficiencies or to make it easier for new entrants into the industry.

De-linking is a significant change, payments will be continued to be made to current recipients of BPS, however in the future it is understood that these recipients would no longer have to be actively farming. As I understand it this, coupled with the ability to “roll up” BPS payments, is to accelerate change within the industry and to help free up land and farms that could help existing farmers or new entrants into the industry.

What is the focus of the Bill?

It is understood that there will be new financial assistance powers which will enable payments to be made to farmers for a range of public goods. These payments will be made for such items as providing habitats for wildlife, reducing flood risk, preventing climate change, improving public access and protecting iconic features. In England the Government is in the process of developing the Environmental Land Management Scheme (ELMS), this will be part of the delivery mechanism, working towards the provision of public goods. This scheme is being piloted in a number of areas at the moment and is hoped to be rolled out in 2024, half way through the Agricultural Transition period. If farmers were thinking that this was going to replace the direct subsidy scheme I would suggest that this is not going to be the case at all. The ELMS scheme will be very targeted in what it delivers and I’m assuming will be no-where near the level of financial rewards that current CSS/HLS/BPS schemes deliver to regional farming businesses.

In short the profitability of farming businesses are going to be reduced over the next 7 years. It is important for farmers to understand the impact of what is on the horizon, we have time ahead of us to improve the performance of farming businesses and decrease their reliance on subsidy and in preparation for this we are holding a series of regional talks over the coming months to discuss the Agricultural Bill in more detail and its potential effects on family farming succession.

We are hosting a series of regional seminars which will include discussion on the Agricultural Bill which will run between 24th February and 4th March, for more details visit www.georgefwhite.co.uk/planning-for-change or call your regional office.

Simon Britton, Partner – Head of Farm at George F. White 07866 721146 / simonbritton@georgefwhite.co.uk

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