Tag Archive: Michael Gove
We have all now had an opportunity to read and process Michael Gove’s proposal for the future of agricultural support payments, public money for public goods… James Thompson, Graduate Surveyor at George F. White, discusses what it all actually means and the decisions that farmers must make to maintain profitability.
Firstly, what are public goods?
By definition, a public good is a ‘non-excludable and non-competitive’ good. A common example, used outside of agriculture, is street lighting. Having street lighting is not competitive nor is it excludable to a single consumer; when I consume that good, it doesn’t stop anyone else from consuming it at the same time.
DEFRA will be looking to fund the public goods under the following categories:
- Enhancing the environment
- Farming in remote areas and rural resilience
- Public access to countryside
- Improving the productivity and competitiveness of farming
- Animal and plant health and animal welfare
The proposed Agricultural Bill, which will shape the UK’s future Agricultural Policy, indicates that, the current Basic Payment Scheme (BPS) will be phased out and replaced by the above funding streams. It is therefore imperative that, individual businesses establish how exposed they are to the loss of the farm subsidies. As an example, according to The Farm Business Survey, the average farming business in the North East makes £71/ac profit. This is includes £97/ac support from BPS and Ag Environmental Schemes. Farming business need to build business resilience over the transition period, reducing their reliance on support payments and understanding how best to access “public money for public goods”.
Exploring the options
Based on the five categories of funding for public goods, there is a decision to me made; a focus on delivering actual public goods (categories one to three) or in improving efficiency and competitiveness of agri-products (categories three and four).
Firstly, let’s focus delivering actual public goods. We state that these are ‘actual’ public goods as they are truly non excludable or competitive; we all enjoy the British countryside, whether that be breathing in the fresh air or enjoying family walks and activities in the outdoors.
It is likely that the replacement of current environmental schemes could be highly geared towards protecting soil, improving water quality or even the management of carbon; this could result in more productive land being withdrawn from food production enterprises. It is also entirely possible that funding for open access to the countryside (unavailable in previous environmental schemes) could be reinstated into the new Environmental Land Management schemes (ELM’s) and could be lucrative.
Secondly, you may choose to focus on improving efficiency and competitiveness, for example, improving animal health and welfare or reducing nitrogen and chemical use. In addition to this, with an aim to increase competitiveness of farm businesses, the government has already committed £30 million to the Countryside Productivity Small Grants scheme with emphasis to increase opportunities that high tech and precision farming equipment can deliver. We expect the next round of this scheme to be launched next spring and it is suggested a number of new options will be available to farmers.
There are crucial decisions to be made, but that will be entirely dependent on your business health and its financial exposure to current support payment, resulting in the magnitude of change required to provide a resilient future income to you and your family. That being said, and having conducted research on this topic, many farm businesses in the North East and Yorkshire believe that the best way to safeguard against a decrease in subsidy payments is to improve business efficiency, learn from top performing farms and explore new income streams including diversification.
I will leave you with a question to ponder: Having defined and discussed public goods – does food security constitute as a public good? Consequently, should food production be supported by government funding?
If you would like to understand in more detail how exposed your farming business is to the ceasing of direct subsidy’s payments, then contact your local Farm Consultanct:
The much anticipated Agricultural Bill, resulting from the government’s Health and Harmony consultation carried out earlier this year, was published on 12th September initiating the biggest shake-up of farming in a generation. The government’s ambition for a ‘green Brexit’ has now been outlined where farmers will be rewarded for the public good they provide. Michael Gove has said “the Agricultural bill will allow us to reward farmers who protect our environment, leaving the countryside in a cleaner, greener and healthier state for future generations.” We now understand the focus will be on enriching wildlife habitats, flood prevention, improving air quality, protecting soils and planning trees. Farmers will be encouraged to sign Environmental Land Management Contracts replacing direct aid and be paid to protect and preserve the natural environment helping mitigate the effects of climate change; a move praised by many environmental groups. Farmers will also be encouraged to become more resilient, more productive and more competitive and will have access to funds to help boost productivity.
A new innovative relationship between government and land managers is proposed by DEFRA but many see the Bill falling short on addressing key subjects such as the future of food production, food security and the hugely important subject of a successful post Brexit UK trade deal. Ministers have also refused as yet to specify how much public money will be allocated for supporting these initiatives and the Agricultural Bill unfortunately lacks detail on how this will be achieved in practice.
The things we do know – the present funding mechanism will remain for the life of this parliament; and current agri-environment agreements have been given assurances, but many farmers are naturally worried about the future reductions in support payments beyond 2022. The Bill explains how the current system of direct payments will be dismantled, reducing each year over a seven year period with the final Basic Payment being received in 2027. Furthermore the Bill describes how the de-linking of payments from the requirements to farm land will help those wishing to retire or indeed invest in their businesses and still be in receipt of payments; one-off lump sums could be also offered to farmers in place of future direct annual payments.
It is hoped by many that this Bill provides the first steps towards a better future for farming and the environment, but it is clear that the transitional period from 2022 to 2027 is likely to have a negative financial impact on farm profitability. Without doubt there will be winners and losers from the new agricultural policy, the reason why planning for change in good time is essential. Assessing the options for the future is crucially important; the earlier you start planning the better the outcome will be. Regular preparation of budgets, benchmarking businesses annually and comparing key performance indicators at every opportunity is what all business should be doing. Assessing and fully utilising the key assets of the business including its people will be extremely important. Exploring potential new income streams, investigating possible diversification opportunities and understanding the impact new policies will have will be vital for business success. Of course further detail will emerge in the coming weeks and months but now is the time to start planning so farmers can prepare for change and become as resilient as possible.
Today, Michael Gove revealed the government’s proposal for the future of agricultural support payments; whilst further detail is eagerly awaited it is clear a number of changes lie ahead.
The Agriculture Bill sets out how farmers and land managers will, in future, be paid for ‘public goods’, such as better air and water quality, improved soil health, higher animal welfare standards, public access to the countryside and measures to reduce flooding.
Mr Gove made it clear that he wants a ‘smooth and gradual’ transition to allow farmers to adapt to the new payment regime and therefore is suggesting a seven-year transition period, effectively starting in 2021; he confirmed that the 2019 payments will be based on the current system, but would be simplified if possible. He also indicated that the 2020 payments would be on a similar basis, allowing farmers to utilise the next two years to appraise their businesses and make sure they make use of the certainty the next two years offer. This may include, through examination of each enterprise and its performance, a review of debt and financial arrangements, and also a review of the business structure and planning for future generations. We have already begun this exercise with some of our clients and are finding that if you remove direct payments and rely on business performance some work is needed to ensure maximum performance can be obtained.
It is clear that the government will move away from the current area based direct payments as these are seen to simply pay farmers for owning or occupying land. Figures suggest that the top 10% of recipients currently receive almost 50% of total payments, while the bottom 20% receive just 2%. There will then be an agricultural transition period in England between 2021 and 2027 as direct payments are gradually phased out, being replaced in part by the new payment options.
Mr Gove stated that, “In its place, a new Environmental Land Management system will start from next year. The government will work together with farmers to design, develop and trial the new approach. Under the new system, farmers and land managers who provide the greatest environmental benefits will secure the largest rewards, laying the foundations for a Green Brexit”.
The direction of travel is clearly set out by Mr Gove, and it is clear he wants more for his money, linking future payments to deliverable objectives for the animal health, environment, water, soil or air. It looks as though in order to deliver this he will look to make money available for investment in productivity and increasing efficiency of production. The also appears to be possible funding for research and development. Farmers will need to look at what is available and then plan for the future; it is clear that the way in which farmer run their business is set for possibly the biggest shake up for generations. The way in which we farm looks set to change significantly and those farmers who are willing to adapt may be able to take advantage of the opportunities which lie ahead. We may find that some farmers adapt businesses to pursue future payments, whilst others look to gain investment money to increase their production. Either way in order to decide what is the best option for you, accurate assessments will need to be made, budgeting the many options available to you will be key; this will also need to be balanced with the labour available and the financial constraints of the business.
The is a suggestion that the government will look to delink payments from land occupation in order to allow for those wishing to retire and exit the industry and also make way for new entrants. Succession planning will be a key part of future business planning and this period may offer an opportunity to make the transition to future generations. For those on tenanted farms, it will be important to balance business objectives with the constraints of the tenancy in operation. Our Land agents will be working hard to ensure that both objectives can be achieved seamlessly and allow for farmers to progress and make best use of the opportunities available.
Call your local Farm Business Consultant for advice:
Northumberland & Borders: Andrew Jamieson
County Durham: Elliot Taylor
Yorkshire: Simon Britton
We asked Partner and Head of Farm, Simon Britton about his thoughts surrounding Michael Gove’s vision for the future of farming at the Oxford Farming Conference 2018.
‘Michael Gove has intimated that, post 2022, farming subsidies are clearly going to move from the current BPS scheme to a rewarding farmers for environmental benefits and promoting public access. It is hoped that this move does not jeopardise our UK Food security or force UK farmers to cut costs. The UK has one of the highest crop and animal welfare standards in the EU, let’s keep it that way.’
Over the past 12 months we have steered our advice, talks and seminars around the importance of business resilience in uncertain times. We are currently preparing our farming clients for change by helping them gain a better understanding of the financial health of their business. For more information on how our team can help you, please contact your local consultant:
Northumberland and Borders: David Hume
Durham: Alan Falshaw
Yorkshire: Sally Horrocks