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Defra needs to focus more on the ‘F’ than the ‘E’ amid cost crisis and food shortages

Westcountry farmers are facing some of the most challenging times the agricultural industry has ever seen. High inflation and the cost of living squeeze on consumer spending looks set to continue to impact farm business margins and planning in 2023.

Brian Harvey sat down with Western Morning News Farming Editor Athwenna Irons to share his thoughts on the prospects for South West farming.

Q: In January, Defra published its Environmental Land Management (ELM) prospectus for 2023 which broadly covers three areas; a high-level overview and direction of travel for ELMs, what will be paid for now and in the future and the six new Sustainable Farming Incentive (SFI) standards.
After months of drip-feeding of information and almost five years on from Michael Gove’s Health and Harmony consultation, can this be considered real progress? Or, given that farming is very much a long-term business, will this actually be ‘too little too late’ for some?

A lot has happened since Health and Harmony and it shows how quickly time flies. I would say ‘better late than never’. I’ve always found it frustrating that the rules in relation to the reduction of the BPS (Basic Payment Scheme) were announced and understood at the very beginning, so Defra (Department for Environment, Food and Rural Affairs) had obviously spent a bit of time thinking about how they were going to do that. But the details of how BPS might be replaced wasn’t there, only broad principles, so that was pretty negative from the offset and an opportunity missed.

Then we had the SFI and various different schemes with little or no knowledge of what it meant to farmers. At this moment, I can quantify to a farmer what BPS they might be able to receive up until 2028. In terms of their SFI replacement income, that’s not something I can easily do and it keeps changing.

Now that we’ve got a bit of clarity, hopefully farmers can sit down with their advisers to look at what options are on the table and make some longer-term decisions, noting that some decisions may have been made last year or the year before – which wouldn’t have been made if the information we have now was available then. Some of those may be quite significant decisions affecting the long-term future of the business. How they trade, if they trade, so the more information that becomes available sooner, the better.

The new initiatives will not replace BPS because they will incur costs to achieve, resulting in a much lower profit element. I think the fact that the Countryside Stewardship schemes are here to stay is good because people have generally understood them and taken those opportunities where they existed. Whereas some of the larger Local Nature Recovery and Landscape Recovery schemes may be more suitable for areas of the country where farm acreage is naturally larger, so the South West may not be able to benefit as much as others.

Q: Hard on the heels of the ELM update, the Government published the first revision of its 25-Year Environment Improvement Plan (EIP). Among the targets set out is an aim for between 65 to 80% of landowners and farmers to adopt nature friendly farming on at least 10-15% of their land by 2030, and the creation or restoration of 30,000 miles of hedgerows a year by 2037.
Many of the EIP’s aspirations seem to hinge on uptake from the farming community. Do you think the Government is providing enough of an incentive for farmers to take part?

Defra seems to be more interested in the ‘E’ rather than the ‘F’. It’s all about the environment and there isn’t too much interest in food supplies and security which was apparent at last week’s National Farmers’ Union (NFU) Conference in Birmingham.

Farmers clearly have a unique role in this plan and if they decide not to do it then those targets won’t be met. Unless legislation is changed to make it a mandatory requirement. Another frustration is that there seems to be an underlying assumption that farmers are anti-environment and they don’t do any good already, which isn’t the case. The vast majority of farmers here in the South West run their businesses in a generally environmentally-friendly way, whilst trying to turn a profit. Ultimately it will come down to whether there’s money in it. If so, there’s opportunities for farmers to play a very important role in achieving those targets.

Coming back to my earlier point on food, we are still trying to feed a growing population in challenging times. Global warming has made it much more difficult to grow crops and rear livestock in some parts of the world. We are also being encouraged to use more regenerative farming techniques with less fertilizer and fungicides and ultimately lower yields. How do you marry up the need to keep people fed, whilst trying to reduce the impact on the environment? I’m not sure there’s an easy answer or solution, but clearly there is a need to find one. If more and more of the world becomes un-farmable, how are we going to feed a growing global population of approaching 10 billion, in a world that is also looking to be carbon net zero?

Q: All the while the BPS continues to be eroded at a progressive rate, with farmers currently receiving under £30,000 a year in subsidies on course to see reductions of 35% in 2023 and 50% in 2024. Given the current economic challenges that farm businesses are experiencing, should these cuts be delayed or at least reviewed?

Possibly. I think the accounts of many farmers in the South West have not been as directly impacted by the BPS reductions over the last two years because their income from traditional agriculture has gone up to offset the fact that their BPS has begun to be cut, such that when they get to the end of the year and look at their bottom line figure, it’s in line with what they were expecting. However, if some of those farm commodity prices return to lower levels, together with the forthcoming deeper cuts to BPS, then they will become more apparent. This could see the reductions start to have a detrimental effect on the cash flow of businesses. Particularly in those sectors whereby the BPS has been most critical in the underlying support.

I think it is time to move on from an acreage-based payment which isn’t necessarily fair. It also doesn’t encourage the behaviours that the Government wants in terms of the environmental outcomes going forward. The BPS has served its purpose but in the longer term that spend needs to be more results focused. That’s a given as far as I am concerned.

Should we take a pause? Maybe. In the five years since Health and Harmony we’ve had Brexit, Covid-19, Ukraine, inflation, cost of living, general political turmoil … Defra isn’t where it would’ve expected to be in the roll-out of this new scheme. I’m not sure anyone would worry if delayed by 12 months. But kicking it further down the road or into the long grass isn’t the answer.

Q: According to the latest Agri Market Outlook produced by the Agriculture and Horticulture Development Board (AHDB), consumption of agricultural produce such as beef, dairy, lamb and pork is expected to weaken during 2023 as the cost of living crisis forces shoppers to tighten their budgets.
How will this be received at the farm gate by producers who are already feeling higher input costs?

Consumer patterns will change over time and these markets aren’t perfect. If demand drops there will be a cost reflection of that. Because the supermarkets and restaurants need to trade and make a profit. Clearly the margins on some of the produce that farmers sell is still wafer thin. So it comes down to who gets what slice of the cake. We’re seeing food inflation of 20% but I’m sure the price that the farmer receives hasn’t gone up by 20%. Hence, as is their right, in certain sectors some farmers have chosen to reduce or stop their supply. This is reflective in the shelf shortages we are seeing now. In terms of farm produce you cannot just turn the tap again overnight.

Farmers do need to be savvy and react accordingly. Demand isn’t as high for certain products that have historically grown in this country. Potatoes for example. If the demand for potatoes has reduced, then as an industry we can’t just continue to produce the same amount that we’ve always produced and not expect there to be some kind of price correction – that’s just basic economic theory. So should organisations like the National Farmers’ Union (NFU) or Agriculture and Horticulture Development Board (AHDB) be looking into more innovative marketing opportunities? And not just thinking about the domestic market, are there opportunities for us to be exporting more? Our USP of world-leading animal welfare and environmental standards has got to be worth a premium, surely? It’s a message that we need to get out and I believe that’s what our consumers want to see.

Ultimately people’s behaviours change significantly as their circumstances change. Most people prefer buying local food because it is better for the environment and supports the local economy. However, ultimately if your income is under pressure, the main thing is what you can afford. You haven’t changed your mind set, but something has to give. Everything’s costing more and modern living is such that things like mobile phone contracts or Netflix subscriptions may be seen as a greater priority than spending more on food. People have gotten used to the fact that food is cheap. Even those with the highest aspirations of buying local food have a limit. But hopefully if we get through this, then their behaviours will change back.

Q: Amid great economic and political uncertainty, are there still opportunities to be had? How can South West farmers give themselves the best chance of success?

There will always be opportunities, but they may not come in the obvious channels or be readily available for all. Farmers will need to be advised by specialists to ensure that the farming community can best benefit from the available environmental schemes. That goes beyond the Government schemes as there is also going to be a whole suite of private sector schemes based on carbon sequestration, Biodiversity Net Gain and woodland creation, to name just a few. But these opportunities aren’t going to come to you, you’re going to have to go and get them. If the ‘boat of opportunity’ comes into harbour, you’ve got to swim out to it.

Farmers are always very busy and have historically seen time spent in the office as wasted time. But this is really important. The marginal benefit to the farm of making sure you understand these schemes and where you could benefit is critical. It’s well worth investing some time because you could get a lot of money. Some of the other things that farmers would prefer to do might not be making any money at all. It’s getting that balance right. If you don’t want to do it yourself, find someone who can do it for you.

Q: Are there any other farming matters that you would like to see on the table for wider discussion?

Slurry storage regulations. I think this has created great uncertainty in the sector whilst keeping quite a few dairy farmers awake at night. Devon and Cornwall don’t seem to be favourable areas so farmers here are therefore unlikely to benefit.

Having to incur costs just to continue trading is a bitter pill to swallow. Quite a few tenant farmers are thinking how they can justify that level of expenditure on a tenancy. Some farmers who have made an application to build a lagoon – a legal requirement – have been refused planning permission. At that point in time, they’ve effectively been told that they can’t trade as a dairy farm anymore. There are interesting times ahead and some big decisions for those in the dairy sector.

To find out how our agricultural team can help, please get in touch.

This article was originally published in the Western Morning News on Tuesday 28 February 2023. 

FEATURING: Brian Harvey
As head of PKF Francis Clark’s agricultural sector group, Brian manages a dedicated team of agricultural accountants and tax advisers. He hails from a Cornish… read more
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