This week more details emerged about the new Sustainable Farming Incentive scheme where farmers are paid to deliver environmental outcomes.
Summary:
- Post Brexit, farmers no longer subsidised to produce food.
- Most farm businesses reliant on subsidy to remain.
- Farmers losing income, with costs increasing and without corresponding rise in price paid.
- New environmental schemes unlikely to bridge gap in incomes.
Until 2020 the UK's agricultural policy (and therefore the level of support to farmers) was mostly set by the EU. Now we've left the EU, there's the opportunity for the UK to set its own agricultural policy and use public funding to influence what our land area is used for and how its managed. Unsurprisingly, there are some strong views about what this should look like....
Previously there were two sets of payments. Farmers were paid according to the area they farmed, to directly support food production. Other payments were made for environmental measures and farmers would be required to do things like planting wildflower margins in exchange for a payment to cover any lost income from farming.
Whilst direct payments to farmers based on the area of land farmed may seem like a luxury, for the majority of farmers in the UK, this is the only way they are able to run a viable business. On average 60% of UK farm business' net income is from these payments and in some regions this figure is as high as 98% (i.e. almost all their "profit" comes from government payments. Bear in mind that the average profit of a farm in the UK is just £37,000.
From 2021 to 2028, these direct payments to farmers to support food production are being phased out. Now, the only public money that farmers will get, will be for environmental outcomes. Some farmers will be able to compensate for the lost income through entering into environmental schemes, but many will not. The price they will get paid for their produce is not going to change (and their costs are going up). It doesn't take an accountant to realise that most farms will be facing a massive gap in their finances.
Most farmers would rather not rely on government subsidies in order to run a viable business. However, our society and economy have rely on incredibly cheap food in order to deliver the standard of living that we have grown accustomed to. Whilst this may seem callous, given the level of food poverty, it's worth noting that the UK is one of just eight countries in the world where households spend less than 10% of their income on food. In fact, only the USA and Singapore spend less on food than the UK. This has been made possible in a large part by subsidies. The market simply doesn't pay the actual cost of producing food.
If you take away subsidies yet farmers' production costs stay the same (and probably rise), the only way that businesses can remain viable is to increase prices. Given the constant downward price pressure on farmers (and their lack of price setting ability) this seems unlikely. What is more likely, is a reduction in UK output (i.e. farms will simply go out of business) and more food is imported, from cheaper, more subsidised countries, to replace this.
Whilst most people would agree with the need to wean the farming sector off subsidies, the issue facing farmers at the moment is the speed of the change and the lack of viable alternative income streams. Details of the new environmental schemes for farmers are finally starting to emerge (and there was another announcement this week), but the worry is that the payment rates are simply not enough to fill the gap left by government subsidies. Some farmers are also not able to access these schemes and they certainly cannot be viewed as a replacement for their direct payments.
What is the solution then? Well, at a local level, one way to ensure that farmers receive a fair price for their produce, whilst being incentivised to farm sustainably, is through short, direct supply chains (stay tuned for a blog on this). Proper design of government environmental schemes, with fair payment rates that properly value environmental outcomes (or "natural capital") rather than just compensating farmers for lost income are vital. Farmers will also need to rethink their trading relationships, both with other farmers (i.e. collaboration) and with their buyers. Growing diverse crops (such as Oliver's Muesli ingredients!) will also create new more equitable business relationships and allow farmers to set their own prices more.
As with all things in farming though, there are no simple solutions. How farmers should be paid for environmental outcomes and what these outcomes should be, continues to be hotly debated (another blog to follow).