Wednesday 11th of November saw arguably one of the most significant pieces of legislation pass into law that will shape the future of agricultural policy for the next 25 years. The Agriculture Bill has taken nearly a year to progress through Parliament to emerge in its current form. This new legislation aims to reward farmers for providing “public goods” including better air and water quality, enhancing wildlife, and improving soils.
Measures to reduce the effect of climate change will also be a key part of future agricultural policy. Alongside this, the legislation indicates that farmers will be encouraged to boost productivity and become more efficient with developing paths for retiring farmers to leave as well as new entrants to enter the industry. Over the last couple of years, we have read about the Bill and its aims in many articles like this, however, we now must ask the question what does this mean for farmers and what can they do to prepare for the changes to come?
We have known for some time that direct payments will start to reduce from the 2021 Basic Payment Scheme (BPS) year with the last payment being received in 2017. The average farmer relies heavily on these payments to maintain their profitability and in some cases is the difference between a profitable business and a loss-making one. This will be worrying for many farmers however during this transitional period farmers will be able to apply for alternative measures of support to improve productivity and they will have access to the new Environmental Land Management scheme that will reward farmers for what they do.
As we only have the framework at present it will be some time to assess the financial impact of the new measures against the clear removal of the BPS monies. It is encouraging to see that existing Rural Development Scheme agreements like the Environmental and Countryside Stewardship schemes will be supported, however, it’s disappointing that there is still a lack of detail on how lump sum payments for retiring farmers might work. There is also a lot of work to be done to improve transparency and fairness in the supply chain, but the Act does grant powers to improve this area.
Following successful lobbying, food security is now included alongside measures for trade however it is important to note that the Government did not commit to ensuring that future trade agreements included an obligation for imports to meet health, welfare, and environmental standards which may further fuel the national debate on this subject. More detail is also needed on landlord and tenant issues as much of what was originally proposed did not find its way into the Act. The Act also enables the Government to intervene in markets and bring in new marketing standards, carcass classification, and traceability. As expected, there is a lot of questions still to answer and undoubtedly the devil will be in the detail, however, we now know the direction of travel and farmers can start planning for change.
I am often asked by farmers “what should I be doing to protect my business from the changes on the horizon”? Having a plan is vital. Start by sitting down and thinking about your short, medium, and long-term business objectives. Understanding where you’ve been is as important as planning for where you are going. Analyse your past financial performance over the last few years and benchmark that performance against similar farms. This will help to identify where improvements can be made. You can’t just look back though; you must also look forward by preparing an annual farm budget and cash flow forecast so you can successfully plan ahead. Forecast budgeting is a vital tool in becoming more resilient to change and being able and confident in making the right decisions to achieve the objectives you have set yourself. An important part of any business appraisal is to also look at your assets and how to use them to their optimum. Assets include for example land, buildings, and machinery but don’t forget they also include you and the team around you.
There will be without doubt opportunities for farmers on the back of this new legislation, however, there is a risk that farmers will not start planning early enough to seize them. There is also widespread concern within the industry that the removal of area-based direct payments will result in the majority of farms not being able to cover their production costs and in particular within the grazing livestock sector.
Many farmers use this time of year to reflect on the past twelve months and plan for the year ahead, but they must also use this time to consider how this landmark legislation will impact their businesses for the years to come. Start planning for change now.
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