Will Defra's new Sustainable Farming Incentive ease farmers’ transition away from subsidies?
Abstract
The new Sustainable Farming Incentive is likely to only provide a small financial benefit for farmers as it is currently designed. Indeed, some standards within the pilot scheme were found to have a negative impact on business profitability, where farms had to take land out of production to meet Defra's requirements. It is clear that the Sustainable Farming Incentive will not replace income received through Direct Payments, even for those most efficient at producing environmental goods, so it is important that farmers consider the Sustainable Farming Incentive within a wider review of their business in order to ensure they remain profitable throughout the agricultural transition period and beyond
Change is happening at a rapid pace for farmers in England right now. Events in Ukraine have significantly elevated energy, feed and fuel costs. Once routine, business decisions now need to be rethought. But in addition to the volatility in commodity markets we should not overlook that changes to farm policy present a significant, albeit less immediate, challenge to farm business.
Area-based direct payments will have been phased out in England by 2028. The process of removal is a gradual one over the transition period. Indeed, farmers will have already received the first reduction to their annual payments of around 5%, a figure that will be higher for those receiving the highest levels of support. Strong market prices last year may have masked the impact of this on a business's bottom line.
Research conducted by Agriculture and Horticulture Development Board (AHDB) shows that farmers vary considerably in level of preparedness for the loss of direct payments: just over half of those interviewed have made plans (AHDB, 2022). Of farmers that had made plans, diversification was the most favoured strategy. Other plans included entering new environmental schemes, working out how their direct payments will reduce, scaling production either up or down and improving efficiency.
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