The importance of preparing farm and estate businesses now for a new era of agricultural and environmental policy has been reinforced in new analysis from Carter Jonas. 

The Government’s publication of its Roadmap to Sustainable Farming in November provided more information on how it plans to phase out direct payments and transition to a new Environmental Land Management (ELM) scheme. 

Basic payments to landowners in England will be halved by 2024 and phased out completely by 2028, but details on how ELM scheme payments will be made – and what value they may have – has not yet been made public.   

Since the Roadmap’s publication, Carter Jonas has scrutinised the financial impact the phase-out of basic payments will have on a typical in-hand farming operation using data from its Model Estate report. 

The firm has found that the removal of direct support means the in-hand business – which comprises 1,073 acres of arable and 73 acres of grassland – will suffer a reduction in profit from 2020 of £63,200 by 2024. That represents a reduction in profit of 84% over the 4-year period. 

Head of Rural, Tim Jones, said the financial forecast painted a stark picture of how the new-look Government policy will affect bottom lines and that preparation is needed to ensure they have in-built resilience.   

He said: “Farmers and estate owners have known for some time that BPS will be phased out but have been waiting for details to be released which allow them to make decisions about their futures.  

“That information is starting to trickle through, with the Roadmap being the latest landmark announcement setting out the Government’s vision for payments for delivering public goods.  

“What this data from the Model Estate shows is how much profitability is going to be affected by the removal of BPS, and our message to clients is that careful thought and planning needs to be carried out in order to replace that income.”  

The Model Estate in-hand farm shows a BPS payment of £107,273 for 2020, with total income at £380,020. Costs were £299,367, meaning the business generated a profit of £80,653.  

Assuming that income and cost figures don’t change, payments will start to reduce as outlined in the table below.  

Year

BPS Payment

Total Farm Profit

% BPS Reduction from 2020

% Profit Reduction from 2020

£ Profit Reduction from 2020

2020

£107,273

£80,653

 

 

2021

£92,318

£65,698

14%

19%

£14,956

2022

£76,203

£49,583

29%

39%

£31,070

2023

£60,136

£33,516

44%

58%

£47,137

2024

£44,045

£17,425

59%

78%

£63,228

 

The forecast currently includes no income from the new ELM scheme which Tim said many landowners will be looking to be involved in.  

He said: “The Government says it will be releasing more information on the value of the ELM scheme in the New Year and that will attract a lot of interest. There will, of course, be fixed costs involved in creating and managing these schemes and they also need to be understood and accounted for. 

“It is unlikely that the scheme will directly replace BPS income so farmers should continue to scrutinise their whole business for new opportunities.”  


The Model Estate work has also highlighted how the volatility of farming could impact profitability.  

For example, the forecast shows that a 10% increase in the value of a crop would replace a significant proportion of the lost income. Furthermore, if the cost of sales also reduced, the figures look even more impressive.  

“This tells us that while a BPS transition might grab the headlines, trade deals are far more important in the long term,” Tim added.  

Longstanding diversification opportunities are also still open to many. From camping and wedding venues to farm shops, livery yards and industrial units – all can have a place alongside food production. 

The retirement payment, suggested to be available in 2022, is an opportunity for young and old farmers. Increased legislation and a move away from food protection are fundamental changes to which businesses will need to adapt. This lump sum payment is intended to accelerate the transition process. 

Tim said: “We are advising our clients not to let government policy drive their businesses but to get their businesses in the right place to take advantage of some of the opportunities that this new policy era might bring.  

“The transition away from BPS will mean many bumps in the road but the fundamentals must remain the same – deal with what you know, control your costs, maximise revenue, create efficiencies, diversify and take advantage of grant schemes.” 

How Carter Jonas can help you 

With experts managing and advising on thousands of farms and estates across the UK, Carter Jonas is perfectly positioned to help interpret and take advantage of the new policy environment.  
  • Review your business – get inside the numbers of your operation to help you understand which activities are profitable and what could be improved. 
  • Succession planning – helping you to transition to the next generation. 
  • Diversification – scope out and plan projects, understand potential revenue streams and ensure efficient tax planning.   
  • Advising – on lettings, share or contract farming agreements

 

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@ Tim Jones
Tim Jones
FRICS
01223 346609 Email me About Tim
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Tim is head of the firm's Rural Division and of the Cambridge office, although he spends a considerable amount of time in London.  He has over 20 years experience in advising institutional and private clients on a very wide range of rural business issues, including sales and purchases, strategic advice and valuations.  He often works with specialists in other divisions of the firm to provide clients with a fully integrated property service.  Tim lives near Newmarket and has a keen interest in country pursuits, encouraged constantly by his two children.

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