The Agriculture Bill in its current form is subject to change until it is finalised as the Agriculture Act. However, while the details may change there is strong support for the current plans for a ‘green Brexit’ within parliament, and no appetite to continue to provide basic subsidies for food production in the long term. In the parliamentary debate last week some MPs raised points about UK food production and security but the direction of travel is clearly towards agriculture being expected to deliver a broad range of public goods without direct support.
The proposals in the bill are that farmers will still receive direct payments in 2019 and 2020, with the extent of changes limited to ‘simplifications’ of the current system. A transition period will then operate from 2021-2027, with direct payments to be gradually phased out over this time. Initially the largest reductions will fall on those currently receiving the largest subsidies. However, all farmers will start to see subsidy reductions from 2021, and all direct payments will be fully removed by 2027.
After the transition period, subsidy payments will be made to farmers for providing ‘Public Goods’, with the aim of encouraging sustainable farming in the UK. While emphasis has been placed on the environmental aspect of the Agriculture Bill, the remit of ‘Public Goods’ extends further than protecting the environment. It covers wider sustainability issues including cultural heritage, public access to the countryside, flood protection, plant and livestock health and animal welfare.
It is not yet clear how public goods will be measured and paid for, but by taking the time to look ahead, farm businesses can be ready to adapt to the upcoming changes. Now would be a good time to review the strengths and weaknesses of the business. This should help identify opportunities for the business, and determine which areas may need improvements and / or potential risks to the business.
Monitoring costs and regular bench marking is key to any business to ensure market resilience. By keeping costs down and optimising income, the farm becomes more efficient, giving the best possible resilience to change. Efficient farming also reduces the environmental impact of the farm. As farming to protect the environment becomes key in attracting support payments, efficient farms are likely to be in a better position to receive whatever payments become available in the future. Therefore, by taking steps to improve efficiency, businesses can give themselves the best possible chance of remaining viable after direct payments are removed. The hard fact is that for some businesses the challenges of farming without support payments will result in the need for major restructuring or exiting the industry.
In addition to the new subsidy structure, the bill sets out an intention to ensure clarity of the supply chain. It also sets out exemptions from competition laws for ‘recognised organisations’ of producers. The aim of these changes is to give farmers better access to the market, allowing them to demand fairer prices for their produce. This is part of a strategy to allow farms to become viable without subsidies, although the mechanisms by which the improvements will be made are not entirely clear.
The changes set out by the Agriculture Bill represent the most significant change in direction for farm subsidies for 40 years. This inevitably brings uncertainty, especially with no clarity on what exactly farmers will be paid for in future years. However, with a forward thinking attitude, it is possible to build an efficient business that is resilient to short term uncertainty and sustainable for the future.
Now is the time to be undertaking a business review. Benchmarking is an essential part of this process, as comparing performance to similar businesses gives an indicator of business strengths and weaknesses. A thorough understanding of these strengths and weaknesses allows informed decision making. This puts the business in the best position to make use of opportunities, and be more resilient against threats.
Where a need for change is identified, the changes should be extremely well researched and costed to give confidence in the viability of the plan. However, under the current circumstances, a degree of uncertainty is inevitable, meaning plans will need extra consideration, especially where borrowing is to be undertaken. Given the current uncertainty, reducing or at least limiting borrowing is paramount, as this reduces exposure and risk.
Independent advice from an ADAS Business Consultant can help in taking these first steps towards a farm business that is ready for the future.