Risks and opportunities in changing agricultural policy

The Environment, Food and Rural Affairs (EFRA) Committee, which provides independent oversight of Defra’s activities, published a report on the new Environmental Land Management (ELM) schemes and the removal of direct payments to farmers.

The committee looked at whether the time frame of the transition period was feasible, how Defra has engaged with farmers and land managers, and whether ELM will deliver on its environmental ambitions.

The report was fairly scathing about Defra’s performance to date, highlighting several areas of concern around the transition and development of ELM.

Many of these anxieties have been raised before and, to be fair to Defra, some issues are being dealt with. For example, the government has committed to review payment rates and move away from the old income foregone model. This review has also been agreed upon by the Treasury. Additionally, communications, and the whole co-design process, have been gradually improving, with more information coming out about future policy at regular intervals.

The CLA shares many of the concerns in the report. One of the main recommendations, echoing CLA lobbying, is for a detailed assessment of the impact of the loss of Basic Payment Scheme (BPS) payments and the introduction of ELM on different types of farm businesses. We know that BPS will be completely removed by 2027, and nothing will directly replace it. In 2019, Defra published an evidence compendium outlining which farming sectors are most reliant on BPS to make a profit. However, this did not look at how new schemes, including ELM, could help offset this loss of income.

A full impact assessment will not be easy: not only are details of ELM still being determined, but it is not a single, static scheme. There will be three new environmental schemes, such as the Sustainable Farming Incentive, Local Nature Recovery and Landscape Recovery. Each of these has various standards and options for land managers to choose from. How much income a business receives from ELM will depend on many variables: what public goods the land is capable of delivering, the appetite and ability of the land manager to deliver them, and the profitability of ELM compared to alternative enterprises and land uses.

But just because an impact assessment will be difficult does not mean it should not happen. More detail will help avoid the worst unintended consequences and allow policy design to take account of those most disadvantaged.

Whether the agricultural transition seems too slow, too fast or about right depends on your vantage point. The move to ELM is billed as the biggest change to English agriculture for generations, so it has to be done right. But a seven-year transition, which has been preceded by three years of discussions, policy development and small-scale tests and trials, means it will be over a decade from when Michael Gove first announced the intention to move to a public goods model to when the last BPS payments hit farmers’ bank accounts.

Despite persistent calls to delay the start of the transition, I think the pace of change is about right. We can always spend more time debating, discussing and planning for a new policy. But at some point, we need to take the plunge and implement schemes on the ground – only then we will see whether they work in the real world. Defra must stick to its commitment to learn while doing and take advantage of its ability to act more speedily than was possible within the EU. ELM must be iterative – adapting, changing and improving schemes in response to farmer and land manager feedback.

The early introduction of Sustainable Farming Incentive (SFI) in 2022 is a case in point. The CLA remains concerned that it is being rushed out early as an alternative to our suggestion for shallower cuts to BPS next year. But the partial roll-out next year of SFI standards for soils and moorland is an opportunity to stress-test an ELM scheme delivered at scale. To avoid this ending in disaster, there must be flexibility and leniency for land managers, well-resourced and prepared delivery bodies such as the Rural Payments Agency, and a quick feedback mechanism that allows improvements to be made in 2023 and beyond.

In the report, the EFRA Committee reiterated the great fear, already expressed by government and environmentalists, that the SFI becomes a repeat of the old Environmental Level Stewardship (ELS) scheme. ELS was very popular with the industry – at its peak, over 70% of farmers were in the scheme. But evaluation showed that it delivered relatively little for the environment. People chose management options they were already delivering, and so millions of pounds of public money were spent paying farmers to carry on as they were.

It is widely accepted that SFI cannot repeat this mistake - environmental pressures have increased since the days of ELS. Farming, like every other sector, has to play its part. Also, the purse strings are now held by Rishi Sunak, not Brussels, and the Chancellor will demand value for taxpayer money.

If farmers don’t engage with the SFI they may be disappointed. There have been some hard-fought battles within the government to secure funding for the SFI. The Treasury’s interpretation of a lack of interest in the scheme could be that farmers do not want financial incentives to manage the environment. It may decide to direct funding at those who are already green enthusiasts and rely on the stick of regulation to ensure that agriculture plays its part in delivering net zero and other public goods.

To avoid this scenario, SFI must achieve high uptake, good environmental delivery and progressive improvement from the sector over time.

Defra has also been criticised for not giving enough information to farmers and land managers. More than anything else, farm businesses need clear, detailed information which they can use to help plan for the future.

Communication has improved in recent months, with a cycle of government announcements (in November 2020, June 2021, and one expected in November) adding more details about the future of policy as they emerge. Defra’s Future Farming Blog also gives short updates on future scheme development and specific topics such as farm advice or regulation.

In some ways, the problem is not too little information but too much. We need ways to translate the steady drip of information and updates coming out of government into tangible, practical advice on what farmers and land managers can do now to plan for the future.

While not every aspect of ELM is decided, the broad outline is clear enough for businesses to start planning. Farmers and land managers should be seeing what their business accounts look like with BPS removed to reveal which areas of the business are profitable without taxpayer subsidy. A business review can help identify opportunities, and Defra is offering grants for free advice to do this via the Future Farm Resilience Fund.

The aim should be to look at the business holistically, with environmental payments seen as an additional revenue source. Impending BPS reductions are starting to sharpen the minds of many, who are reaching for the calculator to assess their options. Countryside Stewardship (CS) had a record number of applications this year, showing that many farmers are willing and able to incorporate environmental management into their business (even before the coming review of CS payment rates).

Although details of the new ELM schemes are starting to emerge and we know the broad ambition, the programme still lacks clear, long-term objectives.

The government has not articulated how much change it expects, what this will look like in practice and how it will be supported. There must be a long-term vision for the industry, not just to the end of the transition period in 2027 but beyond that to 2050, when we are expected to be at net zero climate emissions.

There is no shortage of proposals, from the utopian to the scientific, for how farming can meet the environmental challenges while continuing to produce food. Some believe we can do both at once through techniques such as agroecology or regenerative agriculture. This might involve reductions in input use, better soil management, a return to mixed, rotational farming and production of less livestock and more fruit and vegetables.

Others favour a land-sparing approach, focusing on high-tech precision farming and delivering public goods in others, for example through landscape-scale projects for woodland creation or peatland restoration.

All these will be required, but the mix of incentives and regulation from Defra, via ELM and other schemes, will have a significant influence on how much of each type of land management there is. It would be nice to think that Defra could consider what is needed to meet its environmental objectives and put the policy in place to deliver this while explaining what it is doing and why. Several years ago, there was talk of a 25 Year Farming Plan to sit alongside the Environmental Plan, but this never materialised.

A long-term plan for farming and land use would help put the current agricultural transition period within a wider context. This will allow the speed of change to be managed more carefully. It would also mean acknowledging that 2027 is not the end goal but a staging post on the way. Every business won’t need to have undergone a sweeping transformation by then, but they should have made a start, including weaning themselves off BPS and setting a course for future prosperity.

One way of avoiding the risk that the SFI fails to deliver taxpayer value or environmental outcomes is to increase the environmental ambition of ELM slowly over time. The end goal must be for the sector to become sustainable, profitable and deliver net zero and a range of other public goods, but this need not happen overnight. ELM must be flexible and encourage progression and continuous improvement (from both Defra and land managers). This will allow as many businesses as possible to make the necessary transition, but at a realistic pace.

Defra must do more to help the next few years go smoothly by investing in skills, training and advice. I would like to see a natural capital training programme rolled out as part of ELM during the transition. Farmers entering the SFI, which is based on the natural capital principle of managing an environmental asset (soil, grassland, hedgerows), should be paid to do a baseline assessment of their land. This would show how they can deliver public goods and can inform the creation of a long-term management plan, setting out how they can manage and build their natural capital. As well as unlocking environmental payments, this would allow businesses to set out a plan for delivering more for the environment over time.

The transition presents numerous opportunities. As well as improving the resilience and sustainability of the sector, there is a chance to increase peer-to-peer learning and collaboration between land managers.

The repatriation of agricultural policy could also allow the sector to engage more with local communities, championing the social and environmental value of land management and explaining why and how public money should be spent on this.

All of this relies on getting the early years of the transition right, and communicating clearly to farmers and land managers what ELM is aiming to achieve, what it will mean for their business and what they can do to prepare.

As the EFRA report makes clear, Defra’s progress on this front is mixed. The CLA will continue to keep up the pressure to ensure risks are avoided and opportunities capitalised on.