SFI and Defra grants under the microscope: what do the latest updates mean for you?

This week, Secretary of State Emma Reynolds announced some significant changes to the Sustainable Farming Incentive (SFI) for 2026. The significant updates included a new round of productivity funding and additional support for Environmental Land Management (ELM) capital grants.

The CLA has worked closely with Defra over the last 12 months to shape SFI26 in line with the needs of the industry and government environmental objectives. A key focus was also improving the management of the SFI, especially budgetary control to avoid more sudden closures.

The announcement this week is a welcome start to the government’s commitment for more clarity and stability in government policy. For CLA members, it sets the tone for the future of Environmental Land Management (ELM) schemes in England and provides opportunities for members to access funding and deliver for the environment. Defra has re-stated its ambition towards the Environmental Improvement Plan target to “double the number of farms providing year-round resources for farm wildlife by December 2030 (compared with 2025)”. The outcome is inevitably a compromise, but overall the benefit of having a clear scheme and timetable for 2026 is a step forward.

In a nutshell, the announcement focused the following updates which we will cover in this analysis:

• SFI26
• Increased funding for the ELM capital grant scheme opening in July 2026
• New funding for the Farming Innovation Programme that funds research into practice
• A new round of Farming Equipment and Technology Fund grants opening on 17 March
• Additional support for animal health and welfare

In summary: Defra announced a new simplified SFI26 that will be available through application windows in June for small farms (3ha – 50 ha) and those without other live ELM funding, and open more widely in a September window. There are fewer actions (71 rather than 102), some reductions in payment rates, some increases in payment rates for moorland actions and an agreement value cap of £100,000 per year, along with a few other refinements.

In detail: More detail on SFI26 scheme changes can be found in this Defra blog. It includes all the actions that will be available in 2026 and their payment rates, so those considering an application can start to plan.

Key changes: Move to application windows, eligibility and prioritisation.

There will be two SFI application windows in 2026:

• June 2026: for small farms and those not currently in a live ELM revenue agreement
• September 2026: for all other farms

On SFI26 eligibility, Defra has set a minimum requirement of 3ha of agricultural land, while the definition of ‘small farm’ has been set at less than 50ha of agricultural land. If your land is just above or below these thresholds, please get in touch with the CLA team.

The move to application windows provides greater budgetary control for Defra which should be beneficial overall. However, it does still mean jeopardy for applicants as funding is still allocated on a first come, first served basis and, depending on the balance of demand and budget, not all applications will be funded. The government commitment to ‘no more sudden closures’ does not guarantee that everyone will get funding. Its commitment is to update potential applicants on budget allocation progress, including when the budget is close to being exhausted.

The move to application windows does create problems for those with existing agreements with expiry dates that misalign with the SFI26 windows. This risks gaps in agreements and income, and interruptions in continuity of environmental delivery. There are two main groups affected:

• Countryside Stewardship Mid-Tier (CSMT) agreements expiring December 2026
• SFI23 agreements that start expiring from September 2026 onwards

The current SFI IT system cannot accept an SFI26 application on land that is still under an active agreement. Defra and the Rural Payments Agency (RPA) are looking at options to resolve this.

The removal of almost one third of SFI actions follows a detailed analysis of SFI24 uptake, value for money, contribution to environmental targets and alternative funding. The aim is to make it simpler for applicants, reduce administrative burden for the RPA and improve processing efficiency. There was a balance to be struck to ensure SFI retains choice and flexibility and works for a broad range of farms and landholdings.

The key actions that have been removed include the agreement management payment (£20/ha for first 50ha) and the plan making actions such as nutrient management plan and integrated pest management (IPM) plan. For others, there has been consolidation, but some actions remain in most categories e.g. heritage, boundary features, buffer strips and organics.

There is currently a list of ten actions that are limited in total (individually or together) to 25% of the holding area. This will be increased to include enhanced over winter stubble (AHW7) for SFI26.

There will also be limits on rotational actions to a maximum of the area submitted in the first year of the agreement.

The payment rates for herbal leys (CSAM3), winter bird food (CAHL2) and legume fallow (CNUM3) have been reduced to limit uptake and reduce the amount of highly productive land taken out of food production. This will only apply to SFI26.

Some moorland actions are seeing payment rate increases which will apply to SFI26 and existing SFI agreements. This will apply to three livestock grazing rates and two shepherding livestock rates with the intent of ensuring upland farmers are properly compensated given recent changes in livestock prices.

The introduction of a £100,000 per year revenue cap for SFI26 marks a significant policy shift. This will only apply to those who obtain SFI26 agreements, particularly affecting new SFI applicants and those with expiring agreements who will be seeking new SFI agreements. Defra notes that 97% of farms fall below this threshold and therefore won’t be affected, but early CLA analysis indicates that this means holdings of over 800-1000 hectares are likely to be affected, depending on the number of actions selected.

This will likely concentrate impacts on arable holdings, where arguably there is the greatest need for action to support environmental outcomes, and large upland holdings. The impacts will vary depending on the scale of change, but it will result in less environmental delivery and potential changes in investment and employment.

The CLA has always argued against an agreement value limit. An agreement holding cap removes the incentive to deliver for the environment beyond the cap, thereby reducing environmental outcomes. There are better mechanisms, such as tiered payments or per hectare limits, that would encourage environmental delivery on the larger holdings while still allowing funding to be spread across more holdings. Capping will be a key area of focus for the CLA in our work with Defra on wider ELM design.

There is also a new requirement allowing each farm business to hold only one SFI26 agreement, designed to distribute SFI funding more evenly across the sector. However, flexibility on both this rule and the agreement cap will be essential for upland farmers managing common land. These arrangements, by their very nature, involve multiple farm businesses working together to deliver environmental outcomes at scale.

If you are affected by the SFI26 agreement cap, please get in touch with the CLA team.

The CLA welcomes the Secretary of State’s announcement that an expanded ELM Capital Grants programme will open in July 2026, with the budget increased by 50% to £225m compared to 2025.

ELM capital grants to date have covered projects such as:

• Hedgerow creation and restoration
• Woodland and tree establishment
• Natural flood management
• Water quality measures
• Slurry storage and nutrient‑management infrastructure

Despite the larger budget, significant competition is expected (as was the case in 2025). There are no suggestions at this stage that there will be changes to the first‑come‑first‑served allocation basis. Members should prepare projects now to be application‑ready.

The Defra Secretary of State announced application windows for farming innovation and farm equipment and capital grants in the next few months. This is in addition to a £30m Farm Collaboration fund over three years which is currently in development, and the previously announced £30m extension to the Farming in Protected Landscape Fund up to March 2027.

The Farming Innovation Programme provides funding to support getting research and innovation into practice. A fund of £70m was announced, which includes £30m for the Accelerating Development of Practices and Technologies (ADOPT) funding competition to accelerate adoption of near‑market technologies. Round 6 of ADOPT is currently open until 8 April 2026, with the next round opening immediately afterwards on 9 April 2026.

A new £50m round of the Farming Equipment and Technology Fund (FETF) was announced, with an application window from 17 March – 27 April 2026.

This is intended to be the final round of the fund in its current form and will support items including:

• Precision nutrient and pesticide application equipment
• Robotics and automation
• Livestock handling and welfare equipment
• Slurry management and emissions‑reduction technologies

The CLA encourages members to plan early as previous rounds have been extremely competitive. More information can be found in this Defra blog.

The Secretary of State restated the need to focus on biosecurity measures and to support animal health and welfare. This was accompanied by two commitments:

• A consultation on mandatory Animal Health & Welfare Reviews for cattle, sheep and pigs
• A new poultry biosecurity grant scheme aimed at combating avian influenza

While these measures support long‑term resilience, they will add some compliance demands, and potentially cost, for livestock businesses. The CLA will advocate for proportionate, risk‑based implementation.

Of course, SFI26 is just one part of a complex picture of action needed across the government to enable the farming industry to invest, innovate and grow with confidence.

The announcements of 2026 grant rounds, and increased spending for farming equipment and technology and the environment, are especially welcome. These are helpful for the short-term and work in parallel with the longer-term thinking for the Defra Farming Roadmap that is in development. The CLA input to the Farming Roadmap reflects our work with members over the last 18 months and is ongoing. We expect the roadmap to outline a plan for the next three years, in particular how the £2.7bn annual agriculture budget will be used for environmental public goods, productivity grants, advice and other support, as well as longer term ambitions.

There is some welcome clarity emerging from Defra that will allow businesses to consider some short-term options as part of their longer-term planning.

1. Begin planning for SFI26, including working out which of the reduced number of options you would apply for and the associated payment rates. This is particularly important if you are a small farm or do not have any other ELM revenue agreement and will be applying in the earlier June window
2. Prepare early for productivity and innovation grant funding – they are competitive schemes so being ready will be an advantage
3. Scope ELM capital projects - the July window will move quickly and require readiness
4. Stay engaged with CLA updates, particularly those with CSMT and SFI23 agreements expiring later this year

If you have any questions, please reach out to the CLA Land Use team at advice@cla.org.uk:

• Jack Chivers for SFI and productivity grants
• Anna Novis for Countryside Stewardship, Landscape Recovery and ELM Capital Grants