Land and property: Cost-savings, retirements and diversification on the cards as East Anglia's farmers brace themselves for post-Brexit Agriculture Act
PUBLISHED: 06:09 29 September 2018
East Anglian farmers and land managers should start preparing their budgets without the direct payment element in order to ready themselves for life post-Brexit, land agents advise following the publication of the government's much-anticipated and environment-heavy Agriculture Bill this month.
Cost-savings and diversification may well become key as direct payments, farmers’ main farm subsidy, is cut and profits almost inevitably take a hit, they say.
The region has a number of bigger farm businesses, which are set to bear the brunt as the cuts are imposed over a seven-year period, to be replaced by environment secretary Michael Gove’s desire for a ‘public money for public goods’ set-up. This could mean more pain here in the shorter run.
But East Anglia also contains some of the UK’s most innovative and forward-thinking farmers, meaning it could be well-placed to benefit from any new regime, they point out.
The possibility of ‘golden handshakes’ for retiring farmers as the phased-out payments are ‘de-linked’ from farm activity could also help a new generation into the industry.
Chris Leney of Brooks Leney pointed out that the bill is fairly light on detail, with many elements still to become clear, and there was a lot of ground to cover yet before it is enshrined in law.
He predicted a four-year window up to 2025 when farm incomes could become squeezed, as the new Environmental Land Management Scheme will come into full being in 2025, with Basic Payment Schemes (BPS) starting to reduce from 2021, and ending fully in 2027.
The de-linking element could lead to farmers with historic payments gaining the upper hand, he said.
“There could be situations where farmers are able to claim BPS without occupying land and with the potential for some of these de-linked payments being calculated based on some sort of historic claim basis, we could also see a two-tier rental market appearing, where those farmers with higher historic payments (possibly from land they have subsequently given up) have the ability to bid more for land, than those farmers who do not have such high historic payments,” he said.
With a lot still to understand about claiming the new environmental payments, farmers should be looking for cost-savings and other income sources, he advised.
Martin Freeman of Fenn Wright predicted the new emphasis on the environment rather than food production “is likely to have a greater impact on the larger farming businesses of which East Anglia has many”, with their profitability potentially taking a bigger hit than smaller farms.
“Looking forward over the next 10 years, if commodity prices do not increase significantly to offset the loss of direct payments this will have an impact on the land rental market and in particular on Farm Business Tenancies,” he said. It was too early to say how land prices might be affected, he added, although there may well be a ‘softening’ of prices.
Katie Hilton of Cheffins, said while parts of the legislation were welcome, parts of the new schemes “leave much to be desired”. Food production needed to remain a cornerstone of the farming industry, she argued.
“Future-proofing has never been more important for the sector,” she said. “For East Anglia in particular, the high productivity levels across the region ought to help farmers and land managers locally to gain in a number of ways from the bill. Agri-tech developments and research and development continue to feature highly through the thread of Mr Gove’s vision for UK agriculture and this is certainly an exciting area for the eastern region in particular,” she said. “However, the UK’s biggest landowners, many of which are in our region, will see the payments they receive fall sharply from 2021.”
Will Hargreaves of Savills said: “As with all things in life, there are things you can worry about and things you can control. In relation to BPS, we advise farmers and land managers to start preparing their budgets without the direct payment element, and start developing a strategy that enables the business to thrive without it. Where the loss of direct payments poses a specific concern to tenancy arrangements, or to inheritance tax planning, we advise that specialist advice is taken to plan ahead.”
William Barton of Landbridge said it was too early to tell what the impacts of the bill will be, should it become law, but it did give a clear direction of travel and would force farmers to look at their businesses to make sure they are ‘fit’ to survive in a subsidy-free environment.
“I suspect the majority of farmers won’t yet know the true impact on their business nor exactly which route they may end up going down but I am sure it will force farmers to diversify further, collaborate more and for some it may be a case of deciding whether they are farming for food or energy production, or diversifying their land use which may include farming for the environment and/or public access.
“There may of course also be other funding opportunities such as payments for eco systems and other public good which may come from the private business looking for green credentials.
While the ‘natural conclusion’ was that as farm incomes fall, land rents and values will too, there were other factors which would play a part, such as tax relief and succession planning, he said.