Category: Policy & Business

SFI 2023 Action Uptake

As of July 2024, there were 23,200 live SFI 2023 agreements, according to data published by Defra.  There has been a 67% increase in the number of agreements since April 2024.  Many of the actions have seen similar proportional increases in uptake, with the area covered by 16 of the 24 available actions at the time, increasing by between 60-70%.

The largest increase in area since the April 2024 dataset is for grass buffer strips on arable and horticulture land and flower rich margins.  Both of these options have increased in area by 74%.

By far the most popular option is the soil management plan and organic matter testing (SAM1).  There is now 2.65 million hectares under this option – up by more than 1 million hectares since April.  Given the total farmed area in England is around 9m Ha, this suggests that a minimum of 30% of farmland is now under a SFI agreement. 

A total of 133,000 kilometres of hedges have been placed into the assess and record hedgerow standard.  Of this, 95,000 kilometres are now being managed according to the prescriptions of SFI.

For arable farmers, there is a clear interest in actions such as no use of insecticide, which is taking place on 678,000 hectares.  Cover and companion cropping is taking place on 199K and 151K hectares respectively.  Many of the farms entering land into these standards will have already being carrying out these practices.  There is a total of 154,000 hectares in the actions which are limited to 25% of farm areas.

Legume fallow is one action which may yet see further uptake.  Defra has changed the action back to a rotational option, having made it static in May this year.  At present approaching 86,000 hectares is entered into the action.  Full details on SFI uptake can be found at – https://www.gov.uk/government/collections/annual-countryside-stewardship-and-environmental-stewardship-summary-data .

SFI Update

Policy Direction

With the change of Government there could have been a change to agricultural policy, but the new Defra Ministers have confirmed that they are fully committed to Environmental Land Management (ELM) and they want to ‘maintain the momentum’ built up over recent months.  Defra has said work is being carried out on how the schemes and grants can produce the right ‘outcomes for farmers, food security and nature recovery in a fair and orderly way’.  Quite what this means for farmers and the schemes available is currently unclear.  There has been reference to schemes delivring value for money, but it is very hard to prove the precise contribution of schemes to environmental outcomes, and then even harder to put a value on this.

SFI 2024 Roll-out

The expanded SFI 2024, offering 102 options, is currently still only available via the controlled roll-out.  Those interested must first complete an expression of interest and then the RPA will ‘invite’ them to apply.  We are experiencing differing lengths of waiting times for ‘invites’.  We expect this depends on size, complexity, type of farm and whether another agreement already exists as this is being used to test the system before rolling it out to everyone – it is not simply a first-come-first-served process.  There is no indication when SFI 2024 will be made open to all. 

Scheme Guidance

Guidance on the individual Actions has been amended a couple of times since it first came out in May, the latest version can be found via https://www.gov.uk/government/publications/sustainable-farming-incentive-scheme-expanded-offer-for-2024.  This web page also has a link to the Terms and Conditions, which have also been amended, our article of 2nd August reported these (see https://abcbooks.co.uk/sfi-2024-rule-changes/) including the removal of the annual upgrade provisions.  There is also a search facility for all the actions available via this page – similar to the CS Grant Finder, as well as general scheme guidance.  Many of the recent updates to the actions are to do with compatibility of the options with each other.  But notable is the change to CNUM3 – Legume Fallow, which is rotational again (!).  The ‘general’ scheme guidance has also been updated to include an Annex C which shows the Supplemental action you can do with each Base Action i.e. Grazing Supplement or Haymaking Supplement can be carried out on Low Input Grassland (the Base Action).

Endorsed Actions

Some of the actions under the SFI will target priority habitats or species, or heritage features and applications including these will require ‘endorsements’ from Natural England or Historic England.  The first endorsed action is now available – GRH6: Manage Priority Habitat Species-rich Grassland.  This action was much publicised when the expanded offer was introduced as the payment increased considerably from previously (GS6 was £182 per Ha and now GRH6 is £646 per Ha).  We have been waiting to find out how we get these actions endorsed, but it seems relatively straight forward to apply for;

  • select the relevant SFI action and which land the action is going to be done on in the SFI application
  • submit the application
  • Natural England or Historic England, as relevant, will be in contact about the endorsement process for the action – they may need to visit the land to confirm it’s suitable for the selected endorsed SFI action – with regards to GRH6 the assessor will check that the area is either already priority habitat species-rich grassland or that it has the potential for the restoration or creation of priority habitat species-rich grassland.

Although the process seems relatively straightforward, Defra has said agreements which include actions that require endorsement will take longer to be offered and therefore applicants may want to include these on a separate agreement if there are other actions being claimed so that the endorsement is not holding up the whole claim.  Currently only GRH6 is available.  Other endorsed actions will be added later in 2024 including ones on wildlife, heritage, wood pasture, orchards, coastal habitats and waterbodies.

Into 2025

Whilst there has been no official announcement, it is strongly beleived that there will be no major changes to the SFI for 2025 – or at least the early part of the year.  There may be the now-usual ongoing tweaks but we do not expect a further tranche of options to be added – beyond the endorsed ones outlined above.  This is especially likely to be the case if the new Government wishes to see how the present scheme performs.   

Capital Items

The SFI does not include capital items, but the agri-environment Capital Grants offer has increased considerably over the last few years.  It is available as a stand-alone grant or can be used to support an SFI application.  To this end a further eight items have been added to support some of the new SFI 2024 actions, these are;

  • AF1: Plant an agroforestry woodland tree
  • AF2: Plant an agroforestry fruit tree
  • AF3: Supplement: Species diversity bonus
  • TE6: Tree guard (tube and mesh)
  • TE7: Tree guard (wood post and rail)
  • TE8: Tree guard (wood post and wire)
  • PA4: Agroforestry plan
  • PA5: Moorland mapping plan

In total there are now 105 capital items under this programme.

Annual Declaration

Each year agreement holders have to submit an Annual Declaration to confirm that they have delivered against their agreement for that year.  This must be completed to receive the final payment for that year.  The Declaration must be submitted within the last two months of each relevant agreement year i.e. an agreement start date of 1st October can submit from 1st August to 30th September.  ‘Early adopters’ of the SFI 2023 should be able to submit their first Declaration now.  RPA will notify agreement holders when their annual declaration period begins – no confirmation yet whether this is via e-mail or through ‘Messages’ on Rural Payments.  The Declaration can then be accessed and completed online in Rural Payments via farmers’ ‘Business Overview’ page.

Delinked BPS Payments

The first instalment of delinked BPS payments have been sent to English farmers.  The RPA confirmed that as of 5th August, 98% of eligible farmers had received their advanced payment.    This is the first of two instalments this year.  The RPA has also brought forward the second instalment, which this year will be paid from 30th September (instead of 1st December).  Delinked payments will continue during the Agricultural Transition until 2027.  These will decline each year by a set deduction, although as of yet the deductions for 2025 – 2027 have not been released.  These are not expected to be announced until the Spending Review which will be held on the same day as the Budget – 30th October.

Base Rate Cut

On the 1st August the Bank of England cut Base Rates by 0.025% to 5%.  This is the first reduction in rates since March 2020.  It comes as the headline inflation rate (CPI) for both May and June was exactly on the BoE’s target level of 2%.  However, most commentators believe that further rate cuts are unlikely until well into the autumn as the Bank is still worried about underlying ‘core’ inflation.  The vote for the August cut was narrow, with a 5 to 4 majority.  A return to the ultra-low interest rates of the period 2009 to 2022 seems very unlikely.  The market has priced-in rates settling in an band between 3% and 4% in the next two to three years (barring any further economic shocks).  

SFI 2024 Rule Changes

The RPA has made some changes to the SFI 2024 rules.  The most controversial amendment will be the removal of the ability to annually ‘upgrade’ and ‘add land’ to an agreement.

The ability to amend an agreement was previously allowed and was seen as one of the ‘selling points’ of the scheme; giving agreement holders more flexibility to increase their ‘ambition’ each year via a relatively simple procedure and the agreement still finishing after the original length of time.  Under the new rules, if agreement holders wish to apply for new actions or additional land they will have to apply for a separate agreement.  Whilst this does not prevent agreement holders from increasing their ‘ambition’ it will mean having multiple agreements to manage which will end at different times.  It is probable that agreement holders will be less likely to increase the land and actions under the scheme until the 3-yearly renewal; it seems a real shame this facility has been removed.

One exception to this new rule is for rotational actions; for these, the rules will remain the same – where agreement holders move a rotational action they will be able to;

  • increase the area entered into the action
  • decrease the area as long as it’s no less than 50% of the area entered for the first year of the action’s duration.

Other amendments to the SFI rules deal with how agreements will work when they include actions for both 3-years and 5-years.  The new terms and conditions state ‘the agreement is for a period from the agreement start date until the latest Action End Date’.  But it qualifies this by saying ‘where the agreement document specifies actions of varying lengths the terms of the agreement shall apply in respect of the relevant action from the date the action starts until the date the action ends’.  It goes on to say ‘the action will expire after the action end date and the relevant land shall no longer form part of the land described in the agreement‘.  We understand this to mean that where an agreement has actions which run for 3-years and 5-years, the land which is subject to 3-year actions will be ‘free’ to put back into another agreement once the 3-years has completed.

The ‘Management Control’ conditions have also been updated – ‘Management control is for the duration of the agreement or until the action end date‘.  So where an action runs for 5-years, agreement holders must expect to have management control of the land for 5-years.  This is something that prospective scheme applicants need to bear in mind as it is not usually possible to transfer an agreement to another person if, for example some or all of the land is sold or the tenancy on the land ends, and there’s a new tenant.  However, where this does happen agreement holders will need to email or write to the RPA as soon as possible.  The land will then be removed from the agreement.  The holder may have to repay some, or all, of the payments already received during the agreement year in which the transfer of land took place if they:

  • have not completed their selected SFI actions
  • have submitted their annual declaration for that year

Unlike previous schemes, the RPA will not apply additional financial ‘penalties’.  Once the RPA has removed the land from the agreement, the new occupier should be able to apply for an SFI agreement on that land.

All the updated terms and conditions and SFI scheme information can be found via https://www.gov.uk/government/publications/sustainable-farming-incentive-scheme-expanded-offer-for-2024

 

RLE1 Changes

The e-mail RLE1 service in England ended on 31st July.  As from 1st August, those wanting to make mapping changes to their land on Rural Payments can either use the digital service, called ‘Rural Land Changes’ on their RPA accounts, or use a paper version of the RLE1.  Rural Land Changes was introduced at the beginning of year with the aim of reducing the turnaround time for getting mapping requests complete.  Our article in January gives futher information on what can and can’t be done via Rural Land Changes (see https://abcbooks.co.uk/rural-land-changes/).

Tenancy Reform

A reminder that the succession rules under Agricultural Holdings Act (AHA) tenancies are changing as from the 1st September.  This is one of the changes brought in by the Agriculture Act 2020.  The previous ‘Commercial Unit’ test will be scrapped – this effectively meant someone could not take on the tenancy if they already had control of a large enough holding.  From the 1st September there will be three conditions for succession.  There are two ‘eligibility tests’ – firstly the potential successor must be a close relative to the previous tenant; secondly the successor must have derived their principal livelihood from the farm.  Then, the third condition is a ‘suitability’ test.  The person wishing to take over the tenancy must have the right level of experience, skills, financial standing and capability to take on the farm.  This test has been strengthened as a qui-pro-quo for the removal of the Commercial Unit test.

Budget Date & Spending Review

The Chancellor, Rachel Reeves, has set Wednesday 30th October as the date of the first Budget of the new Government.  There may well be some significant announcements on taxation and spending as the Labour administration has been keen to point out the poor state of the public finances it has inherited – with ‘hidden’ overspends seemingly now uncovered.

A comprehensive Spending Review has also been announced.  This will set Departmental Budgets for the next three years and, for Defra, includes the crucial decision on how much will be available for farming support.  Ms Reeves has stated that decisions for the first year of the Review, 2025-26 (i.e. 2025 farm payments) will be announced on the same day as the Budget.  This should start to provide some clarity on farm support for next year.  

UK-EU Relationship Under Labour

Following Labour’s election victory on 4th July, there has been a renewed focus on the UK-EU trading relationship and how it might evolve under the new Government. Whilst Labour has ruled out the UK rejoining the EU’s Single Market and Customs Union, below are a number of areas where, from an agri-food perspective, the UK-EU trading relationship could be improved.

  • Veterinary/SPS Agreement: since 2021, UK agri-food exports to the EU have faced stringent regulatory controls and checks, while similar checks on imports into the UK from the EU are gradually being implemented.  These controls, such as export health certificates and identity checks, are costly.  Labour has expressed a desire to pursue a Veterinary Agreement with the EU for over a year.  The impact of this agreement on reducing the regulatory burden depends on its nature.  If the UK dynamically aligns with EU legislation, most checks could be removed, but the UK would have no formal vote on the rules.  If the UK opts for equivalence, similar to New Zealand, checks would be reduced but still significant, and the UK would maintain control over its rules.  Importantly, a Veterinary Agreement would only cover a limited aspect of the wider Sanitary and Phytosanitary (SPS) requirements; issues such as plant health rules and phytosanitary requirements would not be included and would represent significant hurdles to trade.  Therefore, Labour is increasingly talking about a wider SPS Agreement with the EU, which has merit and should be pursued.  Again, there will be a trade-off between the degree of access to the EU Single Market and the control that the UK would have on the rules that apply to UK trade.  The EU will also have its own perspective and will be keen to avoid the UK ‘cherry-picking’ the parts of the EU Single Market that it would like unfettered access to.  An SPS deal would also benefit agri-food goods moving from GB to Northern Ireland.  Whilst a deal is achievable, its comprehensiveness and the extent of regulatory burden removal remain uncertain.
  • Mutual Recognition of Conformity Assessment: currently, UK products being exported to the EU (e.g. machinery) need EU-based certification to enter EU markets.  This can no longer be done by UK-based laboratories, and therefore, adds costs and complexity.  The UK could seek an agreement similar to those the EU has with countries like Australia and Canada, easing this burden.
  • Safety & Security Declarations:  post-Brexit, UK exporters must submit new export summary declarations to the EU to verify that such products do not pose risks.  The UK could negotiate an agreement to remove these requirements, similar to deals the EU has with Switzerland and Norway.  Again, this would require some alignment with EU rules and regulations.
  • Temporary Labour and Youth Mobility: new arrangements could allow UK performers and artists to work temporarily across the EU without complex visa requirements, addressing current bilateral challenges, but importantly, it would not be Freedom of Movement.  The UK could also establish reciprocal youth mobility agreements with EU countries, enabling young people to work temporarily in each other’s territories.  The EU had previously made labour mobility proposals but these were rejected by the Conservative Government.
  • Mutual Recognition of Professional Qualifications (MRPQs):  the UK and EU could encourage mutual recognition of professional qualifications, easing the movement of professionals between regions.  There will be difficulties here though as, within the EU, the competence for granting such recognition partly rests with Member States, so negotiations would be complex.
  • Linking Emissions Trading Schemes (ETS):  aligning the UK and EU’s carbon pricing systems could streamline processes and mitigate issues like the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes additional requirements on UK exports of carbon-intensive goods.  Whilst CBAM does not yet extend to agricultural goods, this could change in the future and from 2026, there is the potential to have charges levied on exports of certain industrial goods (e.g. fertiliser, steel and cement) to the EU.
  • Joining the PEM Convention:  the Pan-Euro-Mediterranean (PEM) Convention on preferential Rules of Origin (RoO) aims at establishing common RoO amongst member countries which currently include the EU, Turkey, the Ukraine and EFTA Member States.  This would allow the UK to consider inputs from other PEM members as ‘local’ for meeting RoO requirements in trade agreements, potentially simplifying trade processes.  However, there are difficulties as the UK-EU Trade and Cooperation Agreement (TCA) rules are different to the PEM Convention in some instances and these would require aligning.

Significant improvements to the UK-EU relationship are possible, but there will still be a trade-off between access to the EU Single Market and the UK’s control over its own rules.  Even with new arrangements, agri-food trade will face more friction than if the UK rejoined the EU Single Market and Customs Union, as some advocate.  Sir Keir Starmer is known for seeking incremental improvements and only considering radical changes if gradual measures fail.  Therefore, the Labour Government is likely to focus on the areas mentioned, leveraging the UK’s strengths in security and defence in negotiations with the EU.  A deal is achievable, though its comprehensiveness and alignment with EU regulations remain uncertain.

Defra Farm Viability Modelling

One criticism of Defra, from the National Audit Office (NAO), in the recent review of the Farming and Countryside Programme (see previous article) is the lack of transparency around farm viability modelling.  The NAO report makes public some of this modelling including the underlying assumptions.

The modelling is based on three scenarios;

  • Farm viability without direct payments
  • Without direct payments and with the introduction of new grant schemes
  • Without direct payments, with new grants schemes, and with productivity improvements.

The Defra scenario for productivity improvements assumes that less viable farms improve their productivity to match that of the 75th percentile of their peers with the same structural characteristics (e.g., the current top-25%).  These changes need to take place over seven years from 2021 to 2028.  Defra consider this to be a realistic scenario and assume that the reduction in BPS payments will be enough of a driver for farms to deliver a large proportion of the productivity improvement.  We would question whether these levels of productivity improvement are likely.  Our experience is that it is difficult for farms to make big jumps in productivity unless something fundamentally alters in the management of the unit.  

The modelling was conducted using data from the Farm Business Survey covering the 55% of farms which deliver 92% of agricultural output.  Very small farms are beyond the scope of the modelling

If all of the ‘less viable; farms achieve the productivity gains used in the scenario then 92% of farms are considered viable beyond 2028.  If only half of the ‘less viable’ farms make improvements in productivity in line with the top-25%, then 86% of farms would remain viable beyond 2028.

A table within the NAO document sheds more light on Defra’s modelling.