Category: Policy & Business

Farm Budget

The closure of the SFI has highlighted once again the issue of the farm support budget.  In this article we look in a little more detail at the figures and the potential future outcomes.

What most people think of as the ‘farm budget’ is the equivalent to what the UK received under the Common Agricultural Policy (CAP).  In England this is now Defra’s ‘Farm and Countryside Programme’.  Funding for this was set at £2.4bn for England in 2020 at the time of Brexit.  The devolved administrations simply get a pro-rata amount, based on what is allocated for England.  Previously, these funds were ring-fenced for agriculture but, from now on, they simply form part of the overall block grant to the devolved Governments.  

The Autumn 2024 Budget continued the funding of £2.4bn for 2024/25 (the 2024 ‘subsidy year’).  An extra £200m was to be available for 2025/26 year from previous years’ underspends.  This arrives at the ‘£5bn’ that the Government is keen to highlight as the ‘largest-ever budget’.  This may yet change as we go to press, with the Government’s announcements of widespread spending cuts for the 2025/26 year.  

Actual spending by scheme is shown on the chart.  The split in spending from 2024/25 onwards are Andersons estimates.  For the present two years the totals are informed by this Defra Blog post – https://defrafarming.blog.gov.uk/2025/03/12/update-on-the-farming-budget/ however, the split between the years are our estimates.

The budget for the next three years (2026/27, 2027/28 and 2028/29) is due to be fixed under the Comprehensive Spending Review, due to be announced in July.  However, given the financial uncertainty the UK faces, it is possible that the idea of setting budgets for three years may be abandoned.  On the chart below, we have forecast a 15% cut (in nominal terms) from the basic £2.4bn for England.  We have no idea whether this is accurate or not.  Probably the best the industry can hope for is a continuation of the £2.4bn but, with other calls on Government spending, then Defra’s budget could come under pressure.   

* Other ELM – Landscape Recovery; Farming in Protected Landscapes; Woodland; Pilots; Tests; Advice ~ Capital Grants – Farming Investment Fund + Rural England Prosperity Fund # Other – Producer Organisations; Technical Assistance; Advice (FFRF); Rural Prosperity

It can be seen that the vast majority of support is going to environmental schemes, with relatively little being spent on ‘productivity’ measures.  The BPS is down to a very small component for 2025/26.

Importantly, it seems likely that it is the budget pressure in future years that has really impacted Defra’s ability to offer SFI agreements.  Every one signed binds them to a three-year spending commitment.  Uncertainty about future funds has almost certainly contributed to the scheme closure this spring.

The amounts are at current prices not real terms – there has been significant inflation during this period. The actual value of support (at 2021/22 prices) is shown by the grey line and is down to around £1.5bn by 2028.

Farm Business Income

Profits rose for all farm types in England in 2024/25, apart from Cereals Farms.  This is according to the forecasts of Farm Business Income (FBI) recently released by Defra.  These results come from Defra’s first estimates for FBI for the period March 2024 to February 2025.  These include the 2024 harvest and 2024 BPS.  They are preliminary estimates at present, with more detailed figures due to be published in November.  Although titled ‘income’, what the data shows is average net profit for a typical farm in each sector.  The chart below summarises the data for the past few years – all figures are in real terms at 2023/24 prices.

FBI on Cereal Farms is forecast to drop again this year, due to a combination of challenging weather conditions and lower output prices.  The output from crops, most notably wheat, is expected to record a substantial decline for the year and, although costs fall, the FBI is forecast to drop by nearly a third to £27,000.  For General Cropping farms, lower output from cereals is forecast to be partially offset by increases for other crops, such as sugar beet and potatoes. This, along with lower inputs costs, is expected to result in a 13% rise in FBI to £108,000.

A recovery in the farmgate milk price means FBI on Dairy Farms is forecast to increase by 140% (in real terms) on the year to £176,000.  For the Grazing Livestock sector, stronger farmgate prices, particularly for sheep and a reduction in feed costs is estimated to increase FBI for both LFA and Lowland Farms to £28,000.  However, for Lowland Farms the main driver is expected to be a substantial uplift in agri-environment income; this is forecast to more than double from the 2023/24 level to around £23,000 in 2024/25.  For Specialist Pig Farms, lower costs, particularly feed, are forecast to be one of the main drivers increasing FBI by around 11% (in real terms) to £155,000.

Defra has not made an estimate for FBI in the Poultry sector, so the figure shown on the chart is our forecast.

For the 25/26 year just starting, it currently looks like being another ‘up horn, down corn’ year.  Prices in the arable sector are lacklustre, although yields are not expected to be as bad as last year.  Lower grain prices should help the livestock sector due to reduced feed costs, together with strong farmgate prices.  However, it can be seen from the chart above, that the Grazing Livestock sector is starting from a very low base.  It has historically been reliant on the BPS and the fact that the main driver for a rise in FBI is due to a substantial increase in the agri-environment income shows how reliant this sector is now on the SFI and how difficult it will be for those who have not managed to get into the scheme . 

Details can be found at –https://www.gov.uk/government/statistics/farm-business-income/forecasts-of-farm-business-income-by-farm-type-england-202425   Actual survey results for this period will be published in November 2025.

SFI Fallout

System Faults

Further to Defra’s shock, without notice, closure of the SFI 2024, there were many situations where applications had started but had not yet been submitted.  Defra has said for the majority of these it will not be possible to submit them.  The only exceptions to this are ‘a small group of farmers who were blocked from submitting their applications due to a ‘system fault’ or had requested ‘assisted digital’ support from the RPA to apply”.  It also applies to ‘ex-SFI Pilot farmers whose Pilot agreement has already ended, but they haven’t applied for the full SFI 2024 offer on land which was in their Pilot agreement’.

Defra has given a bit of clarification as to what it is viewing as a ‘system fault’ for the purposes of these exceptions, prior to the scheme closing at 6pm on 11th March;

  • an application had been started and a system issue prevented the application from being submitted, and
  • the applicant (or their agent) had informed RPA, either by calling the Helpline or by emailing Rural Payments of this issue.

Where this is the case, RPA has said it will be contacting applicants to let them know when it will be possible to submit their application.  It has also said that if an applicant thinks they fall under this ‘exception’ but their application has been rejected on the system then they can contact RPA either by the Helpline or via email and these will be looked into on a case-by-case basis.

Rotational Declarations

With the closure of the SFI, current agreement holders are advised to make sure they consider their Rotational Declaration carefully.  Land managers are reminded that under the scheme rules they are allowed to reduce their Rotational options by 50% in years two and three.   But, they are also allowed to increase the area.  With Defra previously ‘pushing’ for multiple agreements as a way for farmers to increase their area, some may not have fully considered their Rotational Declaration, thinking they could add land on another agreement.  They will be restricted to the Rotational options already being claimed for in their existing agreement but for some this may be a way of increasing land in the SFI.  Unless scheme rules suddenly change…………

Countryside Stewardship Facilitation Fund

Defra has confirmed there will be no further rounds of the CS Facilitation Fund.  The scheme supports individuals who act as facilitators to bring together groups of farmers, foresters and other land managers to improve environmental outcomes in their local area.  Existing agreements will continue to be funded, but it will not open to new agreements.  The fund was well-received and appeared to be doing a good job at bringing farmers together, and giving them confidence and knowledge to engage in environmental actions.  However, like many of the other schemes, it appears the budget has been used up.

Countryside & Environmental Stewardship

Annual revenue claims for both Countryside Stewardship (CS) and Environmental Stewardship (ES) agreements can now be made.  CS applicants will find an Annual Declaration via their Rural Payments accounts.  If there are no changes to last year and no rotational options to declare, it is possible to submit a revenue claim with a ‘single click’ without needing to complete each section of the claim form.  For those with changes to last year, or if the location of rotational options has changed (or if you want to check what you are claiming for!) you need to look through and complete the different sections of the form, before submitting online.

ES agreement holders will receive their claim form either by email or post which needs completing and returning back to the RPA.

The deadline to submit both CS and ES revenue claims (without any reductions) is 15th May 2025.  If the deadline is missed, applications can still be made up until 1st September, but the following deductions will be applied to the payment;

  • Between 16 May and 2 June – 5% reduction
  • Between 3 June and 30 June – 10% reduction
  • Between 1 July and 1 September – 25% reduction
  • After 1 September or not received at all – 100% reduction – no claim paid

The RPA are also reminding claimants to update their land use codes before submitting their claims.  With no BPS claim made now, it appears there is less of a tendancy for land managers to go through the process of updating their landuse on the system or sitting down with their agent to do this.

SFI Closed

The SFI Expanded Offer (SFI 2024) was suddenly closed on the evening of the 11th March.  Defra has said all existing SFI agreement holders will continue to be paid under the terms of their agreement for its duration.  This means those who submitted their application earlier this year will be paid until 2028.  For many others who will be at different stages in the application process the situation is;

  • If you have been offered an agreement, but not yet accepted it, you need to accept you offer within 10 working days of it being offered, if you don’t, your agreement offer may be withdrawn. 
  • Where an SFI application has been submitted but no agreement has yet been offered these should be offered as long as the application is eligible (although there is a conflict with the wording in the blog and the press release from Defra with the latter saying these will be ‘considered’.)
  • For those who have started an application, but had not submitted it before applications closed, they will not be able to submit the application.  The only exceptions to this are a small group of farmers who were blocked from submitting their applications due to a system fault or had requested ‘assisted digital’ support from the RPA to apply.
  • For those taking part in the the SFI Pilot, they will be able to apply when their pilot agreement ends, or if the agreement has already  finished but they haven’t submitted an application for the expanded SFI offer yet, they will still be able to apply. The RPA will let them know how to do this shortly.

Defra has said now is the time for a ‘reset’ and there will be a revised offering with details being announced in summer 2025, ‘building on lessons learned and stakeholder feedback’.  A budget for the scheme will be confirmed in the Spending Review this summer, it has also said the revised offering will direct funding where there is ‘greatest potential to do more on nature and where there is the least ability to access decent returns from agricultural markets, or other sources of investment, as set out in the Land Use Framework’.

It appears that Defra has been surprised by the popularity of the scheme and the budget is all allocated.  However, this is odd in the light of Defra Secretary announcing other spending commitments less than a month before.  Also, the 2025/26 financial year only starts in April.  The budget for this year has already been allocated to Defra – the Comprehensive Spending Review sets funds for the next three years.  Given that the BPS is being cut deeply for 2025, it seems odd that funds are exhausted already.  We await further details in the summer, but appears it maybe 2026 before the scheme is reopened and it will certainly be different to what we have have seen.  The sudden closure will be a massive blow to many who will have spent time and money preparing schemes to now not be able to submit them when they have been told applications can be made ‘all year round’.  This will only further erode English farmers’ trust in the Government.

Policy Announcements

Capital grants will be available again in England after the schemes were closed in the autumn due to budget over-runs.  This was included in a set of announcements made by Defra Secretary of State Steve Reed in a speech at the NFU Annual Conference on the 25th February.  They are aimed at boosting the profitability of the farming sector.

The announcements are;

  • Capital Grants (existing) – 4,000 applications to this scheme (previously called Countryside Stewardship captial grants) were suspended in November (see https://abcbooks.co.uk/capital-grants-closed/) due to budget pressures.  It is stated that these will be processed in full when the new 2025/26 financial year starts.
  • Capital Grants (new) – the scheme will open again ‘later this year’.  To limit spending, there will be a a cap of £25,000 for applications to the water quality, air quality and flood management themes.  The trees and boundaries theme will have a limit of £35,000.  There is a total budget of £45m.
  • Farm Equipment & Technology Fund (FETF) – another round is due to open in the spring.  This is set to be the final round of the scheme however.   The FETF has not been open since last spring.  There will be a budget of £30m for the Productivity and Slurry Management items, and £16.7m for Animal Health and Welfare.  The announcement states that grants from £1,000 to £25,000 will be available; previously Productivity and Slurry Management Grants were up to a maximum of £50,000.
  • Other Grants – There has been no announcement regarding the ‘larger’ capital grants which were available under the Farming Investment Fund (FIF) (Improving Productivity, Adding Value, Livestock Housing, Water Managment etc).  The Farming Innovation Programme will reopen with funding of £42.5m.  This is a competitive scheme which offers grants for research and development projects that benefit farmers, growers and foresters.  It will focus on the themes of precsion breeding and net zero.  A new funding stream worth £20m called Accelerating Development of Practices and Technologies (ADOPT) will fund innovation.
  • Farming in Protected Landscapes (FiPL) – the scheme is to be extended to 2026.  No indication on budget has been provided.
  • HLS – those with old agreements under this scheme rolling-on will see payments rates increase.  Agreement holders will be written to by the end of April.
  • Animal Health and Welfare – the current ‘Pathway’ will be amended so there is more flexibility for farmers to have funded vet visits for multiple species.
  • Seasonal Workers Scheme (SWS) – the Seasonal Worker visa route will be extended for five more years.  The quota will be reviewed annually, although it looks like this will be downwards as it talks about ‘supporting farms while gradually reducing visa numbers as we develop alternative solutions’.
  • Procurement – a new requirement for Government catering contracts to favour high-quality, high-welfare products from local farms.  The Government’s ambition is for at least 50% of food supplied into the £5 billion public sector catering contracts to be from British producers or those certified to higher environmental standards.
  • Trade deals – it is stated that the Government will uphold and protect the UK’s high environmental and animal welfare standards in future trade deals (a very easy announcment to make and with no cost).
  • Defra – a ‘Farming Profitability Unit’ will be created in the Department.  Its remit is not yet clear.  
  • Biosecurity – £200 million will be invested to improve resilience against animal disease.  The Animal and Plant Health Agency (APHA) animal health facility at Weybridge will be turned into a new National Biosecurity Centre.

Further details are awaited, particularly on opening dates for the capital grants.  Farmers will be pleased to hear of the re-opening, although it will be interesting to see what/if items have been removed from the ‘lists’.  We will endeavour to keep readers updated.

Trade Update

Since the inauguration of President Trump on 20th January, there have been a major shift in US trade policy back towards protectionism.  Whilst this has not directly affected UK agriculture yet, it has caused significant upheaval, particularly in the likes of Canada and Mexico.  These countries narrowly avoided a trade war and the imposition of 25% tariffs on all exports to the US.  The imposition of tariffs have been suspended for a month, although US officials have suggested that the tariff threat was intended as leverage in ongoing trade talks, rather than a permanent policy shift.  There is also a universal 25% tariff on steel imports and a 10% tariff on aluminium.  These announcements have created significant volatility in commodity prices and exchange rates which, in turn, have contributed to greater market uncertainty, including for agricultural commodities.

There are some indications that the EU is next on the Trump administration’s hit-list as it views several aspects of EU trade policy, including sanitary and phytosanitary (SPS) regulations as being unfair to the US.  It remains to be seen how this will play out as the Trump administration is also using the threat of tariffs to gain concessions elsewhere (e.g. border control and security) as it has done with Canada and Mexico.  Of course, with the UK being outside of the EU, it would not be directly affected by such moves.  That said, a bilateral trade spat between the UK and the US cannot be ruled out although the British Government is doing its best to stay on the right side of Trump on most issues.

Therefore, whilst the new US administration has brought greater uncertainty to commodities markets and threats of tariffs being imposed at short notice, the effects on British agriculture have thus far been relatively low.  Longer term, the possibility of a US-UK free trade agreement cannot be completely ruled out, although any deal would have to offer significant advantages to the US.  Such a deal would likely signify increased competition for products such as beef and pork although there could be some opportunities for British lamb and some dairy products. 

The world has entered a period of significant upheaval, not just in terms of trade policy, but politically as well.  Navigating through this will require a careful balancing act particularly as the UK would like to reset (closen) its relationship with the EU whilst also striving not to do anything to disrupt its relationship with an unpredictable US administration.  The next four years are going to be eventful!

Hedgerow Regulation Enforcement

Defra has published its guidance on the RPA’s regulatory approach and the use of civil sanctions to enforce the Hedgerow Regulations.  New rules to protect hedgerows and new enforcement rules were required follwing the end of cross-compliance.  See our Bulletin of 20th November for more information https://abcbooks.co.uk/hedgerow-regulations/ .  Under the new rules, the RPA will, in most cases, provide ‘advice and guidance’ in the first instance before taking enforcement action.  However, in some cases, it may consider civil or criminal sanctions as an immediate response, where needed.  The full guidance can be found at https://www.gov.uk/government/publications/management-of-hedgerows/regulatory-approach-and-use-of-civil-sanctions-for-the-management-of-hedgerows-england-regulations-2024 .