Between 2021 and 2027 direct subsidies will be phased out in England over the course of an Agricultural Transition Period. This will present a significant challenge for many businesses. There will be a time lag before new income streams based around public money for public goods such as environmental services, are available. Also, we don’t yet know how the budget will compare with current spending on farm support or where it will be targeted.

The Government’s arguments for phasing out direct subsides include that they 'distort farm business incentives' and 'keep some land under the curation of inefficient businesses'. By withdrawing the payments it hopes that businesses will adapt and take action to boost their productivity. Meaning that in 2027 we have a more resilient and successful agricultural industry which is less reliant on Government support.

There is a wide range of approaches which businesses could take to boost productivity and profits, depending upon their circumstances, assets and location. Perhaps there are opportunities to secure new income streams through diversification or to cut costs by collaborating with neighbours?

For the average English farm business 61 per cent of their profit is currently due to the direct payment subsides which they (hopefully) receive each December. Grazing livestock farms are particularly reliant on their Basic Payment Scheme income, it accounts for nearly all their profit (91-94 per cent).

These are stark statistics and our view is that now is the time to review business strategy and take sensible steps to enhance the resilience of farming businesses for the future. In light of this, our advice is that all farming businesses take the time to review the markets they target, risks they face, their cost structures and their potential for diversification and innovation.

To help farmers and land managers plan for the withdrawal of direct subsidies we have prepared a calculator which illustrates how direct payments could fall over the transition period. You can request a copy of the calulator tool here.

Further information 

Contact Savills Rural