Managing regenerative farming: Options for support and advice
© Tim Scrivener Regenerative farming offers opportunities but requires a higher level of management and must be tailored to the land and farm in question, not followed dogmatically.
However, there may be more sources of support than the obvious areas such as Sustainable Farming Incentive (SFI) income.
This was the main advice from farm business consultant Andersons at this week’s Groundswell event, stressing that the path each farm takes will vary depending on individual circumstances.
See also: HMRC basis year reforms – what farmers need to know
“The management ability of the operator is likely to be key,” says the firm’s head of business research Richard King.
“Regenerative systems usually require a higher level of management ability. If you are not making profit under the existing system then ‘ditching the plough’ is unlikely to be enough, in itself, to turn things around.”
With this in mind, he emphasises the importance of benchmarking to monitor performance through the switch and afterwards.
“There will be a likely short-term cost for all but a few farms who shift towards a regenerative system, with the move away from reliance on agrochemicals and synthetic fertilisers driving output lower.
“In the long-term, improvements in soil biology and organic matter should see yields recover,” says Richard.
“Benchmarking will be important, especially if you are doing something new in terms of cropping.”
Support
All sources of support should be considered, especially in the early years of change when there may have to be an “investment period” of lower returns, he says.
The SFI is the most obvious, with the 2024 version of the scheme offering more than 100 actions. Some are targeted at practices supporting a regenerative approach, for example, cover crops, min-till and herbal leys.
However, in order to avoid unintended consequences, avoid chasing maximum payments, advises Andersons, and take care to create a scheme that dovetails with your farming practices.
“Be realistic in your planning, take care with anything that restricts your activity – for example, the low input option might look attractive but think about your farm’s performance over five years and how often you might need those inputs.”
Market support
How much support the market will offer is unclear, with only limited premiums available so far for regenerative produce on relatively small acreages.
While this may change in future, one issue that may prevent markets growing strongly is confusion in the public’s mind about what “regenerative” stands for, suggests the firm.
There is also a concern that “regen” produce may become the standard and that the supply chain will suck up some of the benefits for its own purpose, cautions Richard.
Carbon
A similar risk arises in the carbon market. “Whether the carbon market in farming will grow and become mainstream is still open to debate.
“Many firms in the food chain will want to capture any carbon reductions at the growing stage so they can use these reductions within their own businesses.”
Grants
Grants at varying levels are available to help fund a change in farming system. At the lower level these are not competitive, others offer up to £600,000 but require a very detailed submission.
Bank lending
Banks are generally likely to be supportive of a change in farming system but need to be kept informed as to what is going on – an unexplained dip in financial performance, such as that likely during the shift to regen, will cause concern, says Richard.
This may call for a three- to five-year business plan and budget, which in any case is advisable.
Regen Farm Details
Andersons’ Regen Farm is a notional 600ha business created to model the fortunes of arable farms using regenerative techniques.
Cropping:
- 200ha of winter feed wheat
- 100ha spring malting barley
- 100ha winter oats
- 100ha spring beans
- 80ha winter milling wheat
- 20ha herbal leys
- 200ha of cover crops are grown ahead of spring cropping
- This year saw the introduction of third party sheep to graze cover crops and herbal leys
- All crops are direct drilled.
The Regen Farm model began its conversion about 10 years ago. While it is now fully regen, it will continue to evolve, says the firm. Yields are about 10% lower than on its similar Loam Farm arable model, while the working capital requirements are similar.
Returns for the 2022 harvest are described by Andersons as “spectacular”, with high sale prices, relatively low costs and support still at reasonable levels, as on many combinable cropping holdings.
The 2023 harvest year saw much higher costs and lower sale prices, pushing profits back into a ‘normal’ range.
The prospects for harvest 2024 do not currently look great, due largely to lower output on lower forecast yields.
Costs, particularly fertiliser, are lower for 2024 harvest and further cost reductions help the profitability forecast to recover for harvest 2025.
Richard King points out that the year-on-year increases in overhead costs reflect general inflation in machinery costs and higher labour costs, along with other overheads rising, rather than anything attributed to the regen approach.
A view has been taken on the potential pace of the English Basic Payment Scheme reductions and SFI is becoming increasingly important to the farm, which is not currently receiving any market premiums for its produce, nor is it selling carbon.
Anderson’s Regen Farm model performance and budget |
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£/ha |
Harvest 2022 |
Harvest 2023
|
Harvest 2024
|
Harvest 2025
|
|
|
|
Output |
1,960 |
1,718 |
1,481 |
1,475 |
|
|
|
Variable Costs |
397 |
754 |
547 |
451 |
|
|
|
Gross margin |
1,563 |
962 |
933 |
1,030 |
|
|
|
Overheads |
452 |
545 |
601 |
603 |
|
|
|
Rent & finance |
243 |
256 |
266 |
266 |
|
|
|
Drawings |
80 |
82 |
86 |
89 |
|
|
|
Margin from production |
788 |
78 |
(19) |
72 |
|
|
|
Basic Payment |
163 |
128 (+40 SFI) |
93 (+97 SFI) |
58 (+129 SFI) |
|
|
|
Business margin |
951 |
246 |
170 |
259 |
|
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Tax considerations
Structural changes in machinery and equipment, such as those made when moving to a regenerative approach, can have unexpected tax consequences in the form of what is known as a balancing charge.
This occurs when 100% capital allowances that have been claimed on purchases under the £1m a year Annual Investment Allowance are effectively clawed back by HMRC when that machinery is sold.
Whether this arises depends on the position of an individual sole trader or partnership business and the balance in their general (main) capital allowances pool, advises Peter Griffiths, tax director at accountant and business adviser Hazlewoods.
Balancing charges can also affect companies, where claims have been made using what is termed the 130% super deduction (ended March 2023), as that sits outside the main pool, says Peter.
“The main advice is to check the tax implications of machinery changes before you make a purchase or sale.”
Peter also points out that where hire purchase (HP) is being used to fund farm machinery or other equipment, the 100% capital allowance can only be claimed if the machinery is brought into use in the accounting year in which the claim is made.
All of these considerations may be complicated by the change in basis year for individuals, which takes effect with the tax return for the year ended April 2024.
This will see unincorporated businesses taxed on profits generated in a tax year, rather than those aligned to their accounting year end.
The change in basis year brings about little benefit for the taxpayer, but means that tax receipts by HMRC may be accelerated, so there will be cash flow issues for many businesses.
“This may cause complications and businesses need to check the position so that they can plan cash flow,” advises Peter.
Free business advice through 2024
The current round of Defra’s Future Farming Resilience Fund remains open until the end of the year, offering free one-to-one advice to farm businesses in England through a wide range of consultants in every county.
Contact details for each county are listed on Defra’s website.