How to bounce back from bad weather and drop in farm support

Labelled as a perfect storm, declining support payments, a new government, extreme weather and market disruption have combined to cause uncertainty and put incomes under pressure in 2024.

Transition from the Basic Payment Scheme (BPS) to a system based on agri-environment payments reaches an important milestone in England this year.

Payments will be just 50% of the level of 2021 when the previous government set in motion its post-Brexit farm policy. 

See also: Carbon markets: A beginner’s guide

Although Scotland and Wales are on a different schedule, details of extensive changes to devolved government policy have begun to emerge this year, leading to uncertainty.

The policy impact comes after sharp drops in income for some sectors last year and follows one of the wettest growing periods on record this spring.

Swathes of the UK recorded 168% of their normal rainfall and low sunshine levels during key growing periods.

And all of that is on the back of the wettest 18-month period since Met Office records began almost 200 years ago.

The disruption is set against political change.

As the new government marks 100 days in office on 12 October, farmers and growers await the upcoming budget to gauge the level of support to fund food production and the transition process.

Below, Jonty Armitage and Jason Beedell at Strutt and Parker, Robert Sullivan of GSC Grays, and Agrovista’s Lewis Butlin set out the challenges and offer advice to the four sectors which have been hit hardest.

Challenges

Some farm businesses came into 2024 on the back of a drop in incomes in the previous 12 months.

Others, such as combinable crops, fared better last year but have since been battered by bad weather and seen yields slump.

Agricultural input inflation costs are increasing the challenge.

While general inflation has fallen over the past 12 months, a number of the agricultural input costs have remained high, making management difficult.

With product prices under downward pressure and input costs remaining stubbornly high, farm businesses are seeing a greater squeeze on margins than sectors outside agriculture.

Inflation also affects crucial investment says Jonty Armitage.

Firstly, high borrowing rates can make capital investments unaffordable, but a secondary effect is the impact on confidence.

Concern over high interest rates means  potential borrowers delay their investments in the hope that rates will fall.

Also key among the cost pressures are labour costs. Staff and recruitment costs are already high, due to a shortage of good quality farm labour.

But costs will rise again with another increase above inflation likely as the government sets minimum pay rates for workers in the coming months.

According to Defra income figures and AHDB statistics the worst-affected sectors appear to be:

• Upland grazing
• Lowland grazing
• Cereals
• General cropping.

Upland grazing

The latest Defra figures published in the spring of 2024 show incomes on upland or Less favoured area (LFA) farms fell by 41% last year to average £25,400.

The drop was blamed on falling output and increased input costs.

Statistics also highlight the dependence on government support of upland farms which, on average, made a loss on farming activities of about £10,400.

Profits are only sustained by diversification activities, agri-environment payments which account for half of income, and BPS support.

With the BPS income in England diminishing fast from £26,700 in 2021 to just £13,350 by December this year, pressure is mounting on this sector.

Robert Sullivan points out that Defra figures suggest income from agriculture on upland farms needs to increase by 20% for them to get out of the red.

Achieving that from farming itself is all but impossible because a shift in market prices of that order is highly unlikely, says Robert.

Intensifying the system and boosting output is not going to happen easily.

This is because these units are constrained by their location and the management obligations from the agri-environment schemes they are already committed to – they simply don’t have the flexibility, he adds.

Jason Beedell echoed Robert’s points. Agriculturally there are limited options, with even the top 25% of profit-making upland farms making a loss from agricultural activity.

However, their losses are lower.

What distinguishes the top quarter is their lower farming losses from reduced input costs and higher income from agri-environment payments and diversification, says Jason.

These top units have also tightened up their administrative management and are more attuned to profit trends and the balance of income streams within their businesses.

Options

Short term

The way forward could be to carry out a business review to establish those trends and income streams.

Then you could focus on the areas that will yield potential cost savings and improved margins.

For example, reducing hard feed and fertiliser inputs could be done in tandem with selecting agri-environment scheme income opportunities like Sustainable Farming Incentive (SFI) options, says Robert.

Medium to longer term

Reduced losses have been achieved through selective breeding of livestock to improve genetics and over time, developing herds and flocks with better growth rates and feed efficiency ratios, explains Jonty.

Obviously hefted flocks cannot have large-scale genetic change, but identifying and focussing on the best-performing animals can yield better production performance.

Diversification is another factor on upland farms.

Those with the highest incomes let out buildings and bunkhouses, exploit tourism through holiday lets and campsites, and have renewable energy ventures, Jonty says.

Adding value to products through marketing is also a potentially valuable diversification.

Farms with better incomes make use of local and regional outlets and have identified a definitive selling point for their produce.

Incorporating a more involved (and potentially more financially viable) agri-environmental scheme into the enterprise mix may well be worth considering.

Long term

Forestry is potentially a long-term option for some landowners, but less so for tenants due to timescales. While it is a good investment opportunity, profit per acre is limited in the short term.

However, the agroforestry offer for SFI has been updated this summer.

Lowland grazing

Lowland graziers continue to record a loss from farming activities. Income figures released in March 2024 were down by 37% to £21,600 as fixed costs surged by 16% and variable costs rose by 6%.

Drops in output were seen for sheep and cattle enterprises as stocking rates were reduced while cattle throughput was cut as managers kept stock longer to exploit better finishing prices.

Profit was made from non-farming diversification, agri-environment and BPS support.

Income from BPS support at an average of £13,800 accounted for about 64% of the total profit, highlighting the gravity of a forecast drop to just £7,750 per unit in December this year.

Farmers in this sector are generally extensive landowners and will be among the most severely affected by the falls in the area-based BPS.

Options

Short term

Many of the options are similar to upland farms, so as a first step lowland livestock producers could review production performance and adjust inputs like feed and fertiliser alongside using SFI options to generate more productivity from the grassland.

Any area of the business that potentially limits efficiency should be studied carefully so a focus on identifying and solving fertility, health and welfare issues will help to maximise margins.

Since Labour took office, more SFI grassland options have been made available which offer valuable income.

Lewis Butlin says options which have potential include wild bird feed on improved grassland which yields a better return than letting land for keep. There is a knock-on effect to look at, however.

The sward could deteriorate and will require input before the spring to get it back on track. Knowing your grass sward is essential to whether this option is suitable, and pre-winter management needs to reflect this, says Lewis.

The, SFI legumes on improved grassland option works well. Herbal leys is another option with potential.

Once again be aware of the implications, they can increase protein but after a good first cut and an okay second cut, they don’t sustain themselves, meaning further cuts are uneconomic.

Medium term

Finishers can study markets to seek out a differentiator for their output. Finding a more direct relationship with processors and retailers is an increasing possibility, suggests Robert.

Retailers are getting more involved across the supply chain as climate change legislation, requiring a greater level of knowledge of their supply-base practices, comes into effect.

This could be exploited by farms with documented data on carbon output and flock or herd welfare, for example, he says.

Integration with retailer production schemes such as Warrendale Wagyu’s contract rearing models can also help lock into a cost-based pricing structure.

Long term

Investments in infrastructure – handling, housing and slurry handling – should be made to ensure the business is running at maximum efficiency.

There are grants available for many of these factors, points out Jonty.

When making an investment take advice and study what would benefit the business rather than going for the biggest piece of kit.

Diversifications into both agricultural and non-agricultural ventures should also be considered to spread the business risk.

And, he says, because an investment is on a long-term timescale, it shouldn’t be delayed.

Long-term investment programmes should begin when the timing is right even if the outcome is further ahead, says Jonty.

Combinable crops

Defra’s most recent income figures for cereals production suggest sustainable levels at an average income of £150,400 up 25% on year-earlier levels.

But the 2023/24 season has created a harsher reality, and those figures should be viewed as a historical reference only. In many parts of the UK, low sunshine levels and wet weather at key times have left growers facing drops in yields of more than 20%.

There are regional and even local deviations suggesting a still bleaker picture for some. Outside East Anglia, all areas were below the five-year average.

The worst-hit appears to have been the East Midlands and the north where winter barley crops were down by more than 20%.

Average wheat yields at 7.5t/ha are 7% down on the five-year average with all UK regions apart from the east of England recording a drop.

For some areas across the north, average yields closer to 5t/ha is more the norm from harvest 2024. Oilseed rape yields have fallen by 9% to average 2.93t/ha.

But parts of England saw greater decline, says Robert.

Yorkshire recorded falls of 29% against the five-year average, while the West Midlands and south of England reported an average 20% decline. In the north, yields are just 2t/ha in places.

Set against the decline in BPS payments, from an average of £41,800 per holding in 2020/21 to just £20,310 this December, the concerns voiced about financial sustainability have real gravity.

Options

Short term

Some growers are embracing a wide scale of SFI options and making big changes to the way they grow crops.

In England SFI can work with a low input cereal after a cover crop, and so with the right rotation can be effective, says Lewis.

Options such as no insecticide on arable crops is an appealing option with a potentially large uptake. Before signing up it must be appreciated that the agreement covers a 12-month period.

With a spring barley crop in the ground for only six months, a following winter wheat would not be allowed to have a dressing, he says.

There are also geographic implications that must be appreciated. Legume fallow is a potentially popular option, but the cover crop must be established between June and August.

It is okay in the south of England, but head further north and this is more difficult to achieve, Robert adds.

Medium term

It is likely there will be more consolidation in the cereals sector as growers take areas out of food production under SFI agreements or the equivalent devolved option, Jonty says.

In the medium and longer term an approach to optimising production and agri-environment incomes is to collaborate with neighbours.

Discussions could begin early with a long-term view to forming clusters on large-scale environmental agreements and developing machinery sharing, he says.

Long term

The longer term approach includes infrastructure investment into drainage, buildings, tracks, storage and drying facilities which will improve climate resilience, Jonty suggests.

These investments could also be undertaken as part of a collaborative approach with neighbours.

In the very long term, sustainability may be achieved through acquiring productive land to farm through joint ventures, share farming, and contract farming, to help with economies of scale.

© GNP

General cropping

For general cropping the outlook is arguably even more difficult.

Unlike cereal producers, general cropping farms hit this season’s tough conditions on the back of a 14% drop in incomes to an average £125,000 per holding last year.

That was due to reductions in area which hit output and saw a fall in BPS support of 18% on a per hectare basis.

Output drops were made worse by last summer’s drought which depressed yields and resulted in a 7% fall in income from agricultural activities.

For these farms the decline in BPS from £42,100 in 2020/21 to just £20,445 this December is coming at a difficult point. Margins are thin and the sector is vulnerable.

Labour constraints following Brexit have hit the sector hard and units have scaled back production or left altogether, says Jonty.

Climate change is already affecting potato, field-scale veg and sugar beet production with water availability, abstraction and drainage.

Options

Short term

Potato growers have made use of winter-sown cover crops ahead of planting in the spring, says Lewis. Some have also used a buffer strip to help reduce run-off and erosion.

Using these options provides extra income while improving soil health. The cautionary note is that the length of the agreement is longer than a year.

If there was more flexibility in the scheme and, for example, if beet was taken off late, an area could be nominated for a year at a time and rotated.

But currently agreements don’t allow for this which is a shortcoming, he says.

Medium term

Historically the approach in parts of the sector has been to over-produce to ensure there is a sufficient proportion of the crop meeting quality requirements.

The excesses have then been ploughed in, Jonty says.

On units where this is still the case, reviewing and refining targets for quality and volume could be made to match output more closely with contract details, he says.

That approach requires more certainty on outcomes, so for the medium term there is also a need to focus on land quality and infrastructure, in particular control of water onto or off the field.

Long term

Further ahead, the strategy is about risk management and resilience.

Growers could look to widening the customer base to be less dependent on a single outlet which may be dictating prices and quality in a lack of competition.

A single outlet may itself be vulnerable to closure so having a wider range of customers will spread the risk.

Other long-term changes are investment in infrastructure, particularly for water capture and storage and drainage.

Diversification is still an option that can be looked at, with renewables an option that fit well with sugar beet, potatoes and veg production.

Case study: Matthew Williams, Criddon Hall Farm, Bridgnorth, Shropshire

Matthew WIlliams © Richard Stanton

Farm facts

• Size: 1,250ha
• Crops: Wheat, spring oats, spring barley, winter beans, rape, triticale

Like many UK cereal growers Shropshire-based Transition Farmer Matthew Williams has had a tough year.

In about 10 years, Matthew has built up from scratch a 1,250ha farm business of mostly rented and contract farmed land.

As a new entrant he only receives Basic Payment Scheme support on a 32ha area, making this year doubly difficult without the fallback of the extra income.

“It has been relentlessly tough this year – I have never felt as much pressure as I have over the past 12 months,” he says.

The weather forced a change to cropping and a planned 160ha of spring corn had to be more than doubled to 400ha because of difficulties through the autumn, winter and early spring.

Yields of spring corn have been okay, but winter crops are down on tonnages, reports Matthew.

We have wet grain in every shed and our batch dryer is struggling to keep up, he says.

But one positive move that looks to have paid dividends is working with low input grain traders and campaigners for environmental farming practices, Wildfarmed.

Matthew drilled 52ha of wheat which will be marketed directly through the company.

The contract stipulates tight limits on nitrogen through the season, no insecticide, no fungicide and no herbicide applications.

Nutrients are permissible and the crop was leaf-tested so that applications were matched precisely to address any deficiencies.

As a result, input costs were only £50/ha and if the crop yields 1.5t/acre the resulting margin will outstrip those from the malting barley, reckons Matthew.

“It’s looking like it will be a high point in the year and we have planned to work with Wildfarmed again in this season’s rotation,” he says.

“Wildfarmed have been fantastic to deal with – they are enthusiastic, supportive and forward-looking,” says Matthew.

“Their approach of regen farming fits with my own so it has been a great move,” he adds.

Beyond the success of the Wildfarmed crop, Matthew is looking to reduce other input costs to help maintain margins.

One focus will be a review of machinery costs.

“We will look at what we own, hire and lease to assess the costs of each and focus on where we can keep outgoings down,” he says.

“If I have machinery that has been underused we will look at selling that on. There’s no point in paying for something that is sitting in a yard,” Matthew notes.