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Life beyond the Union

Date: 05 January 2021

How English farms will become more sustainable post-Brexit

2021 marks a new chapter in the centuries old history of the agricultural sector in England following the UK’s formal departure from the EU at the start of the year. English farmers now face the challenge of adjusting to life beyond the European Union and the Common Agricultural Policy (CAP) which has for years subsidised farmers’ incomes based on the amount of land they farmed.

But as one door closes with the end of the transition period, a new one opens as the government will now begin a radical shake-up in the way farmers will be paid post-CAP, and have opted for a subsidy system which reflects the government’s ambition to usher in a ‘Green Industrial Revolution’ as well as consumer and investor demands for more sustainable agriculture.

The UK government’s commitment to achieve net-zero carbon emissions by 2050, as well as the Prime Minister’s recent Ten Point Environment Plan acts as a marker for agricultural reform, which the government hopes will drive competitiveness and increase productivity through technological change set against a backdrop of more sustainable farming and improved environmental and animal welfare practices.

This transition to a more sustainable future will begin with a radical shake-up in the way farmers are paid post-Brexit with a subsidy system based on sustainability considerations rather than simply the size and location of their farm.

Following the passing of the Agricultural Act in November last year, English farmers will begin to see gradual, but increasingly significant, cuts to the payments they receive from the CAP. By 2027, English farmers will be paid entirely through a new Environmental Land Management Scheme (ELMS).

The introduction of the ELMS payments will move agricultural subsidies away from a model based simply on the amount of land farmed, and introduce new elements such as a Sustainable Farming Incentive and other pilot schemes for Local Nature Recovery and even larger scale Landscape Recovery initiatives which greater reflect continuing political and consumer attention on the importance of environmental protection and biodiversity.

Ultimately, the new system has a focus on farmers receiving "public money for public goods", which means they will be paid for delivering public goods including clean air, clean water, thriving plants and wildlife, ensuring protection from environmental hazards and contributing to efforts to reduce climate change.

More detail on the precise scope of ELMS payments and associated pilot payment schemes which will replace the BPS is expected later this year, alongside details of increased government support and funding for improved technology and agricultural R&D covering forestry as well as farming.

The phase-out of the BPS and the degree to which farmers can in future generate sufficient income from their commercial activity supported by new income streams based on environmental and sustainable farming commitments under ELMS may prompt some in the sector to reconsider their options including a review of productivity, sources of investment, diversification opportunities and even business models and collaborative or contract farming alternatives.

What is clear, however, is that whatever the size of their farm; whatever crop or livestock they farm, no farmer or agricultural landowner can ignore these changes, and none will be unaffected by them particularly during these transition years ahead, starting in 2021.

Furthermore, in addition to the challenges of adjusting to a new payment system that represents a radical departure from what came before, there are several macro-economic uncertainties that farmers will also have to contend with, not least the changing trade and regulatory landscape as the UK finds its feet alone in the world.

However, despite the clear challenges associated with transitioning to a new regulatory framework, we have a once in a generation opportunity to align the income received by farmers to sustainability considerations. Although we will see few tangible benefits until much later on down the line, these changes are vital for developing a more sustainable agricultural sector that can play a crucial role in the UK achieving net zero by 2050.

Caroline Langley

Investment Director

I have over 16 years of experience in the private client industry and 14 of those are with Quilter Cheviot where I have worked since 2006. I manage private client portfolios (taxable accounts, ISAs and JISAs, trusts, SIPPs, small charities and offshore bonds) working with clients directly or alongside advisers. I am also Deputy Fund Manager for the award-winning Climate Assets Balanced Fund and the Climate Assets Growth Fund.

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