Agricultural & Environmental Schemes July 2023

The UK left the European Union, and the Common Agricultural Policy (CAP) no longer applies and each of the devolved regions of the UK are setting their own rules for farm policy going forward. In England, this has seen a period of radical change in support - known as the ‘Agricultural Transition ‘

In November 2020, the Secretary of State for Environment, Food and Rural Affairs published a policy statement ‘Path to Sustainable Farming’ and a ‘Farming is Changing’ document to provide a summary of the future of Farm Policy in England. The document set out the change in policy from direct payments which started with the payment regimes under IACS in 1993 through to the current Basic Payment Scheme (BPS) under the CAP towards a policy that pays farmers and land managers for providing ‘public goods’ driving environmental benefits from biodiversity to climate change mitigation toward the Governments Net Zero target by 2050.

Through this innovative approach, the Government is aiming to support a vibrant and resilient agricultural sector, that, enhances animal welfare and the environment and to meet ambitious targets such as protection of 30% of UK land by 2030 and Net Zero by 2050.

The innovative approach will include:

• Environmental Land Management, paying farmers and land managers to produce public goods through environmentally friendly practices.

• Grants and other help to improve farm productivity and prosperity.

• New farming regulation and enforcement that will replace EU legislation.

We are now in the third year of DEFRA’s ‘Agricultural Transition‘, farmers should be considering how to mitigate the impact of reducing direct subsidies (BPS) on farm business profits. There is no single replacement to the BPS, but in addition to strategically reviewing assets and interrogating business performance, listed below is a summary of DEFRA’s replacement schemes, and other options to consider. This briefing covers England, as agricultural and rural support is devolved, and each part of the UK will be running their own schemes.

ENVIRONMENTAL COUNTRYSIDE STEWARDSHIP (CS)

CS was introduced in 2015 as a follow onto Environmental Stewardship to provide valuable additional income for looking after and improving the environment through conserving and restoring wildlife habitats, flood risk management, woodland creation, and management, reducing agricultural pollution, keeping the character of the countryside, preserving historical features in the landscape, and encouraging educational access. This scheme is attractive for more marginal land, as well as management options within an arable rotation and to support grass ley establishment.

Management agreements (whole parcel and rotational) offer multi-year grants, with most options lasting for five years (some longer). There are different components to CS as follows:

• Mid-Tier offers options, supplements and capital items which deliver simple a broad range of environmental benefits. The main priorities are to protect and enhance the natural environment, in particular the diversity of wildlife and water quality. There are an extensive range of options and grants available (currently 80 management options and 70 capital items) but there are no Mid-Tier grants available for woodland or common land. There is now the scope for educational access to be included within Mid-Tier.

Wildlife Offers are a simpler set of CS options and is not competitive. Only some of the multi-year MidTier options are available under Wildlife Offers. There are four offers for arable, lowland grazing, mixed farming and uplands. There are currently 20 management options for the arable, 11 management options for the lowland grazing, 23 management options for the mixed and 9 base options (plus 4 supplements) for the upland. No capital items are available but applications for CS Capital grants

agreement can be made on the same land parcels. If any part of the holding contains a SSSI then these are not eligible for Wildlife Offers.

• Higher Tier offers options, supplements and capital items for land that requires more complex management tailored to the local environment and main priority is to protect and enhance the natural environment. It offers support for the most environmentally significant sites, commons, and woodlands. It gives offers the widest range of grants available (currently 130 management options and 118 capital items). Some options limit grazing activity.

• Capital Grants are made up of just capital items and many last for three years although items must remain in the condition and the specification set out in the agreement for five years for either the start of the agreement or after the final payment The Capital Grant offer provide grants under four groups (previously three in 2022) for boundaries, trees, and orchards; water quality; air quality and new for 2023 natural flood management.

Payment rates for both revenue options and capital items increased in January 2023 (capital increases only for new schemes).

Applications close on 18 August 2023 for Mid-Tier (including Wildlife Offers). Applications for Higher Tier closed on 28 April 2023. Capital grants are open for applications all year round.

ENVIRONMENTAL LAND MANAGEMENT (ELM)

England’s main new agricultural policy is the ELM scheme. This will put into practice the principle of ‘public money for public goods’ i.e., it will pay land managers to undertake actions that are not valued in the market but are beneficial to society.

Many of the objectives of ELM are familiar from previous Agri-environment schemes, but there are new elements such as climate change, air quality and hazard protection.

Environmental schemes under ELM will take the form of a broad three-tier architecture as follows:

1. Sustainable Farming Incentive (SFI) – This is the entry level ‘tier’ of ELM and will focus on reducing the ‘negative externalities’ produced by land management, particularly around air, soil, and water pollution. In many cases this pays for farming practices that may already be undertaken on a farm. SFI opened in June 2022, containing three standards covering arable and horticulture soils, improved grassland soils and moorland. Applications for SFI soils and moorland standards are currently closed in advance of the rollout of SFI 2023.

SFI 2023 will be available for applications in a controlled rollout from August 2023. There will be twentythree actions on offer to cover existing themes including soil health and moorland as well as new actions on hedgerows, integrated pest management, nutrient management, farmland wildlife, buffer strips, and low input grassland. There is SFI management payment of £20 per hectare for the first fifty hectares which will be applied to all land based SFI actions, including moorland, and there is an updated payment rate for low input grassland action to make the rates the same for upland and lowland areas. There is a separate briefing providing more detail on SFI 2023.

2. Countryside Stewardship – What was proposed as Local Nature Recovery will now continue as an enhanced version of Countryside Stewardship Plus. A further thirty actions will be available by the end of 2024 in addition to the 250 plus already available under CS. The additional actions are expected to require more intensive management from farmers As SFI and CS Plus evolve over the next two years, DEFRA aims to offer them in a single ‘integrated service.’ Applicants will be able to select a combination of actions from both schemes.

3. Landscape Recovery – This is a bespoke scheme available for landowners and farmers seeking to take a more ambitious, larger-scale (500–5,000 hectares) to deliver landscape and ecosystem recovery such as large-scale woodland planting, peatland restoration and coastal habitats over large areas. It is only likely to be relevant to a small number of farms who happen to be in areas where the projects are occurring.

WOODLAND

Woodland schemes have been around since 1988 in different guises to encourage plantations of new woodlands on former agricultural land

ENGLAND WOODLAND CREATION OFFER (EWCO)

EWCO is the main scheme to support woodland creation which was launched in June 2021. Up to 100% of standard costs are available including the trees, guards, and other woodland infrastructure (up to a cap of £10,200 per hectare). To qualify for the scheme at least one hectare of new planting must be completed in blocks of at least 0.1. hectare and a minimum width of twenty metres. Annual maintenance payments of £350 per hectare for 10 years are also available. There is additional payment if the woodland contributes to nature recovery, water quality and reduces flood risk, is a riparian buffer, is close to settlements or generates public access. Applications under EWCO are open all year.

There are also grants available for through CS for Woodland Management Plans, Woodland Tree Health, and Woodland Improvement. Other opportunities include the Woodland Creation Planning Grant, the HS2 Woodland Fund (opportunities if a site is within a 25-mile radius of the HS2 route for woodland creation under EWCO and the restoration of Plantations on Ancient Woodland Sites), the Woodland Carbon Guarantee, the Woodland Carbon Code, the Urban Tree Challenge, and the Local Authority Treescapes Fund Applications for all these schemes are open all year round except for the Woodland Improvement which is in open in the Higher Tier CS application window.

There are separate briefings on the woodland opportunities which has more information on the above schemes.

PRODUCTIVITY

The ELM is complimented by capital grant programmes under the Farming Investment Fund to build on the previous Countryside Productivity Scheme. The Farming Investment Fund has two strands:

1. FARMING EQUIPMENT AND TECHNOLOGY FUND (FETF) – offers grants towards the cost of specific items from a prescribed list This initially opened in 2021 as small-scale grant scheme and the first round closed for applications on 7 January 2022. In 2023, this fund re-opened and was split into two themes: Productivity and Slurry Items, and Animal Health and Welfare.

• Productivity and Slurry includes items for Horticulture, Forestry, Slurry Management, Arable, Livestock, Resource Management and General. This included slurry management and precision technology farm equipment such as slurry separators, direct drills, and grain stirrers The current round of funding closed on 4 April 2023, but further rounds are expected in 2024.

• Animal Health and Welfare includes equipment for Cattle, Sheep, Pigs, Poultry and General Livestock. A fixed contribution towards costs of a specified list of livestock related equipment such as livestock handling systems, cattle crush, and EID readers. The current round of funding closed on 15 June 2023, but further rounds are expected in 2024.

2. FARMING TRANSFORMATION FUND (FTF)– provides grants towards large capital items to help businesses improve productivity, profitability, and environmental sustainability. There are for grants: Slurry Infrastructure, Adding Value, Water Management, and Improving Farm Productivity.

• Slurry Infrastructure Grant helps replace, build new or expand existing slurry stores to provide six months’ storage is available on the farm (based on existing livestock numbers). Grants can be applied for between £25,000 and £250,000 and the grant rate was 50%. It closed for application on 31 January 2023 although another application process is expected to open in the Autumn.

• The Adding Value Grant was available for growers or producers to add value to eligible agricultural products after they have been harvested or reared. Grants could be applied for between £25,000 and £300,000. It closed for applications on 21 July 2022 although further rounds are awaited.

• The Water Management Grant paid for the costs of constructing water storage reservoirs; abstraction points, pumps, and pipework to fill a reservoir; irrigation pumps, controls, underground water distribution systems; water meters; best-practice application equipment such as boom or trickle irrigators and software and sensors to optimise water application. Grants could be applied for between £35,000 and £300,000. It closed for applications on 12 January 2022 although details of further rounds are awaited.

• Improving Farm Productivity Grant was available for capital items to improve farm and horticulture productivity using robotic or autonomous equipment and systems to aid crop and livestock production and the installation of slurry acidification equipment to improve nutrient management and reduce ammonia emissions. Grants could be applied for between £35,000 and £300,000. It closed for applications on 16 March 2022 although details of further rounds are awaited.

It is expected that the next round of the Farming Transformation Fund will include Robotics and Automation.

DIVERSFICATION AND LOCAL PROJECTS

FARMING IN PROTECTED LANDSCAPE SCHEME – This is open to all farmers within a National Park in England, Areas of Outstanding Natural Beauty, or the Norfolk Broads. It provides a wide range of grants for projects that deliver benefits to climate, nature, community, and local places. Funding of up to 100% can be available depending on the commercial outcome of a project. The scheme closes in March 2025. To be eligible for the scheme, projects must benefit the protected landscape, or the protected landscape body’s objectives or partnership initiatives.

RURAL ENGLAND PROSPERITY FUND – This will top up the UK Shared Prosperity Fund and is expected to be a replacement for the previous LEADER and RDPE Growth Fund style funding. It opened in April 2023. The fund will support new and existing rural businesses to develop new products and facilities that will be of wider benefit to the local economy – including farmers seeking to diversify. A total of £110 million of funding is being allocated across the Local Authority districts who will deliver grant funding according to specific local priorities. Examples might include conversion of farm buildings, provision of food processing equipment, creation of tourist accommodation, support for a new community shop, or funding for a new cycle trail.

NATURAL ENVIRONMENT READINESS INVESTMENT FUND – This scheme helps groups develop nature recovery schemes to a point where they can attract private finance. The next round is to be targeted at groups of farmers.

THE COUNTRYSIDE STEWARDSHIP FACILITION FUND – This is available to support individuals and organisations working with local groups of farmers and land managers to co-ordinate their environmental land management. It can cover land under existing Agri-environment and forestry/woodland agreements, common land and land that is not currently under agreement. Successful applications will be those which show a partnership working together across holdings, to deliver shared environmental outcomes that could not be achieved by individual holdings acting on their own. The holdings must have a combined area of at least 2,000 hectares to meet the minimum land area requirement. Applications are open in rounds.

MISCELLANEOUS

SPECIES SURVIVAL FUND – A programme to create and restore habitats and reserve the decline of species across England Grants of £250,000 to £3 million for projects of two years’ duration. Only open for a short term with expressions of interest closing 24 July 2023 and full application by 26 October 2023.

WATER AUTHORITY GRANTS – Some of water companies in the past have offered match funding grants and initiatives for land within respective catchment areas. Generally, and if available these are open for applications within a set timescale annually.

SFI ANNUALHEALTH AND WELFARE REVIEW – An Animal Health and Welfare Pathway was created with the aim of offer support for disease eradication programmes, capital grants to farmers for measures to increase animal welfare above the statutory baseline, and a new payment-by results scheme. As part of the SFI rollout an Annual Health and Welfare Review was rolled out on 7 February 2023 and the review consists of a fully funded annual visit by the farmer’ own vet for livestock farmers who keep more than fifty pigs, twenty sheep or ten cattle The flat payment rates per review is pigs - £684, sheep - £436, beef cattle - £522 and dairy cattle - £372.

In addition, programmes (farming resilience scheme, institute for Agriculture and Horticulture, farming innovation investor partnership competition, and research and development) have or will be made available to improve skills in the farming sector and provide advice to help businesses through the Agricultural Transition.

Other proposed opportunities include:

• Calf Housing Grant that will offer 40% grants to build new or refurbish existing calf housing. It will be available to both the beef and dairy sectors. The grant aims to improve the health and welfare of calves (up to 6 months old) by providing a good ambient environment and facilitating social contact through pair or group housing.

• Roof Top Solar to encourage Grant support for this will be included in DEFRA’s schemes (although it is not yet clear which one it will fall into, or whether a separate scheme will be launched).

• New Entrants Scheme is also likely to be developed along but it looks like funding is more likely to be for things such as matching services rather than direct grants to new entrants themselves.

BIODIVERSITY/NET GAIN

From November 2023 and following the introduction of the Environment Bill 2021, planning applications must include a 10% ‘Net Gain’ in biodiversity. Whilst this is an unwanted cost for developers, it does present a potential opportunity for landowners to provide areas of habitat to offset those lost through development.

The habitat creation could take the form of for example arable reversion, enhancing grassland, planting hedges, planting woodlands/scrub areas, all of which would be a 30-year commitment. There is a standard DEFRA metric to calculate habitat units that could be created under such land management.

Financially it is an interesting proposal for landowners, but there is still clarity required around the legal mechanism and practical implementation.

In addition to Biodiversity Net Gain, the Environment Bill has introduced the principle of conservation covenants, environmental improvement plans, local nature recovery strategies, and national guidance/ local planning policies on species and habitats. These proposals may also present further direct land management opportunities with the potential to enter into private ecosystem agreements.

CARBON SEQUESTRATION

From the Government’s commitment of Net Zero by 2050, there is an emerging market for trading soil carbon credits, where changing farm practices can lead to increased organic matter (which can be used as a measure of carbon in soils). Practices such as reduced tillage, growing cover crops, adding grass leys into the rotation and reducing fertiliser usage can all help to increase organic matter. There is also an established standard for trading woodland carbon units (Woodland Carbon Code) and a Hedgerow Carbon Code is being trialled.

The first stage is to assess whole-farm carbon emissions, and once these have been offset by carbon sequestered (captured in the soil) any excess carbon sequestered may be sold to other businesses looking to offset their carbon emissions.

THE WAY FORWARD

Fisher German is strongly encouraging all our clients to use the next 12 months to begin to seriously consider their cost structure and evaluate and identify areas where cost reduction can be achieved, and income improved.

The initial two years of BPS reductions did not appear particularly severe, considering the farm incomes, but as we well know the margins in the agricultural sector are slim and direct subsidy has been a crucial element of farm profitability.

Since the ‘Agricultural Transition,’ Fisher German have encouraged the renewed interest in CS applications ELM is progressing but is still relatively uncertain, and we currently do not know whether the payments received for ELM will offer sufficient returns to make up for the income lost from BPS.

However, Fisher German strongly advises clients who have not entered Environmental Schemes in the past to certainly begin to think about whether unproductive areas of their holding may be better suited to receiving environmental payments going forward. Alternatively, those clients who have in the past used fallow or legume crops to meet the Ecological Focus Area requirements may want to consider allocating a similar area of their holding for a small

Farming businesses will be paid for their benefits to the environment under such schemes and entering into an Environmental agreement in the coming years can help position a business to prepare for future environmental obligations.

The ‘Agricultural Transition’ offers one of the biggest transformations for the UK food and farming sector which Fisher German believe offers many positives despite the eventual loss of direct subsidy. Appraising, restructuring, and analysing new enterprises is something all farming businesses should be considering in the coming 12 months to ensure outgoings are properly understood and ensure value can be added where possible.

Fisher German's agri-business consultants are on hand to discuss any of the current grants, policy changes and how the policy changes will affect business performance levels going forward as well as opportunities under new grant schemes and for example carbon sequestration. We are committed to ensuring client businesses are as prepared as possible for the years of transition and are well placed to offer relevant and structured advice on how farm businesses can react and move through this period.

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Our agribusiness consulting and farm management team offer a high level of technical and practical experience, as well as strategic vision to develop opportunities and reach workable long term solutions for your farming business in a rapidly changing environment. For further information, please contact a member of our agribusiness team.

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In series 3, episode 6 of our podcast, host David Kinnersley, Head of Agribusiness, is joined by Anna Woodley, Managing Director of Business Development at Trinity AgTech.

Together they explore the role of natural capital in bolstering business resilience and diversifying income generation and Anna explains how their industry-leading software Sandy is helping to boost profitability and sustainability in agriculture.

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