Don’t Rely on Government for Profitability
The UK farming industry will need to look beyond Government support to achieve profitability. This also applies to assistance in transitioning to more regenerative practices – there will be less public support in the future. This is one of the messages that farm business consultants Andersons highlighted at Groundswell 2025.
A series of policy announcements over the past few months have illustrated that the current UK Government does not regard farming and food production as a high political priority. It seems that agriculture, as a sector, should not expect any ‘special treatment’ and food production is to be treated as a business like any other. There may be some Government funding for environmental actions, but the budget for this is limited.
The recent Comprehensive Spending Review indicated that Defra’s Farming and Countryside Programme, the successor to Common Agricultural Policy funding will receive £2.3bn in England for the next three years. This doesn’t seem too bad when compared to the £2.4bn baseline for the past few years. But Defra have continued an old EU policy of rolling-over the (relatively) same budget in nominal terms but never increasing it for inflation. Effectively every year sees a real-terms cut in funding. The last time the farming budget was substantially changed was in 2007. If it had kept pace with inflation since then, funding next year would be around £4.7bn rather than £2.3bn – well over double.
This is not only an issue for English farmers – the Barnett formula and the block grant means that funding for Scotland, Wales and Northern Ireland will all see similar real-terms reductions.
It is clear that the Government does not consider its job to be fixing the problems of farming and the sector needs to look to its own devices to create profitable, sustainable businesses. Added to this impetus will be an ever-more challenging external environment – extreme weather exacerbated by climate change and volatile global commodity markets to name just two. Regenerative systems can be more resilient. They also have the potential to be more profitable than conventional farming – but, with lower output, it is crucial that the cost structure of the business is correct.
To move to a regenerative system there is almost always a ‘transition period’ where profits drop, before recovering as soil health improves. It can also take some years for costs to really be reduced under regenerative systems. Effectively the farm is making an investment in its future.
Many farmers have used Government support in the form of agri-environment schemes, notably the SFI in recent years, to help them through this transition period. When the SFI returns, likely in early 2026, it will not look the same as the scheme recently closed. It may be limited to certain geographic areas, or sizes of farms. Many of the popular options may no longer be available.
Farmers are likely to have to look elsewhere for assistance. Support could be available through the market. There are currently only limited premiums available for regenerative produce, but 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.
Regenerative farming will almost always have lower emissions than other farming systems. There may be opportunities to monetise this through carbon payments. Some farmers are already successfully doing this. 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.
One final source of support that is often overlooked, perhaps because it is ‘part of the furniture’ is from banks and other funders. These are generally likely to be supportive of a change in farming system. However, they need to be kept informed as to what is going on as an (unexplained) dip in financial performance will cause concern. Business planning over a longer period than the traditional yearly cycle may be required.
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