DEFRA’s plan for post-EU land and farming subsidies based on “blind optimism”, say MPs

• Past failures managing rural payments have led to “lack of trust”, exacerbating planning issues  

Plans for the scheme to replace the EU’s Common Agricultural Policy depend on changes in land use that bring both increased farm productivity and environmental benefits, but in a report published today the Public Accounts Committee says Defra itself concedes “its confidence in the scheme looks like blind optimism”.  

Defra has given no detail about how either the necessary productivity increases or environmental benefits will be brought about, nor how these will offset the new Environmental Land Management Scheme’s dramatic effect on English farmers, who will see their income from direct payments reduce by more than half by 2024-25.  

Replacing the CAP which provided financial support to farmers and rural development funding for more than 40 years before Brexit - in 2019-20 farmers in England received over £1.8 billion in direct payment subsidies - is “an opportunity to reset the approach to land management in England and deliver benefits for the environment whilst also promoting a sustainable and productive farming sector”.   

But the Committee says the Scheme appears “beset with many of the same issues that have undermined ambitious Government programmes in recent years” and the lack of information from Defra early enough to allow farmers to plan their businesses and take advantage of the new opportunities “is causing anxiety in the sector, exacerbated by a historic lack of trust caused by the Department’s past failures in managing farm payments”.  

Defra has also “not explained how the Scheme’s changes in land use will not simply result in more food being imported, with the environmental impacts of food production being ‘exported’ to countries with lower environmental standards.”   

The Committee says Defra has not established the metrics or objectives to enable it to demonstrate that the £2.4 billion a year it plans to spend on agricultural schemes is providing value for money, or contributing to government’s wider environmental goals including the statutory commitment to reach net-zero carbon economy by 2050.  

Sir Geoffrey Clifton-Brown, Deputy Chair of the Public Accounts Committee, said “We have known we were replacing the CAP since 2016 and still we see no clear plans, objectives or communications with those at the sharp end - farmers - in this multi-billion pound, radical overhaul of the way land is used and, more crucially, food is produced in this country.  

“Farmers, especially the next generation of farmers who we will depend on to achieve our combined food production and environmental goals, have been left in the dark and it is simply wrong that Defra’s own failures of business planning should knock on to undermine the certainty crucial to a critical national sector.  

“As the report makes clear, without subsidies the average farm in England makes a net profit of just £22,800 a year including all labour and investment in businesses. The fear therefore for small and tenant farms who are operating on wafer-thin margins is that many will go out of business and the average size of farms will increase and some of the environmental benefits of ELMs will be lost.   

“The UK is also already a large net importer of food and we heard in evidence that the ELMS’ vague ambition to ‘maximise the value to society of the landscape’ may in reality mean that increases further. The recent energy price crisis should be a salutary warning of the potential risks to the availability and affordability of food if the UK becomes even more reliant on food imports.”  

PAC report conclusions and recommendations  

6.                  The Department is over-optimistic about what it will be able to achieve by when, resulting in repeated delays and uncertainty over the delivery timetable for ELM. The decision to reduce direct payments to farmers and to introduce a new system of payments that incentivise environmental outcomes was made soon after the 2016 referendum on EU membership. The release of further information on what this entails has been very slow, with internal milestones subject to repeated delay. For example, in order to manage delivery risks, the Department scaled back the scope of the initial roll-out of SFI significantly compared with what was announced in November 2020. The Department’s timetable for introducing the new scheme is challenging and it has failed to deliver on many of its key milestones, including the announcement of payment rates under ELM, which was initially scheduled for June 2020. The Department has no detailed plans beyond March 2022 and has not carried out a full assessment of whether it will be ready in time to launch the initial SFI roll-out as planned.   

Recommendation: The Department should report to the Committee early in 2022, and annually thereafter, with an assessment of the deliverability of its plans for farming. This should include both the elements to be rolled out in the short term, and longer-term plans for the overall approach to land management in England.  

7.     The Department has not established the metrics that it will need to determine whether ELM is contributing towards the government’s environmental goals. The Department has set out its high-level vision for ELM, which is to secure a range of positive environmental benefits and to help tackle some of the environmental challenges associated with agriculture. But it does not yet have detailed objectives for achieving this vision. The Department has committed to publishing these before Christmas, alongside details of the initial roll-out of SFI. However, the objectives will only apply to the current Parliament and will not include ELM’s contributions to long-term objectives, such as to net-zero. The Department is unable to explain how it intends to assess progress against environmental baselines, or even whether these baseline measures exist. In the early stages of ELM, the Department will award payments based on the amount of land on which specified environmental actions are being carried out, not on measuring the environmental benefits delivered through these actions. The Department expects that, for later elements, such as peatland restoration, it will be in a position to make greater use of baseline data.   

Recommendation: The Department should develop clear metrics, and establish robust baseline measures, to allow it to assess the operational effectiveness of ELM and ensure these are published before the start of roll-out in 2022. It should report against these metrics annually to enable Parliament and the public to determine what progress it is making towards meeting the objectives set out in the Government’s 25 Year Environment Plan.  

8.                  We are not convinced that the Department sufficiently understands how its environmental and productivity ambitions will impact the food and farming sector over the next decade. Farmers will be required to free up land currently used for food production to produce environmental benefits, for example converting farmland to forestry. This may result in an increase in food imports and possibly the price of food into the UK, potentially exporting the UK’s environmental impacts through food being produced in other countries where environmental standards are lower. The Department asserts that environmental benefits can be delivered alongside improvements in farm productivity, and that these improvements will mean that, despite taking land out of production to deliver environmental benefits, farmers can produce more food from the remaining land. The Department also points to productivity improvements as helping to offset farmers’ loss of direct payments but has not presented evidence to support this. Smaller farms and tenant farmers are particularly exposed as they are more reliant on direct payments, which may lead to some going out of business resulting in larger agricultural holding sizes.   

Recommendation: The Department should urgently explain to the Committee, showing its forecasts both for changes in land use and resulting changes in payments to farmers, how it expects its farming programmes to affect food production and farm productivity in England and report annually to Parliament on the level of food price inflation together with any changes to the proportion of the food we consume that is produced in the UK, which was 53% in 2018¹.  

9.                  Despite committing to delaying the early stages of SFI if either the Department or farmers were not ready, the Department has not specified what would trigger such a delay. Opinion within the farming sector is divided over whether the Department’s timetable is realistic or whether delaying the start of roll-out of the programme from 2022 is desirable. Some believe a delay is necessary to ensure that the scheme delivers for farmers and the environment and that farmers have the time they need to plan their businesses. The Tenant Farmers Association reminded us that farming requires long-term business planning, with crop rotations and breeding programmes put together over many years. But others highlight that progress to date has already been too slow, and that the right time to delay was 12 months ago. The Department acknowledges that there are delivery risks in the early stages and that it has yet to develop detailed delivery plans beyond March 2022. The Department has committed to making the first payments by Christmas 2022, and to not implementing any system changes that may put this timetable at risk. It asserts that, while there are risks to the delivery timetable that it needs to manage, it is on track and there is currently no need to delay. It told us it carries out reviews to identify any ‘red flags’ that may indicate the need for a delay due to the Department not being in a position to deliver the system, or farmers not being ready, but has not specified what these red flags are or the circumstances that would lead to a delay. Announcing a delay at short notice could be very damaging to farmers’ confidence in the scheme.  

Recommendation: In line with its Treasury Minute response, the Department should write to us by the end of February 2022 to confirm how it is assuring its own and farmers’ readiness at each stage of the Programme, and specify what would trigger a delay and when, allowing sufficient lead time to allow farmers to plan for a delayed launch. In the meanwhile, it should inform the Committee immediately if any issues with the timetable arise.  

10.              The Department has not yet done enough to gain farmers’ trust in its ability to successfully deliver the programme. Farmers’ confidence in the Department was severely damaged by a poor history of delivery under previous agricultural subsidy schemes, and the situation has not been helped by the very slow release of information relating to the new schemes: In December 2021, since our evidence session, the Department has published further information on how the Sustainable Farming Incentive will work in 2022, including payment rates for the first phase. However, farmers still lack detailed information on what Defra has planned for 2023 and 2024.  The Department’s last-minute approach to providing information to farmers severely undermines their ability to plan for the long term to make sure their businesses are sustainable. Arrangements for the upcoming pilot were originally planned to be released a month and a half ahead of inviting expressions of interest, but were released with just two weeks’ notice. We are particularly concerned that the lack of information on what would be available to encourage young farmers into the industry means that young farmers will be less able to enter the industry. The Department admits its confidence in the scheme looks like blind optimism without the details of what it has planned, and has committed to providing, in Spring 2022, this detail for the Scheme’s roll-out in 2023 and 2024. In October 2020, the Department reported that only 30% of farmers had all or most of the information they needed to inform business planning and, although this figure had improved to 40% by April 2021, it is still alarmingly low. A separate survey carried out by the RPA from January to March 2021 found that only 4% of respondents were ‘very prepared’ for upcoming changes in farming and 37% ‘not at all prepared’. Worryingly, 41% of respondents to that survey said they did not know what SFI was. The Department released additional information in June 2021 which may have further improved farmers’ readiness, but the Department has not checked whether this is the case. The Department is seeking to improve its engagement with farmers, but was unable to provide us with details on how it will measure the success of its engagement.  

Recommendation: The Department should review its entire communications strategy and report to us by the end of March 2022 on the improvements it is making.  

The Department should also set out how it will incentivise young farmers both to enter, and to remain, in the industry.  

11.              The Department is not doing enough to support farmers through the transition to the new schemes and alleviate any anxiety its plans are causing. The removal of direct payments would have reduced the average net profit of farms in England by 53% over the last three years to only £22,800. Without direct payments, over a third of farms would have made a loss and so be unsustainable as businesses if nothing else changed, such as income from new schemes or rent reductions. The Department asserts that farmers will be able to offset the loss of income from direct payments through improvements in productivity, alternative income streams and support from its schemes. The Department recognises that the changes it is introducing is causing farmers anxiety. The mental health of farmers is one of the biggest challenges currently facing the sector. While the Department works with farming charities and is introducing the Farming Resilience Fund, the focus of this is on providing business support and advice to handle changes, rather than directly supporting the mental health of farmers. The Rural Payments Agency, which is responsible for administering payments to farmers, has committed to developing a ‘here to help’ relationship with farmers, but this could be hindered by ongoing trust issues.  

Recommendation: The Department should identify what further support is needed to help farmers during the transition, including where farmers will face significant business challenges in the short term. The Department should particularly set out what it will do to support farmer’s well-being through the transition.  

12.              We are concerned that ELM will be too complex and bureaucratic, and will not cater for the full range of farm types and circumstances. The Department has used a process of ‘co-design’ to develop the scheme, working closely with both stakeholders and a panel of farmers. Stakeholders describe feeling very engaged, but are concerned that the Department is confusing activity for progress in the scheme’s design. Even though the scheme is due to launch soon, organisations are struggling to support their members in understanding how they will be able to access the scheme and what provisions are being made for specific groups, such as tenant farmers. But farmers participating in the pilot report a lack of flexibility in the design of ELM, that they find the guidance very confusing, and that it is still not clear what they need to do to receive payment. There is a risk that small farmers will find any excessive bureaucracy especially challenging, so it is a particular concern that they are under-represented in the pilot. Only 30% of farms participating in the pilot are under 50 hectares compared to 61% of English farm businesses as a whole.  

Recommendation: The Department should urgently write to the Committee by the end of January 2022 to explain how it is using the current pilot of SFI to get feedback on the complexity of ELM, especially for smaller farm businesses and tenant farmers, and what changes it will make to alleviate any perceived complexity