About 40% of UK farm businesses would fail to make a profit if farm subsidies were abolished, a DEFRA report claims.

The study, funded by the department and published by Dutch research institute LEI, found 37% of UK farms would be plunged into financial difficulties if payments came to an end.

Only about 5% of the country’s farm businesses would be profitable enough to be able to consider investment, while about one-third would be in profit but unable to pay farmers and their families for their labour.

The report was carried out to look at the impact removing farm subsidies (PDF) could have on the viability of EU farms.

Using 2004-2006 figures from the European Farm Accountancy Data Network, it found farm businesses in Spain, Poland, Lithuania, Latvia, Belgium and Austria would not be affected by the removal of decoupled payments.

But farms in the UK, Ireland, Denmark and Sweden would be “heavily affected”, the report says, with some farmers forced to leave the industry as a result.

Despite the gloomy outlook for British agriculture, the report acknowledges the assessment was the worst-case scenario and does not take into account how farmers might respond to subsidy changes.

Past behaviour had shown farmers had adapted to Common Agricultural Policy alterations.

It says the removal of subsidies could lead to changes in the type of products UK farmers produced as they moved to less risky crops, cheaper production methods and different scales of production.

“Since farmers lose a stable source of income they might choose less risky alternatives in their agricultural activities and in their investments,” the report adds.

“An abolishment of farm subsidies will also have an impact on rents, land prices and milk quota values and affect structural change of the agricultural sector.

“[It] will thus result in some farms choosing to leave the industry – the pressure will especially be on less efficient farms and this will provide possibilities for other farms to expand.”