Could private funding reduce farming’s reliance on public funds?

The recent suspension of SFI has left many English farmers wondering about their future.

In this article, Lewis Butlin of Agrovista Rural Consultancy considers the current uncertainties around SFI, what might replace it and, crucially, what farmers can do to mitigate against future vagaries of political thinking.

At a time when margins are tight, input costs are high and cash flow is poor, the recent suspension of the Sustainable Farming Incentive (SFI) is certainly an additional worry farmers can do without.

Although many agreements are underway and will continue through to term, providing some cushion, what happens when they finish remains an unknown. And, of course, many other farmers have missed the chance to apply for SFI, so currently have no way of offsetting at least some of the declining Basic Payment Scheme (BPS) value.

That said, a reprieve may be in the offing for some 3000 applicants that started their SFI applications within two months prior to 11th March 2025 but had not submitted them by this date. Defra has recently announced that those who are eligible will be given a six-week window to complete the process, though with restrictions that will need to be considered at farm level.

Looking further ahead, I do believe SFI will return in some form. The government has stated “a new and improved SFI offer” will open next year, but what it will look like remains to be seen.

Fundamentally, BPS worked as it gave everyone the same amount of money per area of land they farmed. BPS was effectively 100% profit, except for a few operating costs through Cross-Compliance or if an agent was employed to complete the form. SFI, on the other hand, can easily cost 30-40% of the income to manage the option, and therefore to achieve the same margin as BPS a greater income from the SFI is needed.

Delivery of the same budget through the SFI was never going to work, especially for those 40% of farms that were reliant on the BPS to be profitable.

Some fundamental flaws need addressing to ensure any new version is fit for purpose and ultimately delivers “public money for public goods”.

The ability for farmers to put in as much as they wanted doesn’t work when there is a finite budget which ultimately dictates the design of the scheme going forward.

This was addressed late into the rollout of SFI 2023, when 25% area limits were introduced to stop the whole-farm uptake of particular high value, non-productive options.

Things really started to unravel with the introduction of the greatly expanded SFI 2024, which incorporated 69 options from Countryside Stewardship (CS) available since 2015, 10 options from the 2023 SFI and a further 23 new options from test and trials.

A budget increase would be one obvious solution, but is very unlikely given the competition for funds from other important sectors such as health and education.

A restriction on option uptake and/or a maximum overall SFI income per hectare per farm appear to be the most sensible alternatives.

The guidance needs updating in line with CS for certain key options to ensure that they are being carried out correctly.

A prime example would be limiting certain actions for area uptake, for example constraining CAHL1 (pollen and nectar flower mix) and CAHL2 (winter bird food) options to around 2ha maximum per plot/parcel.

This would prevent large block uptake of an option that is designed to be sited in small plots around a farm and not over the whole farm, which does not benefit wildlife, does not provide public-money-for-public-goods, and certainly does not promote food security.

More importantly, these constraints would naturally restrict the size of agreements and therefore allow the budget to be spread further so more people can benefit.

Perhaps Defra should consider drawing up a scheme design similar to that in Scotland, where a half-rate BPS is going to be paid in return for Conditionality measures.

These include whole-farm plans, carbon audits, IPM measures and soil testing, so could include many of the original SFI options.

The remaining 50% BPS value could be reclaimed through another scheme; in Scotland, this is likely to be based on some form of Ecological Focus Areas (EFAs).

On the other hand, the SFI 2023 version in England ultimately worked well, providing a simple scheme that was effectively the new form of cross-compliance that farmers had been used to since the Single Farm Payment (SFP) was introduced in 2005.

This would encourage the uptake of actions that promote Good Agricultural Practice.

Reverting back to the original 3-Tier Environmental land Management (ELM) structure could see SFI 2023 forming the basis for all farms which could then be topped up, if needed, by Tier-2, based on CS with all options that were once included plus some of the new options, and the appropriate regulated area for option uptake.

This approach would allow everyone to receive their fair share and enable those that wanted to do more to do so, but through a regulated uptake that requires approval and would ensure that uptake could be matched to budget.

Tier-3 would be reserved for high environmental or archaeological value features that would be managed through a bespoke Higher-Tier CS agreement.  

Private sector funding

How can farmers mitigate against this uncertainly? Much has already been written about the need for technical and business excellence, and it goes without saying that this should be the aim for all farmers who are in for the long haul.

In this article, we’ll instead mainly examine opportunities that could directly help to replace lost support payments. Key among these is funding from the private sector, which is set to become increasingly relevant.

Government last year set a target of £1bn of funding flowing into UK agriculture from the private sector by 2030, well over 25% of the current national pot.

This would be an easy way for government to reduce its requirement to support the industry and push environmental cost ultimately onto the consumer.

Natural capital looks set to contribute a significant share.

Carbon trading

Carbon trading is now offered by several companies; we have tied in with two at Agrovista. Simply put, changes in farm practice that result in carbon savings are rewarded through direct payments or credits that can be sold separately.

Farmer customers across the country have signed up to such a scheme, typically worth 1 to 1.5 credits/ha, or £30-45/ha each year.

These may stem from existing regenerative practices or other operations such as shallow cultivations, direct drilling, use of cover crops or reduced nitrogen fertiliser strategies.

Carbon trading is mainly aimed at arable farmers.

Agreements are quite loose in terms of locking-in periods, which provides farmers with flexibility, and are certainly worth an initial assessment to ascertain likely costs and benefits.

Water catchments

Water companies are paying farmers to reduce diffuse pollution and to prevent nutrients or active ingredients such as propyzamide entering water courses by changing existing practices and/or cropping.

Some are very similar to stewardship options, such as winter cover cropping and field margins. We’ve also seen capital projects previously in the West Country for concreting and covering over dirty yards.

These and other longer-term projects, such as paying farms downstream of treatment plants to plant reed beds to capture phosphates, can be very local in nature, but can be worth quite considerable sums of money.

Biodiversity net gain

We are also seeing an increase in the number of biodiversity net gain projects on offer, as a result BNG being a requirement for planning permissions in England from 2024.

Anyone who puts in a planning application on a greenfield site is required to do a biodiversity net gain (BNG) assessment, a 30-year requirement to offset the loss in habitat from developments, replacing it to the same environment value +10%.

Housing developments are an obvious source. A developer might buy 100 acres for development but might have to forfeit 20 acres to satisfy the BNG requirement, perhaps for trees or to incorporate wildlife areas.

Some developers are exporting this off-site, creating opportunities for farmers through the likes of the Environment Bank to earn a payment for the land and for managing it.

In parts of the south east, housing developers are also having to ensure that their completed developments maintain water neutrality status – that is, they cannot put any additional demand on the mains supply.

To meet this requirement, developers are paying farmers to implement rainwater catchment schemes and other practises to reduce their mains water consumption to a level that matches the increased demand from the new houses.

Produce contracts

Another important area of natural capital funding is the emergence of contracts for produce grown or reared to meet specific criteria.

In Scotland, for example, the whisky industry has vowed to be net zero by 2035.

Given the time it takes to produce some whiskies, distillers are already offering contracts with up to £17/t premiums for carbon-audited spring barley, and in some cases are even paying farmers to carry out the carbon audit as well.

I can see further developments in many other sectors, with dairy being one of the more obvious. It will be well worth keeping a close eye out for any opportunities and their potential benefits.

I believe we will see more private funding schemes with a natural capital theme coming in as government looks to reduce its spending on agriculture.

For example, potential changes in food production policies that will require companies to source food in different ways could provide more funding opportunities at the farm gate.

Farmers do require a stable income stream. Private funding will require quite a different mindset to government schemes and there is quite a bit of scepticism out there.

Good advice is critical to help identify the opportunities and make best use of them. Networking with local agents, councils, buying groups, machinery rings, dealers, suppliers and buyers is also key to spotting opportunities early. 

Farm profitability

I mentioned the need for business excellence earlier in this article. It is worth noting that there are various forms of government funding, for example through England’s Farm Resilience Funding and Scotland’s Integrated Land Management Plan, to carry out farm businesses reviews.

These are useful at any time to identify and improve underperforming areas, whether that be considering whole enterprises, adjusting cropping/rotations or better in-field targeting of inputs through precision farming.

They could also be particularly useful following the government’s inheritance tax reforms that have left many farmers undecided over capital investment and the effect this might have when handing the business over to the next generation.

* Agrovista Rural Consultancy’s team of experienced farm and environmental business consultants delivers strategic business advice and support across the UK.

For more information email rural.consultancy@agrovista.co.uk or visit https://www.agrovista.co.uk/rural-consultancy-services