Prospects for UK farming: Multiple challenges to profitability

Farming faces headwinds and some of the politics haven’t helped.

Inheritance tax changes and the closure of the Sustainable Farming Incentive (SFI) have framed the industry in a gloomier light than its profit figures suggest, says Andersons’ head of business research, Richard King.

Policy uncertainty is most pressing in England and there is a general feeling of not being valued.

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Although the combinable crops sector accounts for only 16% of UK farming’s overall farmgate output value, the sentiment in this area tends to drive the mood of the whole sector, he says.

“The government has sent a clear message that it doesn’t see farming as a special case and so perhaps it has to look out for its own profitability more than in the past.”

The firm expects a real-terms reduction in total income from farming (Tiff) – the equivalent of “UK farming’s profits” – to about £7.1bn for 2025.

This is a fall of about 7% on the 2024 result, which may be subject to revision by Defra.

A further fall of more than 8% is expected by Andersons in 2026, with some of this accounted for by lower beef prices.

However, these results are higher than in many years since 2020.

The multiple influences on farming’s prospects include the growing impact of climate change on production and costs, as well as speculation about further tax rises in the November budget.

Consumer pressures

With consumers squeezed, the main retailers are making cuts to shelf prices, causing an inevitable knock-on for producers.

In previous downturns, consumers have quite quickly traded down, but this time it has been interesting that people have seemed willing to pay decent money for quality food, which has kept beef and lamb prices up, says Richard.

“If consumers are squeezed further then some diversified businesses could be affected, especially on the leisure side, where footfall could see a downturn.”

Domestic support

England

Farm policy is undergoing a lot of reviews but little concrete policy is emerging.

The Land Use Framework might be the most important as it could influence planning or even perhaps access to subsidy regimes – for example, as to where the next round of the SFI might be falling, suggests Richard.

Inflation continues to erode the value of support.

The focus is on the next round of SFI, which may be announced in the next month or two, although when it will open now looks like being post-April 2026.

Wales

Wales is phasing out BPS between 2026 and 2029, with 60% being paid next year, 40% the following year, and 20% in 2028.

Farmers also have the option to move to the country’s new Sustainable Farming Scheme from next year.

It offers layers of payments, starting with those for universal actions but varying farm by farm. Payments to larger farms will be capped.

Scotland

A four-tier support structure is being introduced in Scotland next year, but largely with existing schemes slotted into it, effectively a cosmetic change, says Richard, although there may be more in 2027 after next May’s Holyrood elections.

The first tier is a form of direct support, the next has greening requirements, tier three’s elective payments include support for supply chain measures, organic farming, innovation, targeted species and habitats, and capital grants.

Tier four includes farmer professional development and advisory services.

Sector outlooks and budgets

Loam Farm

While national average wheat yields are thought to be down by only about 2%, there has been a massive variation regionally and between farms.

Andersons’ Loam Farm model has seen a negative margin from production two years running, with lower yields and prices bringing overall output down and producing a business deficit in 2025 even after SFI income of more than £120/ha.

Next year’s budget offers a small, positive margin from production, assuming a return to more normal yields, and, thanks largely to SFI income, a business surplus.

It is assumed that most farms of a size and structure such as Loam Farm have some SFI income, but Richard points out that post 2026, the availability of SFI and what it will offer in cash terms is unknown.

Investment is needed in drainage and grain storage and drying on many arable farms, while rent and rent equivalents are coming down slightly but are very “sticky”.

Friesian Farm

Strong milk markets and high beef prices for both calves and culls are helping dairy performance, in a sector where changes in support affect the bottom line less than in others.

Overheads are pushing up, with labour a big factor. Less reliable seasons are challenging forage production; consolidation will continue but getting to 1,000-plus cows is difficult.

Note that in 2026-27, Anderson’s Friesian Farm model’s contribution to business surplus from SFI is almost equivalent to the margin from production, and the farm’s SFI ends in 2026. 

Meadow Farm

Fragmentation of beef and sheep breeds, systems and farm sizes can be a strength but also make it challenging to deliver the volumes and types that abattoirs want.

Returns have been good for Meadow Farm but are expected to reduce next year with an easing of beef prices, while the loss of BPS will be felt keenly by beef and sheep businesses.

High store prices have pushed up working capital requirements and risk for beef enterprises.

This is the sector where Andersons sees most business restructuring over the next five years or so.

Combinable crops represent about 16% of turnover at the farmgate level but its fortunes get more notice than some other sectors, says Andersons.

“Sectors that get the most airtime tend to influence the mood,” says Richard King.

“Some of the more “hidden” sectors, such as fruit and flowers, field vegetables, poultry and pigs, because they’re not taking up large land areas, tend to get ignored, but a lot of them are actually doing quite well.

There are still opportunities in some of these sectors, such as poultry, although more so in some regions than others.”