Net profits for the ‘average’ farmer are set to fall by half over the next decade, even if environmental payments double, according to research by consultants Strutt and Parker.
Cereals, mixed and lowland livestock farms are expected to see the biggest falls in profits, at 54 per cent, 46 per cent and 54 per cent respectively, while dairy farms are likely to be the least affected, with just a 10 per cent drop in average net profit, because they rely less on Basic Payments.
The modelling also showed the middle 50 per cent of farms would fare worse than the bottom 25 per cent, with their profits slashed by more because their current losses are not as heavy.
The top performing farms – measured as the ratio of farm outputs compared with inputs – would be least affected by the transition away from direct support.
Dr Jason Beedell, director of research at Strutt and Parker and author of the report, explained his research was underpinned by four assumptions – that net profit from farming and diversification would increase by 3 per cent each every year, that Basic Payments will be cut by 10 per cent in 2021, followed by a straight line cut of 14 per cent every year until 2028, and that profit after costs from environmental payments will double under the post-Brexit scheme proposed by Defra.
“I am generally a positive and optimistic person, so this is not meant to be a dose of doom and gloom, it is supposed to be realistic,” Dr Beedell said.
“I wanted to give clients and farmers in general an impression of what might be coming, because I do not think anyone else has.
“And Defra has not been very forthcoming in terms of how the Environmental Land Management Scheme [ELMS] might work.”
George Dunn, chief executive of the Tenant Farmers’ Association (TFA), urged tenant farmers facing rent increases to use the Strutt and Parker research to justify standstills or even reductions.
“This analysis shows despite the rhetoric around public payments for public goods, it is likely there will be a significant shortfall in farm profitability if Basic Payments are reduced to zero,” he said.
“This will put farm businesses in jeopardy, including the many which are already operating to high environmental and welfare standards and who are only able to do so due to the support available through the Basic Payment Scheme (BPS).”
To read the report in full, click HERE.