The Great Agricultural Gamble - a review of the effect of government policy on farm business strategy

Introduction

Never has there been more pressure on land use, or income generation from farming. Competition comes from energy generation, environmental measures, housing supply and food production.  All on a tiny, perhaps overpopulated island.  There are other pressures on the sector such as inflation of input costs, machinery, labour, interest rates and commodity prices or world trade.

Farming itself is a patient game, taken on from generation to generation, often with the same circumstances and strategies. 

A Farmer recently told me; “Knowing that the BPS was coming, each December, gave me the confidence to roll the dice for another year.”  This quote summarises Farmers’ confidence perfectly.  Knowing that the business was supported, encouraged Farmers to continue to work hard and put their capital on the line to produce food.  Confidence across all industry feels at an all time low, Agriculture is no different.  The lack of confidence is compounded by low profitability, erratic government policy and changes to UK taxation. 

The agricultural sector cannot achieve the agility that other sectors can.  The investments in machinery, crops, livestock and overhead costs are spent months, if not years, before income is received.  Business strategy and direction take time to adjust.  Farming has seen challenging times before, but perhaps none more so than now, mainly because of the volatility and retraction of government support, coupled with output and input pricing issues. 
Behind all this is agricultural policy and support schemes.  These have a huge bearing on farm profitability.  In this piece, we seek to explain how the unpredictable twists and turns of government policy affect the farm business itself. 

Background 

Since 2020, we have seen unprecedented changes to agricultural policy, through two colours of government, with clearly different priorities for the sector.  It was the Conservatives who were in charge when BPS started to reduce and when the 2023 SFI, with initially no upper limit, was introduced.  Whilst the sector may have felt uneasy during these changes, it felt like support was there albeit in a different guise.  Without being too political, it appeared obvious that Labour needed to make changes to bring the SFI budget back to a sustainable level, to prevent it being ill-treated.  Many Farmers challenged SFI because of the ease in which a financial return could be made on land without it being in agricultural production.  On the other hand, many said that without it, they are forced to produce food at a loss with reducing delinked payments. 

Under the EU Common Agricultural Policy (CAP), the UK received around £2.5 billion annually in rural funding.  This was primarily channelled through the Basic Payment Scheme (BPS), Agri-environment Schemes, and Rural Development Grants.  Post-Brexit, the UK government committed to maintaining this level of funding during the transition period, gradually reallocating funds toward environmental land management and productivity.

Previous budget allocation was distributed in the following ways: 

•    2020–21: £2.45bn (BPS: £1.87bn, Agri-environment: £427m, Innovation: £120m)
•    2021–22: £2.29bn (BPS: £1.65bn, Agri-environment: £448m)
•    2022–23: £2.23bn (BPS: £1.37bn, Agri-environment: £558m)
•    2023–24: £2.13bn (BPS: £1.08bn, SFI: £30m, Agri-environment: £700m)
•    2024–25: £2.27bn (Delinked Payments: £1.05bn, SFI: £1.05bn, Others: £400m)

Scheme Timeline and Availability

Basic Payment Scheme (BPS):

• Began phasing out in 2021 with full delinking by 2024.
• Payments reduced annually.

Countryside Stewardship (CS):

• Higher Tier: Opened February 2023, agreements started January 2024.
• Mid Tier: Application window March–September 2023.
• Increased capital payments and 3-year delivery periods introduced.

Sustainable Farming Incentive (SFI):

• 2022: Limited rollout focusing on soil health.
• 2023: Expanded to 23 actions; launched October 2023 – initially with no upper limits, until 6 higher paying “out of production” actions were capped at 25% of the farms area.  Many options remained uncapped.
• Expanded Offer (2024): Over 100 actions; launched May 2024.
• Closed unexpectedly March 2025 due to oversubscription and budget exhaustion.

3. Uptake and Impact

• By March 2025, 37,900 live SFI agreements were in place:
  • 25,300 under SFI 2023
  • 12,700 under SFI Expanded Offer
• Total businesses in Agri-environment Schemes: approx. 51,500.
• Around 50% of utilised agricultural area in England is now under an Environmental Scheme of varying types. 

It is overwhelmingly felt that the sudden closure of SFI was A) a victim of its own success and B) was not regulated enough, at a point when commodity prices were falling, leading to a perfect storm of uptake and land taken out of production.  Unfortunately, this situation was unsustainable. 

Many Farmers entered into SFI in good faith that public money for public goods was here to stay and used SFI as a springboard for changing their farming practices, machinery etc to allow for the environmental measures in the farmed rotation.  It is not unfair to say that some Farmers entered for the first time since Entry Level Stewardship and hoped they would be able to continue with SFI beyond its initial 3 years as they changed practices to do so. 
Looking to the Future 

At the time of writing, Defra has just announced the outcome of their spending review, a multiyear commitment from HM Treasury.  This includes £2.7bn invested in sustainable farming and nature recovery per year from 2026/2027 to 2028/2029.  Funding paid to Farmers under Environmental Land Management Schemes is scheduled to increase from £800m in 2023/2024 to £2bn by 2028/2029. 

This announcement is welcome, as it was thought the sector would be in for another heavy blow, however many questions remain, as do the scars from previous changes. 
The immediate future has been announced and is summarised below: 

2025 - Delinked payments capped at £7200.

2026 & 2027 – Delinked payments capped at £600. 

2026/2027 – Environmental Land Management (SFI, CS Higher Tier, Landscape recovery and ELM capital grants) funding will be £1.95bn rising to £2bn in 2028/2029.

2026/2027 – Other funding such as farm productivity, innovation and transition support. £350m falling to £250m by 2028/2029. 

2026/2029 – Defra call this ‘Nature Schemes’ which we believe involves all other Agri-environment Schemes such as HLS, woodland schemes and nature-based outcomes. £450m each year for three years. 

Total Defra budget:

2026/2027 - £2.77bn

2027/2028 - £2.72bn

2028/2029 - £2.70bn

The challenges and controversies from the past must be undone, and a level of certainty and transparency applied to prevent further erosion of Farmers’ trust in policy making. 

- Sudden Scheme closures must stop 

The SFI expanded offer was closed in March 2025 without prior notice, affecting ~3,000 applicants.

Government partially reversed the closure following legal pressure and sector backlash, these agreements are still not functional and are capped at £9300 per farm, subject to starting an SFI expanded offer application on or after 12th January 2025. Perhaps this cap is a sign of restrictive methods to come? 

- Budget Exhaustion must be avoided through transparent announcements and better planning. 

Defra's own figures revealed the SFI 2023/24 allocation of £1.05bn had been fully spent.

Temporary freezes on new Environmental Grant Agreements caused uncertainty and paused investment. 

- Inequity of Payments:

It is widely reported that Defra are seeking to further equalise payments across business or landholding size.  This is nothing new, however the size of a landholding does not always lead to greater profitability or reduced risk.  The profitability and balance sheet strength of a farming business are disproportionate.  A 1/1.5% return on capital is to be expected from a farming business, significantly lower than any other industry would accept, or indeed work hard for.  

- Inspections

The relaxation of inspections under SFI and moving away from the penal methods used in HLS and Mid/Higher Tier Stewardship are welcome and improve the rapport between RPA and the Farmer. 

The effect on farm businesses 

The transition away from the CAP has significantly affected farm profitability, the impact varies by enterprise type, farm size, and region. 

While the ambition behind the transition and new schemes was to reward environmental enhancements over subsidising farming with a set Per Hectare rate regardless of outcomes. The execution of these schemes with their never-ending changes, additions, withdrawals, reintroductions and name changes, has clearly introduced volatility into farm profitability. 
These can be summarised, quite roughly, as follows: 

Negative Impacts on Profitability

1. Loss of Guaranteed BPS Income:

• The phased reduction of BPS from 2021 to full delinking in 2024 removed a predictable, unconditioned income stream for many Farmers.
• On average, this amounted to a loss of £30,000–50,000 per year for medium-sized mixed and arable farms, creating a shortfall not immediately replaced by ELM schemes.
• This piece has been called the Great Agricultural Gamble, this was much less like a gamble and more like an informed business decision when the guaranteed subsidy was in place. 

2. Administrative and Operational Costs:

• Scheme complexity, delayed payments and administrative burdens from new schemes (especially CS and SFI) led to increased establishment costs.
• In some cases, payment delays of 6–9 months caused significant cashflow stress, particularly for smaller holdings.
• Farmers are encouraged to do more in-depth management information such as budgets and cashflows, to ensure their resilience and understand their profitability.  This is almost impossible when payments are made erratically. When an RPA payment can contain Delinked payments, Mid Tier and SFI, without a detailed breakdown it causes allocation issues. 

3. Volatility and Scheme Closures:

• The unexpected closure of the SFI expanded offer in March 2025 left in excess of  3,000 Farmers in planning limbo.
• Investment made in good faith (eg. equipment, seed mixes, or changed rotations) went unrewarded, damaging trust and reducing willingness to participate in future schemes.
• As mentioned in the introduction, farming is not a sector which can react or adjust its strategies quickly. The lack of consistency has caused significant anxiety with Farmers and led to an inability to build resilient businesses throughout the transition period.
• Such changes may seem light work to policy designers and may make lots of sense from a Whitehall perspective, which we will never see, but for Farmers it is very daunting an unnerving. 

Positive Impacts on Profitability

Despite the challenges, there are a few key areas where the new policies have been a force for good:

1. Sustainable Farming Incentive (2023–24):

• When accessed early and fully implemented, SFI 2023 was the most profitable public scheme outside of BPS. This led to potential ill-treatment, leading to the implementation of a 25% cap, so it was not possible to put a whole farm down to Winter Bird Food or Pollen & Nectar mix at over £850 and £700 per hectare gross income respectively, with only the costs of seed and work done.
• Many actions could ‘stack’ together meaning if well planned within a farmed rotation, with land in production, good levels of support could be generated for good practices, especially on marginal land.
• Many actions also meant land was taken out of production. Even on some of the best Grade 1 silt lands, there are always areas on a farm which are difficult to access, with larger modern farm machinery, leading to a more joined up approach.
• It goes without saying that SFI did decrease the amount of insecticide sprayed and increased the amount of cover crops and companion crops on farm.  It was felt by Farmers that for the first time, there were payments for good farming practices, with a focus on actions which show sustainability and are ultimately deliverable.  By rewarding actions on land that is in production, and some that are not, it allowed the Farmer to design a scheme which worked for them, their farming strategy, their soil types and geography.
• This balance of options allowed for a land sharing approach to environmental enhancements and food production.  As opposed to how schemes have been in the past which were geared towards a land sparing approach.  Clearly Farmers want to combine the environment and food production as they have done for generations. 

2. Countryside Stewardship (Mid and Higher Tier):

• CS capital grant elements (hedging, fencing, concreting etc) provided good investment opportunities for the farmed environment.
• CS Mid Tier was a good land sparing scheme for those looking to gain environmental income from their farms.  The application process was relatively easy; payment rates were increased and this stood as the basis for funding many Farmers’ environmental work.
• Higher Tier Stewardship, while more selective, offered £400–£1,000/ha+ for habitat creation, wetland support and upland grazing, contributing to the most sensitive habitats, however it was inaccessible for most. 

3. Farming Equipment and Technology Fund (FETF):

• This productivity grant helped offset high capital costs of buying new machinery which led to more sustainable farming practices.
• Much of the equipment and machinery which was available through this scheme had a great deal of cohesion with the actions in SFI where they were alongside food production.
• For example, a direct drill with a dual hopper would drill into cover crops or establish a companion crop at the same time.
• Inter row hoes, linked to the SFI action, were especially useful for reducing herbicide use in specialist cropping rotations. 

Summary

Impacts on Farmers and Farm Businesses are clear and well reported, and known to the sector – however, when linked to government policy they can be summarised as follows: 

1. Loss of Predictable Income 

• BPS previously provided a reliable income stream; its removal left many farms with an income drop of £30,000–£50,000/year.
• The loss was not immediately replaced by Environmental Land Management (ELM) schemes, creating a shortfall.
• Farmers felt they had been encouraged to “roll the dice” each year under BPS — its removal has eroded confidence.

2. Policy Volatility and Scheme Uncertainty

• Frequent changes to SFI and Countryside Stewardship (CS) led to business planning instability.
• Closure of SFI Expanded Offer in March 2025 left over 3,000 farms in limbo after committing financially to the scheme.
• New schemes were often withdrawn, renamed, or modified with little or no warning.

3. Cashflow and Payment Issues

• Delayed payments (sometimes 6–9 months) caused severe cashflow strain, especially for smaller holdings.
• Payments arrived without clear breakdowns, making financial forecasting and accounting difficult.
• Budget exhaustion within Defra led to temporary freezes on environmental grant agreements.

4. Administrative Burden

• New schemes introduced more complex application processes and higher management demands.
• Combined with uncertain delivery times, this increased operational stress for owners, farmers & land managers.

5. Capital Investment Risks

• Many farms purchased new equipment (eg. drills, seed mixes, fencing) or altered rotations in good faith based on scheme offers that were later cut.
• In some cases, these changes had no return, damaging trust and financial stability.

6. Mismatch between Farm Realities and Policy Design

• Agricultural businesses can not adjust rapidly due to the biological cycles of crops and livestock.
• Rotations, breeding cycles, and machinery investment have long timeframes that short-term schemes fail to support.

7. Low Return on Capital

• Farm businesses typically see a 1–1.5% return on capital — far lower than in most industries.
• This makes them vulnerable to cost inflation, interest rate rises and any policy-induced financial shocks.
• Most cereal crops for the average farmer will be marketed at around or below cost of production for the 2025 crop and moving into the 2026 crop.

8. Land Use Pressure and Confusion

• With so many overlapping demands — energy, housing, food production, and environmental schemes — Farmers face difficult decisions on how best to use land profitably.
• Some Farmers took land out of production for SFI actions, which may not be sustainable or productive long-term.

Recommendations

To restore trust, build resilience, and genuinely support profitability in UK agriculture, we recommend the following:

• Policy Stability and Advance Notice
  No future scheme should close or change terms without sufficient lead time. Abrupt withdrawals undermine investment and long-term planning.  A minimum of 12 months’ notice for significant scheme changes must become standard.
  
  
• Prioritise Profitability in Policy Design
  Any new or evolving scheme must start by asking: “Does this support farm profitability?”  Without a viable core business, environmental outcomes will falter. Payment rates must reflect real opportunity costs and implementation expenses.
  
  
• Transparent and Timely Payments
  Payments must be predictable, clearly itemised and made on time.  Blended or ambiguous payment stacks combining different schemes are unworkable.  Farmers need visibility to make informed business decisions.
  
  
• Retain and Expand Successful Elements of SFI
  Well-planned, stackable SFI actions that work within food-producing rotations should remain central.  Support for marginal land, in-field improvements and low-input practices have proven effective and should be scaled.
  
  
• ‘Land Sharing’ Over ‘Land Sparing’
  Farmers have demonstrated they can enhance biodiversity and environmental outcomes while producing food.  Future schemes must continue to support this integration—rewarding action across whole farms, not just set-aside corners.  Both methods are effective in the correct circumstances.
  • Both methods are under significant research and implementation nationwide and both must be considered.  
    
    
• Protect and Extend Investment Support
  Capital grants like FETF must continue and grow.  Equipment that enables low-input, regenerative and efficient farming must be a core pillar of future agricultural investment.
  
  
• Avoid Over-simplified Equity Models
  Policies aiming to equalise payments across business sizes must be carefully scrutinised.  Landholding size does not equate to financial strength.  Schemes should reflect actual need, environmental benefit and enterprise diversity.
  
  
• Embed Farmer Consultation in Policy Development
  Lasting and effective policy comes from listening.  Genuine engagement with the farming community and stakeholders - not just Ministers deciding to enact change in Whitehall.

What should Farmers do in their own businesses immediately?

Adopt a Business Mindset

• Take responsibility for your business decisions.
• Cultivate strong self-leadership and a hunger for continuous learning.
• Regularly reflect on your performance—ask yourself: "Would I invest in my own business?"

Remove Emotion from Decisions

• Step back and make strategic, data-driven decisions.
• Avoid reacting emotionally; instead, think like a business leader.

Embrace Financial Discipline

• Create budgets and manage cash flow actively—do not leave it to chance.
• Know your cost of production for each enterprise.
• Conduct quarterly reviews to assess what is working and spot problems early.

Analyse Costs and Return

• Calculate the real costs of labour and machinery—often 35–60% of fixed costs.
• Include rent and finance costs in your analysis.
• Track net margins by enterprise (including diversification ventures).

Use Proportional Risk and Efficiency Analysis

• Assess financial efficiency: net cash flow from trading, return on capital and resource use.
• Identify the best use of your time and management skills.

Build Your Business Intelligence

• Start with what you can control.
• Use tools like Microsoft Excel to organise, track and understand your farm business.
• Strive for detailed, up-to-date business data—this is the minimum standard to farm successfully without subsidies.

Shift the Culture

• Challenge the assumption that farming does not require the same level of business analysis as other industries.
• It’s not about complexity—it’s about mindset and commitment to improvement.

We must remember, you can not go green, if you are in the red. 
In such an unstable world, food and its producers must be a priority. 
Farm profitability must come first.  Farming cannot be a gamble.