Please note that this as been part of a submission to the EFRA commitee that I have particularly developed but with support from Professors Julie Ingram and Janet Dwyer.
Defra presentation of the Exit plan [2] suggests that there were two objectives:
1) to help the sector to enhance productivity (with an underlying assumption that productivity will be key to improved GVA, farm incomes and economic sustainability); and
2) to facilitate generation renewal in farming (as the average age of farmers is 60 years [1] and 63% of farmers have no clear succession plan [3]).
Previous policies and increase in work productivity
UK farming has had significant public financial support since the 1960s, during which time sector productivity has been a key focus. The labour productivity of farming has increased over that period, while farm incomes have seen more varied patterns of change and farming’s contribution to UK GDP has reduced significantly [2]. Since 1945, the farm workforce and the number of commercial farms have reduced dramatically [2][4]. Some of this contraction has been facilitated by government-funded outgoer schemes, which we review briefly here, based upon evidence gathered in comparative agriculture studies across landscapes in England and Wales, as conducted over the past 6 years by students from AgroParisTech, France, hosted at the CCRI (Figure 1).
Figure 1 – comparing past retirement/outgoer policies in UK farming
Exiting Farming today
Before considering the challenges in exiting the industry now, according to [16] - “The low rate of exit reflects the fact that many older farmers do not want to retire, not that they are unable to. Only about one third of farmers intend to retire completely.”. Any exit scheme will therefore only reach some of the targeted population: as described above, a variety of measures has already allowed farmers to semi-retire without leaving the farm [19].
In farming, asset values can be extremely high, compared to returns, even in the case of tenanted farms. Combined with tax incentives, this results in a situation where for many, relatively low farm profits will translate into low pensions that need to be supplemented. In addition, the phenomenon of asset value accumulation makes transfers of farms difficult. [16][18]
There are also historical and cultural challenges for farmers leaving their farms, particularly farms that have been in a family for generations [16]. Considering their financial needs, those exiting farming often have to liquidate the business in order to realise the value of its assets. The farmland may be split into several lots to be rented or sold, in order to fetch a higher price or remain affordable to potential buyers. This is incompatible with further transmission of holdings to a new generation, and tends instead to result in increased farm amalgamation among neighbours. Even if the farm is tenanted it doesn’t mean that it will necessarily be transferred intact.
Under the new scheme, the proposed payment for farmers to leave the farm, at around 2.35 times a reference level, is wide-ranging, much like the previous schemes for dairy and pig outgoers. It also enables farmers to benefit from the value of the land by renting it out.
- Any amount under £ 100,000 represents an incentive but it is unlikely that it will be sufficient, after farm liquidation, to fully support the farmer leaving the farm and setting up home elsewhere, as mentioned by [16].
- A £ 42,500 BPS payment already represents 183ha (for lowland) of farmed area, which is a sizeable area that would provide a higher ‘retirement’ payment if it were instead sold or rented out.
- According to annex C of the consultation, the median BPS payment is under £10,000. For such a recipient, the scheme would provide the farmer with approximately £23,500, which is only enough to buy a car, but clearly insufficient for a new tractor. [16]
When taking up the scheme all BPS rights would be cancelled for subsequent years. It is unclear how the scheme could be implemented in farming partnerships or enterprises with several family members: would only the potential retiree’s share of the BPS payment be cancelled, or would the scheme only be offered for the whole holding? If only for the whole holding it seems less likely to be attractive to these kinds of farming model. For holdings with several family members working together in the business (2,3,4…) the only option where it would clearly be interesting for them to take up the scheme would be to obtain a lump sum to invest (eg in diversification…).
This scheme will mainly target sole-person holdings where decision making and financial liabilities are one person’s responsibility. It will not be practical for bigger holdings with several family workers. For bigger holdings the share of the payment devoted to the retiree could be taken out from the farm payment. For some bigger holdings, there might be a one-off opportunity in order to access an investment package for the farm or other projects (inc. retirement).
†given the expected £100,000 lump sum payment cap
Setting up a plan to take over takes a long time
In figure 2 below, potential pathways are illustrated for planning a farming system, which is a long task unique to each farm, requiring a case by case approach to understand potential outputs based upon the specific mix of available resources. Taking over a farm, especially in a general climate of uncertainty since Brexit, is a major challenge and a major expense. Access to finance can be a significant barrier. As described in [19] – “The difficulties associated with non-successional entry into UK farming cannot be examined in isolation from broader processes of change within the agricultural industry”, and just such a broader view is needed to understand the challenges that explain the trickle of new-entrants into farming.
Figure 2 - From the construction of the farming enterprise project to the new production system (Lenormand, 2021)
Figure 3 - Succession, size of farms and vulnerability to amalgamation. The farms targeted by the scheme are in the second category; past and ongoing research ([11], [19],[16]) explain those pathways. By T. Lenormand.
Comparing pathways for different farm situations (figure 3) suggests that the problem of transmission reduces the likelihood of a handover on one-person holdings, compared to larger ones; thus effectively favouring expansion linked to transmission. [16]
In the consultation document, the scheme is due to start in 2022. Owner occupied farms taking up the scheme would have to sell or rent-out the land rapidly:
- It seems difficult to envisage full tenancies shorter than 10-15 years (FBT) if the whole farm is rented out, especially if the farm infrastructure needs investment. One of the barriers identified by new entrants was high rental prices, but so far nothing is planned to address this [16].
- This means that farms are likely to be rented out as land only, with retired farmers retaining some control over the land and continuing use of the farmhouse. Even a 5-year FBT gives some security to the tenant compared to an 11-month grazing agreement. [11]
- If a whole farm is put up for sale, prospective new entrants still have to negotiate the slow and costly process of starting farming operations.
- Non-agricultural buyers may outbid others, in order to subsequently rent-out the land. [16]
For any landowners taking back control of the land it is likely that most of it will be either sold or amalgamated. [19]
A diverse range of structures exists to bridge the succession gap: e.g. share farming; partnerships; contract farming; these options should be included in the list of possible routes to facilitate successful retirement. [20] Planning a “long” transition spanning 2-3 years would be easier to manage for most in the industry, given the number of actors and processes involved.
Note: We do not support the separation of common grazing rights from land holdings, as they represent a valuable forage resource for the holding which, if removed, effectively render the former holding structure inviable. If this proposition goes ahead it will effectively be signalling that there is no will among policy makers to ensure the successful transmission of such holdings.
Conclusion
The sensitive element of this exit payment is that it targets mostly “family operated small farms”. It is difficult not to see it leading inevitably to more amalgamation, rather than presenting any opportunities for new entrants. Due to the structure of the industry, its impact would be relatively limited. The payments offered are not particularly high, particularly for small farms. Even if only a relatively small proportion of farmers take up the scheme, given the “small” UK land market it will not meet unsatisfied demand [21]. Structural tools would be needed to accompany the farm, plus advice to help decide between amalgamation or farm transmission, for each applicant. A wide body of literature supports the view that further amalgamation leading to productivity gains will not lead to increased farm incomes [1].
A possible improvement would be to offer a higher payment geared to small farms, as their payments would be particularly modest, and maybe linked to a non-amalgamation condition. This could promote sustainable generational renewal in farming by improving the reward for the retiree.
References
1. Defra - Department for Environment Food and Rural Affairs, 05-21. Direct Payments to farmers: lump sum exit scheme and delinked payments in England - consultation.
2. Agriculture in the United Kingdom 2017 (2018). DEFRA (England), Environment and Rural Affairs (Northern Ireland), The Scottish Government, National Statistics.
3. 63 per cent of polled UK farmers have no succession plan in place [WWW Document], n.d. . Farmers Guardian. URL https://www.fginsight.com/news/news/63-per-cent-of-polled-uk-farmers-have-no-succession-plan-in-place-80502 (accessed 6.14.21).
4. Grigg, D., n.d. Farm Size in England and Wales from Early Victorian Times to the Present 12.
5. Farm Structure (Payment To Outgoers) (Extension Of Duration) Scheme 1983 - Monday 12 December 1983 - Hansard - UK Parliament [WWW Document], n.d. URL https://hansard.parliament.uk/Lords/1983-12-12/debates/5df82340-7475-45a2-8abe-d7dec1c57484/FarmStructure(PaymentToOutgoers)(ExtensionOfDuration)Scheme1983 (accessed 6.14.21).
6. Kay, A., 2021. Government-backed farming exit schemes – do they work? Farmer’s Weekly. URL https://www.fginsight.com/news/news/government-backed-farming-exit-schemes--do-they-work-119712
7. The Milk (Community Outgoers Scheme) (England and Wales) Regulations 1986 [WWW Document], n.d. URL https://www.legislation.gov.uk/uksi/1986/1611/made (accessed 6.14.21).
8. E. L. Naylor (1987). EEC dairy policy. Geography , Vol. 72, No. 3 (June 1987), pp. 239-241
9. milk quota - Townsend Chartered Surveyors [WWW Document], n.d. URL https://townsendcharteredsurveyors.co.uk/farm-quota/milk-quota/ (accessed 6.14.21).
10. Production Rights in European Agriculture - 1st Edition. Barthélémy et al (1999) [Accessed in French]. INRA Edition. Chapter Milk Quota Implementations and their Effects in the Four Main Milk-Producing Counties. Paper - The liberal approach in the United Kingdom (J.-P. Boinon, E.H. Perkins) - The effects of national implementations on dairy farm structures (D. Barthélemy, J.-P. Boinon, P. Wavresky).- A moderately liberal approach in the United Kingdom (J.-P. Boinon, E.H. Perkins).
11. Lenormand, Théo (2019) Agrarian Diagnosis of South Pembrokeshire - South West wales (United Kingdom) General Synthesis. Masters thesis, AgroParisTech. URL http://eprints.glos.ac.uk/9308/ and associated fieldwork.
12. 90 Years Of Farmland Values & Supply [WWW Document], n.d. URL https://www.savills.co.uk/research_articles/229130/202022-0 (accessed 5.6.21).
13. Farm Rents 2018/19 – England (2019). Defra.
14. Farm Rents Welsh Government. (2018)
15. GB farmland values (2017) Savills Research [WWW Document], n.d. URL https://www.savills.co.uk/research_articles/229130/228020-0 (accessed 6.14.21).
16. Entry to and Exit from Farming in the United Kingdom (2004). ADAS Consulting Report to Defra.
17. Farm Succession - Planning for the future. (2008). Agriculture and Rural Development Factsheet. SAC Consulting - SRUC.
18. Entrepreneurial younger farmers and the “Young Farmer Problem” in England. Hamilton, William, Bosworth, Gary and Ruto, Eric (2015) Entrepreneurial younger farmers and the “Young Farmer Problem” in England. Agriculture and Forestry, 61 (4). pp. 61-69. ISSN 0554-5579
19. Ilbery, & Ingram, Julie & Kirwan, James & Maye, Damian & Prince, Nick. (2012). Non-successional entry into UK farming: an examination of two government-supported schemes. Keeping it in the Family: International Perspectives on Succession and Retirement on Family Farms (pp.111-127)
20. McKee, A., Sutherland, L.-A., Hopkins, J., Rickett, A., n.d. Increasing the Availability of Farmland for New Entrants to Agriculture in Scotland 76.
21. The Farmland Market 2021 (2021).Savills UK URL https://www.savills.co.uk/research_articles/229130/309956-0
