Category: News

The Welsh Government has published details of the Sustainable Farming Scheme (SFS) which commences on 1st January 2026.  The SFS is replacing the Basic Payment Scheme (BPS) in Wales and, from 2026, farmers will have the choice to either enter the SFS or remain with the BPS.  The BPS will be phased out by 2029.  Below is a summary of the scheme details, a full description can be found via https://www.gov.wales/sustainable-farming-scheme-2026-scheme-description-html#175191

Scheme Structure

The three-layered structure from previous consultations has remained – Universal, Optional and Collaborative Layers.  These three layers sit above the SFS Regulatory Baseline and a Universal Code (see ‘Scheme Requirements’ below).  The Universal Layer has 12 Universal Actions (UAs) which farmers must meet (where relevant to their holding) to receive the Universal Payment.  Those who want to go further and deliver more targeted outcomes can choose to undertake the Optional Actions (OAs) and there may be opportunities for landowners toSustainable Farming Scheme: Wales work together and deliver environmental benefits at landscape or catchment scale by undertaking Collaborative Actions (CAs).

Scheme Requirements

There is a set of Scheme Requirements that underpins the three-Layered structure;

• SFS Regulatory Baseline – much like the existing cross-compliance regime.
• A Universal Code – a framework of non-regulatory requirements designed to protect soils, biodiversity and habitats, trees and landscape features.  This includes the requirement for at least 10% of each farm to be actively managed as Habitat (the previous requirement that a further 10% be manged as woodland has been dropped).
• A Farm Level Carbon Baseline – this will be a requirement in the second year of the Scheme based on information provided in the SAF in the previous year

Payments and BPS

A Universal Payment will be made for undertaking the SFS Scheme Requirements and meeting all the Universal Actions.  In addition, a Social Value reflects the public value of outcomes delivered through participating in the SFS which are not reflected in market prices.

For those farmers who join the scheme in 2026 and farm 100 hectares or less there will be an additional one-off £1,000 Stability Payment.  Capping will be applied to payments.  Details of capping and payment rates are summarised in the table below.  Payment mechanisms and rates for the Optional and Collaborative Actions are not yet available.

The Basic Payment Scheme (BPS) is being phased out from 2026.  Farmers can decide to remain in the BPS or go into the SFS.  Once they have chosen to participate in the SFS they will not have the option to revert back to the BPS.  The BPS payment, including Redistributive and Young Farmer Payment will be phased out as detailed in the table above, so that there will be no application or payment in 2029.

The application process for the SPS will be similar to the current BPS, with farmers declaring annually all the land under their management control on their SAF by 15th May each year.  There will be no requirement to have entitlements for the scheme.

Summary of Payments, Capping and BPS Phase Out

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The Government has published its Food Strategy for England called ‘Towards a Good Food Cycle’.  It sets out the challenges faced by the food system, a vision of what a ‘good food’ system would look like, and the outcomes that would deliver such a system.  There are ten of these outcomes but they are somewhat banal in that they tend to be vague aspirations that it would be difficult to disagree with.  The Strategy has little in the way of concrete actions to drive these outcomes, but it does make linkages with the plethora of other Government initiatives such as the Land Use Framework, 25-Year Roadmap for Farming and Farm Profitability Review.  The full Strategy can be found at – https://www.gov.uk/government/publications/a-uk-government-food-strategy-for-england .

The overal vision for a ’21st Century’ food system encompasses;

• a thriving food sector – contributing to economic growth and a productive UK population
• a healthier population – the Strategy refers to the ‘Good Food Cycle’ which is set out in contrast to the ‘Junk Food Cycle’ identified by Henry Dimbleby in his 2021 Food Strategy (see https://www.nationalfoodstrategy.org/)
• lower environmental impact from food production
• a more resilient food change – in the face of climate change and a more volatile geopolitical situation

The ten outcomes that are meant to deliver this vision are;

• An improved food environment that supports healthier and more environmentally sustainable food sales
• Access for all to safe, affordable, healthy, convenient and appealing food options
• Conditions for the food sector to thrive and grow sustainably, including investment in innovation and productivity, and fairer more transparent supply chains
• Food sector attracts talent and develops skilled workforce in every region
• Food supply is environmentally sustainable with high animal welfare standards, and waste is reduced
• Trade supports environmentally sustainable growth, upholds British standards and expands export opportunities
• Resilient domestic production for a secure supply of healthier food
• Greater preparedness for supply chain shocks, disruption, and impacts of chronic risks
• Celebrated and valued UK, regional and local food cultures
• People are more connected to their local food systems, and have the confidence, knowledge and skills to cook and eat healthily

As can be seen, these are all worthy goals that it would be hard to argue with.  In Government, the easy bit is to set out desirable outcomes.  The hard bit is making it happen.  Whilst the Strategy links to existing policies with achieving these ends, there is nothing really radical or transformational in it.

 

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Defra’s budget is to be cut in real-terms over the next three years.  This is the headline result of the long-awaited Comprehensive Spending Review (CSR).

The Department’s ‘Resource’ spending (i.e. day-to-day expenditure) is to fall by an annual average of 2.7% between the current year, 2025/26, and the 2028/29 financial year.  Capital spending, which, in Defra’s case, mainly goes on flood defences, does slightly better; falling by an annual average of 1.8% over the same period.  Defra is one of the Departments with the largest cuts in real-terms funding.

Farming Budget

Farmers are likely to be most worried about the agricultural support budget.  The Farming and Countryside Programme (FCP) is the equivalent of the spending that used to be received under the Common Agricultural Policy.  The Review sets out that an average of £2.3bn will be paid under the FCP over the next three years.  This compares with £2.4bn budgeted for 2024/25 and £2.6bn this year (although the current year is being boosted by underspends from previous years).  All of these figures are at current prices so do not account for inflation.  Effectively, the Government has done what previous administrations, and the EU, have done for many years, and just rolled-over the existing funding, but not uprated it for inflation.  Assuming 2.5% inflation for the next two years, and with the drop from £2.6bn this year, to £2.3bn in 2028/29, this results in around an 18% real-terms reduction.  Even being generous and using £2.4bn as the starting point, it is still an 11% real-terms cut.

These cuts will be translated into the budgets for Wales, Scotland and Northern Ireland through the Barnett formula.  

A subsequent Blog post on the Defra website (see https://defrafarming.blog.gov.uk/2025/06/16/spending-review-2025-a-commitment-to-farming/ ) provided a bit more detail on the breakdown of spending.  The table below summarises this.  We have put the current year’s spending in for comparison – although the breakdown in the Farming and Countryside Programme (FCP) for this year is not known – so they are our estimates.  The figures are all in current prices – so take no account of inflation.

It can be seen that the budget for the FCP falls significantly in current terms compared to the current year.  It is the rather nebulous ‘Nature Schemes’ that brings the figure back up.

Nature Schemes

The Blog post states that the ‘Nature for Climate Fund’ and the ‘Biodiversity Targets Programme’ will be ‘worth up to £400m per year‘.  Firstly, this figure is somewhat less than the £450m p.a. allocated to ‘Nature Schemes’ in the overall budget (it’s not clear why – some other schemes may be included).  Secondly, the two words ‘up to’ in the statement seem to provide significant wiggle-room for Defra.  Lastly, it is unclear what these schemes (and any other Nature Schemes) will fund.  The Defra article refers to tree-planting and (rewetting) peatlands.  Whilst these grants may be open to landowners and farmers it is a stretch to consider them ‘farming support’ as these uses suggest the land mostly, or wholly, coming out of productive agriculture.

BPS and ELM

It is stated that the BPS (aka ‘delinked payments) will continue for 2026-27 and 2027-28.  However, all reference amounts up to £30,000 will be reduced by 98%(!), with nothing paid on amounts above this.  Therefore, the maximum any business will get in 2026 and 2027 is £600.  

Defra promises ‘more details later this summer’ on how future ELM schemes will work.  Defra has stated an aspiration to make the schemes simpler.

Probably the best thing that can be said about the Budget settlement is that ‘it could have been worse’.  However, the pressure on Defra spending looks set to remain.  This has implications for ELM schemes.  As we have written previously, it is highly unlikely that the SFI, when it returns in 2026, will look much like the scheme just closed.  It may well not be open to all farms (being targeted on certain locations or farm sizes).  The options are likely to alter too as Defra looks for value-for-money in its reduced circumstances.

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With harvest fast approaching for many, and already started for some, we have updated the figures for our Loam Farm model.  This shows that the 2025 crop is likely to deliver another lacklustre set of returns on cereals farms.

The table below summarises the last two harvests and the one upcoming.  We have also added a new budget for the 2026 harvest year.  To recap, Loam Farm is a notional 600 hectare business that has been used since 1991 to track the fortunes of British combineable cropping farms.  It is based on real-life data.  It is partly owned and partly rented, has a working proprietor plus one full time member of staff and harvest casual.  It grows wheat, oats, beans and barley and has a SFI agreement (2024 version).  

The 2023 year was reasonable – although it looked poor at the time, in comparison with the two spectacular years that preceded it.  Harvest 2024 suffered from the very wet autumn 2023 through into spring 2024 reducing yields.  Grain prices were also lower than in the previous year.  This meant the farm made a loss from production last year and required the BPS and SFI to bring it back into surplus.  For the current year the weather has presented the opposite problem – it has been too dry through the spring.  This is forecast to result in yields again being lower than the farm’s average.  Prices have not improved since last year either.  It can also be seen that overhead cost continue to push up.  Overall, the Margin from Production is still negative, although slightly better than last year.  However, there has been a big drop in the BPS with the maximum £7,200 being received in 2025 equating to just £12 per Ha on Loam Farm.  SFI payments have increased a little as the farm ‘upgraded’ its agreement by going for some extra SFI 2024 options.  The overall Business Surplus is set to be lower than last year.

Farmers generally think ‘next harvest will be better’.  This may be true.  We cannot know the weather for next season, but a ‘reversion to the average’ sees output increase.  Variable costs are quite stable.  After two poor years the farm is cutting back slightly on investment which helps keep overheads in check by reducing depreciation.  However, the farm is budgeting £25,000 on drainage works to address some of the issues highlighted in the past couple of seasons.  The Margin from Production at least ends up as a positive.  It can be seen that the BPS for 2026 is down at £1 per Ha.  This follows Defra’s announcement that the maximum payment will be £600 per business in 2026 and 2027.  The overall Business Surplus improves but is still below the long-term average for this model farm.

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In terms of agricultural policy, the action over the past month has been in the trade sphere.  The UK has signed three important deals with (in chronological order) India, the US, and the EU.  These all have implications for agriculture which are set out in the following sections.  The UK Government has stated that its next target is to secure a deal with the Gulf Cooperation Council (GCC).

India

Announced on the 6th May, this was hailed as the most substantial trade deal for the UK since it left the EU.  Its key provisions relating to farming and food include:

• Lamb exports: India has eliminated its 33% tariff on UK lamb, providing immediate tariff-free access. India has a growing demand for high-quality lamb products although the UK will face competition from Australia and New Zealand
• Whisky and gin: tariffs on UK exports to India will be reduced from 150% to 75% immediately, with a further reduction to 40% over 10 years.  This has the potential to significantly boost exports. This would have positive implications for growers of malting barley across the UK
• Other UK agri-food exports: tariffs will also be reduced on UK exports such as salmon, chocolate, biscuits, and soft drinks.  This should further enhance their competitiveness in the Indian market, especially for higher quality niches
• Indian exports to the UK: the UK has agreed to remove tariffs on 99% of Indian exports, including agri-food products such as frozen prawns.  Importantly, such imports will have to meet UK sanitary and phytosanitary standards

The US

The UK and US deal was announced on 8th May.  This should lessen the effects of the US tariffs imposed in early April.  The deal covers various sectors, particularly automotive which is of prime importance to the UK Government.  The key agricultural provisions include:

• Beef Market Access: the agreement establishes a reciprocal tariff-free quota of 13,000 metric tonnes for hormone-free beef.  This allows both UK and US producers enhanced access to each other’s markets
• Bio-ethanol Imports: the UK has agreed to eliminate tariffs on up to 1.4 billion litres of US ethanol.  This move is anticipated to benefit US ethanol producers and is seen by UK industry stakeholders (e.g. NFU) as a significant threat as it removes the UK Global Tariff (£16 per hecto-litre (100 litres) – which equates to tariff of approximately 20%).  This puts into doubt the future of the Ensus and Vivergo plants in the North East
• Whisky: the ‘Universal’ 10% tariff imposed by the US on alcoholic beverages, including Scotch whisky, remains in place.  So UK whisky exporters have not gained any new advantages as a result of this deal
• Food Safety Standards: crucially, the UK maintains its ban on imports of hormone-treated beef and chlorinated chicken.

Both the UK Government and the US Administration claim that this is a significant new trade deal.  However, it was negotiated in haste and has been introduced to largely mitigate the impact of the tariffs announced by the US in early April; with some additional provisions relating to agriculture as outlined above.  It may be a staging post for further deals in the future. 

EU

The final deal announced this month was with the EU – on the 19th May.  It is seen as a ‘reset’ in relations after the wranglings of the last decade.  Importantly, the UK is not returning to the Single Market nor the Customs Union.  However, the deal suggests closer ties in many areas including defence, youth mobility, travel, and emissions trading.

The main point for farming is a Sanitary and Phytosanitary (SPS) agreement on food.  This should reduce friction on agri-food trade.  It includes the introduction of a common UK-EU SPS Zone.  This would facilitate the movement of animals, animal products, plants, and plant products between Great Britain (GB) and the EU.  This would result in minimal checks and certifications, and, in some cases, checks and certifications being removed altogether.  To allow this to happen, the UK has committed to aligning its SPS standards ‘dynamically’ with those of the EU.  This means that UK regulations will evolve in tandem with EU rules.  The details around this need to be finalised.  One example of an area of uncertainty is around gene editing – what if the UK presses-on with allowing food to be produced using this technology, but the EU does not?

 

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Defra is to re-open the SFI 2024 for those applicants who had started their application, but had not submitted it, before it was closed without notice on 11th March 2025.  A threatened legal challenge by the NFU asserting that Defra had acted illegally by suddenly closing the SFI without giving the 6-weeks notice period has made the Department do a (partial) U-turn.

In a written Ministerial Statement, Daniel Zeichner, has said applicants who started an SFI application within 2 months of 11th March 2025 (i.e. on or after 12th January) but did not submit it by that date will be given 6 weeks to complete an application. Defra has said there are about 3,000 businesses in this situation and it will contact them to confirm if they are eligible and, if so, what the next steps will be, including when the 6 weeks application window will open and close.  However, agreements will only be offered subject to the following restrictions;

• only one application may be submitted per farm business
• agreements will be offered up to a maximum value of £9,300 per annum for the duration of the agreement (excluding the SFI Management Payment).  Apparently this maximum value reflects the median average agreement value for existing SFI 2024 agreements.
• agreement holders will not be able to add more land to ‘rotational’ SFI actions after Year 1 of their agreement

Mr Zeichner has said there needs to be a cap on payments due to the budget for the SFI 2024 scheme having already been fully allocated, meaning any further agreements entered into under the SFI 2024 scheme will need to be funded from other areas of Defra’s departmental budget.  He has said ‘I have therefore borne in mind the need to avoid creating unfairness to others or undermining other important objectives by unreasonably diverting funds from the wider Farming and Countryside programme’.

In terms of the other groups of farmers who were told they would be able to submit an application after the closure date – farmers who were in the SFI Pilot, assisted digital applications, and applicants with known system issues that prevented them from submitting applications, according to the statement they will also be contacted shortly.

The Statement also refers to what might be available in the future – ‘SFI remains closed to new applications for the time being, pending the launch of the reformed SFI offer, which we will publish more detail about this summer.  Work on this offer is already well underway; we’re developing it in partnership with sector stakeholders and the scheme will target public funds more effectively to meet the needs of both farmers and the environment.’

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Baroness Minette Batters has been appointed to head Defra’s review into farm profitability.  The review will feed into the 25-Year Farming Roadmap as well as the Land Use Framework and the Food Strategy.  It covers England only.  Baroness Batters will be supported by a team of Defra officials – presumably the new ‘Farm Profitability Unit’ as announced by Steve Reed at the NFU Conference in February.  The review will also be consulting widely with the industry.

The position of Farming Profitability Review Lead is for six months, indicating the final report will be finalised sometime in September or October.  The report aims to make recommendations on policies both the Government and industry could implement to improve farm profitability.  It is highlighted that these must be ‘pragmatic’ and will look at the short, medium, and long term.  It is stated that this is an ‘internal report submitted to the Secretary of State for his review‘ – but presumably the results will be made public.

The full terms of reference can be found here – https://www.gov.uk/government/publications/farming-profitability-review-terms-of-reference/farming-profitability-review-terms-of-reference .  This sets out three main issues for Baroness Batters to consider;

• how farmers can reduce barriers to profitability, increase profit and manage their own risk to improve financial resilience, such as through embracing innovation, improving productivity, increasing market access and using risk management tools
• how the supply chain can support farm profitability such as through greater transparency, cooperation and ensuring a fairer distribution of risks, rewards and responsibilities
• whether there are other ancillary activities that farmers can undertake to support profitability and wider economic growth.

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Defra has announced the Farming Equipment and Technology Fund (FETF) will open for applications on the 29th May for just 6 weeks; closing on 10th July.  All three themes; Productivity, Slurry Management and Animal Health & Welfare will be open at the same time this year.  The FETF offers grants towards the cost of specific pieces of equipment and technology that have been identified by Defra to improve productivity, sustainability and animal health and welfare.

The minimum grant funding per application is £1,000, up to a maximum of £25,000 per theme.  The scheme is not ‘first-come, first-served’ but it is competitive.  Once the application window is closed, all applications will be scored (see below).  Applicants may not receive some or any funding depending on how high their application scores.  In total there is £30m to support the Productivity and Slurry Management themes and a further £16.7m of funding for the Animal Health and Welfare theme.

Scheme guidance is available now to help applicants prepare in advance and can be found at https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-2025   But note, applicants must not buy any items in their application before they receive a Grant Funding Agreement; it may be possible to give a supplier a refundable deposit – see scheme guidance.  There is a set ‘list’ of equipment available and Defra has calculated an expected average cost for each item.

Successful applicants will receive a grant amount of 40% or 50% towards either:

• the average cost of the item – if an item costs you the same or more than the expected average cost in the item lists, or
• the actual cost you pay for the item – if an item costs you less than the expected average cost in the item lists

An item’s expected average cost and grant amount is available in the specification lists, the links to these are provided below;

• Productivity – https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-2025/productivity-items-and-specifications-farming-equipment-and-technology-fund-fetf-2025
• Slurry Management – https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-2025/slurry-items-and-specifications-farming-equipment-and-technology-fund-fetf-2025
• Animal Health & Welfare – https://www.gov.uk/government/publications/farming-equipment-and-technology-fund-2025/animal-health-and-welfare-items-and-specifications-farming-equipment-and-technology-fund-fetf-2025

The list also includes a score for each item; it is possible to increase an application’s score.  For an Animal Health and Welfare grant, a score can be increased by 20% if the applicant can provide evidence that they have discussed their FETF 2025 application with a vet.   When applying for a Productivity or Slurry grant if the SBI has received less than £10,000 of Productivity and Slurry funding from any previous FETF rounds, this can increase the application score by 25%.

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Strong livestock prices and lower feed costs sees Meadow Farm forecast to make a profit from production for only the second time in it’s history in 2025/26.  However, its SFI agreement is important in boosting overall farm profitability.  Any similar business that has missed-the-boat on the SFI will be in a far less comfortable position.

Meadow Farm is a notional 154-hectare (380 acre) beef and sheep holding in the Midlands.  It consists of grassland, with wheat and barley mainly for livestock feed.  There are 60 spring-calving suckler cows with all progeny finished, a dairy bull beef enterprise and a 500-ewe breeding flock.

The 2022/23 year was challenging; although output prices had started to rise (particularly for sheep), input costs increased substantially (feed costs were especially expensive).  Cuts to the BPS meant the overall farm made a loss.  In 2023/24, the gross margin improved due to lower costs and stronger livestock prices.  Overhead costs continued to drift upwards.  The farm again made a loss from production although it was much lower than the previous year.

The 2024/25 year, just finishing, shows an improvement in output once more.  Meadow Farm sells its finished stock in the autumn, so will not have experienced the significant rise in cattle prices since the turn of the year.  Some of the higher variable costs are due to the farm entering the SFI (i.e. herbal ley establishment).   The extra income from the SFI offsets the decline of the BPS and the business profitability improves.

Farmgate cattle prices are exceptionally high currently.  Even using a ‘conservative’ budgeting price compared to the current high prices, for the 2025/26 year about to commence, Meadow Farm is budgeted to make a margin from production.  This is for only the second time (previously in 2021/2022).  However, a (bigger) reduction in the BPS, sees business surplus, similar to the year just finishing.

This farm entered the SFI (2023 version) this time last year.  However, we have modelled an alternative scenario where the farm’s CS agreement carried on until the end of 2024.  This meant it was still working-up its SFI application when the scheme closed on 11^th March.  In this situation, Meadow Farm would be looking at a Business Surplus of just £113 per Ha.  Also, it is not clear what opportunities, if any, may be there in the future for farms like this to enter into environmental agreements.  There is a clear split between the ‘haves’ and ‘have-nots’ when it comes to the SFI.   

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