Developing strategies to manage greater exposure to risk is becoming increasingly important for farmers and landowners as we move into 2024, according to land and property specialists Strutt & Parker.
Rhodri Thomas, Head of Rural at Strutt & Parker, said: “The pace of change has really stepped up in recent months, with those at the helm of farms and estates facing a quagmire of new legislation and government schemes. Layer on pressures like more extreme weather and increased market volatility and the picture gets all the more complex.
“We are facing a greater level of risk than we have been used to and so must consciously adopt strategies to manage it. We are also approaching a general election which will inevitably throw up questions about future policy. However, opportunities will also abound for those businesses which are prepared to tackle the complex and often nuanced issues they face, ask difficult questions and take decisions accordingly.”
Themes that are likely to be prominent for farmers and landowners are:
1. Delinked payments
2024 marks the start of delinked support payments in England. This means farmers no longer have to submit a Basic Payment Scheme application form in May and their eligibility for payments no longer requires the occupation of farmland, farming activity or the possession of entitlements. Farmers can still receive a delinked payment even if they choose to stop farming altogether. However, the phasing out of payments continues, which means that farmers will be facing reductions of 50% to 70% depending on the size of their claim. Basic Payments will continue to be paid in Wales and Scotland in 2024.
2. Effective risk management
The decline of BPS removes the financial buffer that has enabled many farms to cope with high levels of volatility from year to year. But farming is a capital-intensive business and the levels of working capital required for continued operation of the farm are increasing significantly with input cost inflation. Given rising interest rates, farmers need to consider carefully how to optimise the use of machinery, equipment and labour to raise efficiency, while managing their exposure to risk in terms of cropping and land use decisions. For example, incorporating some environmental management options into the existing rotation, instead of more traditional break crops, is something businesses may want to consider as they will deliver a fixed income, largely irrespective of the weather, with a much lower working capital requirement. An effective risk management strategy might also involve considering the advantages and disadvantages of adopting alternative business structures, looking for new opportunities to add value, taking advantage of grant schemes and forging supply chain relationships where risk is shared.
3. Cross-compliance rules
Delinking means that, technically, from 1 January 2024 cross-compliance rules will not apply. However, most of the standards in cross-compliance will continue to apply to activities as they remain in other English laws. At the time of writing, DEFRA has not confirmed the outcome of its consultation on replicating hedgerow management rules. However, it is anticipated that the requirement to have a ‘buffer strip’ two metres from the centre of a hedgerow to protect its structure, and closed periods when it is not possible to cut hedgerows, will continue. It would therefore be advisable to continue to operate as if cross-compliance requirements are still in place.
4. Renewable energy projects
The Government has set a national target of increasing solar capacity by nearly fivefold to 70GW by 2035, meaning there may be some lucrative opportunities for farmers and landowners. Getting a grid connection has been an issue for many projects, but Ofgem has recently announced that National Grid ESO is now implementing a new approach to establishing connections, with the aim of speeding up viable renewable energy projects. Rents of £1,000 to £1,350/acre, or 5.5% of the annual turnover, are achievable for large-scale solar sites. Battery storage schemes are also becoming more prevalent, with rents of up to £2,000/MW being offered, which equates to £50,000/acre. Smaller-scale renewables installations, such as roof-mounted solar, may also look appealing with energy costs remaining high.
5. Planning reforms
Permitted development rights – such as Class Q and Class R – remain a useful way to convert properties into alternative uses, which can yield a good rental income. Class Q allows agricultural buildings to be converted to residential use, while Class R gives farmers the opportunity to convert redundant buildings to commercial use. Following a government consultation in Summer 2023, changes are anticipated next year to the thresholds under Class Q and Class R, which could open up new opportunities for farmers in terms of supporting diversification.
6. Let property compliance
Farms and estates with let property will know that the challenges and legislative framework around being a residential landlord are increasingly demanding and this only looks set to continue. While the Government has scrapped proposals for a minimum EPC rating of C for rental properties in England and Wales, this proposal remains on the table in Scotland. In England, there is also the prospect of the Renters’ Reform Bill, currently making its way through Parliament. This promises to lead to significant changes for landlords – although the Government has announced that it will not implement its proposed ban on Section 21 evictions until the court system has been reformed to cope with a new approach.
7. Social value
Social value as a measure of sustainability is rising up the agenda. It is not a new concept but has been rather overlooked by the push to raise environmental standards and enhance economic performance. Over the coming months and years, expect to hear much more about social value – which is effectively the contribution that farms and estates make to their local communities and wider society. This might include something as simple as hosting the village bonfire night or perhaps providing car parking for church events. These seemingly small actions will all add up and farms and estates would be well advised to start to get an understanding of what social value they already deliver, so they can plan how best to enhance and harness it.
8. Land reform in Scotland
The Scottish Government has promised a new Land Reform Bill during the 2023/24 legislative programme. The Bill will aim to address concerns about the highly concentrated pattern of land ownership in rural areas of Scotland. Proposed measures are likely to include the introduction of a public interest test for transfers of large-scale land holdings and a requirement on owners of large-scale holdings to give prior notice to community bodies of their intention to sell. Anyone seeking land-based subsidies may also need to have the land registered in the Land Register, to ensure transparency around who benefits from public funding. The Bill is also likely to include measures to modernise tenant farming legislation.
