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Agri-environment subsidies provide more stable farm incomes than direct payments

One of the consequences of Brexit has been that the UK government can have more flexibility and responsibility in deciding its own agricultural policy.

25 January 2021

Subsequently the government decided that the cornerstone of the new agricultural policy would be the introduction of the Environmental Land Management Scheme (ELMS) as a way to obtain public goods using public money.

New research conducted by researchers from the University of Reading, Rothamsted Research and the Centre for Rural Economy at Newcastle University investigated whether and how subsidies paid to farmers for protecting the environment may affect farmers’ income stability compared with payments based purely on the number of hectares being farmed.

The researchers examined data from the Farm Business Survey for 2333 farms in England and Wales, during a 9 year period between 2007-2015, for a range of different farm types.

Lead author and PhD student, Caroline Harkness said: “Farmers are facing increasing pressures due to changes in climate, government policy and prices. Instability in farm income can be a real challenge. It was interesting, and encouraging, to find that farms adopting environmentally friendly practices also had more stable incomes.”

“Environmentally friendly farming practices including engaging in agri-environment schemes, diversifying outputs, and reducing the use of chemical inputs such as fertiliser and pesticides, are associated with ecological and environmental benefits and importantly could also increase the stability of farm income.”

Francisco Areal (Centre for Rural Economy, Newcastle University) says: “As opposed to the Common Agricultural Policy the Agriculture Bill does not explicitly aims to provide stability of income to farmers. However, a move from direct payments towards agri-environmental payments through the phase out of direct payments and the establishment of ELMS can contribute to farmers’ income stability, as found in this research.”

“However, this research also shows how important it is to provide flexibility within the scheme since there is no a single bullet that works for all farmers. There is a need in the schemes to account for the different farm types and the environmental characteristics associated with the location of farms”.

Thus, dairy, general cropping and mixed farms that received more agri-environmental payments had more stable incomes in the short and medium-term. However, farms in the so called Less Favoured Areas - predominantly upland farms who graze sheep or cattle, do not see the same stability benefits from agri-environmental payments.

Ms Harkness said: “Farms in the uplands are already operating in challenging environments and many of the options in agri-environment schemes may not be available or well suited to deliver ecosystem service benefits in these landscapes.”

The research also shows that farmers shouldn’t put all their eggs in one basket, as those diversifying into a wider variety of crops or livestock receive more consistent year-to-year incomes - as do those who reduce their use of fertiliser and pesticides.

The results also showed that greater diversity in crop and livestock activities increased the stability of farm income, in dairy, general cropping, cereal and mixed farms - but this was not an important factor for farms that primarily graze livestock.

“Increasing diversity of outputs could make farm businesses more resilient to economic shocks or price fluctuations,” says Ms Harkness.

Reducing the input intensity also seems to be an important factor increasing the stability of income for all farm types, she added.

“With rising input prices, a concern of many farmers is to control the use of expensive inputs. Whilst farms with higher input costs are more likely to have higher outputs this does not always translate to a higher farm business income, and these farms also saw larger fluctuations in income.”

Dr Jake Bishop, Lecturer in Crop Science and Production from the University of Reading’s School of Agriculture, Policy & Development said:

“Our latest research is interesting as it shows that farms that were adopting environmental management actually benefitted financially from their stewardship. This is encouraging news for farmers as the UK moves to the Environmental Land Management scheme.

“Diversifying outputs and more efficient use of agrochemicals is also associated with environmental and ecological benefits, including for soils and pollinators, these benefits may have translated into  more stable farm incomes over the nine years we examined.”

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