The Transitional Plan, announced on Monday, formally moves the agricultural responsibilities from the EU Commission to Defra. This is the first piece of post Brexit legislation. This policy will be shaped by decisions made in Whitehall and will no longer need to be negotiated with 27 member states. For example, a more proportionate approach to inspections is anticipated with high risk businesses being targeted and relevant fines being applied.
The transitional arrangements affect the subsidy arrangements, but the policy is about more than payments. The policy includes spending public money for public goods but also encourages environmental improvements and updates the regulatory baseline. There is a target to accelerate agricultural and horticultural growth to overtake major competitors.
The BPS payments will be phased out over time, as shown in the chart below, with the biggest claimants facing faster reductions.
The phased approach is similar to the historic payments in the transition from SPS to BPS. The overall ringfenced £2.4 bn budget shifts its focus from the direct payments to the environmental payments as shown below.
In 2020 68% of the budget went to direct payments, in 2024 this will drop to 34% of the budget.
The main sectors to be impacted by this reduction and shift of focus are the grazing livestock and cereals businesses as they receive 34% and 22% of the BPS payments respectively. It is considered the horticultural, pigs, poultry and dairy sectors will be more resilient to these changes as the subsidy payments are less than 10% of the total payments combined.
The last BPS payment will be made in 2027 and ELM will take over from 2028 when it is launched in full.
The two main arms going forwards are environment and productivity
Payments are looking to switch from a compensatory basis to managing the environment as an enterprise. Realistically this will mean that active management will be needed to receive payments. A slurry storage capacity consultation will be undertaken in 2021. There will be a animal health and welfare pathway, the details are unknown at this stage.
The productivity does not just seek to increase capacity but to improve efficiency and competitiveness at the same time The Farming Equipment Technology Funds and Farm Transformation Fund appear to replicate the recent capital grants for farm equipment and development whereas resilience fund and slurry investment are also at outline stage.
This gradual reduction in BPS value means businesses can act now to plug the gap left by the decrease in annual payment. This may mean entering into a Countryside Stewardship Agreement, diversifying or looking at other opportunities for adding value.