It’s been a long wait to find out the details of the new Agriculture Bill, but they were finally announced yesterday (12th September 2018).
The Basic Payment Scheme (BPS) was always going to be a target for change, and it has been confirmed that direct payments to farmers will be phased out gradually from 2021 to 2027. In the future, payments will be made in return for providing ‘public goods’ - such as environmental measures, higher animal welfare standards and public access to the countryside.
To help new entrants and to give farmers flexibility to plan for the future, payments up to 2027 will be “delinked” from the requirement to farm the land. These payments can be used by farmers to invest in their business, diversify their activities or else retire from farming. The exact details are yet to be confirmed.
Start planning for change now
It is fortunate the BPS will be phased out over time and not withdrawn immediately. But all farm businesses should begin to plan ahead to ensure they are in a strong position and can cope with the loss of subsidy income. That process should start now and not wait until 2021, or later, when the reduction in subsidies may have a marked effect on farm profitability.
Some businesses will need to make big changes – whether that’s change enterprises, invest in new technology or buildings, improve efficiency and control costs, or plan for succession or retirement.
Planning finances will be a key part of that change. Any business finances or debt will need to be structured in the best possible way to control finance costs. Farms shouldn’t be paying over the odds for loans or mortgages and should review their overdraft and short-term debt. It can often pay to move persistent overdraft debt onto a longer-term loan.
The business also needs to be prepared to access additional finance quickly and easily for expansion, diversification or other investment opportunities when the timing is right. Planning early increases the chances of project and funding success.
We are waiting to see the reaction to the Agriculture Bill from all the banks, but farms will need to have the support of an understanding bank and bank manager. If the existing bank doesn’t support investment decisions, then owners or managers should not be afraid to look elsewhere. There are plenty of options among the high street, private and alternative banks.
Seek professional advice
Farmers should not underestimate the value in using independent, professional advice – whether enterprise specific, business planning, planning permissions or finance advice.
The R&BS team of consultants have years of experience working with farming businesses and with lenders. We understand how challenging the phasing out of payments may be for many farms and we can be of crucial help in the planning process. We can help shape business plans and lending requests into bank-ready proposals which are more likely to get a positive lending decision.
We are in regular contact with the agricultural teams of the main high street banks, private banks and rural and alternative lenders. We regularly monitor their appetite for lending to farm businesses and will know which ones are supportive of the changes to the farming industry ahead - and which ones aren’t.
While details of the delinked payments and other scheme details are yet to be confirmed, there is no doubt that many businesses will be investing to strengthen the business and remain in farming for the long term.
Now is the time to set those wheels in motion; and R&BS are ready to help you make your plans happen.