Jeremy's Blog 30th October 2020: Dynamics for Business Change
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 29th October 2020
With barely 60 days to the end of the EU transition period, we need to look at the dynamics for business change as domestic policies take effect.
All new schemes – productivity, resilience, land management, environment, animal welfare and so on – would be funded from the one pot of money, level until 2024, putting Basic Payment rates under pressure. The potential rewards from productivity improvement (not production volume but economic effectiveness) greatly outweigh that £2.8bn.
The New Year, 3 years after Health and Harmony, starts England’s seven year agricultural transition. New policies will replace the legacy of old CAP schemes, the Basic Payment going over 2021 to 2027. What might that drive?
For the large majority of cereals and grazing livestock businesses, perhaps not much more than a third of agriculture’s output by value, Basic Payment is a significant component of income, albeit typically dwarfed by the value of produce sold. On a snapshot, Basic Payment will, on average, be likely to approach the assessed profit. Losing that is motive enough for change; some might absorb the pain, others will react.
However, subsidies have been passed on into costs, not retained as gross income. With the EU’s tariffs, they have shielded business approaches and structures that would have changed. The agricultural transition reverses that dynamic, putting those issues under the spotlight for each business, lowland as much as upland, seeking to earn its livelihood.
As in previous periods of financial pressure, that stimulates sustained change in costs and structures and in who is producing what where and how it is sold. With the flexibility of the marketplace, each change opens up new changes as values, perceptions and people adjust.
Simply increasing land area might not now be the answer, as we may see businesses reject some land, become higher value on smaller areas and technology may remove a driver for scale.
ELM, still developing for late 2024, should not be seen as a new BPS, avoiding this. It will be in the toolbox, suiting some more than others. Other new schemes will mean it has a lesser budget while payments might still be based on a compensation approach, perhaps paying less to those who now earn least.
The focus has to be on the business, with answers not only of improved performance but also from new business approaches on one hand, to letting out or extensive land management on the other. That is a call for professional advice.