This is how upland farms could have a bright future – Inside track

The Guardian has reported that Department for Environment, Food and Rural Affairs (Defra) officials withheld analysis of upland farm incomes under its post-Brexit farm payments schemes, fearing many would sell their farms if they saw it. But our analysis suggests this wouldn’t need to be the case.

Upland farmers could make a good living if they have access to the most ambitious elements of the government’s new Environmental Land Management (ELM) schemes and if the payment rates better reflected the value of the nature and climate benefits they could deliver. If this is combined with advice and support to increase the profitability of food production, the future could be bright for upland farms: beautiful landscapes rich in wildlife, managed by profitable farm businesses, retaining the history and culture that is so valued in these areas.

But, it’s true that, on the face of it, the outlook for upland farmers looks bleak. Conditions in the uplands are not well suited to producing food, and the difficulty of farming there is reflected in farm incomes. On average, upland grazing farms lost around £16,000 on their agricultural activity in 2019 (and much more if unpaid labour is taken into account), and they only survive because of government subsidies and other diversification activities, like holiday lets. As the legacy EU subsidy scheme is replaced by  new payments under ELM for environmental public goods, upland farms, and many lowland farms too, will need to work out how to adapt their businesses.

Payment rates should reflect environmental valueOur analysis shows that, if environmental payment rates were based more on the value of the benefits that habitats, like healthy peat, native scrub and woodland, and biodiversity rich grasslands can provide, upland farmers would have a better chance of making a profit. For example, if woodland planting was paid for at the market value of the carbon it sequestered, the average upland farm could maintain its income, even after current subsidies are removed, by planting a third of their land with trees, assuming they could break even on agricultural production. But this is a big assumption, more on which below.

Using over a third of a farm’s land for woodland would increase its income compared to today. This is just one example and only a single benefit: carbon storage. If the value of other benefits, like boosting nature, improving water quality and flood protection are factored in, environmental delivery overall should be a significant business opportunity for upland farms that want to take advantage of it.

But  payment rates aren’t calculated in this way. The ELM schemes haven’t managed to properly break away from the legacy of the EU Common Agricultural Policy payment rates, based on amounts equal to the lost agricultural income caused by implementing any environmental action, plus the costs involved in doing it. For upland farmers, historically this has meant they have received lower payments for actions compared to lowland farms, because they make less money from agriculture, so their ‘income foregone’ has been lower. Conversely, this method of payment can also encourage very productive land to be taken out of production, in return for actions with comparatively little environmental benefit. This creates concerns about impacts on overall food production.

In fairness to Defra, in its update of payment rates in January this year, the department matched upland payment rates to lowland rates, increased payments for some actions and introduced new ones, like agroforestry (ie integrating more trees in farmed land), which may have improved the outlook for some upland farmers. But it’s not clear what the underlying basis for these rate changes is. It doesn’t appear to be based on environmental benefit, as agroforestry will be paid at significantly higher rates than woodland, whereas the environmental benefits of woodland are surely higher than those of agroforestry.

Upland farms face difficult choices to become profitableMaintaining farm income by converting to environmental delivery on a third of a farm only stacks up in our example if the farm also stops losing money on its remaining agricultural production. If losses on agriculture continue at the current rate,  around a half of the farm would need to switch to environmental delivery. This speaks to the dilemma of the uplands: agricultural production is reliably unprofitable, so major change is needed. Reducing  agricultural losses is essential if farmers want to keep more of their land in food production.

Some upland farms can reduce their  losses by reducing their stocking density to what is known as the ‘maximum sustainable output’ (MSO), or what the land can support without expensive feed inputs. But, while MSO can cut losses, on many farms agriculture will still be unprofitable.

A complementary route for those upland farmers who prefer not to do much environmental delivery is to pursue direct sales, ie cutting out the middle man, selling higher value products and allowing the higher costs of UK production to be borne by the business. The question for upland farmers who want to do this is how large a market can they create for  direct sale, local produce?

We need the Land Use Framework for a more strategic approachCreating profitable farm businesses in the uplands is not straightforward, but with well designed policy it should be possible. While Defra has taken steps to increase payment rates for environmental actions, there are still concerns that areas of low productivity, like the uplands, which can offer environmental benefits without harming food production, are missing out. Meanwhile, another concern is that large areas of highly productive arable land could be taken out of production, because payment rates have increased for environmental actions on this land, with no limits on the total area a farmer can choose to switch over.

All this points to the need for a more strategic and planned approach to the agricultural transition and the implementation of ELM. The long promised Land Use Framework is needed to provide farmers with more clarity about what the government is trying to achieve  in the long term and enable them to see where they fit in and plan how to adapt their businesses. The framework should recognise that different areas of land are suited to different things. It should steer ELM towards funding environmental delivery on the least productive land (including much of the uplands) and focus on maintaining food production (while reducing pollution) on the most productive land. This would offer a brighter future for the uplands, as well as the rest of English farming.