Launch of the Sustainable Farming Incentive

The Sustainable Farming Incentive (SFI) is the first of three tiers of the Environmental Land Management Scheme (ELMS), currently being set up to provide subsidies to farmers, as the Basic Payment Scheme (BPS) is phased out.

Unlike BPS, however, the focus under ELMS is providing public money for public goods, such as clean and plentiful water, environmental protection, mitigation of climate change and thriving wildlife and plants.

The SFI launches in Spring 2022, with payments aiming to be made before the end of 2022 and will be open to all farmers in England who currently receive BPS.

Following expressions of interest in the Spring, the first pilot agreements for England go live in October 2021. Payments under the pilot range from £6 - £110 per hectare depending on the actions undertaken and whether the ambition level chosen is introductory, intermediate, or advanced.

From mid-2022 to 2024, the SFI will be expanded to cover a wider set of sustainable farming standards with a full roll-out intended from October 2024 onwards.

Opportunity to adapt

The SFI will be funded by progressive reductions to BPS payments. The aim of this shift in funding is to encourage farmers to adapt and focus on sustainable outcomes to access payments. Revenue streams are opened for natural capital assets that were previously ineligible features under BPS, such as farm woodland. Directed funding will allow for targeted management of features previously caught more generally by greening, such as hedgerows.

With three ambition levels within each standard, the SFI is intended to be a flexible scheme to familiarise farmers with the new environmental focus. Both farmers and policy makers can then apply what is learnt to progress towards expanded SFI standards and the full roll-out of the remaining ELMS tiers of Local Nature Recovery and Landscape Recovery.

Initial focus of the SFI

On 30 June, DEFRA published an update regarding the detail of the SFI. The first standards will focus on soil health and animal health and welfare, with four core elements as follows:

  1. Arable and horticultural soils standard
  2. Improved grassland soils standard
  3. Moorland and rough grazing standard
  4. Annual Health and Welfare Review

Soil health underpins the fundamentals of farming, which is why it has been chosen as the initial focus. Indicative payment rates for the soil standards range from £26 - £70 per hectare, again dependent on the ambition level chosen.

The moorland and grazing standard will be an introductory standard requiring actions to assess the range of habitats and features, plus identifying pressures and risks such as wildfires to aid greater understanding of moorland areas. The detail and payment rate of this standard are still being finalised and are expected by November 2021.

For livestock farmers, the fourth pathway is targeted support funding for an annual review from the vet to provide a proactive approach to animal health and welfare. These standards are wide in scope and will cover a wide range, enabling the SFI to have scale from the outset. The payments are expected to range from £269 - £775, varying by species.

Eligibility

To be eligible for the current SFI pilot, farmers had to be in management control of the land for the entire pilot period until 2024. This condition may still be imposed when the SFI is officially launched next year. This could create issues for agricultural tenants, who may not have sufficient time left to run under their tenancy.

Tenancy restrictions

In addition, FBTs or Agricultural Holdings Act (AHA) 1986 tenancy agreements may contain restrictions against applying to enter new subsidy schemes – if they do, then depending on the exact terms, landlord's permission to access the SFI may be required before an application can be made.

However, if consent is refused, AHA tenants may have recourse under new regulations which came into force on 21 June 2021. The Agricultural Holdings (Requests for Landlord's Consent or Variation of Terms and the Suitability Test) (England) Regulations 2021 allow AHA tenants to refer to an arbitrator or expert, a request for landlord's consent to access relevant financial assistance, such as the SFI (see Agriculture Act 2020: New power for AHA tenants to override tenancy restrictions).

Current BPS claimant

In addition, farmers must currently be claiming BPS to be eligible. Recently restructured businesses and new entrants may be excluded. However, the detail on eligibility for the wider rollout is yet to be published and there are clear plans to expand access to the SFI over time.

Existing agri-environment schemes

Those who already have an existing agri-environment scheme under either Countryside Stewardship or Environmental Stewardship can also access the SFI, provided the SFI standard they choose complies with such agreements and will not result in double funding for similar activities on the same land.

Wider policy context

Farmers should be mindful of the wider context of policy development when considering the SFI. If a lump sum is taken up under the proposed Lump Sum Exit Scheme in 2022, the recipient cannot then claim under the SFI during the agricultural transition period (until end of 2027) without repaying the lump sum. Although the Lump Sum Exit Scheme is still at the consultation stage, current proposals will catch partners of a partnership and directors of companies, as well as individuals. So, if a partner in a farm partnership or a director in a farming company intends to claim a lump sum then the remaining partners or directors will have to forgo applying for SFI funding for the remainder of the transition period.

Conclusion

The SFI scheme is in its infancy, but the recent detail from DEFRA indicates the scheme will be highly flexible. Hopefully, this will enable targeted and bespoke payments and facilitate meaningful change.