Farmers have recently been complaining about a lot, and in some cases with good cause. Brexit has created lots of practical difficulties, without delivering all the benefits they were promised. Migrant labour has been disrupted with as yet little sign that British workers want British agricultural jobs. The introduction of ELMs (Environmental Land Management schemes) has been at times slow and badly administered, and most recently the short-term closure of the Sustainable Farming Incentive (SFI) has left some farmers stranded. The phase-out of the Basic Payment Scheme (BPS) has been accelerated. There have been the problems of the lack of continuing with longer-term environmental schemes. Inheritance tax has left many older farmers in a very difficult position. On top of all this, energy prices are extremely high, the upstream supply chains to agriculture have been in retreat, and the weather has not been kind.
In consequence, farming lobbyists have been all over the media, while the tractors have been on the streets demanding immediate help and inevitably more money. The theme of lobbying has had in the background the old chestnuts of “self-sufficiency”, “food security” and “cheap food”. Missing from both the government and the industry lobbying sides is any serious long-term plan for agriculture and agricultural policy. On the longer term, Labour, the party overwhelmingly made up of the British urban population, has not been listening, and the farming lobbies have had their heads in the sands. None of the other parties has as yet developed a serious agricultural policy.
The changing fundamentals
In all this, there is little recognition of the sheer scale of change already visible and the even greater scale of changes coming to agriculture, regardless of what the government does in the short term and regardless of the short-term lobbying. It is on a scale not seen since the coming of tractors and fertilisers. Whether we like it or not, these changes are going to take place, and all farming has to be seen in this context. They are in: technology, including genetics; financialisation; corporatisation; competing land uses; and the environment.
(i) Technology
There are two great technological revolutions going on simultaneously in agriculture: digitalisation, AI and eventually quantum computing; and genetics.
Digitalisation
Digitalisation radically changes what farmers do, providing in real time a mass of data which was once the domain of farmers who knew their land and over generations. Through trial and error, they built up experience and knowledge about how best to farm their patches. New digital technologies wash away much of the value of that personal knowledge by offering the prospect of having ever more granular data on every square metre of farmland, incorporating ever more variables, and gradually going deeper and deeper into the soils.
This new data can be integrated with lots and lots of other datasets, from the science of the geography, geology and microbiology of the soils to ever-improving weather forecasting. AI makes it possible to run multiple scenarios of each possible crop and each date for doing the drilling, the spraying and the harvesting through to future markets and cost data. The science of farming is being married up through AI with weather forecasting and with the economics of prices, markets and costs.
Though most of the wider discussion of AI focuses on how whole swathes of service industries get wiped out, from mid-level lawyers, estate agents and bank managers through to those undertaking manual tasks, rarely yet do the full consequences for the agricultural industry get recognised.
The digital revolution impacts not just on what crops are planted, where and when, and how they are precision managed, but also on the way the tasks are done. Hands-free farming has been a novelty to date, but digitalisation has made robotics stretch beyond to large-scale farm equipment, like tractors, through to crop harvesting. Across farms, digital activity is replacing the mechanical skillsets that traditionally farmers needed to have, as tractors in the past replaced horses and milking parlours replaced milking by hand.
Digitalisation enables the fusion of economic markets with crops. If the yield and its timing are better predicted and managed, the use of future markets and hedging becomes more straightforward, reducing the need to worry about whether the farmer will actually have the volume of crops for sale, and what future costs are going to be.
These gains extend to energy and water management, the two fundamental inputs for farming, alongside and impacting on the soils. Food is energy, and the management of the energy inputs can be turned into a much more precise science. Digitalisation means that electrification and integrating electricity generation with farm demands is a digital information opportunity.
This is a massive opportunity to improve yields, target inputs like fertilisers and pesticides and improve productivity and at the same time reduce risk and uncertainty and its management and to reduce labour input costs. In a future large-scale farm, there will be maths graduates in offices. Migrant workers may no longer be a crucial resource.
Digitalisation is a bigger and more rapid transformation of agriculture than any seen in the past. The great changes in husbandry in the late-eighteenth century and the coming of diesel engines and the Haber–Bosch process at the end of the nineteenth century pale into insignificance in comparison.
Genetics
Advances in genetics over the last two to three decades have brought with them the ability to understand the genomes of all living creatures, and to manipulate the stuff of life itself. Gene editing and genetic modification of organisms are now well-established scientific techniques.
But modern genetic science offers much more. Synthetic biology develops the data characteristics of DNA and means that any life form can be decoded and manipulated. For agriculture, this means ever-improving animal stock, fish and plants available to farmers. It means that any virus or bacteria is open to mapping and manipulating and vaccines, in essence replacing the careful and remarkable skills of the stock and plant breeders with a menu of ever-improving options. The visual judging at agricultural shows becomes a spectator event analogous to watching a skilled ploughing contest with horses.
The merger of synthetic biology and AI and in due course quantum computing opens up a vast vista of opportunities to tailor and design what was once a local and regional activity. Almost any synthetic combination can in theory be simulated almost anywhere.
Further ahead, but also already in the foothills, is the synthetic production of food, bypassing the species and variety in their current forms and deconstructing the components, rearranging them and producing synthetic foods. Without much public recognition, except the hype around synthetic meats, lots of this already goes on in the food-manufacturing industries. Modern science has transformed the processes of getting from the raw farm products to the supermarket (and the logistics and distributional systems too). A lot of stuff we eat has only tangential relations with these raw foods. A jar of Nutella, for example, is a long way from a cocoa bean and has multiple additives. Tastes can be synthetically met with combinations of inputs from multiple countries. Though we may think of beefsteak and bread and milk and butter and sugar as ultimately “natural” products, what we actually eat blurs the distinction between natural and artificial.
As with the digitalisation and as part of digitalisation, the new genetics allows for the integration of all the granular mapping discussed above. Genetics allows the data on soils, water and energy costs and availabilities (and especially the intermittent renewable energy) to be married up to the optimal combination of genes in order to maximise outputs and handle the pesticides and fertilisers relevant to the soils, water and energy considerations. This agricultural revolution is the combination of these two technologies: digitalisation, AI and quantum computing; and synthetic biology.
(ii) Financialisation
A second fundamental change is also well under way. Developments in financial markets since financial liberalisation in the US, UK and Europe in the 1980s led to a gradual but radical separation of assets and production activities. It is reflected in the widespread securitisation of assets generally, and the precision management of different kinds of risks. Pension funds, infrastructure funds, and private equity have transformed the nature of capitalism, and radically.
Farming brings together very different assets and risks into one combined entity in the conventional family farm. The key assets are the land, the machinery, the buildings and farm storage, the processing buildings and equipment, and the data. There may also be assets in the form of animal stocks and their bloodlines (i.e. genetics).
The act of farming is the combination of these inputs in the most efficient ways possible, using labour and contractors or own-farm equipment. This is what farmers do. A family farm is typically a big asset of land and increasingly costly equipment. A farmer can already rent the land, and contract out the operations, such as sowing, harvesting, spraying and crop maintenance, so that the business is, in effect, a nexus of contracts.
A future farm may securitise the land asset or sell it to a financial institution. For investors, this is an inflation hedge, in limited supply but low-yielding. It is suited to long-term investors, and in particular it is analogous to a bond, being broadly predictable with lots of scope for gradual upside appreciation. Some of this is already going on directly as financial institutions move into the land markets. However, it is also reflected in the debt that farmers often take on from time to time – in effect, a mortgage on a valuable asset.
When it comes to machinery, its size and costs have increased dramatically. A modern tractor is an order of magnitude bigger than a Massey Ferguson 135 of the post-Second World War era. Few family farms have the ready cash to buy them, which leads to several possible approaches. One is to effectively lease a tractor from the manufacturer, and with this come not just the payments, but also the technical supports and maintenance, and sometimes the handing over of the data directly to the manufacturer. The tractor is in effect “owned” by the manufacturer, and what is provided to the farmer is a series of services that the tractor can provide. As with securitisation of the land value itself, this is a further separation of the assets from the operations.
The intermediary can be a contractor, and a contractor offers to provide and use the equipment on behalf of the farmer, and typically has a relationship with the manufacturer to provide the equipment and the finance that goes with it. Leasing and contracting have much in common.
The small farmer is largely left out of all the above, except in contracting out the services of the equipment where this is affordable, and, unable to afford to buy more land, they move into the rental market. In doing so, the small farmer blurs the distinction between being a traditional farm owner and manager, to be more like a land agent and labourer.
Being left out is a reflection of the economics of capital provision and financing. Farms have long been on a path towards greater scale, and this is probably going to be further pushed by the financialisation of the assets and the scale economies that result from the new capital equipment of the drones and hands-free machinery. Bigger means even less scope for young farmers to follow in the footsteps of their parents, and less scope for an enduring family-farm model.
A final aside on financialisation is the interaction with inheritance tax (IHT). In a securitised and financialised farming sector, the issue of family-farm capital values and the controversy over the introduction of the 20% IHT rate in the 2024 Autumn Budget gradually morphs into the general taxation on businesses, not asset-rich individual farmers locked into two specific assets: land and machinery. More on this later.
(iii) Corporatisation and vertical integration
Financialisation encourages consolidation and large scale. Into the operational space come corporations. It is a very odd feature of farming, which distinguishes it from other sectors of the economy, that the family business survives. We don’t have general family steel businesses, family digital and AI businesses, family car manufacturers, and so on. We have niche family businesses in food retail, restaurants and artisanal products. In those that remain, the scale of change is generally widespread. Supermarkets continue to wipe out independent food shops, and the hotel industry has corporatised, backed by financial institutions.
There are of course lots of vibrant new businesses and lots of family businesses that adapt to the changing economic circumstances. They swap scale for specialist products, like sourdough bread, farm shops, and online special products. Many of these are innovative, and often diversifications in family farms take on these sorts of product lines. Done well and successfully, an exit by selling to a large corporate is an enticing option and indeed encourages start-ups with just this route in mind.
These specialists aside, the corporatisation of agriculture is likely to run and run, and it is possible to envisage in the near future that the corporate model will dominate British food production by volume and value. These emerging corporations may develop out of individual ownership models. Dyson’s Beeswax enterprises behave like normal businesses, even if the founder retains a significant share. Large, landed estates look more and more like corporations too.
Alongside the financialisation and the corporatisation comes the ever-encroaching vertical integration. It is true that supermarkets do not own many farms, but, from the retail end, the contracts between farmers and supermarkets have many features of vertical integration, exercising an element of control over the supplier farms. It is not surprising that farmers repeatedly complain about the activities of supermarkets and especially the contracts and prices they impose. But this is what the supermarkets would do if they owned the farms, as well as the retailing operations. Whether the supplies are online or physical makes little difference to this point.
Farms can vertically integrate themselves downstream, and many small farms take this path by owning their own shops and online outlets. This is the farm shop and the delivery services model that Riverford offers, for example. Note, however, that most of these are relatively small-scale, for specialist products with small markets, and often combine “experience” activities in innovative ways.
Vertical integration not only goes down the supply chain to the supermarkets. For mainstream farming, it goes up the supply chains, notably, as discussed, in the provision of farm equipment. The contracts between machinery manufacturers and data companies (often linked) have many features associated with ownership: ownership of the assets themselves, leased to the farmers, and ownership of the data, plus exclusive maintenance contracts.
In all of this, the important thing to bear in mind is that ownership is not a simple relationship, but in effect a series of rights and obligations, and that contracts are of the essence of what ownership entails. There are no absolute property rights. Governments, regulators and a host of parties have claims on land too, and in both the purchase of inputs and the sale of outputs, there is a nexus of contracts. The key point is that the direction of travel in regard of control of farms has been seeping away from the family farm. Corporatisation is the natural twin to financialisation, and financialisation necessitates scale. The nexus of vertical contracts completes the picture of the gradual shift of control out of the hands of the traditional family farmer.
(iv) Competing land uses
Once upon a time, the main use – and hence value – of land was for agriculture: the production of food. The growth of urban cities and factories and industrialisation was a competing use for land, and since developments typically have much higher yields per hectare than field yields for agriculture products, these took up land. But not much: the bulk of the land remains agricultural.
The conventional number trotted out is 70% of land is under agriculture. It’s a big number and often used to emphasise just how important agriculture is, and why any environmental policies have to start with farming. However, it is a very misleading number. Lots of “agricultural” land does not produce the basic foods that are supposed to “feed the nation”. Lots of it is for other purposes already, and over the coming decades this substitution of land towards other activities is likely to grow.
A recent example is the closure of Britain’s two bioethanol plants. These use a lot of wheat to make an additive to conventional fuels and were a key part of the transition to “sustainable” aviation fuels (SAFs). This is wheat from primary agricultural land to put into vehicles and aeroplanes, not bread on supermarket shelves. It is farmed, but it isn’t about food or food security.
During the one time in the twentieth century when food production really mattered to feed the nation – the dark days of the Second World War – lots of land was brought into production. More land in more intensive production would produce more food.
Now think forward and imagine that the lobbying claims all about self-sufficiency were to be taken seriously. What would have to be done? Step one would be to try to get UK fertiliser and pesticide production going at a self-sufficiency scale – most is now imported. If the lobbyists want to hark back to “Dig for Victory”, imagining a future blockade of Britain, then this is the first huge obstacle. The second is the machinery, spare parts and the data management of maintenance. Much of this is imported too. The result is that digging for victory is already hopeless. Given the cyber dependency of the economy and the increasing electrification of everything, if Britain faced a hostile attack now, waiting to starve to death would not be the immediate worry. It would all probably be over much more quickly.
Farming now faces a multiplicity of competitors for land use, some of which is being taken up by farmers replacing crop and livestock production. Solar and wind farms are obvious examples. Though some sheep might be grazed around them, the reality is that hundreds and even thousands of hectares of solar farms are a much better economic bet than conventional farming. Add-on energy equipment to farm complexes, like battery storage, and AD (anaerobic digestion) plants, with the maize crops feeding them, and already land is being diverted away from the conventional food chain. In the uplands, farming is so dependent on subsidies that other activities need add only a bit to revenues to displace conventional farming. Upland pheasant shoots fit into this pattern, as do camp and caravan sites, holiday accommodation and experiences, and a host of other leisure pursuits.
Afforestation continues to have a big impact. Forestry has always taken up land, and especially in the uplands, pushing out marginal farming, usually sheep. The new game in town is carbon offsets, and this is focused on trees. It is a wild west of offset contracts, with not enough consideration of the baselines, the counterfactuals, the carbon emissions of the tree planting and fencing and other protections, the impact of disease and pests (deer and squirrels), the end use of the trees and the time the capital is tied up. Not much carbon is a genuine net gain after all these factors are taken into account. No doubt scandals will carry on emerging.
How much impact will all these competing land uses have on food production? A big part of this starts with the recognition that there is a world of difference between high-productivity intensive farming, scientifically augmented, and the rest. Most of the food is produced on core agricultural land. The rest is marginal, both physically and economically.
This is where the science comes in. Food produced outdoors exposed to the vagaries of the British climate is always going to be a risky business compared to indoors, even before the climate changes. A fundamental change is the emergence and expansion of indoor farming – for cattle and dairy production, and for horticultural crops. Controlled environments are just that – controlled. The inputs can be precisely delivered, and the environment can be controlled to limit pests and diseases.
Vertical farming has, like artificial meat, come with lots of hype and investment manias. But what vertical farming has demonstrated is essentially what tomato growing in the Netherlands has shown. Production is the consequence of combining water, chemicals and energy to produce outputs.
Large-scale farming indoors is some way off, but what matters economically is that, over time, it requires less land. Even where it requires, for example, fodder crops, these have a precise and targeted and vertically integrated market. Growing fodder for indoor dairies is analogous to growing crops for anaerobic digesters. In the case of cattle, there are not the conventional outdoor problems of trampling, poaching of fields, and the need for mob-grazing, as the gap between growth and feeding is a controlled activity.
These trends mean that less land will be needed for food production, and the competing land uses will have a bigger land supply. The conventional farmers on the marginal land are the salami in the sandwich, and this means that their future lies not in conventional food production for subsidy, but rather in these other land-use activities, including biodiversity. More on this later.
(v) Environment (including water)
The final fundamental change is environmental. On climate change, water and biodiversity, the old ways of doing things since the Second World War are over, though so far little actual change has taken place in farming, despite the rhetoric and spin. Farming has made virtually no progress on reducing its carbon emissions; has yet to properly measure what it is emitting (especially for the soils); contributes a big chunk of the pollution to rivers and watercourses on a par with sewage works; and abstracts a lot of water. The collapse of biodiversity has been significantly associated with modern intensive farming, including the application of fertilisers and pesticides and the nature of the crops and their cropping.
All of this has to change. Farming that gets to net zero, radically reduces water pollution, reduces water abstraction substantially and stops damaging biodiversity, and that starts to reverse the damage from 80 years of harmful practices, will be radically different.
It requires major changes in the way land is used, some surrender of land, and where farming joins the mainstream in paying for the pollution, it causes is a radical reversal of what has been going on. To date, farming has paid little regard to its environmental footprint, has expected to be paid to stop polluting, and only taken environmentally more benign paths when the subsidy regime has incentivised this.
The 2020 Agriculture Act is a milestone on a par with the post-war legislation in 1947. It has two radical central principles: public money for public goods; and the polluter-pays principle. Farming lobbyists have fought a strong rearguard action and tried hard to twist the SFI in effect to mirroring in practice much of the basic farm payment under Pillar 1 of the Common Agriculture Policy (CAP). The farm SFI agreements have been remarkably weak, and the government policy of “farm-led” agreements has not shifted the dial very much.
There may be farmers and especially some lobbyists who think they can head off the policy revolution that the 2020 Act portends, but so far they have been consistently outmanoeuvred by DEFRA. Though much maligned for the ways the ELM scheme has developed and implemented, DEFRA and HM Treasury (HMT) have relentlessly followed the logic of the 2020 Act. The BPS has been progressively removed, and at the fastest pace that could be applied in practice, despite the opposition of the farming lobby. This ends subsidies for food production, a private and not a public good, and it is the main force of the Act’s principle and of ELMs. The SFI and the higher-tier schemes have been progressively advanced, howbeit under severe budgetary constraints from HMT.
Given the pressures on public expenditure, there may be some in HMT who would like to see zero farming subsidies. The logic of the two principles is that the public subsidies should be genuinely additional for the public goods, and that the polluter-pays principle should increase the pressure to reduce carbon, reduce the damage to biodiversity and raise money.
This is not all going to happen in a matter of months or even in a couple of years, but there is not much doubt about the direction of travel. Farming is being increasingly treated like any other industry. The extension of the UK Emissions Trading System (UK ETS) to agriculture has been consulted on, as already paid for by other large industries.
Fitting the fundamentals changes together
The future of farming in Britain will be one dominated by new technologies, digitalisation and synthetic biology. It will be financialised and it will be corporatised. It will be competing with other growing land uses, and it will be lower-carbon and much less chemically polluting. Its use of water will be transformed.
It is not a question of whether this is good or bad news for farming. Its impacts will take time, and some will see profitable opportunities in the various transitions. Some will sell out, some will contract out, and some will diversify. Fundamental science and fundamental economics will dictate the pathways, and because these are ultimately market-driven, the outcomes must be uncertain. Markets and competition surprise, some get lucky, some make what turn out to be big mistakes, and there are always winners and losers. Failure to recognise these fundamental changes is the path to the exit.
Different types of farming will be impacted in very different ways, not least because they face different opportunities. For the purposes of exposition, let’s break up farming into three different types: large-scale enterprises; upland landscape farming; and low-input farming.
(i) Large-scale agribusinesses
Large scale does not necessarily mean large land holdings. It is the outputs that are large scale, and these will probably be produced with fewer and fewer inputs – including conventional land. The future of farming is one that brings them into line with the great food-processing companies and the supermarkets.
As farming becomes ever more capital-intensive, as the workforce professionalises and as AI and data management take an increasingly bigger role, these businesses are inevitably capital-hungry and limited liability is appropriate to the scale of the risks.
They may be a mix of equity ownership, from private equity to public listings. Some may retain the founders as part of the business, but mostly as minority holders.
Large corporate farming businesses will engage in mergers and acquisitions (M&As), buying up start-ups, forming alliances with scientific research and AI businesses, and engaging in vertical and horizontal integration. They may be focused on a particular segment of the market, or diverse conglomerates.
Large corporations provide the context for encouraging new entry. Start-ups typically have a capital structure and an exit strategy geared towards either floating in public markets or being acquired by big companies. The pharmaceutical industry provides a classic start-up environment. Developing new ideas, products and services, especially through research and development (R&D), lends itself to small, focused entities, and Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) are designed to promote this corporate culture. It is a route for new people to enter the industry. Examples vary from electricians developing new vertical farms in alliance with plant research centres, digital mappers to new generic research products.
The flexibility that comes with limited companies, and in particular large public limited companies, lends itself to the intensive high-volume production with access to new capital and lending that small conventional farm models lack. They also have an international dimension, which enables the sharing of productivity improvements.
The future farmers in the large corporate model will be much more highly trained than the average across family farmers. Careers in farming will be corporate, and the change in skillsets will be marked. Out go generalists who can do labouring work, fix machinery and do the actual work of current farming, and in come mathematicians, digital specialists, modellers and traders. The typical young farmers club of the future will have a very different membership.
(ii) Upland landscape farming
Corporates may well dominate high-production activities, and these are mostly located in the lowlands, notably to the east of England and the east coast of Scotland. In stark contrast are the uplands. These tend to have poorer soils, undulating landscapes that are less amenable to large-scale machinery, weaker transport links and logistics access, and higher rainfall. The uplands are about grass, cattle and sheep, and stocking densities are lower. In the case of sheep, quite a lot of farming is at best marginal in economic terms, and in practice highly dependent on subsidies. Whereas intensive lowland corporates can compete without subsidy, the upland farmers are especially hard hit by the removal of the BPS.
Because the value of this agricultural output is low, upland farms have been forced to diversify into tourism and the provision of environmental services. The intention when the 2020 Agriculture Act was put in place was that it would be these marginal and smaller farms that would receive the lion’s share of public-goods subsidies, because they are the best places to deliver these, and the resulting natural capital is more valuable because people have access to enjoy and benefit from it.
This has not been delivered, and associated cuts to National Parks budgets have exacerbated these difficulties, not least because the National Parks cover much of the uplands and are natural coordinators in identifying and encouraging the provision of these public goods.
The current position is consequentially quite dire for some upland farms. The farmers are typically older and often lack the digital technology skills. Young potential farmers who might take over, notably in the often small, family-owned farms, have many other opportunities. The value of the land outweighs the economic yields from it, and hence it makes a lot of sense to sell the farms for the premium they command to those whose prime motive is not yield but for whom these are potential natural capital and carbon-farming opportunities.
The public goods/natural capital model is the great opportunity of the uplands. They do not have the livestock to sell at big enough premia, but they do have biodiversity and carbon and tourism to offer. These require specialist knowledge of the exact farm locations and the ability to multitask and operate multiple contracts and wider relationships within their domains. Online skills are central, but for different reasons to the large corporate model. They are about being agile with marketing online, creating media content and being able to package the “unique” characteristics of their niches. Think of artisan bakeries in rural areas linking up with specialist growers and selling the results online fast. Think of marketing farm shops. Think of selling wildlife holidays. Think of the marketing of the Knepp Estate in West Sussex – books, video, social media, events and tours, and even safaris.
(iii) Low-input farming, including regenerative and organic farming
Between these two lie models that vary greatly in scale and scope, though to date they are mostly at the smaller end of the industry. They include regenerative and organic farming. What they have in common is that they are all attempting to focus on low inputs. By low inputs, this model refers to artificial fertilisers and pesticides and minimising the tilling of soils. Though they all see the soils as the key factor input, rather than energy, and have reduced irrigation, their use of energy and water is a byproduct of the broader low-input approaches.
Within low-input farming there is a wide set of models. Regenerative farming struggles to even have an agreed definition. No-till practices are seen by many as a key part, so that carbon is maintained in the soils, and as carbon is a good proxy for biodiversity in soils, these tend to be nature-friendly too. Regenerative farming is distinct from organic farming because the former does use pesticides, whilst the latter is defined by not using them.
A major pesticide used in regenerative farming is glyphosate, and the reason it plays such a large part is back to the no-till practices. Glyphosate cleans up the fields by killing the weeds that otherwise would have been turned into the soil by ploughing, as has been the practice of farming for centuries. The vegetation that goes back into the soil puts carbon and organic material back, but the ploughing releases carbon in the process of turning the soils over, and heavy tractors damage the soil structures.
A field treated with glyphosate can be a dead and deadly sight. The aim is to kill everything, and it is highly effective in doing so. A lot of the food for biodiversity goes with the spraying. It is not as intensive as conventional use: glyphosate is typically applied repeatedly to arable crops, including to dry the crop just before harvesting.
The use of glyphosate at scale enables intensive conventional farms to adopt many of the regenerative practices, and the borderlines are fuzzy and unclear. Reducing ploughing is a widespread phenomenon, as is reducing pesticides through precision application directed by robotic technologies, married to digital mapping.
Organic farming is distinct in its strict rules for farming practice and the process of certification in converting to organic status. It is inherently more expensive and hence relies on price premia from customers, whether reflecting a belief that organic food is healthier, to animal welfare and biodiversity concerns captured by consumer preferences.
In effect, organic farming is approximately what might happen if polluters really paid for the pollution they cause. If they did, the price differential between organic and non-organic food might close considerably. Indeed, the difference would come down to the gap between very little pollution (organic) and low pollution (the rest, given the constraints of the pricing of pollution).
Within the organic category are many “hobby” farms, and these will likely continue. These are in effect consumption goods for rich people who wish to shape the environment. They may be big rewilding estates in Scotland, recreating the Caledonian pine forests, through to small local farms with a few acres attached. There are also shooting estates for leisure activities, which contribute next to nothing to the food chains. These have a long history, notably back to the Highland Clearances, and they are part of the culture of the “country estate life”.
The attraction of hobby farms has been exacerbated by the special protection afforded by IHT. Buying a farm has been a favoured way of avoiding the tax, and it has contributed to the bidding up of farmland prices, resulting in lower economic value yields relative to the value of the land. Reform of IHT is designed to rectify this, though the changes in the 2024 Autumn Budget failed to sort this out properly and have produced some nasty consequences to existing farmers, whereas the incentive problem should be with future farm owners. The tax could have been normalised to the rest of the assets, and set at the same 40% rate, or it could have been kept at 0%. 20% is neither one thing or the other, and if land prices now fall to reflect the 20%, land will then again be an IHT dodge, howbeit a smaller one.
In terms of the future of farming, the hobby farm and sporting estates will likely remain, and their future will be partly determined by the tax treatments. This form of farm ownership has survived wars and all sorts of tax regimes in the past and proved remarkably resilient into the future. It adds little to overall food production, and sporting estates and related activities can have serious detrimental impacts on biodiversity. The claims and counterclaims about shooting in particular are often very much the stuff of lobbyists. It is, however, worth noting that when it comes to deer and the stalking estates, many have been singularly ineffective in reducing the deer numbers and hence the biodiversity destruction they cause. Licensing and legal changes will probably determine their fate.
Smart agricultural policy in a period of rapid change
Historically, agricultural policy has been mostly fixed, punctuated by major changes. The Corn Laws dominated British agriculture in the nineteenth century until they didn’t, and free trade took over. After the First World War, it was markets again, a subsidy-free industry. The Second World War changed all this with the scare of the U-boats and the severe restrictions on overseas food supply, bringing in the Dig-for-Victory approach, catalysed in the 1947 Agriculture Act. That Act brought in state planning and direction, with production subsidies, all sorts of controlling boards and even controls on agricultural wages. Agriculture became state-dependent, where it remained even through the great rupture of European Economic Community (EEC) membership and joining the CAP in 1974. This CAP regime survived until BREXIT, ushering in a return to British agricultural policy and the 2020 Agriculture Act.
The 2020 Act is a radical break with the past, every bit as radical as the 1947 Act. Though it is yet to sink in, farming is returning to the Second World War model, without production support and direct subsidies. When the majority of farmers voted for BREXIT, most clearly did not think through what they were doing. They were voting to swap the power of Brussels to be the reflection of the great European farmers’ lobbies for the HMT and the wilting power of the National Farmers Union.
The writing was on the wall already for the farmers to read, if only they had looked. Back in 2005 HMT set out its vision for farming as part of its input into the round of negotiations over the CAP.[1] The words “public money for public goods” were there in the text. HMT had never bought into the argument that permanent production and land ownership subsidies were needed, and the spectacle of butter mountains and wine lakes horrified its civil servants. This was the post-Thatcher era, in which a deep scepticism over all things emanating from Brussels overlapped with a focus on market, competition and free trade.
The CAP in many respects defined the EEC and the EU. It is what the Commission mainly spent its budget on, and it was supported by the French who had bargained agricultural supports in exchange for German industrial integration after the Second World War. The CAP was not what British governments were for, either ideologically or in the details and the spending. The Conservatives had turned their back on subsidies generally, and Labour had become very much the urban party.
And so it transpired. HMT has got its way. Production subsidies, and worse the payments for owning land under the CAP I pillar that had followed to try to wean the European farmers off overproduction and all those butter and wine and other surpluses, had to go. There was little economic rationale for what had in effect become income support and hence land price support, and BREXIT fast-tracked getting rid of the BPS – Pillar 1 of the CAP.
This is what BREXIT meant, and it is a much more rational approach. The public money for public goods became the centre of subsidies. Farmers would be paid to do things which were the public goods that were additional, and only for these things.
It is not clear whether the farming lobby understood this, and there was an intense effort to subvert the public goods concept. The disgraced chair of the Environment Food and Rural Affairs (EFRA) Select Committee, Neil Parish, pushed for the government of the day to accept that food was a public good (which it isn’t), and used his position to further the interests of farmers, urging them on to lobby government. He tried out his “food is a public good” argument on PM Theresea May. To her credit, she declined to answer him as he wished. Yet the farming lobby still keeps trying and keeps on getting surprised when HMT follows through, accelerating the phase-out of the BPS and freezing the agricultural budget in nominal terms, despite a cumulative inflation of around 20–25%. HMT has achieved both the phase-out of the BPS and the reduction in the real total value of the subsidies.
HMT’s approach has the merit of being good economics and is framed to confront a future, not a legacy of the past. It has marched on to fill out this agenda. It has mooted including agriculture under the carbon permits and pricing schemes, and eventually in the expanding carbon border adjustment mechanism (CBAM). These might get tangled up with the convergence of the EU Emissions Trading System (ETS) and UK ETS, and the EU CBAM and the UK CBAM, though the anti-Brussels temperament in British politics may make rules governed by Brussels and the European Court of Justice for these arrangements very hard to sell to the voters.
Carbon pricing is coming, however much the farming lobby try to head it off. The NFU’s net zero agriculture by 2040 has made effectively zero headway so far, and the rhetoric has been downgraded. Carbon pricing poses a lot of challenges to the polluters. Red diesel sticks out as a sore thumb in considerations of climate change. Already the energy that goes into making fertilisers and pesticides is getting charged for its carbon content.
This raises a wider question. Many farmers seem to think that public goods for public money means that they will get paid not to pollute. This is a conceptual and a practical mistake. Public money for public goods should be after the polluter-pays principle has been applied, after farmers have been charged for the carbon and biodiversity damage caused, not before.
When the full agenda of the 2020 Agriculture Act has played out, the future of farming is one in which there are no production subsidies, no subsidies for owning land, where polluters pay for the damage they cause so that the costs are fully internalised, and the government pays for public goods once these other measures are fully in place.
That is the clear direction of travel in the 2020 Agriculture Act and carried over to the ELMs, but it will take the rest of this decade to play out. The Act may well stand alongside the 2021 Environment Act as the two great pillars of British farming and environmental policy for the next decade and beyond. The revolutionary moment that was BREXIT has happened. Now the die is cast, and it is all about the gradual, necessarily imperfect and messy path of implementation.
The problem with all this is for the existing not the future farmers. Everything that is British farming has evolved under the CAP for the 50 years the UK has been a member of the EEC and then the EU. The land prices, the crop and livestock patterns and the European pollution rules have shaped the farming landscape we have now. The next decades are all part of the reshaping, but some of those caught in the transition are feeling the inevitable pain. They did not expect to lose the BPS completely and certainly not as fast. They did not expect IHT. They failed to understand that the SFI had a fixed budget that would be stuck to by HMT. They did not expect all support for food production to fall away. They did not anticipate the full falling out of the EU trading arrangements.
These are incredibly important transition issues, and they demand fairness and transition measures to cushion the impact of the changes, especially upon older conventional farmers with smaller holdings. What has happened must feel more like a sharp and painful kicking. Even farmers in the over-70s age bracket have not been given a decent transition for the IHT changes.
None of this should stand in the way of facilitating and adapting to the changes that are coming. Government should focus on trade arrangements now BREXIT has happened and not trade off agriculture and fishing concerns for the benefit of car manufacturers. There should be no cattle-for-cars. The trouble is that all trade arrangements come back to agriculture, and government is less interested in the votes and economic value of farming than that of manufacturing and services.
Beyond the trading arrangements, there is much that government can do to help farming grasp the opportunities of the technological advances. Skills and education and R&D fall into the broader public goods territory, given that labour is mobile. This requires not just a new approach to agricultural education, but rather a widening of the job opportunities to those who would not normally think of a farming career. Mathematics and computer science and engineering students should see agriculture as an option, and this requires coordination and cooperation between government and the largest corporates in agriculture.
On R&D, the coming of genetics gives a whole new role to plant and animal sciences. Part of this is university-based, and part sits with specialist research centres and organisations. After the Second World War, lots of effort was put into developing agricultural science and research. A similar effort – but on different sciences – is now needed.
There will be those who think that the government should be directly supporting regenerative and especially organic farming practices. This, however, is both unlikely to happen and the wrong way around. What government should do is focus on the pollution and therefore closing the gap between high- and low-pollution production techniques. In the farming future, this means that farmers should face the same pressures as water companies when it comes to discharges to rivers and aquifers, when it comes to abstractions and stormwater run-off, and so on. That will make water a premium and not a free input, and push towards water retention and soils management, as well as local water storage. Farmers should pay for the nutrient load going into rivers and as a result they should have incentives to plant cover crops, and be mindful of keeping animals, poultry and ploughed-up fields away from riverbanks. They should not be paid to do these things; they should pay for not doing them through pollution charges. For some this is going to be painful, and this reflects just how inefficient and polluting some farming currently is.
All of this is aided by the greatest advance: the granular digital mapping. Putting in the hands of farmers the tools to see in real time what is happening to their soil, their crops, their water supplies, the run-off, and the water contaminants opens up great scope to adapt to the new farming future, and to lower their costs and increase their outputs. This is very much a great opportunity for a more productive, more prosperous and environmentally benign farming sector. Given where farming is – very low productivity, having relied on cheap migrant labour, highly polluting and creating a very low total economic value – the scope for improvement is massive and the new technologies greatly help.
[1] Defra and HM Treasury (2005), “A Vision for the Common Agricultural Policy”, 2nd December,.
