Scrutton Bland Agriculture Newsletter - Winter 2021

F rom this year progressive reductions will be applied to direct payments, with final payments being made in 2027. We know the reduction rates for 2021 to 2024, by which point all recipients will see their payments reduced by at least 50% of current levels. The consultation on the Lump Sum Exit scheme closed on 11 August 2021. We are expecting farmers wishing to exit the industry to be offered lump sum payments, in place of future direct payments, in 2022. Three new Environmental Land Management schemes have been launched. Pilots of the Sustainable Farming Incentive have been running through 2021 and the scheme is expected to launch in 2022. Pilots of both the Local Nature Recovery and Landscape Recovery schemes will launch in 2022 with the full schemes expected to launch in 2023 and 2024 respectively. The Countryside Stewardship scheme will continue to be available for existing and new applicants until 2024, with the last new applications being accepted in 2023. Importantly, it will not be possible to be paid for the same environmental initiative twice, by entering it into more than one scheme. These schemes are all different but centre around a common theme: ensuring that farmers and landowners are rewarded for taking actions which deliver public goods and improve the environment. In addition to these schemes the Government has launched the Future Farm Resilience Fund (FFRF). Participants in the FFRF will receive free advice from approved providers, around the phase out of direct payments and what it might mean for their businesses. This is a clear indicator from the Government that they realise that the phase out of direct payments will hit agricultural businesses hard, and many will need to take difficult decisions about the future of their enterprises. Whilst these various schemes are not expected to cover the gap left by direct payments, farming businesses should certainly be exploring their viability and taking advice around which schemes might work well for them.

Update your business plan

We are encouraging all clients to update and develop their business plans in order to assess how well positioned their business is to cope with the future loss of direct payments. Profitability is one key measure, however it will be even more important to evaluate whether the business will be able to generate the cash required to fund capital expenses, debt repayments, partners’ drawings and private expenses, as well as tax liabilities. Businesses with bank debt will also have to satisfy their lenders of their business’ viability. Many will have financial covenants in place, typically around debt serviceability and cash generation, which banks use to assess the risk associated with the debt. It is important to engage with your lenders now and pre-empt any future issues around meeting covenants. Banks do not like to find out that covenants have been breached after the fact, and early conversations around this, alongside a strong business plan, can prevent relationships with the bank breaking down. Agricultural businesses have had to embrace many changes in recent years, and it is undoubtedly the case that this will continue for the foreseeable future. Whilst dealing with change presents challenges, it can also create opportunities to think differently. Could you implement new accounting and management software to save you time and money? Could your business structure be simplified? Could you create new, tax efficient structures? Our advisers continue to engage with our clients to help them understand these government initiatives and to provide advice on r the biggest change in agricultural funding in a generation. We look forward to seeing farming businesses succeed and thrive in the coming years.

A G R I B U S I N E S S | S C R U T T O N B L A N D | 9

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