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Green incentives are at the heart as UK rolls out its CAP replacement

Public money for public goods is the principle behind the new Environmental Land Management schemes in England – the jury is still out on whether it can sustain farmers’ livelihoods while also protecting the environment.

In February 2023 the UK Government published a policy paper – Environmental Land Management (ELM) update: how government will pay for land-based environment and climate goods and services – which lays out the most significant reform to agricultural policy and spending in England in decades as the UK moves from the EU’s Common Agricultural Policy (CAP).

The major difference in approach is that, while the CAP was never supposed to be a food production subsidy, it was in effect based on how much land was owned or managed by farmers. Now the UK Government is using the opportunity of leaving the EU to phase out these payments for land ownership and tenure and radically improve its services to farmers. There has been an openness to reform, which stands in stark contrast to the difficulties of changing the CAP in recent decades.

Agricultural policy In the UK is devolved, and when the UK was a member of the EU the four national governments were responsible for administering subsidies according to EU rules. Outside the EU, the different administrations are free to develop their own schemes. In this article I focus on the new ELM schemes in England, as they are currently at a critical stage.

In England, the Department of Environment, Food and Rural Affairs (Defra), through what is termed the “Agricultural Transition”, is moving from CAP Basic Payment Scheme (BPS) direct payments to the ELMs system, in a transition that started in 2021 and is planned for completion in 2027. From 2024, BPS funding will no longer require land against which to set a claim, a process named “delinking” and the 2023 claim will be the last in which BPS entitlements can be activated for payment.

Defra is expanding its schemes to pay farmers and land managers to provide environmental goods and services alongside food production; and providing one-off grants to support farm productivity, innovation, research and development in a way that also helps achieve these goals. ELM schemes have been described, by the environment secretary, as the “main tool” for delivering improvements to water quality and biodiversity, key elements of the government’s 25 Year Environment Plan. The scheme is also expected to support the government’s net-zero ambitions by helping to reduce agricultural greenhouse gas emissions, protecting and increasing carbon stores and supporting ecosystem resilience.¹

In 2018, UK farmers (in all four countries) received around £3.5 billion per year in CAP payments, that fell under two main pillars. Pillar one involved direct payments, which made up 80% of the UK’s 2018 CAP budget, where farmers received payments based on how much land they farmed, although they were required to meet “greening” requirements and risked having their subsidy cut if they did not comply with environmental regulations. Pillar two covered rural development payments, making up 20% of the UK’s 2018 CAP budget, providing financial support for delivering environmental benefits such as preserving habitats and managing flood risks, improving farm efficiency through actions such as reducing feed and pesticide use, and supporting rural development. These payments were provided through multi-annual Rural Development Programmes, such as the Countryside Stewardship Scheme.
These CAP payments in England will now be replaced by the ELM schemes, which include transitional schemes before they become fully operational, worth £2.4 billion per year2. Thus, maintaining the level of spending on farming.

Environmental Land Management has three components:

1. The Sustainable Farming Incentive (SFI) will pay farmers for taking actions above minimum legal requirements to promote wildlife diversity, use water efficiently, enhance hedgerows and manage croplands and grasslands, while continuing to use their land for production. Pilot schemes were launched in 2021 and additional standards are being released sequentially with full rollout by 2025 and farmers being eligible from 2024. Three standards were introduced in 2022 for: Arable and Horticultural Soils; Improved Grasslands Soils and Moorland; and Rough Grazing (introductory level). These were followed in February 2023 by another six standards for: hedgerows; integrated pest management; nutrient management; arable and horticultural land; improved grassland; and low input grasslands.3

2. Countryside Stewardship (CS) will pay for more targeted actions relating to specific locations, features and habitats, with an extra incentive (CS Plus) for land managers to join up across local areas to deliver results at larger scale. The second tier of ELMs was originally Local Nature Recovery, but this was officially scrapped in favour of extending and enhancing the existing Countryside Stewardship schemes.

3. Landscape Recovery will pay for bespoke, longer-term, larger scale projects to enhance the natural environment e.g. large-scale tree planting and peatland restoration projects.

To meet the government’s environmental goals, Defra is aiming for at least 70% of farmers, covering at least 70% of farmland, to take part in SFI, and “significant numbers” to participate in the CS scheme1. As the schemes evolve Defra intends to offer SFI and CS in a single, integrated online service, with farmers and land managers able to select a combination of actions in SFI and CS that works for them. Defra has also committed to delivering at least 10 Landscape Recovery projects covering over 20,000 ha by 2024⁴. As well as the three new schemes, the UK government intends to reform how subsidies are enforced by moving towards a model that relies more heavily on education and support rather than penalties.

By providing the services and goods that the actions in these standards will deliver, farmers will, as well as producing food and other goods, be collectively contributing to the government’s priority environmental and climate targets and outcomes of:

reducing greenhouse gas emissions across the economy to reach net zero by 2050;
halting the decline in species abundance by 2030 and to ensure that species abundance in 2042 is greater than in 2022, and at least 10% greater than 2030;
improve the Red List Index for England for species extinction risk by 2042, compared to 2022 levels;
restore or create in excess of 500,000 hectares of a range of wildlife-rich habitat outside protected sites by 2042, compared to 2022 levels;
reduce nitrogen, phosphorus and sediment pollution from agriculture into the water environment by at least 40% by 2038;
increase total tree and woodland cover to 16.5% by 2050;
adapt to climate change.

The ELM schemes will collectively pay farmers and land managers to deliver climate and environment outcomes that can only be delivered by farmers and other land managers in the wider countryside. In terms of pollution, the UK government has already introduced some changes to CS in response to feedback. These include extending its Catchment Sensitive Farming supported options to both high- and medium-priority areas for water and air pollution management, and introducing two new capital options to improve air quality, reduce ammonia emissions and improve water quality. SFI and CS will also include new actions to cover a wider range of goods and services, such as support for the sustainable management of soils and water resources and providing advice on adopting more sustainable land management practices, including integrated pest management and nutrient use efficiency, and supporting agriculture in its move towards becoming net zero, in line with the government’s net zero commitments. Plans for monitoring and evaluating progress towards meeting these targets are laid out in the UK Government’s Environmental Improvement Plan 2023⁵.

Farming and environmental groups have been broadly supportive of the introduction of ELM schemes and the principle of public money for public goods. But industry has voiced concerns about the lack of focus on food production and uncertainty over long-term funding for farming operations. In response to these the UK government amended the Agricultural Bill to refer to food production explicitly and extended the SFI to include a broader range of basic environmental activities than originally planned, causing a response from some environmental groups that the concessions could risk a return to CAP-style direct payments⁶. Farmers’ unions have argued that supply chain problems and a shortage of labour are already making it hard for farmers to run effective businesses and that the ELM scheme may not be up to the challenge.

Some farmers have welcomed the scheme and initiatives such as the Integrated Pest Management standard for sustainable pest management that can be seen as supporting farmers who want to shift their operations towards more sustainable, regenerative systems, de-risking that change and encouraging a more holistic farming system . Farmers are also urging Defra to take a more integrated approach, as individual actions will not benefit businesses as much as stacking options that benefit nature, productivity and farm businesses. For pollution in particular such integrated approaches will be essential to stem the flow of pollutants such as nitrogen into the environment. Ideally the new nutrient management standard under the SFI will be able to incorporate integrated nutrient management into its planning process with farmers. Whether this will happen or not remains to be seen.

Kevin Hicks
Senior Research Associate, Stockholm Environment Institute at York

1. https://www.instituteforgovernment.org.uk/article/explainer/agriculture-...
2. https://committees.parliament.uk/writtenevidence/39114/html/
3. https://www.gov.uk/government/publications/environmental-land-management...
4. https://www.gov.uk/government/publications/environmental-land-management...
5. https://assets.publishing.service.gov.uk/government/uploads/system/uploa...
6. https://www.fwi.co.uk/business/payments-schemes/elm/analysis-what-defras...

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