There has been plenty of talk in the press about reduction in subsidy payments over the next eight years, but have you stopped and looked at how this will impact on your business? What does a reduction in subsidy actually mean from a cashflow perspective? The table below shows the potential reduction in Basic Payments over the next eight years for different size farms.

Whilst we do not know exactly how quickly the payments will reduce over the next eight years, we do know that by 2028 direct payments will end. This gives businesses eight years to plan how to mitigate the lost income. There will be some income available from ELMS when it is launched, but without the full detail it is hard to know how many businesses will actually be eligible.

The point is to start looking at the cashflow implications for your business now, whilst payments are still being received to give your business the maximum amount of time to change. Consideration should be given to:

• Benchmark your business and identify areas of weakness that can be converted to opportunities.
• Can I restructure debt to pay off quicker before direct aid ends?
• Look at the way payments and loans are structured; do they need changing to monthly payments rather than one payment in December each year?
• Is there an opportunity to generate an additional income stream to replace direct payments? This could be an off farm investment outside of agriculture. Care should be taken though that any new venture does not distract from operating the main business efficiently.
• Should I take this opportunity to retire? There may be some additional support to help with the transition to retirement.
• Can I change the style of farming to enable the business to maximise payments via ELMS when launched?
• Is a joint venture more appropriate for the future? Particularly worth considering if significant investment is required to take the business forward in the future.
• Review existing tenancy agreements to establish when rent reviews are due so that changes in direct payments can be taken into consideration when negotiating rents.
• Ensure any new tenancy agreements have clauses in to allow the reduction in direct payment to be taken into consideration, e.g. part of the rent relates to the amount of subsidy received.

Clearly there is significant change on the way as direct payments reduce. Couple this with potential changes in the tax regime to help fund the money borrowed during the COVID-19 pandemic and farm businesses will need to carefully plan ahead now to ensure they understand the implications for the future on their business. Preparing a five year budget now and a normalised budget without Basic Payment is a worthwhile exercise to do now.

To discuss this further or for help in reviewing your business and preparing budgets, contact Phil at pcooper@fcgagric.com or your local FCG Office.