Farm rents must fall as basic payment is phased out

The farmland market must take into account declining basic payments, says Clodhopper

Nothing stays the same in farming. Supported by the basic payment, combinable crops have provided a steady trickle of income for decades. Profits have been life-supporting. But they have seldom generated excessive amounts of money.

As the old saying goes, land-owning farmers are asset rich but cash poor. The fluctuation in fortunes of the potato market have largely escaped cereal growers. But it is a fact of life some of us have  experienced to our cost – while others have not.

In my neck of the woods, I have been watching from a distance the first farmland for many year that has come onto the rental market. Fellow farmes have called it a day. They are selling now with land values high. And who can blame them?

With the industry facing mounting problems and the basic payment scheme being phased out, it has been a good test for the rental market. Many land agents expected rents to fall quickly as the basic payment reduced. Bu it appears rents have stablised or even risen.

Our neighbouring farm generated lively interest when it was put up for rent. Established generational farms tendered and so did newer less established ones alongside – as well as individuals requiring extra grazing.

But the process is seldom simple and only one applicant used the same price per acre across the board. Others mixed and matched – depending on the soil types and their water requirements..

No secret

Most would-be tenants put in cropping plans but others made no secret of the fact that they planned to sublet. All in all, it was a complex mix of rents that despite the concerns of the landlord potentially maintained his income for the next five years.

But there was one major stumbling block.

The basic payment scheme in England will be replaced in 2024 with delinked payments. This means it will effectively end after the 2023 scheme year, with delinked payments then made each year until 2027. After that, payments will be gone forever.

It is all a bit complicated. But delinked payments – which will be based on the reference period 2020 to 2022 – mean farmers will not need any land or entitlements to receive their money. Defra says this will simplify things as the scheme nears its end.

Uncertain outcome

I’m not so sure. The way I understand it, delinked payments will not be affected if your farm size changes or indeed if you stop farming all together.

If I’m right, this means the successful bidder for any land up for rent this autumn will only be able to claim the basic payment for the 2023 scheme year. After that, they won’t be able to claim at all.

What impact this has on the rental market remains to be seen.

Selling farmland with a one-year entitlement could be reflected in the final price. But how many farmers understand that payments are declining and on what basis? And how do landlords and tenants take this into account?

Declining payments appear not to have been a factor in the latest tender process although the agent responsible didn’t seem to know much detail. Indeed, I wonder if the Defra officials who devised the delinked payments understand their own decisions?.

I also wonder whether the land agent has been as open as they should with all applicants. We live in a changing world and perhaps the issue may resurface later. Maybe the farmers who tendered a high rent know something that I don’t. Time will tell.