This article is by Zoe Avison, policy analyst at Green Alliance. It is part of our recently published essay collection ‘What does the US Inflation Reduction Act mean for the UK’s green economy?’
UK agriculture is trying to find its footing in a post-Brexit world in which subsidies are changing, regulations are uncertain and new trade deals are being struck. Across the Atlantic, new funding for environmentally friendly farming has been announced but it is the UK’s model that has the greatest potential for transformation, if early ambitions are followed.
IRA is a forward facing, bumper package of spending and tax incentives that aims to speed up green investment across the whole economy with a focus on energy. The act also provides $19.5 billion over five years for conservation and climate-smart agriculture, and a further $13.3 billion for rural renewable energy projects.
Money is mostly funnelled through existing, oversubscribed workstreams, such as the Environmental Quality Incentives Program which provides financial and technical assistance to mitigate farming’s impacts on air quality, water and soil health. Many of the conservation practices being funded can help to capture carbon and enhance biodiversity but are also good for a farm’s bottom line, especially as climate change subjects farms to ever more extreme weather.
Unlike the rest of IRA, much of the spending on agriculture is in the form of grants, rather than tax incentives. Although clean water, biodiversity and lower carbon emissions are valuable, their benefits aren’t as easily marketable and crowding in private finance will be trickier.
The US package works with carrots rather than sticks
In common with the rest of the IRA, the agriculture package is mostly carrots, with no sticks. More incentives will be offered to farmers who wish to take up conservation practices, but schemes will be entirely voluntary and wider agricultural support remains unchanged.
In some ways, England and Wales are already ahead of the US, using Brexit to redraw the way farming is funded. Farmers produce food, but they are also important stewards of the land. The new Environmental Land Management schemes (ELMs) are designed to better align incentives so that farmers who deliver public goods, like clean water and hedgerows buzzing with wildlife, are rewarded for doing so.
This is the biggest shakeup of UK farming in decades and could be transformational. As they manage 70 per cent of the nation’s land, farmers have the potential to deliver immense results if the market signals are right.
In other ways, British agriculture is in a tricky position. Over the past two decades, its total factor productivity, which measures the ratio of inputs to outputs, has grown by an average of 0.9 per cent a year compared to 3.5 per cent in the Netherlands and 3.2 per cent in the US, meaning British farmers’ efficiency at turning inputs, like land, labour and fertiliser, into agricultural products is falling behind farmers overseas.
Making more with less is important for the UK’s ability to compete in an increasingly globalised market. Improving productivity is also good for the environment as the same output, or more, can be produced using less carbon intensive fertiliser, less pesticide or with a smaller land footprint. Many farms are astonishingly unproductive, returning a loss year upon year if subsidies are discounted. Such farms, often in the uplands, have plentiful natural resources and could be paid to restore land for nature.
Research funded by IRA could help UK farmers
There could be positive spillover for the UK from IRA which provides $300 million for field research into the relationship between conservation practices and soil carbon. Soil, despite being everywhere, remains mysterious and quantifying better its potential to capture carbon could unlock new abilities to pay for ecosystem services.
The UK has specific challenges to overcome as its farming sector evolves. Professional training and skills are below standard: only 32 per cent of British farmers have undertaken any formal training, compared to 72 per cent in the Netherlands and 68 per cent in Germany.
This is a challenge for adopting modern techniques such as precision farming, which uses sensors and spatial analysis to target inputs directly where they are needed. Without an ability to use new digital technologies, British farmers will miss out on opportunities to dramatically enhance their productivity and farm in a way that is better for the planet.
It’s not only technical skills that need more work. Only a quarter of farms have a formal business plan and only a quarter have a budget they review regularly. Good business management is much more common among top performing farm businesses and is becoming even more important as farming adapts to a net zero world. Farmers with a good understanding of their costs are much more likely to realise the benefits of nature friendly farming, where less is sometimes more.
Adapting to a new payments system will mean most farmers will need new skillsets. They now need to be experts in measuring soil carbon, planning floodplain meadows and managing land for certain species. In the US, farmers can stop by their local office of the Natural Resources Conservation Service for free technical advice from a conservation planner. But farming advisory services in the UK are notoriously patchy and fragmented since privatisation in 1997. Funding for advisers won’t compare to the US Department of Agriculture’s massive budget, but demonstrator farms can be a cost effective way to disseminate knowledge, allowing farmers to learn from each other and gain experience of new techniques.
Uncertainty plagues the future of ELMs
Getting the payments structure right and supporting farmers to adapt could make ELMs a genuinely world leading approach to farming for the 21st century, forming a market for the public goods desperately needed for land management to reduce carbon emissions and improve biodiversity.
Uncertainty plagues the future of ELMs and while it’s important to get the details right, dithering only delays investment and weakens momentum for change. Although IRA has a large budget, its scope is less ambitious for agriculture than ELMs which could offer huge potential for productive, resilient farming.