Horizon Blog: The Sustainable Farming Incentive explained

Thursday, 28 April 2022

Our latest Horizon report ‘Assessing the impact of the Sustainable Farming Incentive (SFI) on farm businesses’ looks in detail at the pros and cons of taking part in the Sustainable Farming Incentive (SFI) at farm level. But first, let’s look at what the scheme actually entails.

Details about the SFI were published by Defra on 30 March and a pilot of the scheme is already underway, with over 900 farmers taking part. In June, applications will open for the wider rollout (SFI 2022), which will be open to any farmer who is eligible for the Basic Payment Scheme (BPS). Currently, there is no closing date for applications, so that farmers can choose to join the wider rollout when it suits them.

The three standards available for SFI 2022 are:

  • Arable and horticultural soils
  • Improved grassland soils
  • Moorland and rough grazing
Image of staff member Amandeep Kaur Purewal

Amandeep Kaur Purewal

Senior Economist

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SFI 2022 agreements will last for three years and work at a ‘field level’, i.e. farmers can choose how many fields they would like to enter. The idea behind this approach is that farmers who are unsure or interested in ‘testing things out’ can do so at relatively low risk.

There’s also flexibility within the three-year agreement as farmers have the option of:

  • Increasing the number of fields (land) they enter into the SFI
  • Moving to higher ambition levels within a standard (e.g. introductory to intermediate level)
  • Adding more standards as they become available

These conditions can be reviewed after each year of the agreement, but farmers won’t be able to reduce number of fields they enter, or move from a higher to lower ambition standard, unless there are exceptional circumstances.

Indications of when additional standards could become available have also been published. For example, there may be an integrated pest management and hedgerows standard available from 2023, and low and no input grassland standard in 2024.

As part of the Annual Health and Welfare Review, livestock farmers will be able to apply for funding to have an annual review of eligible livestock carried out by their choice of vet or vet-led team. Farmers who keep more than 50 pigs, 20 sheep or 10 cattle (and are eligible for BPS) will be able to take part.

Our Horizon report features qualitative research, conducted in partnership with Harper Adams University, looking at farmers’ attitudes and intentions to both the pilot SFI scheme and the 2022 roll out. It goes on to model the likely impact on net profit of participating in the scheme using AHDB’s virtual farm network.

The analysis shows that, at the current payment rates, most SFI standards will only provide a small financial benefit to many farmers when the costs of undertaking SFI actions are included. However, those farmers who are already undertaking some of the actions required, and don’t have to take land out of production, will benefit the most.

It’s important to bear in mind that there is no ‘one size fits all’ approach and farmers should assess the costs and benefits of participating in the SFI as part of a wider review of their individual farm business.

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Our analysis suggests that if Defra are to reach the uptake targets set, they will need to revise the payment rates in order to attract more farmers into SFI. If it is only profitable for farmers to take part in the SFI by making minimal changes to the way they farm, to what extent will this help to achieve the UK’s environmental targets?

Moving forward, farmers will need to treat environmental outputs like any other agricultural output within their businesses. If you became a top performer in terms of the efficiency with which you can produce these public goods, they you will benefit the most from the current and future schemes.