The landscape composition of the United Kingdom of Great Britain is a truly unique proposition on planet earth. It is home to 75% of the world’s heather moorland, mostly found in Northern England and Scotland, 85% of the world’s chalk streams, predominantly in the limestone rich South of England, and is holder of the world record yields for wheat, barley and oilseed rape crops thanks to the fertile fenlands of the Eastern coast.
Traditionally, land management and government incentives have sought to balance preserving and enhancing the unique habitats that support the UK’s rich flora and fauna with the need to produce food to feed the nation. However, empirical evidence generally suggests that we as a nation have been doing a poor job of both. The 2023 ‘State of Nature’ report estimated that just 14% of key UK habitats were in a good ecological state, whilst UK food self-sufficiency has been on a consistent downward trend, falling from c.78% in the 1980s to c.62% in 2023 according to the National Farmers’ Union.
30% of farms were loss making in 2023/24.
Two key issues immediately present themselves in relation to balancing nature and food production. The first is that land management is notoriously expensive, recurring in nature, and often yields little in terms of financial return on investment, despite the obvious non-monetary benefits which can largely be thought of as public benefits. This feeds into the second issue: that the UK agricultural sector is characterised by low profitability and high capital intensity, translating to an estimated return on capital employed (ROCE – a measure of profitability) for the sector of just 1%. It should come as no surprise that this ROCE is well below the current UK cost of capital (i.e., the minimum return needed to justify investment), which should set alarm bells ringing in the head of any decent equity analyst reviewing a business.
The Labour government’s misplaced ‘Family Farm Tax’, coming in April 2026, will only exacerbate this issue as a further detractor from the net profit line of many farms, in an industry where c.30% of businesses (farms) were loss making in 2023/24. The removal of Agricultural Property Relief (APR) was clearly targeted at those seeking to exploit the relief as a loophole to reduce their inheritance tax burden, and rightly so. However, the execution of its removal was clumsy, posing a critical threat to UK food security and raising very little in the way of meaningful tax revenues. The incoming tax will be particularly detrimental to the average UK family farm on account of the same financial characteristics that drive such a poor ROCE for the industry. The asset base value is large, but generally illiquid given it is mostly comprised of land value with little cash on hand. Meanwhile operating profit is low in proportion to the asset value, with wafer thin profit margins and limited cash generation to cover additional liabilities. The likely result from the tax given the current thresholds is that small parcels of land are sold to cover any tax liability, de-scaling producers that are already at a scale disadvantage.
The removal of Agricultural Property Relief poses a critical threat to UK food security.
For nearly two decades from 2003, farmers were compensated for producing food through the Single Farm Payment and Basic Payment government subsidy schemes. This incentivised food production and supported farm profitability but did little to meaningfully encourage the preservation of nature, particularly outside of actively farmed land. Payments were also area based, paid on a per hectare basis, which skewed the largest subsidy payments towards the largest landowners, and away from less well capitalised smaller producers. This limitation saw James Dyson’s Beeswax Farming receive c.£1.6m in support in 2016, against a UK average of c.£23,500 in the same year. What’s more, this period rather unhelpfully got the UK population hooked on the expectation of cheap food and distorted the distribution of value along the food supply chain.
As a nation, the proportion of disposable income we spend on food and non-alcoholic beverages is one of the lowest in the world, the majority of which is spent in supermarkets. The distorted distribution of profits along the supermarket value chain is observed across most categories of food items but is most easily demonstrated by one of the simplest staple food items: bread. Take a standard supermarket sliced loaf, for which the average total profit per unit is 4.35p. Of this, the retailer captures 23% of the total profit, the baker 51%, the miller 24% and the farmer a staggeringly low 2%. Couple this example with a milling wheat price which currently sits at £177/ton, down -8% in real terms (adjusted for Real Prices Index inflation) over the last decade, and it’s very difficult as things stand to expect the guardians of our countryside to foot the recurring cost of preserving it. With this in mind, next time you’re out doing your weekly food shop, consider visiting your local and independent farm shop, butcher or baker – you might just be making more of an impact than you think.
The proportion of disposable income we spend on food and non-alcoholic beverages is one of the lowest in the world.
The government’s current subsidy system, the Environmental Land Management Scheme (ELM) has very much moved incentives away from food production and towards countryside stewardship. It is a tiered scheme which has the Sustainable Farming Incentive (SFI) at its core. In simple terms, farmers are paid to take up to 25% of their farmed land out of production for a period of time, committing it to a variety of actions aimed at supporting long-term biodiversity, water quality and soil health as part of an actively farmed ecosystem. In addition to SFI, the higher tiers of the ELM payment scheme are targeted towards countryside stewardship, with the aim of preserving and restoring habitats such as wetlands, woodland, moorland and peatland.
This author is under no illusion that the cost of managing the habitats and landscape that sit within, and adjacent to farmland should be viewed as an implicit cost of land ownership. However the economics must stack up for it to be effective and sustainable, which at present they clearly do not. A two-pronged government strategy of financial and non-financial support would go a long way to addressing the issues discussed. Financial support should continue through the ELM scheme, a definite step in the right direction for capturing long-term public benefits including carbon sequestration, biodiversity and habitat preservation, improved water quality and many more. However, this needs to come alongside non-financial support, principally addressing the extreme value imbalances that are present across our food supply chain. This strategy should better ensure landowners and the government properly play their parts in sustaining our green and pleasant land.
