Defra makes changes to SFI in response to food security concerns: Grain market daily

Market commentary

• UK feed wheat futures (May-24) closed yesterday at £173.50/t, down £2.20/t on Friday’s close. New crop futures (Nov-24) closed at £194.00/t, down £1.60/t over the same period.
• Our domestic market followed the Paris wheat futures down yesterday, despite trading higher earlier in the day. The falls came from reports that the grain exports of a Russian trading house (TD RIF) were being blocked, plus Russian proposals to redistribute export quotas should a major exporter fail to perform (LSEG).
• The EU crop monitoring service (MARS) reported that winter grain crops are in mediocre condition in large parts of the EU. This comes after large parts of western, northern and eastern Europe experienced excessive wet conditions, impacting sowing, emergence and development of crops.
• Paris rapeseed futures (May-24) closed at €457.00/t, gaining €8.75/t on Friday’s close. New crop futures (Nov-24) closed at €461.25/t, gaining €7.50/t over the same period. Rapeseed futures were supported by Chicago soyabeans, which closed higher on short covering ahead of the USDA prospective plantings report out on Thursday (28 March).

Defra makes changes to SFI in response to food security concerns

Defra has announced that there will be limits to the amount of land businesses are able to put into the Sustainable Farming Incentive (SFI) scheme. Businesses will only be able to put 25% of their land into the six land sparing SFI actions, those actions taking land out of food production.

This new development demonstrates recognition that food production remains an integral part of the SFI scheme alongside sustainability and environmental protection.

The actions affected by the new 25% upper limit are:

• Flower-rich grass margins
• Pollen and nectar flower mix
• Winter bird food on arable and horticultural land
• Grassy field corners and blocks
• Improved grassland field corners or blocks out of management
• Winter bird food on improved grassland

Defra says that the six actions will continue to play an important role in supporting sustainable food production but were always intended to be implemented on smaller areas of the farm. Our analysis of the SFI supported this messaging and found that it makes sense to enter the least productive areas of your farm into the more ambitious, higher-paying actions of SFI, as sacrificing crop area and productive land has a negative impact on a business’ bottom line. Subsequently we do not foresee all farmers using the full 25%, although this will be something we monitor over the coming months. It is definitely a balancing act between SFI and food production, but it is worth considering that SFI can act as a buffer against challenging market and weather conditions.

This year has seen continued adverse weather conditions that have influenced cropping decisions, as discussed in the recently published re-run of the Early Bird Survey. This has prompted discussions about whether farmland could be taken out of production and capitalise on high paying agri-environment actions instead. It is unsurprising that in a time of challenging weather and market conditions, this has crossed farmers minds due to the higher chance of guaranteed income. However, an analysis we published earlier this year found that there would be an unlikely shift of considerable land from food production due to long-term impacts on crops, plans, tax status and idle capital items.

Yesterday’s announcement is indicative of Defra’s collaborative approach to policy making and responding to industry concerns or unintended consequences, and it is positive to see.

We will keep up to date with further policy developments and conduct more analyses on both SFI and food security.

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