Welsh Government reveals details of Sustainable Farming Scheme

Following EU-Exit, UK agricultural policy is no longer under the EU’s Common Agricultural Policy (CAP) and the devolved nations are free to implement their own agricultural policy.

Farming in a more sustainable manner is a common theme that runs through the new policy design in England, Scotland, Wales and Northern Ireland.

England’s Sustainable Farming Incentive (SFI) is the most progressed out of the devolved policies and now, Wales’s SFS is primed to get started on 1 January 2026.

How does the SFS work?

There are three main components or ‘layers’:

• Universal
• Optional
• Collaborative

There are two scheme requirements:

• Every participating farm must have at least 10% habitat, although those farms not meeting the threshold can use temporary habitat options to meet the scheme rule
• Each farm must undertake a farm-level carbon baseline

Universal layer

The universal layer is the entry level of the scheme. It comprises 12 universal actions (UAs) and will operate on a calendar year basis.

Farmers who sign up to the SFS will need to meet all UAs that are applicable to their farm in order to receive payment (Universal Payment).

The 12 UAs are:

• UA1 – Soil health
• UA2 – Integrated Pest Management
• UA3 – Benchmarking
• UA4 – Continuous Professional Development (CPD)
• UA5 – Habitat maintenance
• UA6 – Temporary habitat creation on improved land
• UA7 – Designated Site Management Plan
• UA8 – Hedgerow management
• UA9 – Woodland management
• UA10 – Tree and hedgerow planting opportunity plan
• UA11 – Historic environment
• UA12 – Animal health and welfare

Further details are available on the Welsh Government website

Payment rates

The Universal Baseline Payment is based on a cost plus income foregone approach and has three separate categories:

• Whole Farm Payment – tiered payment rates which cover all the eligible area of a farm, including common land (similar to the Basic Payment Scheme). In the first year of the SFS (2026), the whole farm payment will be £70/ha for the first 70 ha of eligible land , the £2/ha for the remaining eligible land.
• Habitat Maintenance Payment – single payment rate per hectare of semi-natural habitat (excluding common land) and/or area of temporary habitat. This payment is designed to help meet the scheme’s requirement of semi natural habit on 10% of the farmland. For 2026, the habitat maintenance payment is £69/ha
• Woodland Maintenance Payment – single payment rate per hectare for existing woodland management in accordance with UA9 (excluding common land). For 2026, the woodland maintenance payment is £62/ha

A Social Value Payment is also included under the Universal Payment and is designed to reflect the public value of the actions carried out under the SFS.

The Social Value Payment is calculated on the same area as the Whole Farm Payment and is £107/ha for all eligible land.

Capping will be applied to the SFS Universal Payment whereby no payments will be made above a £300,000 threshold. Payments will be tapered with deductions starting from £25,000 and above.

Further details of the capping higher value payments are available on the Welsh Government website.

A one-off Stability Payment of £1,000 will be available to farms who join the SFS in 2026 and have 100 ha or less of eligible land.

Optional layer

The aim of the optional layer is to provide farmers with more choice and flexibility and allow them to undertake more targeted and specific actions for the benefit of their farm.

The optional actions for 2026 are divided into 14 themes:

• Improved soil health and multispecies crop cover
• Sustainable production
• Enhanced habitat management
• Creation of permanent and temporary habitats
• Implementation of Designated Site Schedule of Works
• Enhanced woodland management
• Woodland and agroforestry creation
• Hedgerow creation and restoration
• Improved public access to the countryside
• Advanced Continuous Professional Development (CPD)
• Improved water quality, water usage and flood mitigation
• Improved air quality and lowering ammonia emissions
• Organic farming (support and conversion)
• Enhanced biosecurity

Further details are available on the Welsh Government website

Payment rates

Payments for optional actions will be a mixture of:

• One-off revenue payments (e.g. for creating plans)
• Multi- annual revenue payments, including area-based payments
• Capital payments

Collaborative layer

The aim of the collaborative layer is to enable multiple farmers, land managers and organisations to carry out coordinated actions.

The three collaborative themes which will be introduced in 2026 are:

• Innovation, research and development
• Collaborative market and supply chain
• Collaborative landscape scale activity

Further details are available on the Welsh Government website

Payment rates

Payment rates for optional and collaborative actions have not yet been published.

How is the budget split between the three layers?

The allocation of the budget to the Universal, Optional and Collaborative layers will be subject to an annual review. In the first year of the SFS 2026:

• 70% of the budget will be allocated to the Universal Payment and legacy Basic Payment Scheme (BPS)
• 30% of the budget is for ongoing preparedness schemes and Optional and Collaborative actions

Direct payments

BPS in Wales will start to be phased out in 2026 and be removed altogether from 2029.

The Welsh Government has announced that BPS will be reduced to 60% of current levels in 2026, which is a bigger cut than many were expecting.

Looking ahead

The details of the SFS help improve understanding of the new policy landscape in the UK.

As mentioned at the start of this article, England’s SFI scheme has been underway in some form or other since late 2021 and we have carried out detailed analysis of the SFI on farm businesses.

The recent details on the SFS show similarities with the SFI and the Environmental Land Management schemes (ELMs) in general although there are various differences in terms of scheme design and structure.

It is likely that a steeper than expected reduction in Basic Payments in 2026 may incentivise uptake of the SFS by Welsh farmers at least in the Universal layer in the first instance or until further details and payment rates are published regarding the optional and collaborative layers.

The Welsh Government’s SFS: ready reckoner tool is designed to help farmers calculate the indicative Universal Payments they could receive from 2026.

AHDB will analyse the impact of the SFS on Welsh farm businesses when further details are published.