Core elements of the Department for Environment, Food and Rural Affairs' (Defra's) new environmental grant schemes for farmers are not yet in place, increasing the risk to the initial roll out planned for 2022.

Under the EU's Common Agricultural Policy (CAP), English farmers received around £2.4 billion annually. Approximately 80% of this was distributed through the Basic Payments Scheme (BPS), which provided direct payments to farmers. Following EU Exit, the Government is phasing out these direct payments over seven years, starting in 2021. 

While there is considerable uncertainty over the financial impact this will have on farmers, Defra's analysis indicates that the average net profit made by farms in England between 2017 and 2020 would have been 53% lower without direct payments.

Defra is developing the Future Farming and Countryside Programme, which it considers a "once in a generation opportunity to reform agriculture". Central to this is the Environmental Land Management scheme (ELM), which will pay farmers for undertaking actions that improve the environment through the Sustainable Farming Incentive (SFI), and the Local Nature Recovery and Landscape Recovery schemes.Defra is piloting SFI with an initial cohort of up to 1,000 participants from October 2021. It plans to launch some core elements of SFI at scale in mid-2022 (SFI2022).

Defra has made progress in several important areas of ELM's development and design since the NAO last reported in 2019. This is despite resourcing challenges caused by ongoing EU Exit work, and the need to respond to the COVID-19 pandemic. In November 2020, Defra published the Agricultural Transition Plan with an update following in June 2021, to provide further details of its plans for ELM. It has also submitted the outline business case for ELM to HM Treasury, and received approval for piloting.

Defra has not yet established objectives to support its high-level vision for ELM. The outline business case for ELM sets out 24 objectives related to the government's 25-Year Environment Plan and net zero carbon ambition, but these are described as provisional.HM Treasury guidance requires more specific strategic policy objectives to turn the vision for ELM into an implementable programme. Defra told the NAO that development of these objectives is in progress but cannot be completed until government has made key decisions about its approach to meeting UK carbon budget targets and set legally binding targets in the Environment Bill.

In March 2021, Defra invited farmers to express an interest in participating in the SFI pilot which is due to go live from October 2021. Defra had assumed that there would be between 5,000 and 10,000 expressions of interest out of around 44,000 eligible farmers, from which it would select a representative 1,000 participants. In the event, it received only 2,178 responses, a response rate of just 5%. Defra is confident that this provides a "healthy pipeline" to test the many aspects of SFI, but has not shown the NAO any analysis to support this. A continued low level of interest could threaten Defra's environmental ambitions.

The introduction of SFI2022 is a significant change to the original ELM programme and Defra is having to design it quickly, adding risks to delivery. Initially, Defra did not intend to put a scheme in place to allow most farmers to replace lost CAP income until 2024, but decided in late 2020 to introduce SFI2022 to give farmers an earlier opportunity.

Defra has reduced some of the risks associated with the launch of SFI2022 by reducing its scope. The scope now focuses largely on soil management, whereas the initial scope also included integrated pest management, nutrient management and livestock management. Defra acknowledges some important delivery risks remain, particularly around staff resources and lack of detailed planning beyond 2021. The SFI2022 launch will be the first time that tens of thousands of farmers will experience the ELM scheme in a live situation. Failure to launch SFI2022 successfully would cause Defra further reputational damage and reduce long-term participation in ELM.

Despite adapting its engagement plans during COVID-19, Defra has not yet regained enough trust from farmers to be confident in achieving a high level of participation in ELM. Defra lost farmers' trust as a result of difficulties with its management of past agricultural subsidy schemes. Delays in informing farmers which actions they will be paid for in the SFI pilot and SFI2022, and how much they will be paid, have made matters worse. Defra sees rebuilding trust as vital, but both the NAO's and Defra's own evidence show it has not yet succeeded.

Defra has made some progress in developing its approach to countering fraud and error in ELM, but is behind where it needs to be. The NAO recommends fraud and error measures are in place when a government programme is launched. Defra set out a high-level prevention strategy in early 2021, but expects to develop its understanding over several years. Defra believes it will reduce the risk of not having fraud measures in place by making use of existing systems and digital infrastructure.

The NAO recommends that Defra identifies why there was a lower-than-expected level of interest in the SFI pilot, and develops measures to achieve a more positive response in the future. Defra should also closely monitor if it can realistically deliver SFI2022 on time, and regularly check whether its plans are deliverable leading up to the full launch of ELM in 2024.

Gareth Davies, the head of the NAO said:

"The success of the Environmental Land Management scheme depends on securing participation from farmers. Defra has not yet set detailed objectives for the scheme and has been slow to provide information on what farmers can expect from it. Defra must now develop detailed plans for the scheme's delivery if it is to achieve its intended environmental goals."