Lots of reasons for optimism in farming

Farming across the UK is probably in the most positive state it has been in the last 10 years and looking ahead, there are many reasons to be optimistic, a senior figure in UK agri-business has said.

At last Thursday’s spring conference organised by the Irish Farmers Journal and the Livestock and Meat Commission, Michael Haverty, a partner at the Andersons Centre, provided an overview of UK agriculture and a look forward to 2035.

He said overall farm profits have been good in recent years, peaking in 2022 at highs not seen since the mid-1990s. There then followed a small drop-off, mainly due to weather impacts on the arable sector and sluggish grain markets, but over the last 12 months, many livestock sectors have again performed strongly.

That is despite the challenges around low growth and inflation in the wider economy, which has hit the spending power of consumers.

“Food tends to be quite recession proof. It came through the cost-of-living crisis quite well,” said Haverty.

In the 12 months to February 2025, UK consumer price inflation fell slightly to 2.8%. While that is still above the Bank of England target of 2%, a downward trend might suggest there is some scope to cut interest rates.

However, with inflation remaining stubbornly above target, Haverty believes base rates will settle around the 4% mark for the medium term.

He also questions whether the new Labour government will actually realise its key ambition to grow the UK economy, given its actions around last autumn’s budget and the tax burden put on businesses.

Downbeat

That budget also brought the proposed reforms of agricultural property relief from inheritance tax and despite the positivity around prices, it has contributed to a general “downbeat” mood among farmers, suggested Haverty.

Another factor potentially contributing to negativity is the constant pressure coming from government to deliver more public goods, while receiving less by way of financial support.

Since 2007, the UK farm budget has hardly changed in nominal terms, and in real terms (when allowing for inflation) it is actually down 30%.

In England that situation has been compounded by a rapid shift away from the basic payment scheme to poorly designed agri-environment schemes, including the ‘flagship’ Sustainable Farming Incentive (SFI).

The SFI only fully opened to applications last November, but it was suddenly closed on 11 March 2025, having effectively run out of money due to some actions within the scheme being over-subscribed.

Budgets

The decision to protect government budgets rather than prioritise the scheme, “doesn’t bode well” for future funding for farmers, suggested Haverty.

He said more detail should be known by June, when the government is to publish a spending review, which will set out its plans for departmental budgets over the next four years to 2028-2029. “The best case might be to keep the same in nominal terms, but we are increasingly working on the basis of a 15% cut or thereabouts in agricultural spending in England,” he said.

While NI farmers do have a commitment from Stormont that farm funding will be maintained at current levels both now and “in future years”, any move to cut funding in England, inevitably raises questions around long term funding to devolved regions. Despite those concerns around lower government support, Haverty is optimistic for UK farming over the next 10 years. He believes local farmers are well-placed to supply growing world demand for food, especially in light of the impact climate change will have in other countries.

“The fundamentals are there for a more prosperous farming sector in 2035,” he said.

Climate change will impact farming

Historic met office data shows that both average temperatures and average annual rainfall in the UK have been on an upward trend since pre-1900.

With those trends set to continue, we inevitably face hotter and wetter weather, which will require more investment in farm infrastructure and greater resilience, said Haverty.

In practice, that means additional slurry storage on farms, larger silage clamps and more cow tracks to facilitate grazing. “There was also a lot of investment in land drainage in the 1970s and 1980s. It will need to be a focus in the future,” he suggested.

Major economic impact from Trump tariffs

The decision by the US Trump administration to impose baseline tariffs of 10% on all imports, rising to 50% for some countries, will have significant ramifications for global trade, believes Michael Haverty.

“This is going to cause upheaval to global supply chains, add costs and all of this is going to fund inflation.

“Tariffs are a tax on consumers. It is going to have a major economic impact,” he told last Thursday’s event.

To date, the UK and others have been cautious in their response, but longer term, the Trump tariffs could lead to diversification in trade away from the US.

What impact this might have on agrifood is difficult to assess.

For example, Australia is a major exporter of beef into the US and now faces a 10% tariff. However, China imports US beef and has applied an additional 34% retaliatory tariff on US goods, taking US beef tariffs to over 50% – as a result, there might be opportunities for Australia to displace the US in that market.

Alternatively, we could see Australia targeting the UK as an attractive alternative to the US, said Haverty.

Trade deal

He remains pretty sceptical of reports that the UK will try to do a comprehensive trade deal with the US, allowing tariff-free access in both directions, suggesting such a deal is more likely to happen under the watch of a future Tory/Reform Party UK government.

“The current UK government is more focused on other issues such as resetting our relationship with the EU,” he said.

While the British government won’t re-enter the EU single market or customs union, there have been discussions around “beneficial alignment” where it would align with various EU standards and regulations.

That might not be that attractive to the EU and earlier this year, it proposed that the UK join a Pan-Euro-Mediterranean (PEM) convention. As well as the EU, there are 24 countries signed up to that convention, which simplifies rules around origin of goods.

“The UK has taken a lukewarm approach so far to that EU offer,” said Haverty.

Margins up across most farming sectors

After a couple of difficult years on the back of COVID-19 and the war in Ukraine, most farm sectors returned to profit in 2024 and that positive outlook continues into 2025.

In the arable sector, margins remain tight, mainly due to a “stagnant” grain market, outlined Michael Haverty.

For pig producers, he said they need a sustained period of profit to compensate for losses made in 2021 and 2022, while in broiler production, margins are slowly improving, due to higher prices and lower feed costs.

Laying hens and dairy

In the laying hen sector, a shortage of eggs has brought high prices and excellent margins. Prospects for the sector look good, although planning for new sheds remains a major obstacle for growth, said Haverty.

Looking at dairy markets, prices tended to be more volatile 10 years ago than they are now. Back then, when prices were trending up, it stimulated production, which ultimately resulted in an over-supplied market and a subsequent downturn. However, there are now environmental issues constraining supply, said Haverty. He expects dairy markets to remain stable or gradually edge up over the next year, and along with improved returns from beef, it should lead to positive margins in 2025 – 2026.

Looking ahead, he said the industry needs to be aware of its “social licence” to farm and be careful how it engages with the general public around issues such as calf separation and year-round housing.