Policy paper

Annex A: Early roll out of Sustainable Farming Incentive - coherence with payment principles

Published 2 December 2021

This was published under the 2019 to 2022 Johnson Conservative government

Applies to England

In June 2021 we published ‘Environmental land management schemes: payment principles’. That document sets out some principles we will use to guide our approach to setting payment rates for environmental schemes during the agricultural transition.

Individual schemes implement these principles in a way that best meets their policy goals. It will not always be practical or deliverable to apply all principles to all schemes, for instance where it adds additional complexity or costs. As far as possible, we will design environmental land management schemes to meet these principles.

Payment principles and early roll out of Sustainable Farming Incentive

This note sets out how we have applied these principles to the early roll out of Sustainable Farming Incentive. It is structured around the four payment principles for environmental land management.

Principle 1

We will set payment rates to encourage wide participation, while fairly and effectively paying farmers for achieving environmental and climate outcomes.

Payments in this phase of SFI are based on a cost-based methodology, recognising an updated assessment of the costs of achieving the outcome and the potential loss of income.

We have updated our approach to payments so that they better reflect our understanding of delivery cost. Specifically, we have worked with independent specialist agricultural consultants and Defra specialists to ensure payment rates are based on up-to-date market data and provide a fair compensation to farmers for delivering SFI actions.

The standards include increasing levels of ambition and environmental outcomes. Consistent with this principle, payment rates increase so that those who provide higher outcomes receive higher payments.

This phase of SFI has been designed to run alongside Countryside Stewardship. Those with Countryside Stewardship agreements and providing environmental outcomes are able to have an SFI agreement as well as an existing agreement, as long as certain criteria are met.

Within these standards, we don’t pay for any activities that are required by regulations. We have assessed the balance between regulating these activities or incentivising through the early roll out of SFI. Our assessment is that these activities are currently best achieved through us paying for them via an environmental land management scheme.

We are allowing farmers to stack private sector payments for environmental outcomes on top of SFI payments. We hope this could lead to an increase in the participation of farmers in SFI.

Principle 2

We want payments that, as far as possible, recognise and pay for outcomes that can be delivered through a wide range of activities.

When designing the standards, we prioritised those activities which achieved multiple environmental outcomes.

As well as paying for direct land management activities, we have included supporting activities where our evidence suggests they are complementary. For instance, the soil standards include a soil assessment so that direct land management activities are properly targeted and more effective.

The moorland standard includes payments for assessing moorland soils, vegetation, and their condition and evaluating and identifying opportunities for public goods delivery. Planning actions such as these are important in understanding the current state of land – and so identifying the actions that can then be taken to maintain and improve it.

Principle 3

We want payments that recognise the value of existing natural assets and do not unfairly disadvantage those who are already protecting and enhancing these assets to achieve good environmental and climate outcomes.

The SFI looks to encourage farmers to modify their farming practices to deliver improved environmental outcomes. We are aware for some farmers this will require a significant change, while others will already be undertaking some of the activities in the standards.

Farmers who are already undertaking some of these activities will be able to receive a payment and, if they want to do more, have the potential to access a higher ambition level (with a higher payment rate).

Principle 4

We want payments that form part of a growing market for environmental outcomes, where scheme participants can earn income from public and private sector sources.

This phase of SFI has been designed to run alongside and complement Countryside Stewardship. Those with existing agreements can also have an SFI agreement, subject to certain requirements.

At this stage of SFI we will be allowing participants to sell environmental outcomes to receive private sector income as long as they meet the rules and requirements set by the markets such as additionality, verification, and are not selling the same credit more than once. It should be made clear that this is not a guarantee of private sector income.