Starter farm initiative - tenant insights: review

Annex: Policy Implications

Policy Implications - Tenant Perspectives on the Starter Farm Initiative – by Lorna Pate and Steven Thomson, SRUC, March 2023.

Key Points

To help address the lack the opportunities for new entrants to farming in Scotland, Forestry and Land Scotland made 9 Starter Farm Units available to new entrants between 2012 and 2015. These, together with a further Starter Farm Unit made available by the Scottish Government's Rural Payments and Inspection Division, formed part of a wider Scottish Government initiative operating under the auspices of the Farming Opportunities for New Entrants (FONE) Group. The wider FONE initiative aimed to increase opportunities for new entrants on publicly owned land.

The Starter Farm (SF) initiative has been a success – offering business opportunities to ten tenants. However, with increased demand for land - including marginal hill land - driven in part by afforestation and natural capital drivers, rapid increases in land values and rising interest rates it means that even small holdings are unaffordable to purchase for most new entrants to farming or those looking to move own from a tenancy.

Most SF new entrants took-on their starter farm with the hope of securing a tenancy after the programme finished. However, medium to long-term tenancy opportunities remain scarce. SF tenants suggested that those on the first few rungs of the farming ladder are frequently overlooked for more established farmers on the rare occasion tenancies come to the market.

Many SF tenants said that they felt that policy and industry interest in getting new blood into farming had declined with other topics being prioritised (Brexit, Covid, agricultural policy development, land reform, land-based skills, etc.).

New blood is required in Scottish agriculture, bringing new ideas and approaches to land management at a time where agricultural policy is reforming. These reforms may lead to increased shared venture / tenure opportunities as incumbent farmers and landowners appraise their farming futures.

New starter farm opportunities or alternative models need encouraged, promoted, and supported by all involved in the industry. With an increase in institutional and corporate investors in Scottish land there may be new opportunities for new entrants that can help deliver Corporate Social Governance (CSG) objectives of investors.

There remains a need for a champion of new entrants and for new entrant support to be embedded in future land management support.

Context

1. The 10 starter farms were designed to be part-time units that would allow the tenants their first step on the farming ladder. Starter Farm (SF) tenants were initially provided with a 10-year lease, that was extended by three years in 2021. To secure these tenancies the new entrants were required to tender through a competitive process - there were 77 applications made for the leases demonstrating interest in the opportunities these units provided.

2. The original objectives of the starter farms were to:

a. Attract and develop new talent through providing an opportunity to farm and a base from which to build a business.

b. Demonstrate the integration of farming and forestry in Scotland.

c. Recycle the units every 10 years to provide further opportunities for new entrants.

3. In 2022, a review of Starter Farm tenant's perspectives on the initiative was undertaken by Scotland's Rural College (SRUC) for the FONE group. Eight tenants (from ten) were interviewed to ascertain their experiences of the initiative. A number of themes emerged regarding the benefits of the initiative as well as identification of opportunities for improvement.

Successes of the Initiative

4. The main objectives for taking on the SF tenancy were to run a farm business, have an opportunity for progression, and wanting to build a business and have security. Initial expectations had largely been met, except for the tenancy acting as a stepping stone to another lease / ownership. Many tenants alluded to having greater personal satisfaction because of their starter farm experience than in their previous roles, although they may now carry more financial concerns.

5. The tenants generally improved their personal and business skills through their experiences from the SF and other business activities they undertake. The skills reported to have developed the most as a result of the tenancy included financial management, leadership, decision making, business confidence, marketing, and business and personal resilience skills.

6. Nearly all of the SF interviewees reported that they were 'emotionally invested' in the starter farm, treating it as if it were their own. Many felt fully embedded in their local community through working and contract relationships with other local farmers, employing local people, children attending local schools, participating in and supporting local events, etc. That embeddedness (particularly where farm households are reliant on local off-farm income streams) likely means that modern ties to part-time tenancies are stronger than historically where tenants may have been more mobile.

7. Only one tenant was confident that they would have been farming without the starter farm initiative and all tenants wanted to continue farming after their starter farm tenancy ends - one has now successfully moved up the farming ladder into a new tenancy. Half the tenants had applied for other tenancy opportunities, often being outbid on offered rents. There was an undertone that public bodies, the Scottish Government, and the industry could do more to provide opportunities for the starter farmers – including through initiatives like the land matching service.

8. Most tenants would encourage other potential new entrants to take on a starter farm, and some even expressed that they would offer support to mentor new tenants – if the initiative was to continue.

Skills

9. One of the main successes of the starter farm initiative was the upskilling of the tenants, most tenants reported that they increased many skills throughout the programme. When interviewed tenants said that they would have liked mentors and may said they would like to mentor the new generation of new entrants.

Skills - policy opportunities

Continue and improve formal mentoring schemes with FAS Scotland and encourage uptake.

Encourage younger farmers to become mentors.

Look at providing some industry qualification (not formal) to show to prospective

landowners the skills that the new entrants have achieved.

Establish a new entrant monitor farm.

Land Availability

10. Access to land to rent, and the price of land are well recognised as barriers to entry to the farming sector. The Starter Farms were designed to allow new entrants the first step 'on the farming-ladder' where they could establish and grow their businesses over the ten-year lease - with the aim that they move onto a different (hopefully bigger) before the end of their tenancy.

11. Owning a farm was reported as being financially out of reach for many tenants and the competition for land has resulted in less rental land being available and rental prices increasing. In the 10 years that the starter farm programme has been running land prices have risen significantly and less land is being used for farming activities. Further limiting the amount of land advertised to rent is the response by some estates to farm the land themselves to minimise the risk of the "right to buy", ensure agricultural support payments, carbon and potentially ecosystem service payments in the future. All these factors have resulted in greater competition for tenancies.

12. Many of the tenants had already established agricultural businesses or farming experience (seasonal graziers, agricultural contractors, farm managers) so the SF opportunity was, for many, the second rung on the farming ladder. To-date, after nearly a decade of the initiative only one starter farm has moved on – securing a larger tenancy. Other tenants had applied, unsuccessfully for marketed tenancy opportunities, often being outbid (on rent payable) by established farms.

Land accessibility - Policy & Private-sector opportunities

Land prices

Drivers of land markets (including carbon offsetting, capital gains and inheritance tax reliefs) are being examined in the Theme E of the RESAS Strategic Research Programme 2022-2026. Policy options to limit land price inflation appear limited.

Increasing the quantity of land to the rental market

Tenants' pre-emptive rights to buy have been in place since 2005 and it is unclear what this has meant for the stock of tenanted land available in Scotland where some sitting tenants have purchased their farms. A review of the stock of tenanted land is needed.

Legislation appears to be stifling the rental market and work is needed to better understand what changes could be made to increase landowners' confidence to rent out land in Scotland (e.g. tax relief for landlords in Ireland).

Incentivising farmers to retire has been trailed in England and Ireland, limited success.

Land assignation (Land Reform (Scotland) Act 2016) – appears to have had limited success in Scotland.

Improving new entrants' opportunities to rent

Provide more/recycle new entrant farms on publicly owned land.

Encourage or incentivise private landowners to rent to new or "second step farmers" by financially rewarding the landowner.

Agricultural support conditionality could also be used to incentivise leasing land.

Reduce the risk of taking a new or second step tenant – perhaps by providing loan security / low interest rate loans.

Change criteria of the tenancy (open market) tendering process to be more favourable to new entrant/second step farmers.

Viewing the development of new entrants as part of the landowners' social responsibility perspective.

Promote the impact that renting to young/new entrants can have for landowners and the industry as a whole.

Access to finance and funding

13. On average, the tenants reported initial expected capital needs of c. £39k but generally had to spend considerably more. Funds were secured from loans, savings, overdrafts, livestock markets, and in some instances family members. Tenants had generally built-up fixed assets which would form the basis of any future tenancy / ownership opportunities – breeding livestock, tractors, machinery and equipment.

14. Not all tenants were eligible for the full range of agricultural support payments at the outset of their lease. This was perceived to put them at a disadvantage in the industry. Moreover some believed that agri-environment climate scheme opportunities have been limited due to 5-year commitments and application rounds falling within 5-years of the initial lease termination date.

Funding - Policy opportunities

Ensure all new entrants can access agricultural support from the outset, putting them on a level playing field with existing farmers.

Review the need for, and eligibility criteria for new entrant capital grants and support uplifts within the evolving Agricultural Bill framework.

Consider the benefits and opportunities that a loan guarantor scheme would bring for new entrants to agriculture (and e.g. peatland restoration businesses).

Assess the potential to provide interest free loans to new entrants / second-rung farmers. Is there a role for the Scottish National Investment Bank?

Review other finance models for new entrants / engage with banking sector to identify opportunities to introduce new models.

Further encouragement of alternative models than ownership and tenancy. Farm management / share farming, joint ventures, etc. opportunities should be promoted as viable alternatives to develop experience and build capital.

Authors

Steven Thomson, SRUC

Lorna Pate, SRUC

Acknowledgements

This work was funded under the Scottish Government's 2022-2027 Strategic Research Programme through the Underpinning Support for Policy Advice.