Green your eats

The UK can be proud of its progress towards net zero, but there is one key area where the transition has barely started: agriculture and land use. Emissions here have fallen by just 5 per cent over the past 15 years, with the UK’s legally binding climate targets requiring a seven-fold increase in pace to remain on track. That means reducing greenhouse gases by nearly a seventh (13 per cent) by the end of this decade – a sharper fall than currently planned for industry.

These carbon savings will come by changing how food is made. That means using less, or greener, fertiliser; managing soil differently; reducing livestock numbers and changing the feed they eat. It will also mean using land in different ways – such as repurposing that currently used to rear animals, restoring damaged peatlands, or planting trees.

One key reason for the lack of progress is that decarbonising farming is hard. There are no ‘silver bullet’ technological solutions (such as electric cars for transport) to do the heavy
lifting on cutting carbon. Moreover, deep changes will be managed by a large number of small farming businesses – 200,000 farms employing 450,000 people – making it more difficult to coordinate and monitor change than in industries where large companies dominate, such as the electricity sector. And third, changes in farm production and rural land use are politically  sensitive – as evidenced by the furore over inheritance taxes – and crucial to food security in an age of growing geopolitical division.

But policy makers mustn’t shy away from the challenge. Meeting statutory decarbonisation targets with no further contribution from land use and agriculture would make decarbonising  the economy more expensive than it needs to be. We estimate that meeting the UK’s 2030 target with no further contribution from land use and agriculture would require an extra £12  billion of capital investment in the 2020s, as more expensive mitigation options would need to be brought forward to cut carbon from other sources. This is a significant outlay –  equivalent to the cost of more than a million heat pumps – and risks households being forced to shoulder more expenditure than is affordable, either financially or politically. But we must also be alive to the potential for decarbonising farming to impact living standards. So, in this report we assess the economic state of the agricultural sector, look at how the transition will  feed through to food production, and consider how changing the way land is used can best be managed.

Our farmers are being asked to do a lot. The sector is waking up to challenging new targets to halt species decline, improve water quality, restore degraded habitats and protect 30 per  cent of the UK’s land and sea for nature by 2030. Each of these is significant; together they represent a generational change in the practice of farming.

These goals are driving an overhaul of the sector’s generous subsidy system. Payments to farmers are changing from levels proportional to the area of land farmed to a system that  rewards positive environmental actions. Even though the overall scale of these subsidies will remain close to current levels of around £2.5 billion a year, the new system will see winners and losers, as well as placing new demands on time and working practices.

On top of this, the sector struggles with low productivity, as highlighted by the recent Farming Profitability Review. Despite a long-established secular increase in agricultural productivity
– averaging 0.8 per cent a year over the past half century – the typical family farm only made enough profit (after subsidies) to pay its owners £6 for each hour worked in 2024, less than half the minimum wage. Further, nearly one-in-three (30 per cent) of farms lost money, meaning they essentially paid to farm, and a further quarter (25 per cent) were kept profitable only  by government subsidy.

Poor productivity is seen even more starkly when we consider levels of wealth in the sector. The typical family farm has assets of £1.5 million, five-times that of the typical household.
But annual returns on these assets are incredibly poor, at just under 1 per cent. Such low returns reflect the long tail of lowproductivity farms. This has resulted in a wildly uncompetitive sector in which most farms (86 per cent) used more inputs in their agricultural businesses last year than they created in outputs. This is not a sector in the sort of rude financial health to take on an even heavier burden.

A clear flashpoint in decarbonising food production is the fear it will drive up prices in shops. Reducing emissions will not be free: input costs will increase, low-carbon machinery requires investment, and novel production methods will take up considerable amounts of farmers’ time. And unlike in other sectors, such as electricity generation or transport, there is little expectation that resultant savings will outweigh upfront costs.

Thankfully, the costs of decarbonising food production should be low, adding less than £1 billion a year (in constant prices) to the cost of producing food in the UK, according to the Climate
Change Committee (CCC). At peak, these costs reach 3 per cent of the value of annual farm output between now and 2050 – an entirely manageable sum. But, even if the costs are  modest, it’s still important to consider who bears them.

An obvious candidate to bear these costs is farmers themselves. Food and farming are highly competitive industries with many prices set on world markets. As such, producers operate with very limited pricing power, and almost all the farmers we spoke to explained how they would have very limited ability to recover any increases in input or operating costs from their direct customers.

Razor-thin margins in farming mean that even a modest 3 per cent increase in costs could have highly detrimental effects on the sector. We estimate that costs of this magnitude would  lead to the annual average income of farmers falling by around a fifth (from £43,000 in 2024-25, to £35,000), and one-in-twenty farms would drop into the red. Further, looking at costs  averaged across the sector also likely understates the challenge for some farms, with even greater pressure on those with the most carbonintensive methods.

To be clear, these impacts are daunting because the farming sector is financially fragile, not because net zero costs are large. That means it might be better that consumers bear the  brunt through higher food prices – trading a small impact across the wider population against an existential threat to a (much smaller) number of farmers. Here, the impact on households will be even smaller than the 3 per cent uptick on farmers’ costs, because farm output prices make up only a small fraction of overall family food bills: agriculture accounts for less than a tenth of the value of the entire agri-food sector (even excluding catering).

This means that, even if the entire cost of decarbonisation were transferred to consumers, the additional increase in overall food prices between now and 2050 would be less than 1 per  cent – a negligible impact. In fact, last year saw several individual months where food prices rose more than this. And while some foods will be more affected than others, it is the overall  cost of food that matters most for living standards.

All this suggests that passing on the costs of decarbonising food production to consumers should be the aim of policy makers, and the urge to increase subsidies in order to protect  farmers from such costs should be resisted. While the latter approach would no doubt be popular with farmers, using subsidy to shield a low-productivity sector from market pressures would effectively mean taxpayers supporting inefficient firms. In any case, the low profitability of many farms suggests that financial incentives may only have a relatively weak effect on the behaviour of farmers.

Net zero is a global goal, so farmers abroad should also see their costs rise and international market prices increase. But some countries will inevitably lag others, potentially putting
UK farmers at a disadvantage. One way around this is to soften the impact of unfair competition by regulating other actors in the food supply chain. For example, mandating  supermarkets to procure increasing volumes of food that complies with emissions standards would be a powerful option – mirroring the Government’s approach on electric cars, where manufacturers’ sales are required to become increasingly electric over time. This would avoid additional demands on government finances and place the onus onto some of the largest, best-organised, and most-resilient businesses in the UK to drive action, rather than burdening thousands of small farming enterprises. It would also show farmers they aren’t being singled out to deliver change, a worry shared by many that we spoke with. And, crucially, it should help to incorporate the costs of change into the price of food.

Cutting carbon from food production isn’t the only challenge facing the sector. Using land in a way that removes emissions produced in other parts of the economy – that is, sequestering
carbon through tree growth or fuel production, for example – is central to the Government’s net zero plans. Indeed, these ‘negative emissions’ are assumed to account for more carbon savings than cleaner food production in 2050, according to CCC figures. But achieving this would require close to a tenth of agricultural land to be taken out of production.

Unlike the move to low-carbon farming, however, there is currently no market through which farmers can be compensated for not farming. Here, subsidies already play a key role in socialising the costs of providing public goods that have no market value. The Government’s Environmental Land Management Scheme is therefore right to provide funding for these non-agricultural activities. Also, while greener food production will require most farmers to adapt, the challenge of using land differently will be concentrated on a smaller number of businesses, impacting them to a far greater extent.

But subsidy is not a foolproof way of influencing farmers’ behaviour. Our discussions with them surfaced a general acceptance of the case for cleaner production methods, but ceasing production entirely is much more contentious, in many cases calling time on generations of working the same land. Many said they would simply reject any financial incentive to stop, highlighting an emotional attachment to the land that overrides pure economics.

So while policy makers should be aiming for the least productive land to be repurposed first – allowing land use change with as limited impact on food production as possible – this could  be difficult to achieve with subsidies alone. The upcoming Land Use Framework must address the friction between farmer choice and optimal land use, and be prepared to direct which  land would be better used as a carbon sink instead of to grow food.

An additional concern is the plight of tenant farmers, for whom change in land use brings insecurity rather than opportunity. Short leases compound this problem, potentially giving  landowners a low-resistance route to replacing farming tenants with ‘easier’ returns from environmental subsidies, such as solar or forestry. But tenant farmers are often the nation’s most productive, producing enough to earn threequarters more in profit per hour worked than farmers who own their land. A transition that sweeps away productive tenants in favour of passive landlord income would be neither fair for the farmers nor optimal for UK consumers (or for food security). Government policy must, therefore, ensure that tenancy contracts protect  farmers. This could be achieved by regulating to ensure prime tenanted land remains in agricultural production, or, better still, guarantee tenants a long-term role in managing environmental change on land they occupy.

Decarbonising agriculture is fundamentally a challenge of delivery, not cost. The transition to a new economic reality is manageable – even the worst case impact on consumer prices
will be limited. However, the fragility of farm businesses and deep-seated cultural attachments to traditional methods make implementation difficult. This report sets out an approach to this challenge that puts living standards first – identifying routes to prevent either lower-income households, or farmers themselves, from shouldering an unfair burden.