Farmers across England have been offered additional support as prolonged dry weather continues to put pressure on crops, grazing, forage supplies and water availability. But for farming businesses already facing tight margins and limited cash reserves, the question is not simply what support is available. It is whether the numbers stack up for their individual business.

At the time of writing, 71% of England remains in drought and reservoir storage is around 18% below the seasonal average. While recent rainfall has provided some relief, considerably more rain is needed to replenish water resources.

The government has announced a £65 million package of measures, including an additional £50 million for the Sustainable Farming Incentive (SFI), up to £15 million to support on-farm water storage, temporary flexibility within Environmental Land Management (ELM) agreements and measures intended to make access to water easier during drought.

The measures are welcome. However, the £65 million has been made available through reprioritisation within Defra’s existing farming budget, rather than representing an equivalent increase in the overall farming budget.

For Willem Puddy, Partner and Head of Rural at Old Mill, that distinction matters.

“The additional support is welcome, particularly given the conditions farmers have faced this year, but we need to look at it in the context of what is happening on farms,” says Willem.

“Many farming businesses are already under considerable financial pressure. Grain prices remain challenging, milk prices have been volatile, and the dry weather has affected yields, grazing and forage. There simply isn’t a lot of spare cash around in many businesses.”

The scale of this year’s drought has added another layer of pressure.

By mid-August, 71.3% of England was in drought. The Environment Agency reported reduced crop yields and quality, poor grass growth and increasing pressure on winter livestock forage stocks. More than 1,500 abstraction restrictions were in place during the week to 13 August, while farm reservoir levels remained very low.

The position has remained difficult despite some subsequent rainfall. In the week to 20 August, reservoir storage across England had fallen to 62.6%, with seven major reservoirs classed as exceptionally low.

For individual farms, the financial effects can extend well beyond the immediate loss of production. Lower yields, additional feed requirements and changes to cropping can all affect cash flow and future investment decisions.

“The important thing is to understand what these pressures mean for your own business,” Willem explains. “The last few years have put traditional farming systems under increasing pressure, while working capital requirements have risen significantly. Every farm is different, which makes understanding your own financial position and learning from what has happened particularly important when planning for what comes next.”

An additional £50 million has been allocated to SFI 2026 Window 2, bringing the total budget for new SFI26 agreements to £290 million. Window 2 is due to open to all farmers in September.

The additional availability may provide opportunities for some farming businesses, but Willem cautions against looking at payment rates in isolation.

SFI is different from the former Basic Payment Scheme. Actions undertaken through environmental schemes can require changes in land use, management practices or expenditure by the farming business.

Farming families will often make these decisions with input from a number of specialist advisers. Old Mill works alongside clients and their wider advisers to ensure the financial implications of proposed changes to land use or farming systems are properly understood. By bringing robust financial information into the conversation, we can help families assess their options and make strategic decisions with greater confidence.

“If a client is considering putting land into an environmental scheme, we can look at the economics,” says Willem.

“We can compare the potential return with the historic performance of that land and model what it might produce under different assumptions for crop prices and input costs. That helps the family understand the financial trade-offs before making a longer-term decision.”

The government has also announced up to £15 million to support on-farm water storage, with the Water Management Grant expected to reopen this autumn. The wider package includes plans to reduce barriers to building agricultural reservoirs and simplify aspects of abstraction licensing.

For farms exposed to water shortages, investment in storage could become an increasingly important part of longer-term planning.

However, grant support does not remove the need for a robust business case. The same principle applies to any government grant: the availability of funding does not, on its own, make an investment right for an individual farming business. The economics still need to be considered carefully.

“Building a reservoir can involve significant capital expenditure,” says Willem. “Even with grant funding, the business will still need to find a substantial proportion of the cost itself.

“At a time when cash is already tight, you have to ask what return that investment will generate. Could greater water security protect yields or allow different crops to be grown? Could it support diversification? How will the remaining investment be funded, and what does that do to cash flow and borrowing capacity? Those are the conversations we should be having.”

Perhaps the bigger issue raised by this year’s drought is how farming businesses build resilience when the economics of traditional farming continue to be challenging.

For some families, the answer may involve changes to cropping or land use. For others, investment in infrastructure, environmental schemes or diversification may form part of the response.

Increasingly, these decisions also intersect with succession.

“The reality is that farming businesses are operating through a period of transition, with traditional sources of farming income and government support changing,” Willem says.

“That makes the wider structure and strategy of the farm increasingly important. Tax efficiency matters. Business structure matters. Diversification can matter. And so does having the next generation involved in those conversations.”

For established farming families, this can sometimes require difficult discussions about investment and risk. A generation that has spent decades reducing debt may understandably be reluctant to borrow again, while the next generation may see investment or diversification as necessary to create a viable business for the future.

“Neither perspective is necessarily wrong,” says Willem. “The important thing is to have the conversation and put some numbers around the options. What can the business afford? What return might the investment generate? What happens under different commodity price assumptions? And does it support where the family wants the farm to be in 30 years and beyond?

“Some of the plans we work on are genuinely multigenerational. Families aren’t only thinking about the person who will take over the farm next; they are considering how the decisions they make today could shape the opportunities available to their grandchildren and future generations.”

Rather than responding to the latest funding announcement in isolation, farming families may benefit from using it as an opportunity to review the wider position.

Consider:

• Cash flow: What have lower yields, feed requirements or other drought-related costs done to forecasts for the next 12 to 24 months?
• Land performance: What is different land currently contributing to the business, and how might alternative uses affect its financial return?
• Investment: If water storage or other infrastructure is being considered, what is the total capital requirement after grant support, what is the desired return on that investment and is it realistically achievable?
• Scenario planning: How do the numbers change under different assumptions for grain, milk and input prices?
• Diversification: Are there opportunities to create additional income streams or make better use of land, property or other assets?
• Succession: Do proposed investments fit with the family’s longer-term plans and the ambitions of the next generation?
• Business and tax structure: Does the existing structure still support what the family is trying to achieve?

Farming families have always had to manage uncertainty, but the combination of volatile markets, changing agricultural policy, rising working capital requirements and increasingly unpredictable weather is making long-term planning more important than ever.

At Old Mill, we value the farming families and rural businesses we work with and recognise the vital role they play in our rural communities and economy. Our commitment is to help them navigate this period of change, working alongside their other advisers to bring together the financial information, commercial insight and long-term planning needed to make informed decisions.

This year’s drought is another reminder of the pressures farming businesses need to plan for. Future-proofing the family farm means looking beyond the immediate challenge and considering how decisions around investment, land use, diversification, cash flow, tax and succession work together to support the long-term strength of the business.

For many families, those decisions are not simply about protecting the farm for the next few years or even the next generation. They are about creating a resilient rural business and safeguarding opportunities for generations to come.

If you would like to review how resilient your farming business is and consider the steps you could take now to prepare it for future generations, speak to Willem Puddy or contact your usual Old Mill adviser.