Why UK Farms Are Struggling: Climate, Policy Shifts & a Surge in Dairy Exports

Profit Pressure, Policy Shifts, and Farm Viability

The recent McCain Farmdex report confirms that more than one‐third of British farms were loss-making or breaking even in 2023-24, with only 14 % achieving profits above 10 % of turnover[0search0]. Main factors include rising input costs, volatile commodity prices, weak policy support following post-Brexit subsidy reform (notably the end of EU exit schemes and the decline of the Basic Payment), and the introduction of heavier inheritance tax burdens. Farmers managing land holdings over certain thresholds are particularly vulnerable[0search0].

Climate Shocks Intensifying Output Losses

Weather extremes in 2025—including unprecedented periods of drought, heat, and heavy rain—have pushed down yields of major arable crops (wheat, barley, oats, oilseed rape) by approximately 20 % relative to their 10-year averages[1search3]. These losses translate into over £800 million in reduced output—adding to economic vulnerability when incomes are already thin[1search3]. This pattern intensifies the financial stress on farms that are already loss-making[0search0].

Dairy Strengths But Mixed Product Performance

In contrast to other sectors, UK dairy exports surged in Q3 2025: volumes rose 5.5 % to about 294,000 tonnes, and export value jumped 13.7 % to around £529 million[1search0][1search10]. Growth was driven by powders, whey, cheese and butter, while volumes of milk, cream, and yoghurt declined though values in some categories improved[1search0]. Underlying delivery volumes in Q3 increased 5.0 % YoY, and total output for the 2025/26 season is forecast at ~12.89 billion litres, up 3.6 % from the prior season[1search4].

Strategic Implications and Open Questions

Investment, subsidy, and tax regime: The phasing out of subsidies and the failed rollout or reduced scope of environmental land management and other green schemes threaten farm income. The recent increase in inheritance tax thresholds alleviates some pressure, but clarity on future tax/regulatory policy remains crucial.

Climate resilience: With extreme weather damaging yields and output sharply, farming must invest in resilient cropping, irrigation, soil health, and climate-adaptive infrastructure. The cost, however, may be prohibitive without financial support mechanisms.

Trade opportunities vs cost competitiveness: Strong dairy export growth shows the potential in premium and processed agriculture exports. Maintaining EU access and ensuring sanitary, phytosanitary, and trade agreements will be important—e.g. a reciprocal beef quota with the US from Jan 2026 is a positive example mentioned in related context [from primary article].

Capacity and consolidation: With many farms loss-making, some may exit, consolidate or shift land use (e.g. solar or forestry), altering rural economies, land markets, supply chain logistics.

Open Questions

• How will government funding allocations for agriculture and environmental schemes evolve over the next Budget periods—and will they adequately manage transition to climate-resilient models?
• What insurance and risk management tools can be scaled for farmers to protect against increasingly volatile weather and supply-chain disruptions?
• Can trade agreements (e.g. with US, EU) keep pace with regulatory standards, cost pressures and infrastructural bottlenecks to enable export growth beyond dairy?
• What will be the long-term impact of inheritance tax and other fiscal policies on generational farming and land ownership?