landscape has changed

In 2020 the Government laid out its roadmap for UK agricultural reform over a seven-year period to 2028. The Agricultural Transition Plan was billed as an instrument that would deliver a “better, fairer farming system in England, which will transform the way the Government supports farmers”. Like the proposed Planning White Paper (see page 12), the transition plan includes radical changes that are the most significant UK farming and land management has seen in the past 50 years. As we approach the plan’s quarter-way mark in 2022, to what extent are things going as expected?

“Covid has undoubtedly slowed things,” says Fisher German partner and head of agribusiness David Kinnersley. “But we do have 90 per cent clarity now around the end of the Basic Payment Scheme (BPS), including the de-linking process and lump-sum payments.”

BPS amounts will be reduced over the period to 2028 and plans for the lump-sum retirement scheme have recently been announced. This scheme will run to 30 September 2022 and allows farmers wishing to retire to take a lump sum in lieu of their final years of BPS payments. Acceptance on the scheme isn’t automatic, however.

There are various requirements that applicants have to fulfil in order to qualify, which may have wider implications for tax planning, for example. David says: “It is proposed that in 2024 de-linking of payments from the requirement to be farming land will occur. This means that 2023 will be the last year in which farmers will have to fill out the annual BPS subsidy claim forms to get paid the remaining BPS payments – ending direct farm payments which started with the MacSharry CAP reforms of 1992.”

The good news is that agricultural businesses now have considerable clarity about what they can expect from the existing payments system. David says:

“These businesses have all sorts of options and I’m working with many to discuss the best tactics, so they can decide what to do with land they either rent or own. They can see what income they can expect and the impact it will have on their business.”

So far so good, but what about the second half of transition period, from 2023 onwards?

As the BPS finishes, the new Environmental Land Management (ELM) schemes are to be introduced, including the large-scale Landscape Recovery Scheme (LRS), the Sustainable Farming Incentive (SFI) and Local Nature Recovery (LNR), the successor to Countryside Stewardship. Since Brexit and having left the EU’s common agricultural policy (CAP), UK farmers and landowners are now being incentivised to do a lot more with their land to deliver biodiversity and other natural capital benefits.

At the start of this year the Government announced how its LRS will work. The LRS focuses on long-term, major changes in land management, to encourage significant habitat and use change.

David says: “The LRS is the top tier of Defra’s planned environmental schemes sitting above the SFI and LNR. Defra’s expectation is for it to create at least 20,000 hectares of wilder landscapes, peatland restoration and afforestation.

The first round of projects will be focused on recovering and restoring England’s threatened native species and restoring England’s streams and rivers: improving water quality, biodiversity and adapting to climate change.”

He believes the LRS is going to be most easily tackled by the nongovernmental organisations, which already have control over large land areas, for example, the National Trust and the RSPB, and larger landowners who will have the area under their control and the resources to put into developing and managing the projects. David notes: “It will also appeal to the various groups of landowners who are starting to collaborate on environmental schemes such as the Environmental Farmers Group. These collectives may be able to access funding to help deal with phosphate issues in river tributaries, for example, and that work could potentially benefit all landowners within the relevant catchment areas.”

The new ‘prosperity and productivity funding’ grant streams will also open in 2022, including the Future Farming Resilience Fund (FFRF) and the Farming Investment Fund, which will enable farmers to make changes to their businesses so they are ready for the removal of the farm subsidy.

David believes that the impact of the move away from direct farm subsidy funding ‘public goods for public payments’ will be seen in the acceleration of environmental schemes over the next two years, although he warns: “Without the BPS payments there is still likely to be a significant reduction in annual income, which has supported the rural economy.”

Case by case

The reforms will impact farmers and land management in a number of different ways. David and his team are already helping to review business strategies on a business-by-business basis. He says: “It will undoubtedly lead to a period of rapid change as everyone evaluates their options. A lot depends on the age of the principals and whether or not they have successors, but it will also depend on their farm productivity and ability to continue to produce food at a profit without subsidy. For older, smaller farmers in less productive areas there is the appeal of contracting out their operations, but also mitigating their production risk by entering into the environmental scheme options in a significant way.”

Larger businesses, particularly intensive livestock and fresh produce ones, should see far less impact from the agricultural reforms, though post-Brexit trade deals will be of more concern. David notes: “Others may be better placed to focus on diversification such as agritourism, adding value to food – but everyone involved in rural businesses, including landlords, will be affected by the Government-led changes.”

For now, the new environmental schemes being introduced are proceeding at a relatively slow pace. And the one thing they all have in common is an opaqueness about how much the Government is investing in them ie how much they will be costing the taxpayer. No overall figures are readily available, neither are total figures for individual schemes. The first phase of the LRP has confirmed that it will release just £7.5m, divided among 15 projects. Greater transparency over funding levels would certainly help boost appreciation of the new schemes. David says: “We think there is quite a way to go before Defra has got schemes that everybody really has confidence in. That bit has been more complicated and is further behind than the other parts of the Agricultural Transition Plan. Prosperity and productivity funding is pretty much in place and will evolve over time.”

Climate change and the net zero carbon agenda may also open up opportunities for farmers and landowners, by, for example, being paid to sequestrate carbon on behalf of other businesses or providing biodiversity net gain (BNG) services to developers, such as through The Green Offset (see page 18). Rural businesses may also find they can make financial savings and improve their environmental standing by reviewing their existing outputs through tools such as Farm Carbon Audits (see box).

One further source of uncertainty comes halfway through the transition plan in 2024, when a general election is expected (unless it is called earlier).

“If we have a different Government installed at the point, we could see some different policies,” says David. New policies could also be accompanied by a new budget for agriculture, but at this stage it is far too early to even hypothesise about either of these things.

Carbon Audits allow a business to understand its energy use and costs by measuring its carbon footprint. It can then identify ways to use resources more efficiently by highlighting key areas to focus on carbon emission reductions and opportunities to sequestrate carbon.

One estate, in Oxon, extends to around 770 hectares, of which approximately 380 hectares are in arable cropping and 224 hectares in permanent pasture. The farm has an extensive environmental scheme and has been reducing tillage and working toward greater implementation of regenerative farming practices over the past six years. Extending the rotation, using overwinter cover and fodder crops, increasing organic manures and direct drilling have all been part of the farm policy to reduce reliance on artificial fertilisers and pesticides.

A carbon audit was undertaken using the Cool Farm Tool calculator to assess where the farming business was in terms of net emissions and to focus on the key emitting activities as a step towards the target of net zero. Key findings for Harvest 2020 were:

• The major emitting factor was fertiliser use at 721 kg/ha • Energy (gasoil and electricity) use was the second largest at 256 kg/ha • Crop protection was 67 kg/ha

The movement in carbon stocks with this model due to the level of direct drilling and use of organic manures indicate that the farm business was close to net zero for Harvest 2021. The focus of future work will be to increase the area direct drilled on an annual basis and reduce reliance on artificial fertilisers and gasoil, as well as building soil organic matter. All these elements will also help improve farm efficiency and margins.

07530 259915

david.kinnersley@fishergerman.co.uk

It’s not every day that a company gets to launch a genuinely innovative platform. But that’s exactly what Fisher German did in 2021 when it launched The Green Offset. The website connects those requiring land for a variety of environmental improvement reasons with landowners who are willing to provide acreage that will sustain new habitats or host renewable energy sources.

The idea of a single place where all of the issues surrounding land offsetting can be dealt with by dedicated professionals has hit a chord with landowners, who usually face a bewildering array of options. Fisher German senior surveyor Alex Watts says: “We realise that we’re currently in a period of massive uncertainty for landowners and land managers, who are seeing the Basic Payments Scheme being phased out, they don’t know how the Environmental Land Management (ELM) schemes are going to work in practice and there is a lot of noise about biodiversity net gain and carbon sequestration, so it’s a really complex picture.

“I think one of the reasons The Green Offset has proved so attractive is that it offers a free, simple way to understand the opportunities that are out there, with no strings attached.”

So how does the platform work in practice? We’ll take a fictional developer – MoreBuild – that has done a baseline survey on the site to be developed, which informs it about the existing levels of habitat and biodiversity. From this MoreBuild can calculate the number of habitat units that need to be compensated for as a result of its development to achieve 10 per cent biodiversity net gain – in our notional example it is seven habitat units of grassland habitat. MoreBuild has three choices: it can deliver biodiversity net gain on the development site; it can pay a developer contribution to the council in lieu of providing biodiversity net gain itself, or it can look to deliver the net gain elsewhere.

“This is where The Green Offset comes in,” explains Alex, “as MoreBuild can search for areas of land in the locality of the development site that landowners have made available exactly for this purpose. MoreBuild will be looking for land that can provide at least seven habitat units within the development site’s local authority boundary. That’s really important as local councils want to see the offset in as close a proximity to the development site as possible.”

MoreBuild is in luck – a suitable area of land is potentially available nearby – so submits an enquiry to The Green Offset platform. Fisher German then contacts the relevant landowner, in this case the fictional LandGreen, to discuss MoreBuild’s interest, including the developer’s identity and their requirement of seven units. If LandGreen wishes to proceed further, Fisher German will link the two parties. Alex notes: “At this point The Green Offset ends, but LandGreen has instructed Fisher German to act on its behalf on brokering an offsetting agreement. The specific details of

MoreBuild’s requirements and LandGreen’s site are considered in more detail and commercial terms will eventually be produced, stating the compensation payable by MoreBuild to the landowner.”

That figure is calculated from a number of variables, principally: a 30-year minimum base term, capital devaluation, income foregone, the cost of establishment (of the grassland habitat) and the cost of maintenance. LandGreen can choose whether to take payment as a lump sum or on an annual basis. LandGreen understands that it won’t be offered development land value, but the sum should exceed the current agricultural land value for that plot. If both parties agree to go forward solicitors are instructed to draft an environmental covenant to cover the legal delivery of that scheme. Alex points out: “This part of the process is probably the most complex and can take considerable time to resolve. Eventually, however, the deal will conclude and MoreBuild will have its offset in place and LandGreen will have secured an attractive income stream for a 30-year term on an otherwise unprofitable area of land.”

The Green Offset is used by a wide variety of ‘seekers’ including but not limited to housebuilders, energy developers, corporate companies and utility operators. Although there is an assumption that offsetting requires large swathes of land, the reality is that smaller parcels are the norm. Alex explains: “If landowners wish to be more proactive, then they can discuss the possibilities of habitat banking or baseline surveys with us. There is certainly a lot of potential to explore what they could do further. They don’t have to wait for an enquiry via The Green Offset.”

As with any new venture, The Green Offset has produced outcomes that weren’t necessarily foreseeable in advance. “Because of our background expertise and the fact that innovation was involved, we knew that we were dealing with a relatively high level of complexity,” explains Alex, “but it wasn’t possible to gauge accurately what impact that would have on real-world timings. What we know now is that process can be lengthy. That’s not a bad thing, as it means all bases are thoroughly covered, but I think it’s important that all parties understand this isn’t a ‘click and buy’ process.”

The reaction from landowners who have used the system has been largely positive and many have been impressed by the sheer variety of potential commercial possibilities for their land and the financial considerations resulting have also been well-received. However, other issues are also important to landowners. Alex says: “We are living in uncertain times, so committing land for a particular use for at least 30 years is a big decision. What makes the decision-making process even harder from a landowner perspective is that tax issues, particularly those surrounding inheritance tax, have yet to be resolved in relation to offset land.”

For example, it is currently unclear whether a landowner who enters into a scheme to provide grassland to deliver biodiversity net gain will receive agricultural relief from inheritance tax. We are still awaiting confirmation from HMRC on this.

07584 707294

alex.watts@fishergerman.co.uk