The government’s 25 year plan should mobilise private funding for environmental restoration

natural_investment_web_coverSince the EU referendum, there has been growing pressure for clarity over two things. First, how an independent UK will protect its natural environment, and, second, how we will pay for it, as most of the legislation that currently directs these areas comes from the EU.

Very soon, the government will be laying down the first major marker for its approach with its 25 year plan for the environment. The title is perhaps slightly misleading; it will not be a plan, rather an outline for how to develop a plan. But the signs are that it will contain some heartening aspirations and set out a strong framework. And above all, it will bring welcome clarity to an area where before there was only speculation and uncertainty.

One crucial question the plan needs to answer is how we will pay for the action necessary to achieve the government’s aim to be the “first generation to leave the natural environment in a better state that we found it”. We already know a certain amount about how public funding will work, at least in the short term. We know that the same amount of CAP (pillar 1) subsidy payments will be available until 2020, and that payments will be increasingly targeted towards ecosystem services. But we can reasonably surmise that agricultural subsidies, as with all public spending, are likely to reduce beyond 2020, and that a substantial increase in private funding will be necessary just to maintain the status quo, let alone reverse decline.

Investment in nature
Natural capital thinking has emerged as a strong business-led agenda that is allowing companies to understand the value they receive from natural systems. The plan’s emphasis on the importance of natural capital approaches suggests that the government will rely strongly on accounting logic to drive ambitious investment decisions by individual farmers and businesses.

But 70 per cent of the UK is agricultural land, and food is not like other markets. Unsustainable farming practices are already increasing the cost of UK food production; impacts on soils alone cost almost £250 million every year, mainly through increased fertiliser and tillage. But the price signals that should indicate to companies that the natural resources they rely on are vulnerable or scarce aren’t working, largely because of the CAP subsidy regime, which guarantees the owners of those natural assets (farmers) income for managing land.

Today, we have published a new report setting out how the government could step-up private investment from the UK’s food sector into farmland.

There is a strong economic case for the food sector as a whole to take action on environmental restoration. But there is an imbalance in where the resources available sit. Currently, most environmental protection policies are targeted at farmers and land managers, yet over 90 per cent of the money generated by the food sector (nearly £100 billion a year) lies with non-farming food businesses such as supermarkets and food manufacturers.

The whole UK food sector should protect the resources it depends on
We are recommending a new approach built around policy that applies to everyone involved in UK food production: farmers, food manufacturers, supermarkets, and collectively develops and implements solutions to the environmental challenges the sector faces.

We’ve made two initial recommendations which we believe could underpin more environmentally resilient food production in the UK, to the benefit of both the businesses and the land that supports them.

First, that the government should take the lead in brokering a new Sustainable Food Pact. We know that many companies recognise the value of better collaboration to solve environmental challenges. However, strong external stimulus seems necessary to get this off the ground. The pact would be a facilitated pre-competitive collaboration between food sector companies, focused on restoring and maintaining the natural systems associated with agricultural productivity. It will be important to learn the lessons from similar, successful ventures in other sectors, like the pharmaceutical industry, based on impartial facilitation, clearly defined objectives, and stable, long term funding. The prospect of regulatory consequences for non-delivery has also been shown to help ensure success.

Second, new Natural Capital Allowances, introduced as an extension of the existing capital allowance tax relief scheme, would support investment by the food sector in environmental restoration. This would supplement, not replace, public payments to farmers. It would use public funding to leverage private sector investment at the scale needed. We estimate that this government contribution could result in a fivefold increase in private investment from food manufacturers and retailers, and lead to significant public and private benefits.

Strong regulation should continue to be the bedrock of environmental protection. But the 25 year plan for the environment should open the door to a new approach that moves away from requiring or incentivising individuals to do the right thing, to one built around collective ownership of problems that no single organisation can solve alone.

Read Natural investment: futureproofing food production in the UK

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