How Michael Gove can unleash a new wave of farming entrepreneurs
For farmers, change is a way of life. Weather is unpredictable. Consumer appetites change. Prices go up and down. Managing uncertainty and volatility goes with the job.
But the ability of farmers to keep bouncing back will soon be tested to its limits, and possibly beyond. Brexit will bring change of a scale and at a speed that will dwarf anything seen by the current generation of farmers. This could include changes to the availability and cost of labour, the size and terms of subsidy payments, the potential imposition of new import and export tariffs and, should certain trade deals be struck, increased competition from low cost food imports. Not all farmers will cope. Many are likely to fail.
Farmers are at risk from rapid change in subsidies
Changes to farming subsidies are likely to be particularly damaging. Basic farm payments have helped many farmers keep the show on the road through challenging economic times. Some types of farming have become entirely dependent upon subsidy just to remain in business. The current model of basic farm payments is widely viewed as flawed, and a broad coalition has emerged around the idea that support payments should be allocated based on improvements to the ecosystem services provided by farmland. This is, on the face of it, a reasonable idea. But public money is finite, and the scale of the need, both in terms of farmer livelihoods and improvements to environmental health, is huge.
With this in mind, there are some basic questions to ask. What would it take for private sources to pay to improve the ecosystem services provided by farmland, and why would they do it?
We think we have at least part of the answer. A year ago, Green Alliance, in partnership with the National Trust, proposed the new idea of Natural Infrastructure Schemes (NIS). The concept is for a market in avoided costs, applied in our case to flood and water contamination, whereby water companies, infrastructure operators and public agencies enter into private contracts with upstream farmers to engineer their land to deliver ‘slow, clean water’. This would involve contracting to carry out environmental infrastructure development, like soil aeration, tree planting or attenuation ponds, to reduce flood risk or water quality problems, as an alternative to hard infrastructure.
The scheme offers big wins for farmers and other businesses
Our new report includes a thought experiment looking at what this could mean in north west England, where catastrophic floods in recent years have shown that we may be reaching the limits of what can be cost-effectively protected with traditional hard flood defences. It is also home to some of the UK’s most vulnerable farmers; over a third of all farms in Cumbria and Lancashire, around 1,800, are upland livestock grazing farms. On average, these businesses are losing £10,800 per year on farming.
Drawing from the latest modelling and data, our example catchment scale water attenuation project on upland farmland could give the following results:
- A group of ten upland farmers could offer a Natural Infrastructure Scheme to protect a downstream town against a severe 1 in 75 year flood event, using only ten per cent of their farmland
- The scheme would cost the farmers in the region of £6.53 million to run over 15 years, covering the costs of creating and maintaining it, and taking into account the lost income from taking the land out of agricultural use
- Downstream organisations would pay £11.2 million to deliver this level of protection, these include Network Rail, the local electricity supplier, the local water and sewerage company, the local authority responsible for maintaining roads, the insurance sector and local businesses
- The scheme would, therefore, save £4.7 million compared to the usual options. Splitting this saving equally would give the group of buyers a cost saving of £2.35 million over 15 years, and each of the 10 farmers would earn £15,658 in profit per year for 15 years
The NIS offers a triple win:
- A new, commercial revenue stream for the farmers, who might otherwise struggle to stay in business post-Brexit
- Improvements in the resilience to flooding of vital infrastructure, at a lower cost for businesses and other organisations.
- Improvements to the natural environment through the creation of new natural infrastructure on farmland, offering new habitats and greater biodiversity.
Given that this makes clear financial sense, why isn’t it already happening? First, many of the potential customers are big, complex organisations that don’t necessarily collect centrally all the related costs they incur from flooding at specific locations. Second, regulation can hamper or prevent organisations from participating in transactions of this kind. Flood Re, the government-created reinsurer that should be a major vehicle for the sector to invest in flood resilience projects, is actually prohibited by law from doing so. But, mainly, the potential buyers and sellers don’t know each other well, are in sectors where collaboration is fairly alien and they are not having the case made to them, showing how they could benefit from this type of scheme.
What needs to happen to make it possible?
Farmers should experiment with private agreements for water management services. The sector needs to turn current good ideas into new revenue opportunities, and time is tight. This is where there is a role for government. Not necessarily through major new policies, but in supporting development of the market and, if necessary, brokering transactions. This should include continuing to make R&D funding available for large-scale natural flood management demonstration projects, and introducing long term environmental restoration targets, to support the development of new ideas and low cost approaches to improving the natural environment.
Michael Gove spoke in July of his wish to see government and the private sector working together to improve the environment whilst delivering growth. This is one idea that could really help.