HomeNatural environmentDefra’s new farm payment scheme shouldn’t hold back private markets for nature

Defra’s new farm payment scheme shouldn’t hold back private markets for nature

This post was originally published by Business Green.

The rapid decline of nature in the UK isn’t just bad for the environment, it’s undermining our economic prosperity, as the Treasury’s recent Dasgupta Review on the economics of biodiversity and research by Cambridge University and the RSPB have shown. And turning around this crisis will only be achieved by concerted, co-ordinated action from both the public and private sectors.

Thankfully, we are now seeing the emergence of new private markets for environmental services from nature, with nature-based carbon offsetting schemes, such as the Woodland Carbon Code, water company programmes to improve rivers and the surrounding environment, and the concept of ‘biodiversity net gain’ for housing and other development projects on the horizon.

If these new markets can draw in more buyers, they could be a major tool for reversing nature decline and achieving the goals of the UK’s 25 year environment plan. Nature-based solutions have clear advantages for businesses, as well as wider benefits for society. For instance, healthy soils and biodiversity underpin the UK’s £105bn food industry. Natural flood management measures protect businesses, as well as homes, from the impacts of climate change. And other river catchment management measures can be used to improve water quality and reduce drought risk.

The government’s new post-Brexit Environmental Land Management scheme (ELM) for farmers and land managers will soon start to be piloted. This will eventually replace the much maligned EU CAP funding schemes, which made inefficient area based payments, with payments for land management that provides environmental benefits to society. This is a potentially powerful new route to protect and restore the environment. But it risks underdelivery if it fails to encourage and support growth in private markets alongside the public payment scheme.

Green Alliance has been working with a number of corporate and NGO partners in the Eden Valley in Cumbria, including National Trust, 3Keel, United Utilities and Nestlé, to demonstrate a locally-based market that can channel a combination of payments from public and private sources to farmers and land managers through a simple, single transaction infrastructure. We will shortly be publishing a toolkit on how to do these transactions.

The basis of our idea is to develop an approach that leads to much better value for money for both public and private sector buyers. For example, many of the beneficial interventions proposed under the new ELM, such as good soil management, deliver private as well as public goods. Indeed, good soil management is a focus of the private trade we have been working on in the Eden Valley. Where there are both private and public benefits to be gained from a scheme, it makes sense for private and public beneficiaries to jointly purchase the services, spreading the liabilities, providing savings and increasing the scale of the improvements that can be made.

We have found that private funding alone does not always provide sufficient incentive for systemic changes in farming that deliver the most for the environment, like arable reversion or innovative new grazing patterns , meaning that cheaper and less environmentally-positive interventions, like covers on slurry stores, are chosen instead. This has been our experience in the Eden Valley, where reverting some land from maize growing to permanent pasture would have multiple environmental benefits, but the high cost of it cannot be justified on the basis of the water quality benefit alone. If public money was used to top up the scheme, effectively to purchase public goods like greater biodiversity and carbon sequestration, then the more systemic changes would start to become viable, leading to better outcomes and faster nature recovery.

As well as better value for money and greater environmental benefit, integrating public and private funding through the model we’ve developed would also increase the longevity and permanence of outcomes targeted by the governmen”s ELM funding. Under CAP agri-environment schemes, results lasted only as long as grants continued and there was no structural change to the system. In contrast, our model would link public goods outcomes with real markets, where there is a material economic need. In this way, the environmental payments and outcomes are future-proofed because they are linked to a sustainable business model.

Unfortunately, the default position of most of the proposed ELM payments is that they will be separated from emerging privately funded projects. At best, this will do little to encourage more private buyers to enter the market but, at worst, it could have a freezing effect on market development, and severely hamper environmental recovery.

For example, competition between schemes could lead to public and private schemes stifling each other. This could be caused by farmers being forced to choose between competing schemes, or due to ELM money crowding out private investment. There are already signs of some farmers and land managers deferring their involvement in privately funded schemes available now, because they are unsure how it might affect their ability to take part in the future ELM. To avoid this, the government should avoid setting restrictive rules for ELM which tie up the land and make it difficult, or impossible, for farmers to also use their land to deliver environmental services for private buyers.

There is a risk too that public and private schemes operating in the same landscape will end up funding incongruous or conflicting measures which reduce the effectiveness of each. And, unless there is co-ordination between activities, there could be inefficiencies, with the risk of double funding and potentially even over-delivery of a particular outcome.

In 2019, then-Environment Secretary Michael Gove promised we were on the cusp of a revolution in agriculture and land management. Farmers and land managers offering environmental services to public and private buyers, as part of vibrant, local markets, should be at the heart of this revolution. And it is now in touching distance. A government payment scheme carefully designed to support and contribute to these new markets would seal the deal.

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