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Harry Morshead, Associate Rural Surveyor, gives his thoughts on the possible natural capital growth opportunities for land owners.

A recent article in the Financial Times titled “Growth potential in the natural capital off farmland” has highlighted some interesting and controversial points not least because of its title but also because of its target audience. Furthermore, the article quotes the twenty-year-old Country Life article; “What happens to farmland that nobody wants”. The irony of the statement considering the market nowadays is obvious but also that it was written by a southern based lifestyle magazine citing various industry experts. Whilst these predictions have in cases been proven to be correct albeit perhaps not in the way they were intended.

Farming was in crisis, and those ‘on the front line’ didn’t need a glossy southern based magazine to tell them.  Dairy prices were so low that many West Country herds were being dispersed and it was predicted that within a matter of years it was entirely feasible that large areas of traditionally managed countryside would be abandoned, almost rewilded. Sound familiar in 2022? Country Life went on to state that although land in the south with pretty houses on it may be attractive to urban buyers looking to escape to the country, this wouldn’t be the case elsewhere, and especially not the ‘industrial north’. As a result, land prices in headline counties, such as Lincolnshire were falling, the worry was that great swathes of land would become redundant with no economic use and therefore impossible to sell or let. However, as we all know things have changed significantly. With prices of prime arable land in the UK rising by over 200% from £3,000 per acre to over £9,000 in the space of 15 years, with prices last year rising 6%.

This rise of course accounts for all types of land and overall, the country as whole and the FT are quick to point out you can buy land for less and quote a national agent citing “poor livestock” land is priced at £4,000 an acre. As a locally based land agent I would be interested to hear the parameters of what they term as poor livestock land at that price.

Overall, the price of UK agricultural land isn’t necessarily valued on what that land can yield in terms of production rather there are underlying factors, for example governments subsidies and the tax benefits associated with land ownership; or at least this is certainly the case for the investor market which are playing an increasing role in underpinning the national market.

Of course, some other variables to the national demand do exist. The economic climate and interest rates are obvious drivers and have always been present. The current climate agenda is however a more a modern driver which can still be pushed and not the detriment of the other incentives of owning land. The FT article goes as far as to say that nothing says I am rich more than being a landowner with the ability to rewild one’s land, and it is right; no doubt its target audience will agree!

But should we complain about this? Whilst the environmental buyer will be judged by those living in the localities, however if people want to rewild then it leaves those that don’t with less competition in a marketplace which is already short of produce.  A positive thought on an otherwise perhaps negative concept?

There is no one in the UK be it an individual or company who isn’t under pressure to reduce their environmental impact and farmland is no longer about food production. It is an asset high in what “socially responsible” investors term Environmentally, Social and (Corporate) (ESG) Governance values.

A casing point is to imagine you own a large commercial building in London and you want/need it to be a net zero building. Whilst you can mitigate at first with energy efficiency measures and insulation etc... This though won’t do the whole job, so you are going to need an alternative plan. The popular rhetoric the said building owner has heard, is that they should buy carbon credits and so they do or at least try to, but these credits are not overly available, and they are subject to price hikes as more people follow suit.

The logical (investor) solution is therefore not to buy credits but to build your own and how best to do this than to buy land and then plant trees and/or rewild! Sadly, buying land is not that easy (or at least not as easy as they think) for such a purpose, testament to this is that prices in Scotland are up 31% in 2021.

The Scottish prices rises are largely down to tree planting and in part re wilding. There are though (perhaps) less obvious opportunities for landowners, too. There is peat restoration. Peatlands dried out to create grazing land can be restored. Arguably peat bogs are far more efficient at sequestering carbon than trees, and yet by comparison the percentage of blanket bogs in the world is tiny compared to that of what is planted, the pertinent point is that (apparently) 80% of the worlds blanket bogs can be found in the North Pennines. By thinking about, you will see how and why we (northern land occupiers/managers) are so important, and we shouldn’t forget it.

As side from specific focuses on carbon sequestration, there is also a more holistic approach and with it the potential in developing and protecting what is now known as “natural capital”; a popular modern term which incorporates everything from water quality to biodiversity.

Again landowners/occupiers/managers can play a key part in this and capitalise on value. For example, all developers in the UK now must demonstrate that they create at least a 10 per cent “net gain” in biodiversity.  This is not very easy when you are developing numerous tightly packed houses on a development site. If said developer was to sacrifice say 10% of this site for biodiversity it could be costly; wouldn’t it therefore be easier to contract out to landowners who can deliver the goods off-site?

What does all this mean aside from the obvious land use conflicts?

Firstly, is that one way or another, via a series of marketplaces that facilitate the trade of various environmental credits, there will be a solution to every regulatory demand. The key is for rural land occupiers is to ensure that the benefit you provide those seeking the environmental benefit which only your land can provide is that the value of such benefits is maximised, and your own business/asset is not prejudiced.

The second is that the emergence of these new income streams adds value to land. In particular to land previously considered as being unfashionable. That’s why the price of “poor quality” livestock land rose at more than double the rate of prime arable land last year. Note also that non-farming buyers took 38 per cent of land sales last year and why institutional and corporate buyers made up 16 per cent of land buyers last year, against a 10-year average of 10 per cent.

The Country Life article said, “We may start to see a decline in the value of farmland as farmland,” and in this instance they were right but not in the way they thought!

Farmland offers something of an alternative for the genuinely environmentally minded. There isn’t much of it and everyone wants it, and everyone needs it, or so it seems. Land appears to be further bucking the trend of yield (and subsidy) driving value. On the face of it prices seem likely to rise and it’s the uninteresting land which appears to be the most sought after.

I am assuming that farmers reading this article may not be minded to view it positively, but it highlights the change we all know is present. Rising capital values of land are not for everyone to capitalise on, but the values are not just capital. Income can be generated without selling, occupiers can do so by way of future schemes and incentives; caution however on this part is urged as it is still early days and carbon credits are expected to rise, plus rural businesses are likely to need them themselves.

Furthermore, rewilding, planting trees and natural capital approaches may not be for everyone and the more that follow this agenda will only benefit those that don’t i.e those farmers who want to farm. Food security should be the paramount objective for the country in terms of land use worryingly it isn’t at present. The scarcity of food created by the non-productive agenda, will only exasperate the shortages and prices we are currently seeing, and which will only get worse. Rewilding and wholesale tree planting have appeared to be the policymakers answer to the problems of the modern world, however given recent events, I would hope that their rose-tinted spectacles and fluffy ideas have been replaced by a sense of realism and that as a country we need to be more self-sufficient.

Harry has been with youngsRPS since 2013, coming straight into the firm after a six-year stint working on the family farm at Langley near Haydon Bridge. Prior to youngsRPS, Harry completed his master’s degree in politics, graduating from Edinburgh University in 2007.
While working at youngsRPS, Harry has completed a post graduate master’s degree in Rural Enterprise and Land Management at Harper Adams. Harry qualified as a Rural Chartered Surveyor in April 2016 and works out of our Hexham Mart office.