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Introduction toNature Markets Assessing landopportunities Working withother farmers Baselining,planning andmeasuring Workingwith buyers Farm businessplanning Liability & riskmanagement Using repayablefinance Signing legalcontracts Public sectorfunding & policy Tenancy &ownership
  1. Groundwork
  2. Market Engagement
Introduction toNature Markets Assessing landopportunities Working withother farmers Baselining,planning andmeasuring Workingwith buyers Farm businessplanning Liability & riskmanagement Using repayablefinance Signing legalcontracts Public sectorfunding & policy Tenancy &ownership
  1. Groundwork
  2. Market Engagement

Summary of Environmental Farmers Group

Environmental Farmers Group (EFG) is a farmer-led organisation focused on delivering environmental improvements financed through nature markets. The farmers work together to identify where natural capital improvements would best be made, and where opportunities exist for nature markets. The EFG shares knowledge and processes across its members to strengthen their position as owners and managers of natural capital. The EFG was launched in May 2022 in the Hampshire Avon river catchment and completed its first trade in March 2023. As of October 2023, it comprises of 257 farmers and 140,000 hectares, with a mix of owner occupiers and tenant farmers, and has since expanded its model elsewhere in England.

 

Farm Profile:

  • Location: Hampshire, Wiltshire, Dorset, Northern Lincs, Northants
  • Size of Farms: 20 hectares – 3000 hectares
  • Size of Land: 140,000 hectares
  • Tenancy & Ownership: Mix of tenants and owner occupiers
  • Nature Market Focus: Biodiversity Net Gain, Nutrient Neutrality, Water Quality
  • Interventions: various
  • Project Partners: Game and Wildlife Conservation Trust (GWCT), Natural Capital Advisory

 

 

What do I need to know about nature markets to begin with?

 

This section of the Toolkit provides a brief overview of nature markets in England and how they relate to farmers. It is designed to answer some of the early questions that farmers may have around nature markets. All Toolkit content, including this Introductory section, will be updated regularly.

 

What market opportunities are available to me based on my land and goals?

 

This milestone will guide you through an initial assessment of your land as you determine what your broad vision is in relation to nature and help you to identify what opportunities might be available to you to attract private sector finance.

The actions taken at this stage can be taken before you’ve made the firm decision to engage in nature markets. The considerations presented in this milestone will help you determine whether nature market participation makes sense for your goals, the condition of your natural capital and your farming business.

You can also apply many of these considerations to develop a broader vision around your natural capital and other potential funding sources – such as government grant schemes or philanthropic funding.

 

Will I need to partner with other farmers, and if so, how?

 

Once you have a vision for your farm, the environmental enhancements or changes you want to make and a sense of the related income opportunities, you may want to consider joining up with other farmers in your area to implement your outcomes at scale to attract buyers.

Aggregation models, often started among  farmer clusters or as farmer cooperatives, bring together multiple farmers or landowners to collectively participate in nature markets. These models aim to harness the combined efforts and resources of farmers to maximise environmental benefits and economic opportunities. This section will introduce the factors that may influence your decision to join up with other farmers and some of the key considerations to keep in mind when setting up and participating in such a group.

 

How do I measure the environmental outcomes that I can produce in a robust way?

 

At this stage you will have developed an overarching vision for your land and a rough plan for what you want to improve. You will now want to make robust baseline measurements of the condition of your land and develop a detailed plan for interventions and intended outcomes. Plans will also include how you intend to maintain your interventions, measure the impact you are having and verify your outcomes in order to sell them.

 

How should I identify and approach buyers for my outcomes?

 

During your initial project scoping, you may have identified potential buyers of the environmental outcomes you are planning to deliver. Now that you have a project plan and a robust baseline, you will be ready to approach and engage buyers more formally.

Buyers will vary in their expectations and requirements. This milestone will help you prepare for initial conversations with potential buyers to ensure you are empowered to ask the right questions and present a project that will attract a fair price. Your buyers may be within your own supply chain such as retailers and businesses, or organisations who benefit directly from your ecosystem services such as water companies or firms who seek to offset their own environmental impacts.

 

How would this project fit in with my current farming business model?

 

Nature market projects are often just one part of a farmer’s wider business. Some people compare building nature market projects to developing ‘micro businesses’ for the farm. As such, much of the content you see here will be familiar to you.

However, these projects also have key features that separate them from the businesses that farmers usually engage in. For example, the longer timeframes associated and the current uncertainties relating to how nature market projects (and the deals that result) can be blended with government schemes.

Below is a list of questions that will help you think through how to incorporate these projects into your current farm business plan. This includes considerations on building a cashflow or partial budget, but also the less quantifiable factors, such as the potential drawbacks and opportunities to your wider farm that sales of present.

 

What kind of risks should I be aware of and how can I manage them?

 

Like with any aspect of a farm business, risk management is critical – especially for nature market projects that can run over several years. As the landholder, you may be leading the development of the project, be part of a wider group of farmers, or be working with a third-party project developer that is taking the majority of the risk.

In any case, it’s advisable to have a clear understanding of the likelihood of the risks involved, what will happen if the risk materialises, what you as the landholder might be liable for, and how the risk is being managed to prevent this liability.

This Milestone sets out the different types of risks that nature market projects (and the deals that result from them) often carry. The last section covers the types of legal entities that farmers might form, as these can help to manage certain risks and benefit the overall operations of the project.

 

Is it possible to use repayable finance upfront to meet any of the costs?

 

Repayable finance from investors – typically debt or equity – is not always necessary in nature markets if upfront costs can be met by the buyer or through grants.

It’s also important to note that, even when repayable finance is needed, farmers do not necessarily have to secure this themselves.

In the UK, there are very few examples of individual farmers taking out loans and no examples of farmers issuing shares to use specifically to finance a nature market project. Typically, the upfront capital required is organised by a third party – for example, a third-party project developer, a broker etc.

However, as nature markets develop further, and in the case of larger farms, there is potential for farmers to secure repayable finance and meet up-front costs, as with other parts of their business.

The below therefore sets out some questions that farmers (and, more likely, third party project developers) could ask themselves to secure repayable finance from lenders and investors, whether that’s taking on finance independently, or as part of a larger group or partnership.

 

What do I need to be aware of when signing contracts?

 

This Milestone is about the legal contracts you will use and sign to officially commit to the project and transition it to a fully fledged deal. As business owners, farmers are familiar with contracts and understand the need to carefully review the details before signing any such agreements.

Any nature market deal is likely to involve legal agreements that will be tailored to each set of circumstances. However, for ease this Milestone sets out what contract set-ups are used in this space, common contract types, and other key considerations to ask yourself at this stage.

Disclaimer: The information in this Milestone does not constitute any form of legal advice but instead serves as practical advice that has been written by speaking with lawyers, farmers and other practitioners. We recommend that appropriate legal advice should be taken from a qualified solicitor before taking or refraining from any action relating to your contracts and projects.

 

Can I participate on tenanted land?

 

The tenancy and ownership structure of land can have significant implications for farmers engaging in nature markets in the UK. The rights of tenants in relation to nature markets is still not entirely clear in the UK and may differ on a case by case basis. Below are some key considerations which can help both tenants and landlords in asking the right questions when considering engaging in nature markets as policy and legal frameworks develop. Further guidance prepared by the Tenant Farmers Association and the Country, Land and Business Association can be found here. 

 

How do public sector funding and policy align with nature markets?

 

In England, the role of public funding and support to farmers is undergoing change on a scale not seen in decades. The government hopes to strengthen the link between environmental and farming practices to meet its climate and nature restoration targets, while maintaining food security and the viability of farm businesses across the country.

This section offers a summary of how government is working with farmers to access nature markets, and provides guidance on:

 

  • How nature markets might work with public subsidy schemes,
  • What development funding is available for farmers to explore their opportunities,
  • What ‘market infrastructure’ the government is supporting – including Standards and Codes.

Groundwork

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

Market Engagement

 

We have separated out these Milestones into ‘Groundwork’ and ‘Market Engagement’ to indicate which Milestones you will want to read as you consider and/or prepare for nature markets (Groundwork) and those you will move through if and when you decide to become a seller of environmental outcomes (Market Engagement).  

We recommend all farmers read through the Groundwork Milestones in addition to the Introduction to Nature Markets in order to understand better whether nature markets are for them, and how they can, at the very least, explore and baseline their farms so they are ready for any opportunities that may arise later.  

 
Acknowledgements

With many thanks for their time and insight on this case study:

 

Robert Shepherd, Farmer and Board Member, Environmental Farmers Group

Ed Shuldham, Farmer and Scoping Group Member, Environmental Farmers Group

Digby Sowerby, Operations Officer, Natural Capital Advisory

Rachel Ridd, Business Officer, Natural Capital Advisory

 

Date published: 16/11/2023

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Key Takeaways

  • EFG believes that farmers have the best knowledge of their land, and that a bottom-up plan, designed by farmers and land managers, can be more effective for delivering nature-positive outcomes compared to top-down, demand-driven or piecemeal improvements.
  • The group of founding farmers are working with the GWCT on a Catchment Scale Conservation Plan to figure out where the best changes can be made from both an ecological and financial standpoint.
  • EFG’s membership has been steadily growing – now across three catchments – it has been gathering ground-truthed ecological data to make sure this plan is best suited for the environment.
  • EFG is also working with Natural Capital Advisory to help determine how nature market opportunities can feed into this Plan.

 

What is the current state of the land?

As of November 2023, the Environmental Farmers Group covers 135,000 hectares in three different catchments in the south-west of England;

  • the Hampshire Avon (EFG’s starting location),
  • the Test & Itchen, and
  • the Dorset Stour.

 

Farming in these areas is predominantly based on permanent pastureland for grazing and arable farmland, with most farmers dependent on the Basic Payment Scheme for their businesses.

Each catchment has its own unique features and specific environmental goals – such as the reduction of certain nutrients in waterways, protection of rare chalk streams and restoration of wildflower meadows. However, each catchment agrees on the same broad environmental objectives that were set by the founding farmers in 2021:

  1. Cleaner Water
  2. Biodiversity and species recovery
  3. Net carbon zero farming by 2040

 

You can read more about how this initial group of farmers came together on EFG’s website, and how farmers of EFG work together in the Milestone 2 case study.

 

Creation of a Catchment Scale Conservation Plan

In partnership with the GWCT, EFG has started to build a Catchment Scale Conservation Plan (‘Plan’) that will identify across the catchments where ecological interventions, such as tree planting near rivers and wildflower restoration, would be best placed ecologically.

Several different ecologists have been engaged to develop the Plan, but also farmers for their own knowledge of their land, and to build in how much land they would like to keep in food production.

One of the aims of the Plan is to take national targets around nature restoration, and scale these down to the catchments, so that the Plan is best aligned with government ambitions. For example, EFG wants to restore 75% of protected sites back to favourable conditions by 2042. EFG also hopes to feed their work into the Local Nature Recovery Strategies of the catchments.

EFG is still defining some of the methods by which it is tracking these targets – including its definition of net carbon zero farming. However it believes that by collecting this data now using robust and trusted methodologies, the farmers of EFG will be better placed to create joined up plans that can meet the requirements of financiers and government – such as additionality and proving the avoidance of perverse incentive.

This in turn will help to transform the Plan into what EFG calls an Investible Landscape, which can create nature market trades (and other types of funding).

 

How is EFG assessing its nature market potential?

EFG hopes to create a pipeline of nature market trades that align with the Plan. It is working with Natural Capital Advisory (NCA), which is a subsidiary of the GWCT that specialises in nature markets, in order to do so.

Rob Shepherd – one of the founding farmers and now Chairman of EFG – says the most common concerns that farmers have about the nature markets space are usually either “missing the bus entirely or overcommitting their farms.” EFG recognises that, if it could achieve enough scale, farmers could “dip their toe” by committing parcels of land together, and have better negotiating power as a collective.

Since its launch in May 2022, EFG has pursued different ecological and land assessments across its membership, including 57 biodiversity audits to assess the potential of BNG sales.

So far, the main nature market opportunities for EFG farmers appear to be unit sales via Biodiversity Net Gain and Nutrient Neutrality, as the catchments are all located in areas with a housing development pipeline under Nutrient Neutrality requirements. EFG has further plans to assess land opportunities, including Soil Carbon trials with a small group of farmers and a service provider that the NCA and EFG has assessed and chosen.

You can hear more about the EFG’s role in the video below:

 

How has EFG funded this work?

To date, EFG has received different sources of funding for its development, including:

EFG also has a ‘trade equalisation policy’ that means any trades pursued by its farmer members involve a share of profits, with 3% going to EFG to help cover its administrative costs. You can read more about this in the Milestone 2 (Working with Other Farmers) case study.

 

 

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