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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 the Wyre Catchment Natural Flood Management Project

The Wyre Catchment Natural Flood Management Project (Wyre NFM project) is the first example in the UK of farmers being paid to deliver natural flood management (NFM) as part of a commercial agreement. The project plans to deliver more than 1,000 targeted measures to store, slow and intercept flood water and prevent peak flow in a catchment in England. These interventions, such as leaky dams, hedgerows, ponds and scrapes, will be hosted by farmers for an annual hosting and maintenance fee over the next nine years, with an option to extend the project to up to 50 years. As of November 2023, the Project has started to install these interventions on the lands of the farmers who initially signed up, and further farmers are being onboarded.

 

Quick Stats:

  • Location: Lancashire
  • Size of Farms: 5-1000 hectares
  • Size of Land: 99 km2
  • Land Ownership: Owner occupiers, tenant farmers
  • Nature Market Primary Focus: Natural Flood Management
  • Project Partners: The Rivers Trust, The Wyre Rivers Trust, United Utilities, Environment Agency, Flood Re, Co-Op insurance, Triodos Bank, Esmée Fairbairn Foundation.

 

 

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 his time and insight on this case study:

Thomas Myerscough, General Manager, Wyre Rivers Trust

 

Date published: 16/11/2023

Next Milestone

Key Takeaways

  • All farmers in the Wyre NFM Project have signed near identical contracts, with variations in the types of NFM interventions.
  • Before starting contract development, the initial farmers and the central Community Interest Company (CIC) signed Memorandums of Understanding, which are non-binding agreements that set out all the details that had been informally agreed.
  • The farmers did not formally appoint their own legal counsel, but took the identical agreements to common sources of advice, such as farm advisors.
  • There were also two versions of the farmers’ contracts – one for owner-occupiers and one for tenant farmers, who were able to participate in the project with landlords’ permission.

 

What sort of contract have the farmers sign with the project developer?

A Hosting and Maintenance Agreement is signed between each of the farmers and the Community Interest Company (CIC) that hosts the project’s operations (see Milestone 6).

This contract does not transfer any ownership or possession of land away from the farmers, but instead is based on the farmers hosting and maintaining (within reasonable ability) the NFM interventions themselves, such as ponds and hedgerows. In this way, farmers are positioned more as service providers than selling the ‘product’ of flood risk reduction, which all stakeholders in the project were more comfortable with.

The project team – including the Rivers Trust and the Wyre Rivers Trust – anticipated that it would need separate contracts with each farmer, and therefore decided to standardize these contracts by changing only the types of NFM interventions from farmer to farmer. This helped to speed up the initial contracts development and also assure the farmers that they are getting equal terms.

 

Why did the project team use Memorandums of Understanding with the farmers?

Before starting formal contract development, the 5-6 farmers engaged at the time signed Memorandums of Understanding (MoUs) with the CIC – you can read a copy of the template MoU here.

These MoUs were a result of discussions through the design of the project, and became an important way of documenting what had been agreed to date. This included what each party would be responsible for, payment terms and the proposed lifespan of the project.

After these initial 5-6 farmers were signed up, the project team decided that the MoUs were not necessary, as they had an existing legal document in place to use for future farmers onboarded.

Dan Turner, Technical Lead at the Rivers Trust, comments that this set of MoUs, though not legally binding, was useful for two reasons. Firstly, it made sure there was no confusion from the farmers as to what participation in the project looked like. It was also essential for showing other external stakeholders that the ‘sellers’ of the ecosystem services were not only engaged but also agreeing to defined terms.

 

What were negotiations like?

Turner comments that the negotiations with the farmers were fairly straightforward, helped in part by the signed MoUs. Some interesting things to note about the negotiations included:

           

Farmer representation

The farmers did not have any formal legal representation in their contract development, but  they did take the contracts away to a few different advisors, such as farm advisors known through the Northwest Auctions.

As the contracts were near identical, proposed changes were discussed and carried across all contracts..

 

Claw back clauses for fees

Considering the possibility that a farmer defaults on their hosting and maintenance obligation and removes the interventions, the project team had to agree a claw back clause that would cover the return of a proportion of any fees paid to the farmer.. The claw back clause is not overly penal but is similar to the claw back clauses in traditional agri-environment agreements. This principle was accepted by the farmers, but some negotiation on the proportion of repayments was needed.

Contracts for Tenants
Where the project team were negotiating with individuals with differences in land tenure, there were two slightly separate contract versions – one for owner-occupiers and one for tenanted land managers. The latter contract required 3 signatures between the CIC, the tenant and the landowner. This meant that the terms, conditions and obligations of the contract were being agreed with the landowner and the tenant, albeit the commercial beneficiary of the contract and the party that the CIC would engage going forward was the tenant farmer.

 

Signing Contracts and Next Steps

Contracts with the initial 5-6 farmers were only signed once the contracts with the buyers and investors were in place. At first, the buyers and investors wanted the farmer contracts signed first to guarantee the ‘supply-side’ of the project, however the project team (including the Rivers Trust and Wyre Rivers Trust) considered that this would be a more daunting prospect for the farmers, and instead advocated for their contracts to be signed afterwards.

The project team formally completed the deal on 31 March 2022, around two years from when the project first started its development in March 2020.

 

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