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Introduction to Nature Markets

Click on the questions below to learn more:

What are nature markets?

6 minute read

What nature markets exist for farmers now?

4 minute read

Why would farmers engage in nature markets?

4 minute read 

How can farmers access these markets?

5 minute read 

What are farmers' common concerns?

10 minute read 

What next steps can farmers take?

5 minute read 

What are nature markets?

 

We already buy and sell goods and services that come from a healthy natural environment – such as food, timber and recreation. Nature markets extend this range of services to those that have traditionally not been paid for. They create a means of unlocking new funding and finance options to pay for activities that restore and protect the natural environment, and therefore can also help create a more resilient farm business.

 

At their core, nature markets are based on the sale and purchase of ecosystem services, which are commonly defined as the services that nature provides people.

 

While there are many ecosystem services provided by our environment (including the production of food – which has longstanding markets established around it), in the context of nature markets we commonly talk about the following ecosystem services:

Carbon
carbon sequestered or emissions avoided through improvements made to soil or habitats
Biodiversity
improved biodiversity through restored and connected habitats
Water Quality
improved water quality, such as decreasing nitrogen or phosphorus run-off
Protection from Flooding
reduced flood risk through riparian planting, river re-meandering, earth bunds and such
These ecosystem services derived from nature, or natural capital, are measured and packaged in a way that makes it possible for land managers, businesses and governments to assign these ecosystem services a financial and comparable value. For example:

 

  • carbon sequestered or emissions avoided  --> can be sold as carbon credits to businesses looking to offset their own carbon footprint.
  • improved water quality --> can be sold as nutrient units (under Nutrient Neutrality) to property developers.
  • improved biodiversity --> can be sold as biodiversity units (under Biodiversity Net Gain) to property developers.
  • reduced flood risk --> can be paid for by businesses and organisations with assets and property at risk of flooding.

 

As landholders, farmers may be in a position to sell these ecosystem services through improvements to their own natural capital. You can read more about what nature markets exist for farmers in the next section.

 

 

How do nature markets relate to natural capital?

 
The relationship between natural capital, ecosystem services, and the more measurable products and services that nature markets are being built on, is shown below:

 

A note on the diagram above, natural capital improvements often produce multiple ecosystem services. For example, woodlands, peatlands and soils can also produce biodiversity improvements, nutrient run-off reduction and flood risk reduction.

 
Given farmers are stewards of 70% of the UK’s land, nature markets provide an opportunity for farmers to be paid to improve their natural capital and deliver more ecosystem services.

 

For example, a farmer could choose to plant trees on marginal land and sell carbon credits to a local business that has reduced its carbon footprint as much as possible but has some residual carbon it needs to offset. Real world examples of farmers exploring these opportunities are given in the Toolkit.

 

 

How do nature markets work?

 

The way nature markets work can be broken down into roles, much like any other market. The core participants are:

Sellers

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Sellers

Sellers are those that control land use and can make changes to deliver an uplift in ecosystem services. Sellers can include farmers, estate owners, or any other landholder – such as local authorities, charities or private companies.

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Buyers

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Buyers

Buyers are typically businesses that either benefit from those improvements, or that are required to pay for improvements to compensate for their own activities. Buyers can be motivated on a voluntary basis, or to meet a regulatory requirement.

To help regulate nature markets and make sure they are delivering high-integrity outcomes, other bodies are certainly needed:

Government

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The UK government is supportive of nature markets and has set targets to develop these further. A good summary of its position and goals is the Nature Markets Framework, which was published in March 2023.

You can also find an overview of how government agri-environment schemes and policies fit with nature markets in the Toolkit’s Public Sector Funding and Policy section.

Standards and Codes

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Standards and Codes set the rules for measuring, selling, buying, and monitoring the ecosystem services. Examples include the Woodland Carbon Code and the Peatland Code, which are endorsed by the UK government.

The way farmers use Standards and Codes is covered in more detail in Milestone 3 (Baselining & Measuring).

Certifiers and Verifiers

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Certifiers and Verifiers should be independent third parties that can confirm whether projects are following the rules of the Standard or Code, and that the ecosystem services are being delivered accordingly.

For example, the Soil Association validates and certifies projects registered under the Woodland Carbon Code, the Peatland Code, and the Wilder Carbon Standard.

Registries

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Registries provide publicly accessible records of what ecosystem services are for sale, what has been bought, who are the buyers and who is responsible for delivery. They help to ensure transparency and integrity in nature markets, for instance by preventing double counting.

An example is the UK Land Carbon Registry, which hosts information under various carbon standards and codes.

To help nature markets grow more generally and address other pain points felt by buyers and sellers, other participants include:

Platforms

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Platforms connect sellers and buyers and facilitate trades, often taking a commission.

Investors

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Investors provide repayable finance to help meet up-front costs, like the habitat creation works. Investors are different to buyers as they are repaid with interest.

Brokers

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Brokers arrange transactions between a buyer and a seller, sometimes acting as an intermediary buyer and purchasing ecosystem service units for onwards sale.

Other Third Parties

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Other third parties provide a range of services that help facilitate trades and develop markets further, such as ecologists, financial advisors, and lawyers.

Nature markets in the UK are growing fast but in many ways are still nascent, and need to be developed further before they can be considered fully fledged markets. The different nature markets are covered in the next section.

 

As you explore these different areas, you will note that some of the market actors and their processes are more developed than others.

What nature markets exist for farmers now?

 

 
The below table sets out the most common nature market opportunities for farmers. These are summarised as the type of ecosystem service being sold. This table also includes detail on:
 
  • The type of buyers for each ecosystem service and their motivations
  • Price ranges (as of 11/01/2024) that demonstrate what farmers might be paid
  • The time commitments associated with these markets – namely how long farmers are expected to maintain their changes in natural capital to deliver the ecosystem services at enough scale.
  • Further resources – including blogs, webinars, and official guidance from teams and organisations with specialism in each type of nature market.
 
These are based on nature market trades that have been completed so far, and will be updated to reflect market trends going forward.

 

 

Market 
Summary 
Pricing
Time Commitment
Further Resources
Carbon

Voluntary -driven demand

Farmers create carbon credits by creating or restoring habitats that improve carbon stocks, in line with specific Codes and Standards.

The two government-recognised Carbon Codes are the Woodland Carbon Code and the Peatland Code. However, more are in development. There is also the Wilder Carbon Standard, which was launched in early 2023 and received government funding for its development.

Demand in carbon markets is driven by businesses that wish to offset their own emissions with carbon credits.

Businesses, such as food retailers, are also becoming more interested in insetting their carbon units, by working with farmers within their supply chains.

Alternatively, farmers can retain rather than sell any carbon credits they create on their land, which could count towards their own farm’s carbon footprint.

 

£15 - £75 per tonne of carbon

 

*Prices observed in the UK, carbon credits purchased abroad have a much larger range of $2-$150

30-100 years

*1-10 years for soil carbon

Other resources that specifically relate to carbon include:

AHDB - Carbon Markets

Strutt and Parker - A Guide to Carbon Markets for Farmers & Landowners

Woodland Trust - Woodland Carbon

Farm Carbon Toolkit - Getting Paid for Carbon

Biodiversity Net Gain (BNG)

Compliance-driven demand

Property developers pay farmers to create or restore habitats that deliver biodiversity uplift, meeting their requirement to deliver 10% Biodiversity Net Gain to compensate for the biodiversity impact caused by property development. These can be upfront payments or annual depending on negotiations.

BNG sales are based on biodiversity units, which are calculated using Natural England’s BNG Metric (version 4.0 as of November 2023). Property developers use this to calculate how many biodiversity units they need to buy. Ultimately, Local Planning Authorities approve planning permissions and will require evidence of any BNG agreement that the property developer needs to meet its 10% requirement.

Property developers must buy habitat units that are like-for-like in relation to the habitats they have destroyed – in line with UKHab classification.

BNG will be a regulatory requirement for large developments from January/February 2024 and small sites from April 2024. You can view the timetable here.

 

£20,000 - £40,000 per biodiversity unit, but some more ecologically valuable habitats may be worth more per unit.

There are roughly 3 – 7 biodiversity units per hectare.

Note: BNG Payments are also combinable with Nutrient Neutrality payment (see other resources).

30 years minimum

Other resources that specifically relate to BNG include:

Defra guidance for land managers on how to sell biodiversity units

Defra webinars on:

Farmers Weekly - Biodiversity Net Gain: What farmers should consider

Interested landholders can speak to their Local Planning Authority to understand the current demand and supply in their area.

 

Nutrient Neutrality

Compliance-driven demand

Property developers pay landholders to reduce their nitrogen or phosphate run-off in local waterways, to mitigate the impact of new property developments. This is measured in nutrient credits (1kg of total nitrogen or total phosphate).

Nutrient Neutrality is enforced across 62 Local Planning Authorities (LPAs), which are responsible for setting the requirements for new developments, including how many credits they must purchase.

Natural England (NE) provides a generic methodology for calculating the number of credits developers need, but LPAs can customize their calculators to the needs of the local area.

NE is also delivering a national Nutrient Mitigation Scheme (NMS) to help increase the supply of nutrient credits and assist LPAs. This started in the Tees Catchment with several rounds of nutrient credits now sold, but the NMS is expanding to other areas, first focusing on catchments with the highest housing needs. NE is working with farmers and landholders on various feasibility studies to guide this work.

 

£1,800 - £4,000 per kilogram of nitrogen

£14,000 - £100,000 per kilogram of phosphate

Note: Nutrient Neutrality Payments are also combinable with Biodiversity Net Gain payments.

80-125 years

The Local Planning Authority, determines the figure within this range.

Other resources that specifically relate to Nutrient Neutrality include:

House of Lords - Nutrient Neutrality and Housing Development

ArcGIS - Guidance on constructed wetlands to deliver nutrient neutrality.

Defra - Combining environmental payments: biodiversity net gain (BNG) and nutrient mitigation

Interested landholders should contact their local authority or the Nutrient Mitigation Scheme team: nutrientmitigation@naturalengland.org.uk.

Water Quality

Voluntary -driven demand

Water companies pay farmers for reducing phosphate and nitrate run-off, which can deliver operational cost savings to them.

There are no common metrics, Standards or Codes that dictate how these schemes are run. However, water companies are required to demonstrate their plans for these schemes and their estimated efficacy to OffWat, under the Water Industry National Environment Programme (WINEP) and their Price Reviews.

Defra is also funding Forest Research to develop a ‘Woodland for Water Code’ to attract private finance to woodland creation where it will deliver specific water management related benefits, including water quality improvement.

 

Pricing information not publicly available 1-10 years

Other resources that specifically relate to water quality schemes include:

Farmers Weekly - Water Company Schemes to consider for your farm business

Natural Flood Management (NFM)

Voluntary -driven demand

Organisations – including businesses and public bodies – pay farmers/landowners to install interventions that help slow the flow of water across a catchment and reduce property damage / disruption costs from flooding. The organisations (or people they represent) may benefit because they are directly downstream from the measures, or because it presents a positive public image.

Interventions include measures that seek to reinstate and enhance natural hydrological function and geomorphological processes, minimize run-off generation at source by improving soil infiltration and enhanced surface roughness , and consider the impact of artificial drainage.

There are very few examples in the UK of NFM being delivered with private finance, but NFM is of increasing interest in the face of increasing flood risk in England.

While there is no specific Code or Standard for NFM, Defra is funding Forest Research to develop a ‘Woodland for Water Code’ to attract private finance to woodland creation, where it will deliver specific water management related benefits, including natural flood management.

 

Too few examples to conclude price structures and ranges 10+ years

Other resources that specifically relate to water quality schemes include:

Catchment Based Approach - Natural Flood Management Measures: A Practical Guide for Farmers

Catchment Based Approach - Lowland Natural Flood Management Measures – a practical guide for farmers

Ciria - The Natural Flood Management Manual

If you have information that you’d like to include in this table, such as pricing data or useful resources, please contact us at hive@gfi.green.

Why would farmers engage in nature markets?

 
Nature markets are sometimes criticised for lacking clear rules and oversight. While more work is needed for these markets to reach a stage where all stakeholders can feel confident in participating, there are several reasons why farmers may want to start exploring their nature market opportunities now, or at a minimum the natural capital opportunities that underpin them.
 
These can be summarised into three main reasons:

 

  • Additional Income opportunities
  • Working with traditional buyers and other linked businesses
  • Aligning with government intentions
Additional Income Opportunities
 
Nature markets can offer farmers alternative income streams for their farm businesses. This can be a powerful reason for participating, especially with the removal of the Basic Payments Scheme in 2024. When thinking about whether to transition land management into a model that also can deliver into nature markets, farmers will typically consider:

 

1. Using marginal or unproductive land - Nature markets can offer a revenue stream for parcels of farmland that farmers consider unviable for other uses. After assessing land opportunities, farmers may well discover new potential uses for marginal or less productive land – such as sites with difficult soil types, or sites that often flood. In this way, conflict with other income streams is minimised.

 

2. Taking land out of agricultural production - Farmers faced with this situation must weigh the opportunities alongside their own priorities – including food production, environmental stewardship, profitability of the overall farm, and succession planning.

 

3. Combining nature market agreements with agricultural production - In some cases, it’s possible to combine nature market trades and agricultural or timber production. For example, the Peatland Code allows non-intensive stocking densities on restored peatlands, as does the Biodiversity Net Gain (BNG) regulation on certain habitats. In another example, woodlands can provide both timber and carbon income via the Woodland Carbon Code.
Working with traditional buyers and other linked businesses
 
While farmers may not want to engage fully in nature markets now, they can benefit by baselining the underlying natural capital and ecosystem services on their farmland. This can better prepare them for future demands around sustainability. These demands will likely come from those within their supply chains, such as food and beverage retailers, along with other linked businesses, such as water utility companies.
 
Sustainability has become a significant concern across all industries and sectors. Government commitments, emerging regulation and consumer appetite shifts are resulting in businesses seeking to improve biodiversity and reduce greenhouse gas emissions. Many food manufacturers and retailers, in the UK and globally, are therefore expecting their suppliers (farmers) to deliver on environmental objectives alongside food production.
 
Farmers that explore their nature market opportunities will first assess how their overall farm is performing on a natural capital basis, and therefore build an understanding of how they can meet potential environmental objectives from their traditional agricultural buyers. This is discussed in more detail in Milestone 4 (Working with Buyers) of the Toolkit.

 

In addition to traditional agricultural buyers, farmers may also be approached by local businesses and organisations that are dependent on farmers’ natural capital for certain ecosystem services.

 

The most common example of this is water companies that pay farmers to reduce nitrate and phosphate runoff in riparian fields, in order to reduce their operational costs of treating the water downstream. As local businesses gain a deeper understanding of how they depend on healthy natural capital, farmers may be approached by companies such as breweries, eco-tourism companies, and even property insurers to improve their natural capital.

 

As with the above, exploring their nature market opportunities will offer farmers the chance to understand more about what they have, how it can be improved and what services it is offering to the wider area, and therefore be in a better position to work with other businesses.
Aligning with government intentions
 
The government has a commitment to supporting private finance into nature – including through nature markets. The Treasury has announced its aim for £500 million per annum of private finance to flow into UK nature recovery by 2027, and £1 billion per annum by 2030.
 
In March 2023, the Government also published the Nature Markets Framework that set out how it would scale up private investment in nature recovery and sustainable farming. This set out key next steps, such as exploring:
 
  • the design of Environmental Land Management schemes (ELMs) and other grant schemes to strengthen compatibility with nature markets,
  • approaches to offering publicly available data on credit transactions in nature markets,
  • recommendations from the Rock Review (Oct 2022) to ensure tenant farmers are able to access land use schemes and private natural capital markets.
 
Additionally, the Carbon Budget Delivery Plan (March 2023) made a commitment that by 2024 the government will set out how farmers will be supported to understand their emission sources through carbon audits, and take further actions to decarbonise their farm businesses.
 
Because of this direction of travel, many argue that farmers have an interest in learning about this space now, including what natural capital they have, and how they can work with others to shape nature market trades and agreements that work for them.

How can farmers access these markets?

 

There are several routes to market that farmers can take, including who they work with and the manner in which they sell their ecosystem services. Below offers the four main routes that farmers can take, offering the pros and cons of each.

 

Route
Summary
Pros
Cons
Most common with
Working directly with the Buyer

 

Farmer contracts directly with the buyer, no intermediary is involved.
 
However, a Code or Standard can play a role by publicly listing your project and making it accessible to potential buyers.
 
All control and the revenue sits with the farmer.
 
Can develop a project more quickly as a sole seller.

 

 

Costs of the project and the delivery risk sits with the farmer.
 
Riskier in terms of knowledge base – e.g., the farmer has to be legally savvy to understand contract clauses and implications of natural capital commitments.
 
Carbon, Biodiversity Net Gain, Nutrient Neutrality
 
The above require direct contracts between buyers and sellers.

 

 

Working with a Farmer Group or Collective
Farmers in a geographic area or on a certain land type decide to work as a group – e.g., assessing their land opportunities, sharing costs, engaging in trades as a group.
 
If you are interested in this topic, you can find more detail in Milestone 2 (Working with Other Farmers) of the Toolkit.
 
Strength in numbers – Farmers that form a collective sellers’ proposition can identify where natural capital improvements would be most effective (both from a financial & environmental standpoint), share costs, and negotiate better terms in the trade.
 
External support with project development is more likely if pitching as a group – e.g., Natural England farmer facilitation funds.
 
Nature market trades with larger tracts of land are also more appealing for buyers and investors, spreading transaction costs and meeting larger demands.
 
Farm clusters do not exist in every location, and it can take time to create or reorientate a farmer cluster’s focus towards nature market opportunities.
 
This approach requires extra resources and time to govern a group – can be a strain on people’s time.
 
More thought is needed on the exact role of the cluster – e.g., how to report on progress, revenue sharing mechanisms, community engagement etc.
 
Natural Flood Management, Carbon.
 
The above requires a collective approach across many farmers in a catchment.
 
Note: farmers can work with farmer groups across all nature market trades at different levels – e.g., shared learnings, setting catchment environmental targets, common baselining practices.
Working through a Land Agent
Farmers work with land agents to form nature market trades – extent of support can range from initial ‘natural capital accounting’ through to brokering a trade.
 
Land agents have expertise in farm business planning, and more in-depth knowledge of the farm in question, if farmer is already working with them.
 
They can offer further insight into how nature market trades will affect wider farm operations, based on existing client base.
 
Not all farms can afford to pay for a land agent.
 
Land agents have different levels of experience in relation to natural capital and nature markets.
 
Carbon and Biodiversity Net Gain
Working through 3rd Party Developer
3rd Party Project Developers’ are organisations that work with farmers more closely to develop a nature market trade and bring it to completion, acting as an intermediary between farmers and nature markets.
 
These can include private companies (in some cases land agents), environmental NGOs and government organisations.
Administrative burden taken from farmers, and potentially other risks and responsibilities (dependent on what the developer is offering)
 
Specialist expertise in nature markets.
 
Offers resources / funding to help develop the project.
 
Can co-ordinate amongst groups of farmers (including farmer clusters) to create a larger trade,
 
Often has existing networks of buyers and investors to help broker a trade.
 
Requires share of the profit – not always clear to farmers if this is a fair or sustainable trade.
 
The exact offering is not always clear from the outset – e.g., offering ‘end-to-end’ solutions may mean different things to what farmers expect or need.
 
Varying levels of trust in 3rd party developers – reflective of sentiment in wider nature market landscape that lacks clear rules and regulations.
 
Carbon and Biodiversity Net Gain
Note: These routes are not mutually exclusive, and a farmer can ‘blend’ routes for the best outcomes. For example, working with your farmer cluster to understand your natural capital does not exclude the possibility of you forming an agreement with a buyer directly.
 
You may be wondering what route to market would work best for you and your farm. The answer  is entirely dependent on your own circumstances – such as what your risk appetite is, what you have on your farm, and how you work with other farmers in your area.
 
To help with this question – you may consider the typical concerns that farmers face and how these routes may help you address these. The most common concerns are set out in the next section of this Introduction.

What are farmers’ common concerns?

 
Farmers naturally have several concerns to address before investing their time and resources in these emerging nature markets.
 
For convenience, we’ve listed the major concerns here, along with potential solutions and mitigants that nature market stakeholders, such as the government and third-party project developers, are actively working on so that farmers can access these markets more easily.

 

1. Size of land

Do I have enough land to participate in nature markets?
Challenge  Potential Mitigant
Smaller farms may not have enough land to generate enough ecosystem services, and therefore revenue, to engage in nature markets in a profitable way.

Smaller farms may join aggregated groups of farmers, such as farmer clusters or cooperatives. Costs can therefore be shared across many farms, making it financially viable for smaller scale farmers. Knowledgeable individuals within the aggregated group can negotiate on behalf of all members to achieve the best results for members.

Land can also be aggregated via technology, and there are certain 3rd party project developers that offer smaller-scale farms the chance to join nature markets along with other farmers through the use of a common technology platform.

You can learn more about this approach in Milestone 2 (Working with Other Farmers).

2. Length of time commitment

How long am I committing my land for? What are my options for an early exit?
Challenge  Potential Mitigant

Nature market trades may require a long-term commitment to a change in land use. There will be restrictions in place to ensure these changes will lead to a degree of permanence for the buyer of ecosystem services.

For example, Biodiversity Net Gain requires a change in land use to be agreed for at least 30 years, which will also likely be legally enforced with Conservation Covenants.

Farmers are concerned with longer term agreements with restrictions on land use, as this presents a loss of control of the land.

Commitments and restrictions must be clearly understood before entering into nature markets, including scrutiny of the legal agreements. You should also ask what will happen to the land at the end of the contract period.

There are nature market options with shorter term commitments, such as water quality and soil carbon schemes of between 1-10 years.

Farmers should create partial budgets / cash flows to understand if the income from a nature market trade is sufficient to cover any loss of traditional income and capital value from that land. Advice should also be sought on the tax and land value implications.

You can read more about this in Milestone 5 (Farm Business Planning).

3. Conflict with food production

Will selling ecosystem services displace or decrease my food production?
Challenge  Potential Mitigant

One perception is that committing land to nature market projects may involve ceasing some food production.

For example, in restoring a peatland that was previously used for arable production.

Although some projects will take land out of production, farmers can identify non- or low-productive land, to help minimise the trade-off between nature and food production.

On the same piece of land, there can also be opportunities to combine food production with nature market opportunities. For example, the Peatland Code permits low intensity grazing on restored habitats.

 

4. Conflict with agri-environment schemes

Can I enter into nature market agreements alongside public grant schemes?
Challenge  Potential Mitigant

It is currently unclear how most public grant schemes, such as the Environmental Land Management Schemes (ELMS), can be ‘blended’ with nature market trades.

This can dissuade farmers from committing to nature market agreements now, in case these trades disqualify them from future agri-environment schemes.

The government is expected to provide further clarity on blending public and private finance, which it recognizes can help to utilize private finance and make environmental improvement projects more cost-effective.

In some cases, the rules for blending public and private finance for the same environmental improvement have been clarified. For example, farmers can receive grants from the England Woodland Creation Offer (EWCO) and also receive payments for carbon sequestered by registering with the Woodland Carbon Code.

Defra has also confirmed that Sustainable Farming Incentive (SFI) applicants may enter the same area of land into an SFI standards agreement and a nature market agreement, subject to any eligibility rules or additionality tests applied by the agreement in question.

However, farmers should familiarise themselves with the rules from any and all funding sources – including government grants as well as any Codes, Standards or private schemes being used.

More information can be found in the Public Sector Funding and Policy section of the Toolkit.

 

5. Unclear liabilities

What am I responsible for, and what will I be liable for if the environmental improvements or interventions fail?
Challenge  Potential Mitigant

Legal agreements underpin nature market projects, the detail of which could oblige farmers to cover any costs of non-delivery of agreed outcomes. This can include force majeure, such as natural disasters.

They may also be liable for costs that are not considered at the time, such as maintenance and monitoring costs.

Any legal agreement signed should be scrutinized closely to understand farmers’ liabilities.

Farmers can speak with their peers, such as other farmers in the country that have signed up to similar agreements, to understand the exact terms on this subject. They can also seek independent legal advice.

More information can be found on this in Milestone 8 (Signing Legal Contracts).

 

6. Development costs

What will I have to pay for at the start, and how can I be sure this will be repaid by the trade?
Challenge  Potential Mitigant

Engaging with nature markets sometimes comes with upfront costs that are placed on farmers.

These include costs associated with baselining, joining up with other farmers, advisory services and legal fees, in addition to the costs of physically implementing changes on their lands.

Even if these costs are eventually paid for with the income from nature market trades, the need for funding to cover development activities can act as a barrier.

In some cases, farmers can combine nature market trades with public or philanthropic grants to meet up-front costs specifically. Examples include the England Woodland Creation Offer and the Landscape Recovery scheme – which can both be used for planning and development costs.

Another example is the Natural Environment Investment Readiness Fund (Round 3), which is a development fund that is directed at farmers and can help with the costs of setting up and exploring nature market projects.

More information on sources of development funding can be found in the Public Sector Funding and Policy section of the Toolkit.

In any case, financial planning is recommended to ensure all costs are met. You can read more about this in Milestone 5 (Farm Business Planning).

 

7. Land tenure

I’m a tenant farmer. Am I able to participate?
Challenge  Potential Mitigant

At the moment, tenants face additional barriers in nature markets, as there are implications for changing land use in both tenancy agreements and laws that protect tenant farmers.

It is also currently unclear who owns the natural capital / ecosystem service uplift and how the income from nature market trades are split between landlord and tenants.

Farmers should check their existing tenancy agreements, before having a conversation with their landlords to explore opportunities.

Prior research into opportunities is recommended. Tenant farmers can present a plan to their landlords that demonstrates the potential mutual benefits, as with traditional agricultural agreements.

Advisors and land agents can also act as an intermediary and help demonstrate these mutual benefits.

You can read more about this in the Tenancy and Ownership section of the Toolkit.

 

8. Timing of sales

Should I wait until markets become more developed or prices increase?
Challenge  Potential Mitigant

Nature markets are nascent but some are predicting increases in demand (and therefore price) for things like biodiversity (BNG) units, carbon credits and natural flood management payments.

Farmers may speculate that prices will increase in the future, which can dissuade them from committing to any trades today.

Farmers can start preparing now without committing to any nature market trades. This preparation will likely put farmers at an advantage for when they feel that prices are at the right level for them.

This preparation is mainly characterized by Milestones 1, 2 and 3 of the Toolkit – what is termed the Groundwork of engaging in nature markets. Through these Milestones, you can get a strong sense of what natural capital you have on your land, what environmental improvements you’d like to see, and how potential nature market deals can be used to deliver these environmental improvements for fair reward.

In some cases, farmers may want to go a step further and create these habitats in advance of any agreements or sales, as this can ensure that a steady supply is ready for higher levels of demand. An example of this is with woodlands and peatlands, where farmers can sell carbon credits upfront, but these credits become much more valuable when the habitats are established and the carbon benefits have been realized.

It's important to note that this decision depends on the risk appetite of each farmer and also what funds are available to cover upfront costs. It’s also vital that farmers register the habitat and their intention to sell with the relevant Code, Standard or Authority, as otherwise any uplift cannot be counted in a nature market agreement.

If farmers are interested in selling now, another option is to work with an intermediary – such as a broker - that is willing to speculate on price with a secondary sale to the final buyer. In some cases, farmers can negotiate a ‘revenue-sharing arrangement’ that allows them a share in any uplift in market price from this secondary sale.

For example, a farmer selling biodiversity (BNG) units to a habitat bank could receive an up-front payment, followed by a percentage share in any uplift from the habitat bank selling the units in five years. Not all intermediaries offer this, but it is worth the farmer enquiring or negotiating.

 

9. Future requirements of farmers

Am I putting myself at risk by selling my ecosystem services now, given there may be future environmental requirements from agricultural buyers or the government?
Challenge  Potential Mitigant

There is a risk that farmers may sell ecosystem services now but require these for their own reporting with other stakeholders, such as agricultural buyers and the government at a later date. In the future, reporting on these ecosystem services may be a cost of business, rather than a separate enterprise that farmers are paid for directly.

For example, some supermarkets are asking its farmers to sign up to sustainability commitments, such as carbon neutrality, where this would limit the amount of carbon a farmer can sell to another organisation.

Farmers can engage with their agricultural buyers now to get a sense of future expectations and requirements. This approach is covered more in Milestone 4 (Work with Buyers).

In nature market agreements, they may also enquire about the option to buy back any ecosystem services sold (at the same price) in case they need these to meet their own reporting requirements.

 

10. State of natural capital

What if my natural capital is already in good condition? Will I miss out on payments?
Challenge  Potential Mitigant

If a farmer’s natural capital is already in good condition on land they are willing to use in a project, then there may not be enough of an ‘uplift’ to generate additional ecosystem services.

Some may also ask if it is worth intentionally degrading the land beforehand so that there will be a bigger uplift to monetise. This is called perverse incentive, and many Codes and Standards have processes in place to prevent this – such as looking at data on yearly land use.

As the concept of additionality is fundamental in nature markets, it may not be possible to sell ecosystem services from healthy natural capital.

However, farmers are often surprised when more detailed environmental data is taken and assessed, as their land may have unexpected room for this uplift.

To be sure, it is recommended that you Assess your Land Opportunities (Milestone 1).

 

11. Loss of tax benefits

How will my nature market project affect my wider tax position?
Challenge  Potential Mitigant

Farmers and other participants in nature markets currently face uncertainties on how a nature market project will affect their wide tax position. For example, how receipts of payments will be treated vis-à-vis income tax and VAT relief. In particular, farmers are concerned that committing part of their land to a nature market project will lead to the loss of Agricultural Property Relief (APR) or Business Property Relief (BPR) in regards to inheritance tax.

Profits and longer-term financial gains can therefore be significantly reduced if tax treatments are applied unexpectedly.

The Government has recognised that tax uncertainties present a major barrier to farmers considering their nature market opportunities. In March 2023, HMRC and HM Treasury launched a consultation on ‘Taxation of environmental land management and ecosystem service markets’.

As of January 2024, no announcements or results of the consultation have been announced, but these are expected later this year. You can read the full brief of the consultation, which lasted for three months, here.

Many have also noted that, around the time that this consultation was announced,  HMRC confirmed that land used in Peatland and Woodland Carbon Code schemes is capable of qualifying for Business Property Relief. Some have taken this as a sign that the government intends to reform tax laws to be more favourable towards nature markets.

 

What next steps can farmers take?

 

After reading this Introduction, you may be wondering what your next steps are. Perhaps:

 

1. I want to assess what I have, independent of any offers from others.
 
Farmers often want to assess their opportunities fully before considering any particular options in depth. It is also true that, while some farmers may feel that there is not enough clarity around nature markets to participate now, they can get on the front foot by:
 
1. Assessing Land Opportunities - What natural capital do farmers have on their land, how it can be enhanced, and what nature market opportunities can help them do so?
 
2. Working with other Farmers - How can farmers work together to strengthen their position as sellers of ecosystem services?
 
3. Baselining and Measuring - How much of a particular ecosystem they have to sell, and what the underlying ecological change looks like in detail?
 
Within this Toolkit, these questions are set out in the first three ‘Milestones’, which contain considerations for farmers developing their nature market projects, case studies on where other farmers have tackled these questions, and other useful resources.

 

We call these steps the ‘groundwork’ of a farmer’s nature market journey. Tackling these can help put farmers in good stead for when they feel comfortable engaging in these markets more fully. 

 

You can review these Milestones by scrolling down and clicking through to each Milestone page.

2. I’ve been approached with an offer to join a nature market project or scheme. What do I need to consider?
 
Many farmers are being approached with offers to participate in nature market projects or schemes by third parties. These can include offers from potential buyers, other farmers, eNGOs and private businesses – often called ‘third party project developers. As this is a nascent area, there is often uncertainty as to whether these offers are right for the farmer and their land.

 

In the case of an offer to join a more developed project, here are some topics you will want to discuss:

 

1. Ecological suitability
 
As the farmer, you have exclusive knowledge of your own land and what works for it ecologically.

 

It’s important to use this knowledge when considering nature market offers, especially with plans to convert existing habitats to new ones. You may find that these plans benefit certain ecological factors and detract from others, such as carbon benefits, biodiversity connectivity, and the hydrology of the land.

 

Open conversations around the ecological suitability of the plans are always recommended, and sharing your own knowledge will likely benefit the plans themselves.
 
2. Minimum requirements of the land
 
People can approach you with an offer that sounds applicable for any part of the farm that you’re considering, but there may be minimum requirements relating to the:

 

  • Certain acreage under contract – i.e., a minimum number of acres to quality for the offer
  • Specific habitat types
  • History of the land – i.e., no evidence of damage to the land in recent years (often to prevent perverse incentive’)
  • Baselining and ecological analysis prior to joining - this may have associated costs for the farmer before discussions of payments take place.
 
3. Length of contract and exit options.
 
Length of contracts offered vary by each offer, depending on what you are selling. These can vary between 1-120 years (see ‘What nature markets exist for farmers right now? for a breakdown of time ranges by each nature market).

 

Exit options may also vary. Some schemes can be very rigid and not offer any exit during the contract length. Others offer the chance for early exit, sometimes with ‘clawback clauses’ that involve the farmer returning some or all of the income they received.

 

Farmers should also check the process for when the contract has ended, and also what happens in the case of ‘force majeure’, e.g., wildfires or extreme weather destroying the habitat during the contract period.
 
4. Management practices and responsibilities
 
Farmers must be absolutely clear on what they are expected to do while the land is under contract, including what maintenance, monitoring and reporting responsibilities they have. Farmers may need to learn or invest in new management practices in order to meet these requirements.

 

Farmers should also check what restrictions on other management practices relating to the land they have committed – e.g., no burning practices, maximum stocking density, restrictions on public access (and who is in charge of enforcing this).
 
5. Payment structure
 
Farmers often have different preferences for how they like to be paid. The offer you get may specify different:

 

  • Measures – such as payments by hectare, acre or credit/unit.
  • Frequency – offering a lump-sum payment, versus (fixed or fluctuating) annual payments.
  • Guarantees – e.g., paying in the future at a fixed price – often called an offtake agreement.
  • Early Payout Options – some may offer the chance to be paid early, for example before the habitat is fully established, or before the ecosystem service has been verified. Payments in this case are often less due to the risk of non-delivery taken on by the organisation that is offering this early payment.
  • Profit Shares – In the case where the project developer is purchasing the ecosystem service upfront and is speculating on the market price before selling in the future, there could be a share in any uplift in value with the farmer. For instance, some schemes offer a single up-front payment and a percentage of any increase in value that the ecosystem service has on its sale to the ‘end buyer’.
 
6. Lifetime costs
 
Clarity over costs to the farmer is essential - not just initial costs but also the costs over the lifetime of the project.

 

These can include: any membership fees to the project or scheme, cost of the initial capital works on the land, maintenance burden, monitoring, reporting and verification (MRV) costs, and indirect costs - such as loss of food production, potential loss of tax relief and changes in land values. The project developer that is inviting you may not be able to offer complete clarity on all of these but should be able help you explore these in more depth.

 

Creating a partial budget, including capturing lifetime costs, is covered in more detail in Milestone 5 (Farm Business Planning).
 
7. Robustness of environmental outcomes
 
Farmers want to be sure that the project or scheme they are entering is delivering real environmental outcomes. To gauge how well the project will do this, you can have conversations around its approach to:

 

  • Additionality
  • Permanence
  • Preventing Environmental Leakage and Perverse Incentive
  • Buyer Integrity
 
You can use the Toolkit (see option above) as a fuller process for assessing your offers, but the above are a useful set of points that you can clarify early on.
3. I want to know more about how other farmers are exploring their opportunities.
 
To help shape your thinking, it is useful to learn more about how other farmers in the country are exploring their nature market opportunities. The Toolkit offers case studies on these farmers, including the detail of how they tackle the key issues and concerns. You can read more about these below:

 

Case Studies - which farmers have been on this journey?
4. I want to explore other resources about nature markets, beyond this Toolkit.

 

This Toolkit is not the only resource available for farmers learning about nature markets, and the GFI actively encourages famers to consider other sources. You can find some suggestions in the Further Resources section.
Nature markets are a new and rapidly evolving area, also known as natural capital markets, environmental markets, or ecosystem service markets. For consistency with Government language, we use the term ‘nature markets’ in this Toolkit.

To provide farmers with a foundational understanding of nature markets, this ‘Introduction to Nature Markets’ explains what they are, how they currently work for farmers in England, and guidance on how to decide whether nature markets are for you, including the next steps you can take.

In addition to answering common questions, we provide a glossary of commonly used terms, and a list of useful resources for further reading. Should you then wish to engage in nature markets, the Snake will help you work through considerations at each step of the journey.

To help introduce the context around nature markets, below are podcasts with farmers on the journey to bring some of the Toolkit to life. 

Farming Toolkit Special Series: Archie Ruggles-Brise, Spains Hall Estate
Join us for this special episode of our mini-series, Farming Nature, as Archie Ruggles-Brise shares his experience and advice on preparing for Biodiversity Net Gain. We also hear about interventions across his Essex farm such as the introduction of beavers for flood management. This episode is designed to support farmers working through Milestone 5 of our Farming Toolkit.
Listen on Copy RSS
Farming Toolkit Special Series: Timothy Coates, co-founder Oxbury Bank and third generation farmer
From January 2024 to the end of March 2024, GFI's Financing Nature podcast is becoming Farming Nature - a series of audio interviews designed to support England's farmers in understanding nature markets as part of the new Farming Toolkit on GFI Hive. In this episode, Timothy Coates, co-founder of Oxbury Bank and third generation farmer shares why he is adapting his farm ready to sell units and credits, his views on 'no regrets' decisions and work with the Northeast Cotswolds Farmer Cluster. Financing Nature will be making its return in April 2024 in the lead up to COP16.
Listen on Copy RSS

Hover over to see overviews or click to view Milestones.

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

How to use this Toolkit

 

This ‘snake’ infographic sets out ten milestones that all farmers will consider when creating a nature market project, such as selling carbon credits, biodiversity units, or natural flood management services.

These milestones are not intended to be linear in practice but have been ordered here for ease of learning. The development of every project follows a unique sequence of activities, and it is likely that farmers will undertake activities across multiple milestones at once. Some activities within these milestones may not be applicable to every project.

Each milestone includes key questions to ask yourself, case studies of where other farmers have tackled these questions, and useful links. At any point, you can return to this infographic and jump between milestones to learn more.

 

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

In addition to the input of experts from nature-based projects and enterprises across the UK, this Toolkit was developed with the support and review of the below organisations. With great thanks for their contributions:

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