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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

 

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.

 

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.  

 

This milestone contains five subsets of considerations that farmers may want to explore at this stage. Click on each of these to the right to read more.

You can also read case studies of farmers that have addressed the activities set out in this Milestone, along with other useful resources and a checklist summary of the considerations covered for ease.

Case Studies

Checklist

Useful Links

Next Milestone
Why and When to Work with Other Farmers

Why and When to Work with Other Farmers

 

For some environmental projects, taking a larger scale approach with multiple farmers working together can both increase the potential environmental impact and improve access to and benefit from nature market deals. This section will help you decide whether it makes sense to engage with other farmers at this stage, either through an existing cluster group or by creating your own.

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Do I need to work with other farmers?

Whether you want to work alone or with others will depend on the size of your land and your vision for environmental outcomes. If the aim is to improve water quality in a local river, this may require a joined-up approach with farmers and land managers participating from across the catchment to have the impact required – and to meet a beneficiary’s needs. Carbon markets, however, typically allow for even small-scale carbon projects to be bought and sold, which may allow you to make these trades independently – although partnering with other landholders could be desirable to achieve economies of scale. For example, some woodland carbon projects are fewer than five acres in size and wetlands between one and three hectares can deliver nitrate reductions which can be sold on nutrient markets.

 

 

What are the benefits of working with other farmers?

Working with other farmers to deliver your environmental outcomes can help you overcome individual limitations, such as being too small to make enough income to justify the upfront costs. Working together can also provide a collective framework for collaboration and negotiation with buyers.

Buyers, particularly large companies, prefer purchasing credits on a larger scale rather than through numerous smaller transactions to reach the scale of environmental benefit they hope to access. For instance, a large company looking to offset the CO2 emissions that they cannot reduce themselves, may want to purchase a larger amount of carbon credits than you would be able to generate on your farm. Joining up with other farmers would allow you to bring a larger number of credits to market and negotiate prices as a group, rather than as many individual farms.

By aggregating their efforts, farmers can also enhance their bargaining power, negotiate better prices, and reduce individual risk exposure. They can also benefit from knowledge sharing, capacity building, and learning from each other’s experiences in implementing sustainable land management practices and navigating the complexities of nature markets.

As an example, the Environmental Farmers Group (EFG) offers a model where member farmers share the cost of approaching buyers and share knowledge and experience. They also share the benefits of nature market deals. See EFG’s case study for this milestone below.

 

Can I start with just my farm and join up with other farmers later on?

You can certainly start with your own farm and consider joining up with others later on, however you should be aware that your project may have developed complexities that don’t work with other farmers. It may be beneficial to join up with a small number of other farmers to begin with, to hammer out the legal and technical details of the group before expanding it.

 

What does an Aggregation Model Look Like?

What does an Aggregation Model Look Like?

 

This section will walk you through how aggregation models typically work and help you determine if you would like to join and existing group or create your own.

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How do aggregation models work?

Aggregation models allow farmers to pool their land or resources to maximise environmental benefits and economic opportunities. Farmers interested in creating an aggregation group would first identify common interests and goals among farmers in their area, as well as ensure each farmer has the capacity and ability to carry out the necessary land use changes or land management practices. Interested farmers would then form a collective entity which could take the form of a land trust, a community interest company (a CIC), a cooperative or a limited liability company. These different collective entities are explored in detail below.

The farmers within the collective entity would then pool their land, resources and/or ecosystem services into a collective offering to be marketed to potential buyers. The collective entity representing the farmers negotiates contracts and pricing terms with buyers and ensures proper monitoring and reporting of the delivered ecosystem services. The benefits generated from the sale of ecosystem services are then distributed among the participating farmers according to predetermined arrangements. For example, the Environmental Farmers Group uses and equalisation mechanism whereby profits from deals are split:

  • 88% to the farmer that engages in the trade
  • 9% to other farmers in the group
  • 3% to the EFG

Costs associated with project implementation, monitoring and administrative functions are also shared among the members of the collective entity.

Is there an existing group of farmers I could join or do I need to create one?

There may be public databases readily available online for your initial mapping, which can be found with a basic desktop search. For example, the EA has produced an evidence base and an online interactive online map for ‘Working with Natural Processes to Reduce Flood Risk’ across England and Wales.

 

Is there an existing farmer cluster or can I create one?

There are over 100 farmer clusters across England, Wales and Scotland that may offer opportunities to join them. These are established groups of local farmers that are working towards a common set of objectives, whether they are commercial, environmental or otherwise. The opportunity to join one would depend on your location, farm type, current state of land and your goals for engaging in nature markets, as well as the group’s ability and willingness to add additional members. You can find clusters that are active in your area here.

If there is not a farmer cluster in your area, you may consider starting one. If so, you will have several questions you will want to ask. See the next book end, Creating an Aggregation Model.

Creating an Aggregation Model

Creating an Aggregation Model

 

If you are choosing to create your own aggregation model, there are several attributes of potential member farmers which should be taken into consideration including, their appetite to engage, their ability to commit the necessary time and resources, and the current state and tenancy structure of their land.

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What is the appetite for engaging with environmental markets and natural capital of farmers in my area

Given the nascency of nature markets, and uncertainty about their role with subsidies, farmers you might want to approach to discuss developing a working group may have very different levels of knowledge, and differing opinions. Consider gauging farmers’ existing thoughts and experiences in this space before you pitch your ideas and be prepared with resources farmers might need ahead of more detailed discussions. The Introduction to Nature Markets section of this Toolkit could be useful in providing high level information about nature markets and how farmers might engage.

 

What is the land tenure of the farmers you are approaching?

Ability to transact in nature markets can be different for landlord farmers versus tenant farmers – although there are many examples of successful aggregation models where both landlord and tenant farmers take part.

In any case, you may need to be prepared in initial conversations to answer or acknowledge questions from farmers relating to the land tenure. For example, what the division of financial benefits will be from the project who will be legally responsible for maintaining the change in land use or management practices, and how the project may affect the underlying property value. You can find underlying ownership of a site on the UK’s Land Registry, or, more easily, ask the farmers directly. Local organisations, such as Rivers Trusts and Wildlife Trusts, may also have this information to hand. More information about tenancy and ownership can be found here.

 

 

What are their legal and regulatory requirements?

In Milestone 1, you will have already determined whether you have existing environmental obligations on your own land such as site classifications (SSSIs for example) or agri-environment schemes. You will need to ask these same questions to farmers you are considering working with to identify any potential blockers to your collective project. If the farmers are unsure, you can both consult the relevant regulatory body such as the Rural Payments Agency or the Environment Agency.

 

What are the similarities and differences between the sites across different farms?

Differences across farms may impact project delivery or the potential for different farms to contribute. For instance, if you are developing a nutrient mitigation scheme, dairy farmers, poultry farmers and arable farmers will all have different capacities for reducing their nitrate run-off. There is the potential for any of these practical differences to also affect the cost and benefit distribution to sellers, and so this merits careful consideration.

 

What would be their opportunity costs for hosting the interventions?

Sellers may likely have a range of options in terms of site use, for instance using the site for agricultural production, or leasing it to a solar farm company to host solar panels. Project developers might ask the seller what economic alternatives they have considered for the site in order to assess their opportunity costs.

This is important as sellers with high opportunity costs may not be willing to engage with the project, and basing the project on such sites may not be sustainable over several years. Note: Sellers may be happy to accept some financial opportunity costs, depending on their overall goals. For example, nature restoration of their landholding.

 

What is their capacity for committing resources to the project’s development?

You will need to be clear with potential farmer partners how much input and engagement you need from them to develop the project. If you are unsure, then you will also need to be honest about this uncertainty.

If you are working with a large group of farmers, you may consider having a ‘steering group’ formed of a smaller sub-group of farmers, who have both the capacity and the trust of the wider seller group to undertake this work and represent their best interests. As an example, the Glenderamackin Natural Flood Management Group which is composed of 60 different farm holdings, has a core group of 10-15 farmers who have time and resources to engage more often and who engage more actively in the planning decisions for the group.

 

 

Formal Structures for Collaboration and Cost and Revenue Sharing

Formal Structures for Collaboration and Cost and Revenue Sharing

 

Groups of farmers working together to deliver environmental improvement can take multiple forms with the costs, responsibilities and benefits shared in different ways. This section will explore the different formal structures aggregation models can take to help you choose one if you are creating your own group or better understand the legal structure of an existing group you are considering joining.

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What legal structures work for farming groups seeking to sell environmental outcomes?
Legal Structure
Cooperative A cooperative (co-op) is a business or organisation that’s owned and controlled by its members, to meet their shared needs. A co-op is a democratic structure in which all members have equal say in how it is run and how profits are used.

 

Co-ops have different levels of formality but it is typically suggested to incorporate a co-op if you anticipate entering into significant contracts or undertaking significant trades. Incorporating can limit the liability of members and will set out the rights and duties of the business.

 

More information on co-ops and guidance on how to set one up can be found here.

Land Trust A Land Trust is a legal entity which takes ownership control over a piece of property at the request of the landowner(s). These entities are typically used for the land involved in conservation or wildlife purposes, or for real estate development purposes.

 

Land Trusts have three main parts:

  • Grantor: person who creates the trust and transfers the property
  • Trustee: Manages the trust
  • Beneficiary: the person or entity that benefits from the land trust

 

A Conservation Land Trust is a particular form of land trust which focuses on managing undeveloped land to maintain or improve natural resources, historical sites or public recreation sites.

 

See here for more information on Land Trusts and how to set one up.

Community Interest Company (CIC) A Community Interest Company is a special type of Limited Company which exists to benefit the community rather than private shareholders. Surpluses generated from the CIC’s activities are primarily reinvested for the purposes of maximising social objectives rather than distributed as dividends.

 

In the UK, to set up a CIC, you will need:

  • a ‘community interest statement’, explaining what your business plans to do
  • an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders
  • a company ‘constitution’. See here for government guidance
  • approval from the community interest company regulator

 

Limited Liability Partnership A Limited Liability Partnership (LLP) is similar to a Limited Company in terms of liability but offers more flexibility in the structuring of the business.

 

In an LLP, partners have limited liability similar to shareholders in a limited company. However, in an LLP, partners have more say in how the business is run, compared to a Limited Company where directors oversee the general management of the company with shareholders voting only on major decisions.

 

Guidance on how to set up a LLP can be found here.

Limited Company In a Limited Company, the liability of the company’s shareholders is limited. The company can be limited ‘by shares’ or ‘by guarantee’, depending on it’s use of profits.

Limited by shares

These are typically for profit companies and means the company is:

  • legally separate from the people who run it
  • has separate finances from the personal ones of those who run it
  • has shares and shareholders
  • can keep any profits it makes after paying applicable tax

 

Limited by guarantee

These are typically not for profit companies which means the company is:

  • legally separate from the people who run it
  • has separate finances from the personal ones of those who run it
  • has guarantors and a ‘guaranteed amount’
  • invests money it makes back into the company

A guarantor guarantees to pay  a borrower’s debt if the company defaults on a loan

 

A guaranteed amount is the amount a company’s guarantors agree to pay to service debts. This amount is and is set at the time of incorporation.

Demand-side Aggregation Model In demand-side aggregation models, an existing company such as a food retailer sets up an aggregation model to deliver environmental outcomes aligned with their strategic priorities.

 

In these models, the processor or retailer supports farms within their supply chain to deliver on an environmental outcome to demonstrate to consumers their products meet a certain standard.

You’ll learn more about each of these legal structures including pros and cons of each in Milestone 6.

 

Should our group use a third-party facilitator?

Depending on your own and your potential partners’ capabilities in organizing and administering the farm aggregation model, you might consider collaborating with a third-party facilitator. Facilitators possess expertise in the legal and accounting aspects of aggregation models and can offer valuable assistance during the group’s establishment phase. Some facilitators are also skilled in providing guidance for environmental initiatives, aiding in project planning and implementation.

 

What kind of cost and benefit-sharing structure should we use?

Cost sharing:

There are several ways that farmer groups can fund their activities. Most aggregation models which focus on nature market participation aim to have their activities funded by the sale of nature market credits, but there are costs that will be incurred that need to be paid for upfront. . Setting out how these will be paid for  will be important in attracting potential members.

Most aggregation models require members to pay an annual fee to support the administration of the group. This is typically done on a per hectare basis to ensure farms are contributing proportionally with the land they manage.

There are also external funding options for farmers who are setting up an aggregation model. The Natural Environment Investment Readiness Fund (NEIRF) Round Three will be aimed specifically at farmers working together to develop revenue streams for delivering environmental benefits. Keep an eye on the Defra website for the launch. Some other funding options can be found on the UK Farmer Cluster website.

 

Revenue Sharing

In working with multiple farmers, you will need to have a clear compensation strategy to incentivise involvement and maintain fair outcomes for all farmers. For example, having each farmer receive identical payments may not be a fair outcome if some farmers are facing higher costs or are contributing more land.

Conversely, to achieve catchment scale, you will want to make sure that smaller farmers are sufficiently compensated (equalisation) to encourage their participation, as they may face fixed costs  that are not proportionate to the potential benefits from their landholding.

Different models for revenue sharing are presented in the case studies for this milestone. You may want to engage an external facilitator or advisor to help you design a revenue sharing structure that is appropriate and fair for your projects.

Resolving challenges

Resolving challenges

 

When working with multiple farmers, disagreements or challenges can crop up. It would be wise to have a formal plan in place to address these challenges before they arise to make resolving challenges go as smoothly as possible.

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How should we deal with disputes?

It is normal for some disagreements to come up between farmers when working together as a group. Having a plan for how decisions are made and processes in place to deal with disagreements can ease periods of disagreement. You will want to decide whether decisions will be made by consensus, by majority vote or through a smaller steering group if you have a particularly large group.

You will also want to think about what to do if this process breaks down. You may consider engaging an external mediator to help deal with disagreements or have a process or forum for negotiation between parties who are disagreeing. Planning for this up front will help guide decision making during challenging times as it will allow members of the group to follow an already agreed upon process for dealing with internal challenges.

 

What happens if a farmer wants to leave the group? What are the exit strategies?

Farmers who are committing to projects over several years may also want to have options to exit the project or group at certain points. This may be more or less complex depending on the number of farmers in your group but having a transparent process would be generally appreciated.

Depending on the structure of cost and benefit sharing, you may consider clauses in the legal agreements that require farmers to return payments made to them over certain time intervals to compensate for the loss of the ecosystem services generated from their land (which may have been paid for by buyers already). A similar structure is employed in agri-environmental subsidy schemes, such as the Countryside Stewardship scheme.

All Case Studies
Checklist

 

 

You can download a Word copy of the Milestone 2 Considerations as a checklist here, to help with your own project planning.

Alternatively, you can find a simple list of the Considerations below:

 

 

  1. Why and When to Work with Other Farmers
  • Do I need to work with other farmers?
  • What are the benefits of working with other farmers?
  • Can I start with just my farm and join up with other farmers later on?

 

  1. What does an Aggregation Model Look Like?
  • How do aggregation models work?
  • Is there an existing group of farmers I could join or do I need to create one?
  • Is there an existing farmer cluster or can I create one?

 

  1. Creating an Aggregation Model
  • What is the appetite for engaging with nature markets and natural capital of farmers in my area?
  • What is the land tenure of the farmers you are approaching?
  • What are their legal and regulatory requirements?
  • What are the similarities and differences between the sites across different farms?
  • What would be their opportunity costs for hosting the interventions?
  • What is their capacity for committing resources to the project’s development?

 

  1. Formal Structures for Collaboration and Cost and Revenue Sharing
  • What legal structure should we use? Why?
  • Should our group use a third-party facilitator?
  • What kind of cost and benefit-sharing structure should we use?

 

  1. Resolving challenges
  • How should we deal with disputes?
  • What happens if a farmer wants to leave the group? What are the exit strategies?

 

 

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