An expert farming, finance and agrifood group commissioned by Defra and led by the Green Finance Institute has today set out four actionable recommendations for government to accelerate investment in the transition to a low-emission and nature-positive agricultural sector.
The Financing a Farming Transition report identifies the barriers currently preventing private sector finance from moving at scale into the farming transition, including data, confidence and implementation gaps. It sets out four investment enablers that will overcome these challenges and unlock private sector finance for farmers to facilitate food production and environmental improvement, while diversifying their incomes.
The Environmental Land Management schemes in England will support farmers to transition to more sustainable means of food production alongside improving nature. However, to deliver a resilient and secure food system and meet the UK’s ambitious environmental and climate goals, which includes creating and restoring at least 500,000 hectares of wildlife habitat, farmers will need greater financial support.
Unlocking sources of private finance to accelerate the farming transition is critical for food, environmental, and economic security, as well as reaching the UK’s net zero goals. These additional and new sources of finance are also central to diversifying farmers’ revenue streams and will incentivise farmers to find innovative ways to continue food production at the scale needed, and deliver environmental benefits side by side.
The Financing a Farming Transition report reveals that the finance and agrifood sectors stand ready to invest in and support the farming transition following consultation with over 75 stakeholders across the value chain including the National Farmers’ Union, Tesco, Morrisons, Lloyds Bank, and NatWest. It highlights that businesses and financial institutions recognise the importance of farmers’ resilience at the foundation of their business models, with three-quarters of UK FTSE All-Share firms ‘highly dependent’ on natural capital and resources, including soil.
With farmers acting as custodians for more than 70% of UK countryside, they are the frontier of long-term sustainable growth and environmental improvement, mitigating against biodiversity loss and soil degradation, which poses a significant risk to businesses across manufacturing, food and beverage retail, and beyond.
The finance and agrifood sectors are ready to invest in several ways:
- Banks are exploring the potential to provide loans at discounted rates to farmers that meet environmental outcomes, as well as loans to cover costs required for a farming transition. Many are looking to lend to natural capital projects, and some banks are supporting farmers through the supply of measurement and monitoring tools. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- Some supermarkets, manufacturers and food and beverage companies are looking to support farmers within their supply chains to transition by exploring premium payments through certification, insetting payments and other incentives. They are paying for, or developing their own, GHG emissions calculators and offering payments for basic baselining. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- Buyers of and investors in ecosystem services which stem from improved environmental activities on farms are also seeking to pay farmers for carbon improvements (soil, hedgerows, peatlands and woodland), habitat creation and restoration, nutrient reduction and flood risk reduction.
The barriers to investment in the farming transition, including data, confidence and implementation gaps are significant, but can be overcome by the four enablers set out in the report that will create the investment environment needed to scale finance and supercharge the farming transition.
The four enablers in the Financing a Farming Transition report include:
- Improving data access and availability. Making environmental and spatial data access in a common platform and language would help farmers, banks and the private sector in integrating natural capital improvements into their businesses and decision-making processes, in addition to the free provision of premium mapping software to farmers. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- Setting priority environmental outcomes metrics. The private sector and farming community are seeking a clear vision from government so that they know where to invest their time and resources. A government-defined set of simple, priority environmental outcomes around soil health, water quality and biodiversity, complemented by best-practice measurement guidance, would help clarify for farmers and the private sector the environmental data they may want to collect. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- Clarity and guidance on high-integrity environmental markets. Greater clarity and formal guidance on the operation of high-integrity environmental markets will provide confidence, such as guidance on insetting, the ability to stack or blend ecosystem services, overarching standards, the inclusion of different forms of tenure in agreements, and tax treatment of ecosystem services. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
- Aggregation model support. Support including funding and a community of practice will encourage landscape-scale environmental improvements and greater capacity for farmers to attract private finance.
The UK’s legally-binding commitment to meet net zero emissions by 2050 requires the rapid decarbonisation of the entire economy. This includes the agriculture sector, which, whilst currently accounting for an 11% share of GHG emissions in the UK, is projected to rise to make up a 30% share by 2030, as other sectors reduce emissions more quickly.
The UK’s Environmental Improvement Plan set out a vision to support a transformation in the management of 70% of our countryside by incentivising farmers to adopt nature friendly farming practice. Within the Environmental Improvement Plan, targets have also been set that will need to be delivered on farms in England, including 60% of England’s soils being sustainably managed by 2030, and a reduction of nitrogen, phosphorus and sediment pollution from agriculture into the water environment by at least 40% by 2038.
Putting these market enablers in place will provide a solid foundation to deliver on this ambition, and meet the UK’s climate and environmental ambitions, which include stimulating at least £500m of private investment per year by 2027 to support nature recovery.
Lord Benyon, Green Finance Minister, said: “Farming and nature can and must go hand in hand – this is essential to support resilient food production. Through our new environmental land management schemes, we pay farmers to take actions that are good for the farm, good for food production and good for the environment. We are backing British farmers and rural communities by maintaining the £2.4 billion annual farming budget as we transition to these schemes and will continue to work with farmers and partners across the private sector to support investment in nature-friendly and productive farm businesses.”
Rhian-Mari Thomas, CEO of the Green Finance Institute, said: “Channelling private capital at scale into the farming transition to support farmers who play a vital role in safeguarding our natural environment, is critical to the sustainability, security and growth of our entire economic system. The enablers set out in this report create an opportunity to deliver the conditions needed to rapidly secure this investment for the first time.”
Mark Suthern and Stuart Roberts, Co-Chairs of the Farming, Finance and Agrifood Strategic Working Group, said: “Farmers have always been the custodians of the countryside, but often delivery of environmental goods have been seen as beneficial extras to food production. Today, however, we are seeing a change that we believe will, in time, place these environmental outputs on an almost equal financial footing with the other farming products. This opportunity can only be unlocked through transparency in standards, data, monitoring and reporting as outlined in this report. Delivery of multiple outcomes has the potential to enable an exciting future for UK agriculture, but only if farmers, financiers, supply chain partners and politicians work together to embrace the opportunities.”
Farming, Finance and Agrifood Strategic Working Group
The Strategic Working Group for the report is co-chaired by Mark Suthern, former National Head for Agriculture at Barclays Bank, and Stuart Roberts, farmer and former NFU Deputy President, and consists of thirteen experts across farming, finance and the food supply chain. The group is supported by input from a broader set of more than 80 stakeholders. Strategic Group members include:
Christopher Sparrow, Co-Founder of the Environmental Farmers Group and Managing Director for Natural Capital Advisory, said: “The opportunity to contribute to an improving environment as the foundation to a suite of new and sustainable income sources for farmers is, in my view, a very wholesome and encouraging position at a time of such economic uncertainty.”
Elizabeth Beall, Managing Director at Finance Earth, said: “Farmers are the key to making our food systems net zero and nature positive and it is critical that we are focused on their needs and those of the local community as we mobilise finance to support a transition to more nature-friendly farming.”
Sue Pritchard, CEO of the Food, Farming and Countryside Commission, said: “We welcome this important report, Financing the Farming Transition, and the cross-sector leadership that GFI has convened to produce it. It is clear that aligning finance to accelerate the farming transition is an urgent priority. Currently farm-level financial considerations are fraught with risk, and farmers are rightly weighing up their options with care. This report identifies clear challenges to develop a trusted system that pays farmers properly for the work they do – to restore and enhance nature, improve air and water quality, plant trees and hedges, sequester carbon and regenerate the landscapes that produce enough of the healthy food we need. It’s time to tackle the critical questions and recommendations in Financing the Farming Transition.”
Tim Hopkin, Founder of Land App, said: “The role of green finance in driving positive change for farming and nature has never been more pressing. Land App is delighted to have contributed towards meaningfully baselining biodiversity, assessing the potential for landscape recovery and providing the digital means for farmers and land managers to access funding for aiding nature recovery. We look forward to continuing to provide the digital platform to enable this critical sector-wide transition.”
Ben Makowiecki, Sustainability Director for Lloyds Business & Commercial and Corporate & Institutional Banking, said: “The framework set out today provides a clear roadmap of how private finance and government can best work together to make the most difference to UK farmers as they transition to net zero. At Lloyds Bank, we acutely understand the challenges and barriers faced by farmers and we are proud to be part of an initiative which hopes to drive real change across the sector.”
Ian Burrow, Head of Agriculture at NatWest, said: “It’s crucial that industries and the Government unite in deciding a way forward to secure the UK’s food security. We’re fully supportive of collaboration as we’re keen to help farmers however we can. Our agricultural managers have in-depth knowledge of the sector, including being able to offer individual financial support, where needed, to help our customers navigate high energy, feed and fertiliser prices. We’ll continue playing our part to help farmers during this challenging time, including transitioning to becoming more sustainable, but we know that it’s only through reaching a consensus with other stakeholders that we’ll be able to deliver a more secure farming future for the UK.”
Tim Coates, Oxfordshire Farmer and Co-Founder of Oxbury Bank, said: “As the UK’s only bank 100% dedicated to the food and agricultural sector, Oxbury recognises the challenges faced by farmers to transition to a lower emissions and nature positive economy while maintaining access to food security. This report underlines the need for supply-chain focused partnerships including government, financial services companies such as Oxbury, food processors and retailers to support farmers to realise the opportunities and manage climate and environmental risks in an uncertain future. Access and availability of high quality information will be a key enabler of such partnerships and further enable banks like Oxbury to provide innovative financial products to support the process.”
Ben Stafford, Chief Executive of Regenerate Asset Management, said: “Agriculture is an industry at a crossroads, underpinned by the use of natural resources which are becoming slowly depleted and increasingly impacted by climate change. The climate emergency, increasing population and historic practices combined has led to the need for transition in the way we produce, distribute and consume food and fibre. The situation demands a widespread response from all stakeholders, the timely success of which can only be generated through a coordinated dialogue between the public and private sectors to ensure effective climate positive outcomes. Regenerate, as a natural capital investor, sees that farmers and the wider farming sector are key to achieving the pathway to net zero, and beyond.”
George Dunn, Chief Executive of the Tenant Farmers Association, said: “We all understand the combined challenge of delivering the nation’s food security whilst addressing the demand for environmental improvement through enhancement of our natural capital. Alongside existing public funding, a well-regulated and controlled private marketplace will be essential to achieving those goals. The TFA will seek to ensure that as the means to facilitate private finance initiatives become available , that they are fully accessible to tenant farmers. The TFA welcomes the cross reference in the report to the recommendations of the Rock Review on agricultural tenancies, which highlights the need to ensure that tenants are rewarded and not disadvantaged for their work in maintaining and improving natural capital and managing the flow of ecosystem services. Whilst stocks of existing natural capital may be aligned with land ownership, the value of the additionality created through management of the land must rest with farm tenants.”
Natalie Smith, Head of Agriculture at Tesco, said: “This is an important report which shines a light on the barriers the food industry needs help in unblocking to come together and further support British farmers in transitioning to a sustainable food system. At Tesco, we’re already trialling initiatives which can help aid this transition to a low carbon future, including working with our suppliers to roll out the largest trial of low carbon fertilisers in the UK, and supporting all of our UK fruit and veg suppliers to become LEAF Marque certified. But we know we and the rest of the food industry need to do more. The key enablers highlighted in this report, if supported, will play a major role in helping to unlock the potential of additional private finance opportunities for the agri sector, while providing the Governance required to measure the impact of climate and environmental improvement.”