Natural capital – where will it all come from?

Another week, another set of government environmental targets. The latest come courtesy of the five-year Environmental Improvement Plan, which contains ambitious plans to create more space for nature and improve water and air quality. Critics pointed out the plan’s lack of focus on soil – policymakers are under fire for rowing back on a commitment to publish a dedicated soil strategy – but the big question is where will all the land needed to deliver these targets come from? A new report from the Royal Society suggests we will need an additional 4.4 million hectares – twice the size of Wales – by 2050. As we discuss below, investors are committing significant sums to nature, but not yet at the scale required to come close to hitting those targets. It will be interesting to see what answers the government comes up with in its promised land use strategy.

Do get in touch if we can help you navigate through these interesting times. You can sign up to receive this weekly update direct to your email here

Andrew Shirley Head of Rural Research, Mark Topliff, Rural Research Associate

In this week’s update:

• Commodity markets – Supply chain equity imbalance
• Farmland birds – Get counting to show you care
• Environmental policy – Yet more government targets
• Utilities – Water costs up
• Nature recovery – Investors pile in
• Carbon credits – Doubts remain
• International news – New Zealand farmland update
• Knight Frank Research – Farmland 2022’s top-performing asset
• Knight Frank Research – Benchmark staff salaries report
• On the market – Stunning Welsh farm

Commodity markets – Supply chain equity imbalance

Output prices all firmed this week, but it’s worth remembering that one farmer’s output price is often another’s input costs and what goes around will eventually come around. Feed-intensive livestock and poultry businesses have been hardest hit by the rise in input costs and cutbacks in the amount of feed they are likely to consume this year could put further pressure on UK wheat prices, reckons the AHDB. Meanwhile, consultant Andersons says input costs rises are still outstripping farmgate price gains, even though food-price inflation hit a record high of almost 17% in January, according to retail analyst Kantar, with the price of milk, eggs and dog food rising fastest. Andersons’ latest Agflation index reveals farmers’ costs increased by 19% in the 12 months to January, but output values rose by only 11%.

Environmental policy – Yet more government targets

The government has just announced details of its Environmental Improvement Plan (EIP), a five-year roadmap for improving the UK's air, water and land environmental quality building on the 25-year Environment Plan published in January 2018. It includes creating 25 new or expanded National Nature Reserves and 19 Nature Recovery programs, mainly in England. The nature reserves will be part of 70 new wildlife projects contributing to an ambitious 500,000 hectares of new wildlife habitats. Another key part of the EIP that may affect landowners and managers is the promise to ensure everyone is only 15 minutes walk away from a green space or water – including woodlands, parks, wetlands and rivers. There are also commitments to increasing the woodland share of UK land to 14.8% in 2030 and 17% by 2050 - currently, it is 13%. However, according to The Royal Society’s Landscapes Policy Report, if all the government targets around land use are to be achieved, it would require an additional area twice the size of Wales by 2050, about 4.4 million hectares.

For further information we have compiled a more detailed note on the EIP and its implications.

Utilities – Water costs up

Hot on the heels of news of the expected energy bill increases this April, water bills will also be hit, rising at their fastest rate for 20 years. Average domestic customer water bills will surge by 7.5% on average, according to the industry body Water UK. For business users, water prices will go up by 6.4% on average, says comparison website aquaswitch.co.uk. Inflation, which has hit a 40-year high, partly due to the energy crisis, is being blamed for the increase. The costs incurred by local water companies to operate the water infrastructure have increased significantly. Second, aquaswitch.co.uk explains, “is a significant increase in default water rates most businesses pay. Ofwat, the regulator, has reassessed the calculation of its default price cap resulting in a 30% increase in the retail rates charged by business water suppliers.” Watch this space for further KF analysis of the impact on rural businesses.

Nature recovery – Investors pile in

A raft of announcements recently from institutions looking to help develop natural capital in the UK has caught our eye. One of the biggest is from Aviva, which is donating £38 million to the Wildlife Trusts to support UK rainforests expansion – re-establishing 5,200 acres of habitat. To those who didn’t realise that the UK had rainforests, temperate rainforests are found in areas subject to the influence of the sea. These places have high rainfall and humidity and a low annual variation in temperature. Less than 1% of the UK area is now covered by these rainforests and can be found in the Lake District, west Wales and west Scotland.

The conservation institution Oxygen Conservation has agreed to buy over 11,000 acres of Scottish moor on the Buccleuch Estate. It aims to build upon the work already undertaken by Buccleuch and show how large-scale land management can benefit both the environment and local communities. At the other end of the scale, rewilding charity Heal has bought 460 acres of land in Somerset to create a new nature reserve. The £5.25 million site was purchased using public and private donations and a £3.75m loan from Triodos Bank UK. The charity aims to have a nature reserve in every English county by 2050.

Carbon credits – Doubts remain

The use of carbon credits to offset emissions and hit net zero targets is rising rapidly, but a significant number of businesses are still sceptical about offsetting schemes. A new survey from analyst AiDash reveals that 43% of companies are using carbon offsets for hard-to-reduce emissions. But 41% of respondents say they are not using carbon credits due to a lack of trust. Inconsistent measuring, poor monitoring and an overall failure to prove that the offsets are based on additional carbon captured were key concerns. Only 35% purchase from government-backed or voluntary certified schemes.

Farmland birds – Get counting to show you care

This year marks the 10th anniversary of the Game and Wildlife Conservation Trust’s Big Farmland Bird Count.

Anybody wishing to take part has until the 19th of February to spend just 30 minutes on any one day recording the species and number of birds seen on one area of their farm or estate. Jim Egan, founder of the count and now a technical adviser at game cover and conservation specialist Kings, says: “There's nothing more rewarding than seeing those count numbers in black and white so you can see just how much you've helped the birds on your farm, as well as get a better understanding of those species which may need more support and protection.”

International news – New Zealand farmland update

If you weren’t already aware Knight Frank has an association with Bayley’s, New Zealand’s leading rural real estate player. The firm’s latest market update, includes a host of data and insights and makes for some interesting reading. The number and area of farms sold in New Zealand each year dwarfs the market here. Sales remain buoyant, but rising interest rates and more onerous conditions for overseas’ investors overhang certain aspects of the market.

Knight Frank Research – Farmland 2022’s top-performing asset

As predicted, the latest results of the Knight Frank Farmland Index show that agricultural land as an investment beat inflation in 2022 and outperformed other asset classes, including mainstream house prices, luxury London house prices, the FTSE 100 share index and even gold. According to our index the average value of farmland rose by 13% over the year to hit over £21,000/ha, a record high. A shortage of supply and continued strong demand from a wide range of buyers underpinned the market. Download the full report for more facts and figures.

You can also hear some thoughts from my colleagues and me on the outlook for property markets in 2023 in the latest edition of Intelligence Talks, our research podcast.

Knight Frank Research - Benchmark staff salaries report

Just a reminder that the latest edition of the Knight Frank Estate Staff Salary Survey has recently been published. The report reveals the average salaries paid for a wide range of rural estate and farming roles and level of wage increases being offered by rural businesses. Also highlighted are the key employment issues facing the rural economy. Download your copy here or get in touch with Chris Terrett for more details.

On the Market – Stunning Welsh farm

I mentioned it was coming earlier in the year, but now full details are available for Llandilo Abercowin overlooking the scenic Taf estuary in Carmarthenshire. Available for the first time in over 40 years, the 335-acre farm is loaded up with natural capital opportunities. The guide price is £5,500,000 (available in two lots).

Find out more from my colleague Alice Keith.

Bluebell photo by Jocelyn Erskine-Kellie