Land management interventions such as tree planting, restoring peatland and re-profiling water courses to reduce flooding, filter water and re-stock wildlife could be worth hundreds of millions of pounds to farmers and landowners. These ‘services’ have until now been almost entirely reliant on grant funding, charitable donations and subsidy, which is simply insufficient for the challenges ahead. As a result, they are under-supplied by land managers, with land-use decisions distorted towards the production of commodities at the cost of soils, biodiversity, clean water, and resilience to flood and drought.

A better way is possible. This trade-off between economic profit and environmental health can be ended if we develop new markets for natural services, driving environmental restoration and creating new income streams for farmers and landowners. The UK has a golden opportunity to replace CAP with a new and better system of agri-environment funding that facilitates and leverages off these emerging markets.

Stimulating markets to tackle environmental problems, such as carbon emissions and biodiversity loss, often relies on government intervention – because the full costs of not doing so have not reached us yet. ‘Capping’ the level of harmful emissions or biodiversity loss enables a ‘baseline and credit’ market for the trade of carbon or biodiversity ‘value’; the market then allows these credits to move to where they will yield the optimal balance between cost and benefit. Although still at a very early stage, these markets are slowly gaining traction in the UK.

However, some natural services already have significant financial costs and benefits associated with them – the problem is, none of the money flows to the land manager. Take river flooding and water contamination. It has recently been estimated that river flooding and water contamination costs in excess of £2,373 million per year, equivalent to £24 million annually for every catchment in England. These are costs paid by all of us in our taxes, utility bills and insurance premiums. And it creates an extremely valuable market in ‘avoided costs’. In other words, we can estimate the demand for slow, clean water from the cost of not having it.

A number of utility companies have begun engaging with landowners and farmers to pay for solutions at source, thereby avoiding the costs of end-of-pipe water treatment. Slower and less turbid water reduces treatment costs; additional changes to farming practices can boost natural water filtration and reduce sediment loss, and nitrate, phosphate and pesticide contamination. For example, Thames Water has been offering farmers payments to reduce metaldehyde at source.

So far the development of these schemes has been piecemeal and it is not yet mainstream practice. To upscale the opportunity, new ‘Natural Infrastructure Schemes’ have been proposed in which groups of farmers and land managers work together to sell these natural services to public authorities and water companies downstream.

Further information

Contact Savills Rural