The intensive nature of modern agriculture has reduced soil health and impacted its productivity causing a reduction in the ecosystem services it provides to society. Regenerative agriculture seeks to reverse this trend, going beyond the “do no harm” principles of sustainable agriculture.

WHAT IS REGENERATIVE AGRICULTURE?

Unlike organic farming, there is no set definition of regenerative agriculture. At its core, it is a collection of practices that will improve soil health, sequester carbon and have a positive impact on water and biodiversity in the local environment, while still producing food. Our Regenerative Agriculture Spotlight explored the topic in detail; its implementation is site- and context-specific so the emphasis placed on individual practices varies with suitability, making analysis of a generalised business case for adoption challenging. For the purposes of this report, we have considered the five core principles in the context of the Savills Virtual Farm. These are:

1. Minimise soil disturbance
2. Maximise species diversity
3. Keep the soil covered and build organic matter
4. Maintain living roots in the soil year-round
5. Integrate livestock

THE BUSINESS CASE FOR REGENERATIVE AGRICULTURE

While regenerative systems have a wider beneficial environmental impact, relying on philanthropy alone will not see widespread adoption of these practices. Instead, landowners will need to understand the likely yield and profitability impacts to ensure their businesses remain viable.

In the short term, a transition to a regenerative system will lead to low yields and margins. The Food, Farming and Countryside Commission 2021 report modelled the yield potential of a regenerative system and found that UK cereal yields were 27% lower than in a conventional system.

However, when evaluating regenerative agriculture, net margin is more important than yield or revenue. It is likely to be lower in the short term, with research demonstrating 25% reductions (James Hutton Institute), but over the long term, the improvements in the soil structure will begin to bear fruit. Examples of net margins returning to normality or even improving are common, with one study showing a 78% increase in profitability, despite a 29% decrease in yield. The farm would also be less exposed to increases in input prices such as fertiliser, which have been experienced recently. Additionally, improved soil structure means it is more resilient to severe weather conditions, such as droughts and floods, which are expected to become more common.

The consensus view is that six years is a reasonable assumption for the turning point in profitability. By this point, a significant increase in soil organic carbon (SOC) is commonly observed. An increase in SOC of up to 2% has been shown to increase yields and reduce the reliance on nitrogen fertiliser.

To unlock widespread adoption of regenerative practices the financial risk of transition needs to be minimised. Part of the answer could lie in carbon payments. If we assume £26.70 per tonne of CO₂e, and based on the scheme's common guidelines that 1.5 tonnes per hectare of emissions reductions and/or sequestration is achievable in a regenerative system, this could result in annual payments up to £40 per hectare, or 4–5% of a typical winter wheat gross margin.

FINANCING THE TRANSITION

While regenerative agriculture is a hot topic, public funding specifically suited to these practices is currently fairly limited.

Within England, the SFI arable and horticultural soils standard offers £22–£40 per hectare for basic soil management measures, such as growing cover crops over winter and completing soil assessments. An additional payment to encourage no-tillage crop establishment is expected to be launched this year. The new SFI integrated pest management standard also lends itself to regenerative farming, with payments available for companion crops (£55 per hectare) and not using insecticides (£45 per hectare). Proposals for future Scottish and Welsh policies each reveal ambitions to be global leaders in sustainable agriculture, so suggest similar incentives will be developed for their farmers too.

As an alternative to public funding, there are some opportunities to harness private finance in the push towards a more sustainable method of farming, including brands such as WildFarmed and impact funds investing in farmer training. Banks are also particularly interested in reducing the carbon footprint of agriculture, with preferential lending terms increasingly common.

Savills Virtual Farm

Savills Rural Research modelled the adoption of a regenerative system on its Virtual Farm, an 830-hectare top 25% arable producer on clay-based soils in the East Midlands, with 810 hectares in production. We compared agricultural cropping income, SFI and carbon scheme income in a conventional system and after years one and six of regenerative farming. Basic payment scheme and delinked payment income was excluded.

While a grass ley was considered, as the farm is not located in a traditional livestock area we opted to introduce livestock for the regenerative system via a winter grazing agreement. This involves growing a crop of stubble turnips or mixed brassicas providing 12 weeks of keep for a sheep grazier who would be responsible for fencing, water and their own shepherding.

Income in the regenerative system is derived from the SFI, carbon certificates, the sale of crops and the graziers’ payments. We assumed yields were reduced by 30% over the transition years in line with published research and that 1.5 carbon certificates could be generated per hectare, selling for £26.70 each. Adoption of the SFI generated a net income of £76 per hectare per annum in the regenerative system, with the majority coming from the intermediate arable soils standard and the integrated pest management standard (see chart, below), compared to £34 per hectare under the conventional scenario. Within integrated pest management, we took the decision to use no insecticides on two-thirds of the regenerative farm, contributing a large proportion of the payment, although there is undoubtedly some risk associated with the decision. We did not include any projected income from the standards for water body buffering and farmland biodiversity which will launch in 2024. Informed by peer-reviewed studies, industry benchmarking, and experience within the Savills Food and Farming team, variable costs were reduced by an average of 16% in year one and up to 26% in year six, primarily due to reduced fertiliser, herbicide and fungicide use. Fixed costs were reduced by an average of 17% with the largest reductions applied to machinery costs, fuel and labour.

RESULTS

In year one, the net margin was 41% lower than the conventional system, despite the additional carbon and SFI income (see charts, below). At this stage, the SOC is depleted and the resulting reduction in yield from a fall in fertiliser usage impacts the profitability, despite lower input costs. However, when analysing the figures in year six profitability had increased to 18% above that of conventional agricultural practices. An increase in SOC and integration of cover and catch crops improves nutrient cycling and reduces the requirements for artificial fertiliser, particularly phosphate and potassium. Pest burdens also reduced under the regenerative system and yields were increased by 7% in year six (still a 24% reduction from conventional yields), finally, variable costs were cut by a further 10% to 26% lower than conventional agriculture.

Income from regenerative food production remained lower, even in year six, however, this system benefits from reduced exposure to artificial inputs and a greater diversity of income streams. There is no one-size-fits-all approach to regenerative agriculture, and an understanding is required that significant change and the associated benefits will take time.

_{Read the articles within Spotlight: Soil below.}