Carbon farming needs to come of age in 2022

In my work as a land agent, I deal with a variety of landowners and farmers across the UK. Much of this covers day to day land management matters, but inevitably the conversations move to what the future holds for the rural economy.

Agriculture as a sector is unique in so far as being both a major emitter and potential carbon sink.

Agricultural greenhouse gas (GHG) emissions represent 10% of the national total but are very different from other sectors of the economy as the majority are methane (CH4) and nitrous oxide (N2O) rather than carbon dioxide (CO2) from fossil fuel combustion.

Reducing GHGs in agriculture is therefore more difficult than cutting CO2 emissions because they result from complex and imperfectly understood natural soil and animal microbial processes.

The NFU has set the ambitious goal of reaching net zero GHG across the whole of agriculture in England and Wales by 2040. There is no single answer but is likely to be achieved through a combination of:

  • Improved efficiency – producing the same or more food with less fossil fuel inputs.
  • Farmland carbon storage in soils and vegetation – managing and changing land use to capture more carbon, through bigger hedgerows, more woodland and especially more carbon-rich soils.
  • Boosting renewable energy to displace GHG from fossil fuels and carbon capture through photosynthesis.

The net zero challenge for agriculture also needs to be viewed in the context of a reorientation of rural support from area payments to ‘public money for public goods’ embodied in the new environmental land management scheme (ELMS).  This transition will take place over a 7-year period, with the inflection point likely to be in 2024-25 when area payments will have halved and ELMS is due to be fully introduced.

DEFRA announced last year that there will be three schemes available under ELMS. The Sustainable Farming Incentive, Nature and Landscape Recovery. Much of the detail of this is to follow but the consensus in the industry is that they will be much more onerous and costly to follow than the out-going area-based payments and the receipts less rewarding. In a recent edition of ‘Farmers Weekly’ it was claimed if arable growers managed to get 30-40% of the old payments from the new schemes, they will be doing well.

In many ways area-based subsidies have had the effect of preventing innovation and progress. Whilst there has been a long-term trend of fewer people working in agriculture and a steady growth in farm sizes, many farm business have remained fundamentally unchanged for decades, albeit with diminishing profitability, supported by commodity and latterly area-based subsidies. Subsidies currently represent 60% of profits across all farm types, but in many instances are the entire profit.   Jeremy Clarkson’s ‘Diddly Squat’ farm showed that, despite his best efforts, before subsidy it only broke even.

Presently 4 in 10 of UK farmers are over the age of 65, with an average age of 55. In contrast to previous generations, family farm businesses are only capable of supporting those actively engaged in farming and parents have encouraged their children to be well educated and find employment away from the farm.

Agriculture’s lack of profitability, its image compared to other sectors, and the high cost of land have meant that there have been relatively few new entrants in the industry.

The combination of all these factors is likely to give rise to the biggest change in farm policy since EU accession in the 1970s or perhaps since the last war. These are likely to be on a landscape scale with major changes in farm structure and land use.

One opportunity to supplement farm incomes is “carbon farming”, and the best current example is forestry.  The forestry market has seen a succession of record-breaking years with average values more than double what they were three years ago. ‘The Scotsman’ recently reported that sites with natural capital potential are attracting huge interest from environmental buyers and fetching as much as 40 percent over the asking price and commented that carbon markets, which convert and monetise ecosystem services into carbon credits, are also providing incentives.

Carbon prices are predicted to rise significantly in the medium to long term and as such there will be a corresponding opportunity for the farming industry to capitalise on this through new ‘carbon farming’ income streams and capital funding.   Improved soils, fewer inputs, more trees and hedgerows will also bring other benefits such as biodiversity, water management and more sustainable and diverse rural economies.

Farming is a traditional industry moulded by the annual arable and livestock production cycles. There is, however, a real urgency for farm businesses and landowners to adapt and match the pace of change if they are to survive and prosper in the long term. As part of the solution there is very much a need for long-term financial mechanisms to attract farmers and landowners to deliver GHG reductions that match the pace of changes in farm policy and subsidies. Historically, the farming industry has proved to be remarkably resilient, and it is with cautious optimism that it can look to the future.

Neil Holiday