Model Estate 2022 - Natural Capital

Natural Capital:

2021 was not a year of significant change for the Estate. Although opportunities and threats have been considered across all sectors of the Estate, uncertainties created by the pandemic, fluctuations in the property market and transforming subsidy regimes has meant that 2021 was a year to take stock, safe in the knowledge that a multi-asset class estate will offer reasonable protection in the face of economic turbulence through the diversity of income streams. Nonetheless, in response to widespread encouragement from trust advisors, the Estate has started considering its Natural Capital assets to get a head start as policy continues to evolve and emerge.

SOLAR FARM

TELECOMS MAST

FISHING RIGHTS

SYNDICATE SHOOT

Other

SOLAR FARM

SYNDICATE SHOOT

FISHING RIGHTS

TELECOMS MAST

MANOR HOUSE

FARMHOUSE

In-hand farm

FARMHOUSE

MANOR HOUSE

Let commercial

Let residential

AST

FBT

Let Farms

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How did the Model Estate rank amongst the alternative asset classes?

Alternative Asset Class Rankings

In short, Natural Capital encompasses all stocks of natural assets, including geology, soil, air, water and all living things. Other environmental, social and governance (ESG) measures are often incorporated when discussions about Natural Capital arise. It is also possible to include measures of recreation and public access, education and the historic environment. Natural Capital also includes carbon, both operational, stored and sequestered, which has its own complexities and challenges. This has made discussions between trust advisors confusing and strategies difficult to formulate, with often conflicting and competing interests, understanding and priorities.

There is still time to consider planting a new woodland for the Platinum Jubilee and make use of the increased payments available for woodland creation. The carbon from the woodland then has the potential to be sold or registered for the Estate’s own use through the Woodland Carbon Code. The Estate has found that working with its advisors has been critical in exploring this carbon opportunity as any agreements would be long-term.

"The Estate is remaining cautious for the moment on embarking on major changes, particularly involving long-term land use change or loss of control of land management"

The Model Estate is a hypothetical agricultural estate created by Carter Jonas in 2010. The Estate has evolved over the years...

Model Estate components & performance

EMAIL TIM

01223 346609

Head of Rural Division

Tim Jones

EMAIL CATHERINE

01604 608203

Rural Consultant

Catherine Penman

EMAIL HEENA

020 7518 3270

Research Analyst

Heena Gadhavi

A New Asset Class

What is clear is that a full understanding of the Estate’s Natural Capital assets will become imperative and so a review has begun to quantify these assets, collecting data on:

• Land use classification • Soil types and quality • Land designations • Habitat types • Flood zones • Length of hedgerows

• Woodland and trees • Length of watercourses and other inland water features • Existing environmental schemes • Cropping and yield maps

Attributing a value to these assets is another matter altogether and one for which there is limited clear guidance or agreed parameters for assessing market values.

Carbon

The Estate has been refining its Natural Capital asset register to assess its carbon footprint in anticipation of the government's ambitious proposals for decarbonising all sectors of the UK economy to meet net zero targets by 2050.

With the mix of residential, commercial and agricultural use on the Estate, it has been difficult to find a one-size-fits-all carbon calculator to calculate its carbon footprint. Greenhouse gas emissions from agriculture are calculated using specialist tools different to those used by commercial enterprises. However, the market-leading calculators are still delivering different results for the same farm, and not all the carbon benefits the land provides can be included. Decisions need to be made on whether the Estate is responsible for a let farm or let cottage’s emissions, or if these sit with the tenant. Having these conversations to understand what makes up the carbon footprint and where the biggest sources of emissions are is perhaps more useful than the actual numbers at this stage. Industry standardisation should emerge in time and assessing your carbon footprint may even become a requirement of some consumer standards. The first step is ascertaining where the emissions are coming from and what opportunities exist to reduce these. Keeping good records so that improvements can be measured against a carbon baseline (which may change as the science is updated) is key. The Estate is hoping that some of the actions identified will deliver some cost savings by improving the efficiency of the in-hand farming operation and emphasise the importance of the protection and efficient use of the resources of Estate staff.

The Estate is remaining cautious for the moment on embarking on major changes, particularly involving long-term land use change or loss of control of land management. It is also taking stock of the carbon credits it may need to fulfil its own net zero requirements before looking at the range of emerging opportunities to sell these.

Woodland Carbon Code

Biodiversity Net Gain

The Estate has also been approached by a local developer who is looking to develop 25 residential units in a neighbouring village. The developer has been informed by the Local Authority that, under emerging policy, it must demonstrate 10% Biodiversity Net Gain (BNG) for the application to be approved. Following advice from its advisors, the Estate has been looking at areas of lower grade land and poorer performing arable land in order to assess the options and has been considering the following:

• Improvement of grassland; • Conversion of arable land to grassland; • Improvement of existing woodland; • Conversion of arable land to provide a pond; and • Improving the condition of native hedgerows.

The Estate’s advisors have been assessing the potential income to the Estate and, by using the Carter Jonas Biodiversity Metric Tool, have quickly gained a high-level overview of where on the Estate the best BNG gains can be made, fitting alongside wider farming operations and Estate objectives. Based on 1-hectare (2.47-acre) sites, the first two options (see table 1) are producing potential capital payments of between £50,000 and £90,000 per hectare, assuming a trading price of £20,000 per habitat unit and assuming a 30-year agreement. Whilst these figures may appear attractive, the Estate is mindful that it also needs to consider the implementation costs associated with each option as well as ongoing maintenance costs over the term of the agreement. They also need to account for the potential loss of income particularly associated with the conversion of arable land and any tax implications of a change in land use.

Figure 1: Biodiversity Net Gain on the Model Estate

*Starting value is based on distinctiveness (set by Natural England), condition and area. The score is then calculated using a variety of multipliers, including: strategic significance, time expected to achieve the proposed condition, difficulty of the habitat creation or enhancement and the spatial risk/relative location.

Reviewing the options available for BNG has been particularly important when considering existing land management systems. For example, whilst conversion of an arable field may generate more biodiversity units to sell than improving 50 metres of native hedgerow, hedgerow improvement is likely to have less of an impact on existing farming systems. On face value, options such as enhancement of existing grasslands may seem easier to implement and maintain compared to conversion of arable land and generate potential payments up to £56,000. However, there needs to be confidence that the grassland habitat has potential to reach that level of biodiversity improvement – it is easy to underestimate the ongoing maintenance and specialist over-seeding required to get there.

Figure 3: Potential annual income at two market rates

£0

£500

£1000

£1500

£2000

£2500

£3500

A (per ha)

B (per ha)

C (per ha)

D (per 100m2)

E (per 50m2)

Source: Carter Jonas

£15,000/unit Trading Price

£20,000/unit Trading Price

Income (£)

On the face of it, and when analysed on a straight-line basis, the first two options produce annual payments in excess of those likely to be received under either a Countryside Stewardship (CSS) Agreement or under the Sustainable Farming Incentive. Average payments for CSS (for all options, for agreements starting on 1st January 2022) reflect £286/ha, which is circa 85% less than potential payments for options A and B (when the BNG payments are annualised over 30 years). The highest payments under CSS are between £657 and £960/ha for supplementary and winter feeding of farmland birds and with the highest payments for organic conversion to top fruit which would only be suitable for a small number of landowners. Even the highest potential payment of £960/ha is still nearly 50% less than possible payments under the indicative BNG example (dependent on the BNG options chosen and specific locations).

Figure 2: Potential gross capital payment at two market rates

Source: Carter Jonas

£0

£10,000

£20,000

£30,000

£40,000

£50,000

£60,000

£70,000

£80,000

£90,000

£100,000

Value (£)

£3000

A (per ha)

B (per ha)

C (per ha)

D (per 100m2)

E (per 50m2)

£15,000/unit Trading Price

£20,000/unit Trading Price

Highest Annual Payment Under the Countryside Stewardshire Scheme (per ha)

Summary

Review and analysis of potential BNG payments is enabling the Estate to compare and contrast against other environmental options contained within traditional CSS Agreements and future ELMS policy and is informing a strategic approach to better understand what opportunities might be available over and above traditional environmental schemes. Whilst, in our view, the BNG market may be restricted, it is a useful appraisal tool as it may become the base value assessment for other market-driven environmental credits, which are yet to be fully defined.

With baseline assessments being undertaken, the Estate will be in a strong position to react to environmental market opportunities that come forward in the next 12 months.

EMAIL MARK

01223 346628

Rural Partner

Mark Russell

EMAIL CHARLOTTE

01672 517939

Associate

Charlotte Meyer

EMAIL SAM

01539 814910

Surveyor

Sam Hagon

EMAIL LUCY

01904 558205

Surveyor

Lucy Merrill

Nonetheless, in response to widespread encouragement from trust advisors, the Estate has started considering its Natural Capital assets to get a head start as policy continues to evolve and emerge.