Jeremy's Blog 2nd July 2021: Environmental Payments

This article by Jeremy Moody first appeared in the CAAV e-Briefing of 1st July 2021

Seven months after the Agriculture Act and England’s Agricultural Transition Plan with its new schemes, DEFRA has published its approach to payments for environmental land management above the regulatory baseline. The Welsh Government has talked of payments appropriate for the value of environmental services achieved. Both have high ambitions to achieve real environmental improvement, knowing that needs a new approach to payments.

With much criticism of the income foregone/cost incurred, compensation approach inherited from the EU, DEFRA’s paper outlines four principles as a first understanding of a new balance between:

• payments being attractive enough for many farmers to make the large changes needed for a real difference and
• securing value for money.

Those are the concerns of a typical buyer in any market, achieving the best for the money available, here for both change and retaining existing high-quality practice. DEFRA has suggested that its indicative payments for SFI 2022’s soils standards might be 30 per cent more than under the previous policy. In spending more money on each payment, that payment has then to deliver more benefit but opens this area to enterprise and innovation, attracting rather than compensating.

As DEFRA will be market testing payments, including reverse auctions, this calls for farmers to know both their full costs and the value of what they could provide. DEFRA’s paper recognises wider issues such as the opportunity costs of options lost by major land use changes, such as woodland creation. Advice to farmers needs to cover the whole picture.

DEFRA’s fourth principle offers a positive approach to farmers selling services in both public and private markets, “stacking” agreements or “blending” finance but states the inevitable constraint simply: it will not pay twice for the same action.

No other buyer will want to do that either; each may have their own rules. Past offsetting is much criticised now as “greenwashing”, having either not been delivered or was going to happen anyway and so has not driven change. With that challenge for the investors and lenders behind much change, these questions of “additionality” will be important as the still barely emerging public and private market approaches in UK find their feet. These will be important, complex waters to navigate.

The Subsidy Control Bill was also published yesterday, a new regime instead of the EU State Aid Rules that gave us “income foregone” and limited farmers’ access to other payments. We wait to see how all this will fit together.