De-regulation for agriculture is as bad as De-regulation for banking

Banker bashing dominates the headlines yet again. It turns out that traders at Barclays (and presumably the other banks) were conniving to fix the critical LIBOR rate which determines the interest rate that banks pay to borrow money from each other, to  – well to lend to you and me, but also to place large bets on the market. This is the so-called casino banking which used to be kept separate from the traditional stuffy high street banks of old, that looked after our bank accounts. That all went out of the window back in 1986 – the Big Bang as it was known at the time  – deregulation of the City was the name of the game. And we have been paying the price for this big idea for the last five years, and we will contine to pay for it for a long time. Who’s idea was the Big Bang? Chancellor of Exchequer Nigel Lawson. He created the Lawson boom of the late 80s, which became the Lawson bubble leaving millions in negative equity and created the early 90s recession.That’s deregulation for you.

Now that interest rates are at a historic low and the stock market is still struggling with the debt crisis, the banks are finding it difficult to get the returns needed to, for example, provide any sort of income for future pensioners. Is there anything that is making money at the moment? Well yes there is – land. Land prices continue to go up – it is the ultimate commodity, because as the old adage says, they’re not making it any more.

Apart from the seemingly ever bouyant London property market, fuelled in part by overseas buyers looking for a place to shelter their capital from taxes, farmland continues to be a very attractive place to invest capital. As farmland appreciates in value it gives a long term return on investment, and it also produces an annual income, through rent, ultimately derived from what it produces ie food.

This is not good news for tenant farmers, who find rental prices are going up, but the value of the food they produce is not necessarily going up at the same rate.

But there are a couple of extra reasons why farmland is so expensive and continues to increase in price. It’s an excellent tax shelter (Jimmy Carr take note if you’re reading) particular for the very long term. Capital invested in farmland is exempt from Inheritance Tax. Place your investments in a family Trust and invest that capital in farmland and you can be tax free for inheritance and also reduce your income tax at the same time.

On top of that you get around £200 a hectare per annum as a gift from the rest of us taxpayers  – it’s called the single farm payment. For a 1000ha estate (which you would now have to pay around £8M but if you’d bought it 10 years ago it would have cost you half that) that means around £200,000 a year just for owning the land. Not a bad little earner – certainly better than sticking the money in a bank account or probably even investing in the stock market.

Where does this leave things like wildlife protection or new fangled ideas like valuing ecosystem services? Let’s take an example  – a piece of grassland (say 20ha) that has been cared for by an “old boy” sympathetic farmer for 40 years – they’ve decided not to intensify their grassland and it’s full of wildlife, and it contributes to things like carbon storage, cleans the water we drink and gives homes to pollinators that mean crops like oil seed rape can be grown.

Sadly the farmer dies and the land is put up for sale. The agent advises the beneficiaries that the land is very valuable as the surrounding intensive dairy farmers would pay handsomely knowing that they could get a great return by converting the grassland to maize production (dairy cows don’t graze in buttercup meadows they eat fermented maize fed to them in large sheds). The 20ha is worth £10,000 a hectare – that’s £200,000. It would take someone pretty extraordinary (especially in these times) to turn down that sort of money.

The land is sold – but someone has noticed the wildlife value and informed Natural England (yes this is all taking place in England) that the new owner has been telling everyone in the pub that they’ve bought those weedy old fields that look scruffy and is looking forward to “improving” them by converting them into maize fields. Natural England aren’t actually allowed to enter the land to check on whether the wildlife value is good enough for them to be protected, but they get in touch with the new owner and ask permission to have a look. But it’s too late and the farmer has already ploughed them all up and planted maize. No evidence is available to show whether they were good enough to be protected either by EIA Agriculture regulations or even Widlife and Countryside Act.Even if they had been the farmer would only have had a slap on the wrist or a meagre fine a tiny fraction of the profit generated.

The ecosystem services the fields provided have been reversed; most of the carbon stored in the soils has been lost – that’s probably about 8000 tonnes of CO2 equivalent; the water that was once pure is now polluted with all the nitrogen fertiliser and pesticides applied to the maize (and those pollutants have to be removed from the water before we can drink it – in a process paid for by us the taxpayer) and the homes for all those pollinators have been lost.

The farmer gets single payment and also enters the newly arable land into Entry Level Scheme by agreeing to flail the hedgerows every couple of years instead of every year. Kerching £4000 single payment kerching £600 entry level scheme. That’ll go a long way towards paying the interest on the loan the farmer took out to buy the land.

And in the process of “improving” the land the farmer has actually increased its capital value, as well as increasing their annual income. So that”ll keep the bank manager happy. Does the farmer really have much choice about whether to “improve” the land or not?

And that is why, with our current economic model, the economic value of biodiversity and ecosystem services will always be a magnitude or two smaller than the economic returns derived from intensive agriculture. Which is why, until we agree our current economic model is hopefully flawed and come up with something a bit saner, we need stronger regulations to protect these things, not de-regulation.

Miles King

Director of Conservation

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About grasslandstrust

The Grasslands Trust is the only national UK charity that focuses entirely on saving grasslands that are valuable because they are rich in wildlife, history, or for other reasons.
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