Losing farmland to carbon investment has its dangers 

May, 2022 - Shepherd and Wedderburn LLP

 

There has been concern within the agricultural industry for some time the race to achieve carbon net-zero is leading to the loss of productive agricultural land to forestry purchasers.


Another perceived threat is from investors, both private and institutional, looking to invest in natural carbon, for example, by way of peatland restoration and rewilding projects.


The Scottish Land Commission undertook a review of the rural land market to help understand the influence of carbon and nature capital in relation to land transactions and the Rural Land Market Insights Report was published on April 12.


This is the first part of a two-stage project. The first stage is to identify current trends within the rural land market and the second phase is to undertake data collation on land sales from the Registers of Scotland and participating land agents to develop a means of measuring land market activity and land values, rather than relying on anecdotal evidence. This second report is expected to be published next month.


The current report looks at land market activity and trends across three types of transaction, relating to farmland, landed estates and forestry.


The report pointed out that farming buyers remained the dominant buyer type in Scotland last year, but a reduced supply and the long-term investment potential of agricultural land has increased demand, with land values in Scotland growing by more than 31% during the course of 2021. The report also concluded agricultural land quality is no longer the key determining factor of farmland value. This was because of the increasing influence of capital from outside agriculture.


It appears that the natural capital and afforestation potential of land is an increasingly important motivating factor for demand. This is due to an increase in timber prices, competitive forestry grants and the emergence of carbon offset markets. This is most obvious in respect of hill ground and less productive grassland and marginal arable ground.


In respect of the hill, farm buyers are now frequently outbid for plantable hill ground by forestry investors. This has led to an astonishing increase in the value of hill land of more than 60% in 2021. This in turn followed a 17.5% increase in value in 2020.


With hill farming in Scotland an increasingly unprofitable activity, it’s easy to understand and sympathise with owners looking to “cash in”, especially if they are approaching retirement. It’s very difficult to criticise people in that position.


However, in the longer term, the consequences for rural communities in our remoter areas are something that certainly deserve careful consideration.


The grave risk is that the trend of agriculture retreating from the hills over the last 20 or 30 years is accelerated.


In a world where food security is becoming an increasingly important issue, policy makers need to think very carefully about the best way forward.


This article was first published in the Press and Journal.


 

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