Looking forward with hope to 2023

It has been a tough year, but 2022 ended on a somewhat optimistic note with agreement at the COP15 biodiversity summit regarding a set of ambitious targets to help stop and even reverse the environmental damage humans are inflicting on the earth. The targets, although not mandatory, will help speed up the ongoing monetisation of natural capital and nature-based solutions, inevitably leading to huge flows of investment into the sector. The UK’s own set of recently released (and legally binding) environmental targets will only add to the momentum here. What is crucial is that the custodians of the land that will be needed to deliver many of the targets get an equitable share of these funds. Farms and estates are all too often price takers when it comes to the food they produce, the same mustn’t be allowed to happen for the natural capital they will be asked to deliver.

I hope that you’ve found the Rural Update thought-provoking and useful throughout 2022. I’ll be back in 2023, but in the meantime have a fantastic Christmas break however and wherever you are celebrating.

Do?get in touch?if we can help you navigate through these interesting times. You can sign up to receive this weekly update direct to your email?here

Andrew Shirley?Head of Rural Research

In this week’s update:

? Commodity markets – What a crazy year

• The year ahead – Our view

? Investments – Farmland 2022’s top asset?

? COP15 – Ambitious biodiversity targets agreed

? The environment – UK government also sets new targets

? Trees – Unlimited illegal felling fines announced

? Staff salaries - New benchmark report released

? International news – Deforestation doubly damaging

Commodity markets – What a crazy year

A glance at how commodity prices changed over the course of 2022 makes for fascinating reading. It looks like pork producers were the year’s clear winners with values up over 40%. They would vehemently beg to differ. Soaring energy and feed costs have brought the sector to its knees – egg businesses are similarly blighted – and the price rises were the bare minimum required to keep the industry afloat. For arable producers the year-on-year comparison looks unremarkable, but a glance back at the Rural Update in May paints a different picture. Back then feed wheat was selling for almost ￡330/t, while oilseed rape was trading at a scarcely believable ￡823/t. Russia’s invasion of Ukraine, one of the world’s largest exporters of grains and oilseeds, was of course behind the panic-induced spike, but prices have fallen back ever since. Those who missed the opportunity to sell their 2023 crops forward are probably kicking themselves, but with fertiliser prices also sky high some farmers may have been worrying how many acres they could afford even to grow. A look at the current cost of red diesel reveals the dilemma – while output prices have generally been trending downwards, input costs remain stubbornly high. Next year will not be easy for farmers.

The year ahead – Our view

Given the chance, the countryside has the potential to boost the UK’s economy, fight climate change and reverse falling levels of biodiversity. That potential, however, will only be fully realised with new approaches from policymakers and sometimes rural businesses themselves. To help point stakeholders in the right direction I’ve asked a selection of my colleagues, from across our rural property teams, including Rural Consultancy, Renewables and Planning, to share their?outlook?for 2023, the opportunities that will be available and their views on what needs to change. We also offer some thoughts on the outlook for the farmland market and interest rates.

Investments – Farmland 2022’s top asset?

Preliminary results from the Knight Frank Farmland Index suggest that farmland could be the top performing asset of 2022. The full-year analysis will be revealed in the next edition of The Rural Update due out in the first week of 2023. Stay tuned! In the meantime, you can hear some thoughts from my colleagues and me on the outlook for property markets in 2023 in?the latest edition of Intelligence Talks, our research podcast.

COP15 – Ambitious biodiversity targets agreed

As predicted in last week’s update delegates at the UN’s COP15 biodiversity conference in Montreal finally agreed on four overarching global goals and 23 specific targets (albeit not legally binding) to help slow the global decline in biodiversity. These are officially known as the Kunming-Montreal Global Biodiversity Framework and include:

• Target 2: Effective restoration of 30% of degraded ecosystems by 2030
• Target 3: Effective conservation and management of 30% of land and 30% of oceans by 2030
• Target 7: Reduce pollution risks and impacts from all sources by 2030, reduce the overall risk from pesticides by half
• Target 15: Enable businesses to monitor, assess and disclose their impacts on biodiversity
• Target 18: Phase out or reform harmful subsidies in a just way, reducing them by US$500 billion by 2030
• Target 19: Substantially increase financial resources, mobilise US$200 billion per year by 2030 from all sources, including $30bn from developed to developing countries

A number of the Targets such as 7 and 18 will have a direct impact on agriculture, and, although not mandatory as some were hoping, Target 15 reinforces the relevance of initiatives like the Taskforce on Nature-Related Financial Disclosures (TNFD) for businesses and investors.

Read a detailed overview of COP15 and its key outcomes?here.

The environment – UK government also sets new targets

Speaking at COP15 Defra Minister Thérèse Coffey also announced a set of?ambitious – and legally binding - targets?that the UK will have to hit as part of the Environment Act. The government will publish its Environmental Improvement Plan in January 2023 setting out in more detail how it plans to achieve the targets.

• Halt the decline in species populations by 2030, and then increase populations by at least 10% to exceed current levels by 2042
• Restore precious water bodies to their natural state by cracking down on harmful pollution from sewers and abandoned mines and improving water usage in households
• Deliver our net zero ambitions and boost nature recovery by increasing tree and woodland cover to 16.5% of total land area in England by 2050
• Halve the waste per person that is sent to residual treatment by 2042
• Cut exposure to the most harmful air pollutant to human health – PM2.5
• Restore 70% of designated features in our Marine Protected Areas to a favourable condition by 2042, with the rest in a recovering condition.

Trees – Unlimited illegal felling fines announced

Sweeping?new powers to help curtail the illegal felling of trees?in England have just been announced by the government and Forestry Commission. They include the ability to levy unlimited fines, and a prison sentence, on landowners who fell trees without permission. The government claims the previous maximum fine of ￡2,500 or twice the value of the trees felled was an insufficient deterrent.

Staff salaries - New benchmark report released

Just a reminder that the latest edition of the?Knight Frank Estate Staff Salary Survey?has recently been published. The report reveals the average salaries paid for a wide range of rural estate and farming roles and level of wage increases being offered by rural businesses. Also highlighted are the key employment issues facing the rural economy. Download your copy here or get in touch with?Chris Terrett?for more details.

International news – Deforestation doubly damaging

Some interesting?new research?that caught my eye this week made for particularly depressing reading. We all know that chopping down the world’s rainforests is incredibly damaging for global biodiversity and a key ingredient of climate change – two billion hectares have disappeared since the ice age, half of that in the past 100 years. But now it turns out that conflicts over land ownership, allocation and use means as much as half of the land being cleared is not actively being used for agriculture anyway. What a waste.