Alternative Farm Income: Maximising Opportunities with BNG & Habitat Banking

In recent years, the agricultural landscape in the UK has undergone significant changes, leading many farmers to grapple with reduced financial support and escalating costs. This situation underscores the pressing need for strategies that can turn land into profitable ventures.

With subsidies on the decline, farmers and landowners must now urgently explore sustainable, long-term methods for generating diverse income streams. These efforts are pivotal for safeguarding the longevity of their livelihoods.

One innovative avenue for alternative farm income within a farming business plan is habitat banking, a concept spurred by the introduction of mandatory biodiversity net gain (BNG) in 2021 under the Environment Act. BNG mandates that development projects consider their impact on biodiversity, striving to leave it in an improved state after completion. This has opened a new and promising opportunity for farmers to monetize their land.

Traditional methods of generating alternative farm income

Traditional methods that farmers in the UK have used to generate additional income include:

• Agritourism: Opening up farms to visitors for activities like farm tours, pick-your-own produce, farm stays, and educational workshops. This can provide an additional revenue stream and promote a better understanding of agriculture.
• Farm shops: Setting up on-site farm shops to sell fresh produce, meat, dairy, and other agricultural products directly to consumers. This allows farmers to capture a larger share of the retail price.
• Value added products: Processing raw agricultural products into value-added goods like jams, cheeses, or baked goods. This adds value to the produce and can command higher prices.
• Farmers’ markets: Participating in local farmers’ markets to sell produce directly to consumers. This provides an opportunity to interact with customers and receive immediate feedback.
• Community supported agriculture (CSA): Establishing a subscription-based model where consumers pay in advance for a share of the farm’s produce. This provides the farm with a guaranteed market and helps with cash flow.
• Contract farming: Collaborating with larger food companies or retailers to grow specific crops or rear livestock on contract. This provides a steady income and reduces market risks for the farmer.
• Diversification of crops and livestock: Growing a variety of crops or raising different types of livestock to spread risk and cater to various markets.
• Forestry and woodland management: Managing woodlands for timber production, firewood, or non-timber forest products. This can be a long-term investment with periodic harvests.
• Renewable energy generation: Installing renewable energy systems like wind turbines, solar panels, or anaerobic digesters to generate electricity or heat. Excess energy can be sold to the grid.
• Livestock breeding and sales: Rearing livestock for breeding purposes and selling them to other farmers or through livestock markets.
• Agricultural education and training: Offering workshops, training courses, or educational programs related to farming practices, animal husbandry, or agricultural technology.
• Contract labour services: Offering agricultural services such as ploughing, planting, harvesting, or livestock management to neighbouring farms.
• Crop storage and processing services: Providing storage facilities for crops or processing services for other farmers’ produce.
• Conservation schemes and grants: Participating in government-backed conservation programs or applying for grants for practices like rewilding, agroforestry, or habitat restoration.

What is Biodiversity Banking?

Biodiversity banking, also known as habitat banking, was conceived to meet the demand for achieving high biodiversity net gain. Developers utilise biodiversity banking to generate “ conservation credits,” which they can purchase to ensure compliance with biodiversity net gain requirements.

Habitat or biodiversity banks are designated areas where habitats are created or enhanced to significantly boost biodiversity. These areas typically range from 10 to 100 hectares in size, but there is no maximum limit. They often encompass several smaller areas across a single site. Importantly, while developers acquire these credits, farmers and landowners retain full ownership of the land.

The specific habitats created depend on factors like land operations and location, with marginal or low-yielding land often chosen. Our consultants collaborate closely with developers to determine the most effective habitats for enhancing nature on the land.

Biodiversity Banking and Alternative Farm Income

Landowners and farmers can now generate alternative income by preserving or restoring biodiversity on their lands. This entails creating and managing habitats that support a wide range of plant and animal species, which can then be used to offset biodiversity impacts elsewhere due to development or other human activities.

Upon agreeing to provide their land for biodiversity banking, farmers receive a capital receipt and additional annual rental payments throughout the agreement’s duration. Crucially, they maintain ownership of the land. A tailored management plan, overseen and implemented by the landowner, aligns with the existing land management approach and funding sources. This approach also ensures the adoption of the most tax-advantageous strategy.

By selling biodiversity credits, farmers can generate income. The value of these credits hinges on the rarity and significance of the conserved species and habitats.

However, it’s important to note that biodiversity banking requires a long-term commitment, with income contingent on the sustained success of the habitats over time.

Management of Habitat Banks

The management of habitat banks is contingent on the agreed-upon management plan with the landowner and the integration of the habitat bank into existing farming activities. Ecologists conduct regular monitoring, with progress reported annually to the relevant authorities in line with biodiversity net gain obligations.

For instance, in grassland management, fields are temporarily closed during the flowering season, followed by a hay cut once wildflowers have bloomed. In autumn, the land can be used for grazing. Livestock are temporarily removed in March, allowing flora and fauna to flourish once more, attracting rare bird and insect species.

Around the edges of grasslands, native shrubs are often planted, with livestock excluded to facilitate growth. Once established, fencing is removed, granting livestock access to the open habitats. If necessary, ecologists might introduce ponds and wet scrapes to attract endangered bird species like curlew and lapwing for breeding, fostering greater wildlife diversity.

Over a minimum of 30 years, the land is managed in this manner by the landowner or successive generations, allowing for the establishment of a fully biodiverse habitat.

The Significance of Biodiversity Net Gain

Biodiversity net gain holds numerous benefits for the environment, affecting it positively in various ways:

• Enables raw material production.
• Supplies water and oxygen to surrounding ecosystems.
• Enhances the visual appeal of the environment.
• Generates jobs for local farm businesses and related agricultural occupations.
• Advances scientific understanding of the natural environment.
• Provides recreational activities like fishing, camping, and hiking.

Mandatory BNG ensures a structured and regulated approach to support and encourage these factors in the years ahead. As it applies universally to all development projects, it establishes a standardized approach, mitigating potential issues with key stakeholders.

How can we assist with alternative farm income?

We are a team of ecologists and biodiversity net gain experts ready to assist both developers seeking biodiversity credits and farmers looking to leverage their land for alternative farm income. We offer guidance on land use and habitat banking application.

Our ecologists possess experience in both large and small farming environments, with specialised knowledge in habitat banking and biodiversity credits. We can conduct initial assessments of agricultural land and sites of interest, providing clients with a clear understanding of potential implications and costings from the outset.

For further information on BNG or to develop cost-effective land management plans, please don’t hesitate to reach out using the contact details below.

Treat biodiversity units as a long-term farm enterprise

Habitat banking can provide an additional income opportunity where farmland offers suitable potential for habitat creation or enhancement. However, selling biodiversity units is not equivalent to receiving an annual subsidy or letting a field for a short period. The enterprise combines a commercial transaction with legally secured land-management commitments lasting at least 30 years.

England's mandatory BNG framework, introduced through the Environment Act 2021, began for relevant major development on 12 February 2024 and small sites on 2 April 2024, subject to exemptions and transitional arrangements. Developers generally need to demonstrate at least 10% biodiversity net gain, creating demand for appropriate off-site provision where their requirements cannot be met on site.

A farm habitat bank supplies off-site biodiversity units, not government statutory biodiversity credits. Those credits are a last-resort mechanism for developers. Understanding this distinction helps avoid building a business plan around the wrong product or route to market.

Identify land that fits the wider farm business

Start with the holding's operational priorities. Consider field productivity, access, water management, machinery movements, livestock requirements and future succession plans. A parcel with modest agricultural returns may be worth investigating, but low productivity alone does not establish its suitability for habitat banking.

Some land already supports valuable habitat, leaving limited scope for additional measurable gains. Other areas may have physical constraints that make a proposed habitat difficult to establish. Soil fertility, drainage and neighbouring land uses should therefore inform the first feasibility review.

Consider how habitat management could integrate with existing operations. Conservation grazing or appropriately timed hay cutting may suit some habitats, while others require substantial changes. The target habitat condition must determine the management regime, rather than being adjusted to justify existing practices that would prevent delivery.

Establish the baseline before estimating income

A habitat baseline survey records the starting point for the statutory biodiversity metric. An ecologist typically uses UKHab to identify terrestrial habitats and undertakes a condition assessment where required. Hedgerows and watercourses need their own relevant assessment and accounting.

The difference between existing value and the proposed habitat outcome helps determine the potential gains. The calculation also reflects strategic significance, establishment difficulty and the time needed to reach target condition. A field's acreage does not translate directly into a fixed number of units.

Ask a BNG consultant to explain the assumptions behind each scenario. Which condition targets are realistic? What management changes are necessary? How sensitive is the result to habitat classification or delivery timing? Our BNG consultancy service can support this early appraisal before commercial expectations become fixed.

Match habitat supply to plausible local demand

Developers buy units to address particular deficits, not simply because land is available nearby. Metric trading rules mean that different habitat types and unit categories are not freely interchangeable. A farm offering grassland units may not meet a buyer's requirement for a specific higher-distinctiveness habitat.

Location affects how off-site gains contribute to a development through the metric's spatial risk rules. This can influence a buyer's preferred search area. Review relevant planning activity, competing supply and the types of habitat affected by local development, while recognising that planning pipelines do not guarantee completed purchases.

The Local Nature Recovery Strategy, or LNRS, can help identify ecological priorities and opportunities to strengthen habitat networks. Strategic significance scoring must follow the applicable metric guidance and evidence. LNRS alignment can strengthen a proposal's ecological rationale, but it does not guarantee buyers or a particular financial return. Our guide to BNG units explains the product developers need to secure.

Compare operating models and whole-life costs

A landowner might develop and operate a habitat bank independently, collaborate with neighbouring holdings or work with a specialist provider. These approaches distribute establishment costs, sales responsibilities, management duties and commercial risk differently.

Compare the whole arrangement rather than a headline payment. Establish who pays for surveys, legal advice, habitat works, registration, monitoring and corrective action. Check when payments become due, whether sales are guaranteed, what deductions apply and who bears the risk of unsold units.

Budget separately for cash flow and profitability. Establishment expenditure may arise before sales income, while management obligations continue after the initial transaction. Include the opportunity cost of reduced agricultural production and professional advice on taxation, business structure and the treatment of long-term liabilities. No single unit price or income-per-acre assumption is reliable across all farms.

Understand the agreement before committing land

Off-site gains need legal security through a section 106 agreement or conservation covenant. A section 106 agreement involves the relevant planning authority, while a conservation covenant involves a designated responsible body. Both require careful review of the obligations attached to the land.

Check ownership, tenancies, mortgages and other interests before negotiating. Consider how the agreement affects future sales, refinancing, succession and changes to the farming system. A long-term commitment should be understood by everyone whose rights or responsibilities could be affected.

The habitat management and monitoring plan should translate legal obligations into a workable farm programme. It should set out establishment tasks, seasonal management, monitoring, reporting and remedial measures. The management period for off-site gains is at least 30 years following completion of the relevant enhancement works; staged projects need clear dates and parcel records.

Separate registration, sales and developer approval

The biodiversity gain site register operated by Natural England records eligible off-site sites and their allocations. Registration is not an income guarantee. Once units are allocated, the developer references those gains in its biodiversity gain plan for approval by the local planning authority.

Maintain clear records of the gains available and already committed. Review any proposed combination with agricultural grants, carbon schemes or other environmental payments: compatible activities may be possible, but the same outcome cannot simply be sold twice. Relevant scheme and additionality rules need checking individually.

A measured first step is to assess one suitable parcel, test realistic habitat options and compare several demand and cost scenarios. This allows habitat banking to be considered alongside food production and other diversification enterprises, rather than as a replacement assumed to be profitable. Explore habitat banking with ecological, legal and financial advice before committing the holding.