Diversification, or simply joining up the dots?

Do you have older and costly underused farm buildings, land available for new buildings, or less of your land in agricultural production? Increasing numbers of agricultural businesses are in this position but are still very much farming operations with food production as their number one business objective. Many other businesses are aiming to reduce their carbon footprint, but not really sure how to achieve reduction targets.   

Sustainable food production opportunities 

It can be hard sometimes as a landowner to join it all together. In isolation, the different ingredients to the cocktail might be labelled ‘diversification’, whether into controlled environment agriculture (CEA), renewable energy and/or Natural Capital. However, combined they make for a logical sustainable food production opportunity, utilising your land-based resources, your land’s Natural Capital, your buildings (both old and purpose built) and renewable energy generation opportunities, by applying your existing management and business experience towards sustainable food production.      

Every farm will have older buildings that are under-utilised and often not suitable for larger modern farm machinery or for storage but are costly in terms of repair and maintenance. Farms may also have space and land available for putting up new buildings. CEA producers are using both of these options to house their operations, with larger producers often using bespoke new built buildings and smaller ones often re-purposing smaller buildings (or a combination of both).  

CEA requires significant amounts of energy. Landowners are very well placed to commit land for renewable energy uses, whether solar, wind, anaerobic digestion (AD) or ground source heat pumps, backed up by battery storage facilities to provide energy security and consistency alongside control over pricing and energy overheads. The energy source is therefore 100% green, clean energy. There is no need for a grid connection as the energy supply can be off grid, however surplus energy could be sold direct to other users as a private supply or, with a grid connection, sold into the grid.   

Foods produced through a CEA operation can be sold locally at the farm gate, through a farm shop, to local food retailers, hotels and restaurants looking for local produce. This would often fit alongside sustainable animal production as part of a branded farm food supply. The end result: local, sustainably produced food, consumed locally, that is also helping farming businesses meet their carbon reduction targets.    

The legal perspective 

One of the first questions to ask is who would operate the CEA unit. Would this be the landowner/farmer themselves, or probably more likely, a CEA franchise or third-party tenant, even where the landowner remained an active participant or investor. There would, however, need to be some risk firebreak between the CEA operation and the main farming business. The operator would occupy under a lease, with the landowner being protected by a rent deposit arrangement.   

The renewable energy generation, whether solar, wind, AD or ground source heat, dependant on scale and viability, would again be structured as a third-party operator paying rent to the landowner, under a lease, selling green energy direct to the CEA facility by way of a power purchase agreement, or it could be the landowner installing and operating the energy generation facility themselves. Any surplus energy could be sold direct to users (via private cabling) such as local houses, factories or retail units, again via power purchase agreements. If there is a grid connection, then surplus energy units could alternatively be sold into the grid as green energy.          

An important further consideration is whether the land is owned, freehold or tenanted. If the farm and buildings are tenanted there will almost certainly need to be a commercial discussion with the landlord with regards to both the CEA use, repurposing buildings, building new buildings, and installing renewable energy facilities. Owners, Agricultural Holdings Act tenants and Farm Business Tenancy tenants will require specific legal (and tax) advice.  Lease terms will need to be of sufficient length to enable the tenant to offset the capital cost and provide a funder with sufficient income cover over the lease term to repay loans.  

It’s possible that a CEA provides a solution enabling existing buildings to be repurposed whilst staying within a food production use, whilst at the same time providing a further potential source of income (either as rent or, with direct involvement, business income), alongside reducing a farming business’ carbon footprint. A CEA has real potential to solve these problems but it is not without risk and not for the faint hearted and certainly should not be pursued without legal advice. 

Food for thought!