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1. Summary

Many flood and coastal erosion risk management (FCERM) schemes protect agricultural land as well as properties and infrastructure. You can include agricultural benefits in the economic case which justifies public spend. You should use the methodology and valuations in the Ìý(MCM) to calculate the agricultural values for FCERM appraisals.

There are methods described for 3 different scenarios where:

• land is abandoned or no longer fit for agricultural use for the foreseeable future
• there are occasional losses of output because of flooding
• there is a permanent change in agricultural output per hectare

Scenario 1 uses the market value of the impacted land. In the past, agricultural land values have been affected by government subsidies. You should remove this effect from the land values for economic appraisal, as described in theÌýGreen Book. Due to recent legislation changes, the effect of subsidies is now zero. This means your economic appraisals should apply the full market value of the land under scenario 1.

This note explains:

• how this new zero rate was calculated
• the 3 valuation scenarios which are also described in the MCM
• further points of clarification to those undertaking FCRM agricultural economic valuations

2. Introduction andÌýbackgroundÌý

2.1 Purpose andÌýscopeÌý

ThisÌýguidanceÌýprovides an update on the valuation of agricultural landÌýand output.ÌýYou should use it to assess FCERMÌýprojects in England only. It replacesÌýpreviousÌýguidance on the topic contained inÌýthe supplementaryÌýnote: Valuation of Agricultural Land and Output for Appraisal Purposes (2008).Ìý

Its main purpose is to ensure that economic appraisals of agricultural benefitsÌýproperly account for howÌýgovernment support to farmersÌýaffectsÌýland values and agricultural output.ÌýThis isÌýconsistent withÌýHM Treasury’s Green BookÌýguidanceÌýon appraisal in central government.ÌýThis supplementary guidanceÌýhelps youÌýdetermineÌýthe value of agricultural landÌýin a wayÌýthat excludes financial benefits directlyÌýtransferredÌýto farmers from the UK exchequer.Ìý

You should use thisÌýguidanceÌýtoÌýsupport the appraisal of FCERM options that include the continued or increased protection of agricultural assets against future flooding. Examples includeÌýprotectingÌýhigh-grade agricultural land againstÌýincreased flooding due to climate change.ÌýÌýÌý

You should alsoÌýuse this note for:ÌýÌý

• the appraisal ofÌýNFMÌýinterventionsÌýon agricultural landÌýwhereÌýappropriateÌýand follow the currentÌýNFM appraisal guidanceÌý
• actions that includeÌýworking withÌýnaturalÌýprocesses (WwNP)Ìýon farmland thatÌýaim toÌýbenefitÌýpeople and natureÌý

Examples include the use of agricultural land:Ìý

• toÌýretainÌýwater in the general landscapeÌý
• to store flood water in floodplainsÌýÌý
• for the managed realignment of river or coastal defencesÌý

The potential impacts of FCERM options on the value of agricultural land and output are an important part of the appraisal.ÌýÌýÌý

2.2 Updates to the guidanceÌý

This updated guidance takes account of changes to agricultural policy in England following the withdrawal from the EU Common Agricultural Policy (CAP). This includes the gradual reduction and ending of direct income support to farmers contained within theÌýpreviousÌýBasic Payment Scheme (BPS).ÌýÌýÌý

Previously, the value of BPS was deducted from the value of land. This is because it is a subsidy, and therefore a ‘transfer’ that should be excluded from economic appraisal under Green Book rules. This adjustment is no longer necessary now that BPS is to be withdrawn.Ìý

WeÌýare adoptingÌýthis revised guidance in April 2026 when there will beÌýlessÌýthanÌýone yearÌýremainingÌýofÌýthe delinkedÌýpayments which replacedÌýBPS.ÌýThis means you should assumeÌýthat the influence of direct income support on agricultural land prices in 2026 and beyond will be negligibleÌýand can be ignored.Ìý

The new agricultural policy, including introduction of Environmental Land Management, does not have any other effect on the appraisal of flood damages to agriculture.

3. AppraisalÌýscenariosÌýÌý

ThisÌýguidanceÌýfocuses onÌý3Ìýscenarios typicallyÌýencounteredÌýin FCERM appraisals where land and agricultural outputÌýneedÌýto be valued. These are:Ìý

• land is abandoned or no longer fit for agricultural use for theÌýforeseeable futureÌý- this situation typically arises because of the abandonment or permanent breach in sea or river embankments, sometimes due to a non-active intervention policyÌý
• occasional losses of outputÌýbecause of floodingÌý- this refers to losses where there is a periodic reduction in agricultural output, due, for example, to a breach that isÌýsubsequentlyÌýrepairedÌý
• permanent change in agricultural output per hectareÌý-Ìýwhere this either reduces because of increased flooding incidence or deterioration in agricultural land drainage conditions or increases due to reduced flooding incidence or improved agricultural land drainage, in both cases attributable to FCERM activities

3.1 Scenario 1 -Ìýabandonment ofÌýagriculturalÌýlandÌý

You should consider thisÌýscenarioÌýfor:Ìý

• the do-nothingÌýoptionÌýforÌýanÌýexistingÌýembankmentÌýschemeÌýorÌýcoast protection situation, after it has failedÌýÌý
• the managedÌýrealignmentÌý‘doÌýsomething’ÌýoptionÌý
• optionsÌýwhereÌýbreachesÌýinÌýembankmentsÌýareÌýnotÌýrepaired, for exampleÌýfor management reasonsÌý
• the withdrawal or modification to pumping and land drainage infrastructure and operationsÌý

The land in this scenario ceases to have any value for agricultural use, although it mayÌýretainÌývalue for other uses.ÌýFor example, land might convert to salt marshes or freshwater wetlands. This may haveÌýlimited agricultural use for seasonal grazing, the benefits of whichÌýyou may need to assessÌýseparately.ÌýYou may need to assess otherÌýresidual issues where, for example, an appraisalÌýoptionÌýinvolving abandonment affects agricultural productivity on adjacentÌýland.Ìý ForÌýexample,ÌýoptionsÌýmayÌýimpactÌýuponÌýfreshwaterÌýaquifersÌýorÌýchangeÌýwetlands to salineÌýconditions. This mayÌýaffectÌýadjacent land drainage, waterÌýsupplyÌýand/or irrigation regimes.Ìý

The value of land that is potentially lost or abandoned under Scenario 1Ìýshould beÌýbased onÌýunequipped agricultural land with vacant possession that reflectsÌýthe productivity of arable and grassland farmingÌýof that land. Locally relevant values (£/ha) should be derived for land of similar quality and usage, although this may be difficult where land sales are low and infrequent. Data on agricultural land market values in the regions of England are available from multiple sources, including the:Ìý

• Ìý
• quarterly publications of land sales,ÌýpricesÌýand valuations by land agency firmsÌý

Agricultural land values (£/ha) inÌýEngland are highly variable, affected by a wide range of factors. These includeÌýthe:Ìý

• quality and suitability of the land (or land grade), which you can find inÌýÌýand theÌýÌýÌý
• size and arrangement of fields, drainage, irrigation water,ÌýroadsÌýand other infrastructureÌý
• locationÌý

You should take care toÌýderive values that align with the characteristics of the land that is lost.ÌýYou must use aÌýminimumÌý3-year series of price data for the relevant land types to derive average agricultural land prices by type and usage (£/ha). You should then adjust this forÌýinflation usingÌýGDP deflators.ÌýÌýÌý

You may need to makeÌýa more detailed assessment of the economic value of agricultural land use and agricultural businessesÌýif aÌýchange in FCERM services could result in the permanent loss of large areas of prime agricultural land. This is explained inÌýAppendix B.

3.2 ScenarioÌý2Ìý–ÌýoccasionalÌýlossesÌýofÌýagriculturalÌýoutputÌý

You should consider thisÌýscenario for:ÌýÌý

• breaches in sea or river embankments which occur and areÌýsubsequentlyÌýrepairedÌý
• alternative flood design standards that change the frequency of high return period events, without a permanent change in agricultural land use and outputÌý
• broadscale changes in exposure of farmland to infrequent flooding associated with changes in climate or catchment hydrology, such as a change from a 1 in 50 (2%) year to a 1 in 25 (4%) year exceedance flood probabilityÌý

This scenario applies when flooding:Ìý

• results in a one-off partial or complete lossÌýof cropÌýor livestock outputÌý
• makes the land unusable for production for a year or longerÌý

The scenario assumes that agricultural outputÌýsubsequentlyÌýrecovers, and land use is unchanged.Ìý

In thisÌýscenario, agricultural output is lost for a period, usually a single year but sometimes longer.ÌýYou canÌýgenerallyÌýuseÌýa gross margin to reflect losses to the farmer. Gross marginsÌýare:Ìý

• usually expressed in £ per hectare and aggregated according to the area ofÌýland affectedÌý
• broadly defined as revenue from sales less variable costs such as seeds,ÌýfertiliserÌýandÌýagri-chemicalsÌý

Gross margins may reduce due to flooding. This isÌýbecause the yields of crops (in tonnes per hectare) and stocking rates (the type and number of animals carried per hectare) are negatively impacted.ÌýÌýIn some cases,Ìýfarmers whoÌýcan’tÌýplant winter crops due to autumn flooding may switch to spring sown crops that tend to have lower gross margins.ÌýÌý

This approach assumes that the farm’s fixed costsÌýdo not change.ÌýFixed costs includeÌýthose associated with:ÌýÌý

• permanent hired labourÌý
• machineryÌý
• use of contractorsÌý
• farm buildingsÌý

However,ÌýyouÌýneed to consider the circumstances where some elements of fixed costs, as conventionally defined in farm business management accounts, may change due to flooding.ÌýFor example, you mayÌýneedÌýtoÌýinclude the cost ofÌýadditionalÌýfield operations to replant damaged crops.ÌýÌýÌýÌý

Depending on the seasonal timing of floods,Ìýyou may needÌýto adjust for ‘savings’ in variable costs that have not yet been committed. This will reduceÌýthe losses incurred.ÌýÌýThe same applies to the potential savings in the costs of harvesting crops that do not reach maturity. However, thereÌýmay beÌýadditionalÌýcosts for removing damaged crops and restoring soil condition.ÌýÌýÌýÌý

YouÌýshould consider if losses are likely to extend to more than one year. For example,Ìýthe knock-on effect of damage to soil structure that can affect yields inÌýsubsequentÌýyears.ÌýÌýImpacts on livestock kept for breeding and interruptions to livestock production cycles can result inÌýadditionalÌýoutput losses and costs beyond the year of the flood. A critical yield indicator here is the stocking rate (number of animals per hectare).ÌýÌý

To keep thingsÌýsimple, in most cases you shouldÌýuse cereals (the most common arable crop) as a proxy for high value (£/ha) crops. High value crops include:Ìý

• potatoesÌý
• sugar beetÌý

High value use also includesÌýintensive dairy production.Ìý

If an area experiences losses of output due to flooding,Ìýyou should assume,Ìýfor appraisal purposes, that the production of high value crops and livestock will move to other areasÌýwhereÌýproductionÌýisÌýfeasibleÌýand economicallyÌýviable.ÌýÌý

This meansÌýthe estimated loss of economic output is based on the value of the wheat crop output that is assumed to be displaced. It is not based onÌýthe high value crop or dairy production itself. Exceptions to this approach are described in AppendixÌýB.Ìý

You should referÌýto theÌýFHRCÌý: Chapter 9, Appraisal of Flood Risk Management for Agriculture, for further information on assessment methods.ÌýThe most recent farm business data are available from:Ìý

• the farm management handbooks, includingÌýtheÌýNix Farm Management PocketbookÌýÌý
• theÌýÌý
• DefraÌýagriculturalÌýstatisticsÌýÌý

You can use these sources toÌýmodifyÌýthe standard values provided in the FHRCÌýHandbook.ÌýÌý

You should derive estimates of average yields, grossÌýmarginsÌýand net margins from farm business management data over a series ofÌý5Ìýyears. Adjust thisÌýfor inflationÌýusing GDP deflatorsÌýto:Ìý

• allow for variations in agricultural output and input pricesÌý
• moderate the influence of extreme high and low valuesÌýÌý

Where Scenario 2 applies to large areas of prime agricultural land,Ìýyou may needÌýa more detailed assessment of the economic value of agricultural land use and agricultural businesses. This is explained inÌýAppendix B.

3.3 Scenario 3Ìý-ÌýpermanentÌýchange inÌýagriculturalÌýoutputÌý

You should use this scenarioÌýforÌýpartial loss and partial gain situations.ÌýÌý

Partial loss scenarioÌý

The partial loss scenario may apply in the appraisal of:Ìý

• doÌýnothingÌý(non-intervention)ÌýoptionsÌýforÌýagricultural flood defence andÌýlandÌýdrainageÌýschemesÌý
• doÌýsomethingÌýoptions providing alternative standards of FCERM serviceÌý
• wetland creation and restoration options on agricultural land within areas served byÌýpreviousÌýand/or future FCERM infrastructureÌý

You should apply theÌýpartial loss scenarioÌýif there is aÌýpermanent:Ìý

• change in the annual frequency of floodingÌýÌý
• rise in seasonal water levelsÌý

In both cases these willÌýresult in:Ìý

• crop lossesÌý
• persistently lower yieldsÌýÌý
• increased costsÌý

In some cases, this may involve a switch in land use to more flood-tolerant crop or livestock production systems. This may have lower:Ìý

• gross marginsÌý
• fixed costsÌý
• overall profitability and economic valueÌý

Scenario 3 assumes that the land continues in agricultural use. However, thisÌýmay include the co-delivery of other land and water-based ecosystem services. These may beÌýassociated with:Ìý

• flood controlÌý
• water qualityÌý
• biodiversityÌý
• carbon emissionsÌý

Land managers may receive financial rewards in the form of ELMS payments, and carbon and biodiversity credits.ÌýÌýYou should assess the economic value of ecosystem services using the methods of natural capital accounting.ÌýÌý

Gain scenarioÌý

The gain scenario applies where an FCERM optionÌýincreases orÌýavoids a loss in agricultural productivity. This may be associated with:ÌýÌý

• retention of the standards of flood protection and agricultural land drainage services under projected climate change scenariosÌýÌý
• improvements in the standards of flood protection and agricultural land drainage services in areas of strategic agricultural importance, linked for example to food security, adaptation to climate change, and/or competitive advantageÌý

As with Scenario 2,Ìýyou should refer toÌýChapter 9 of the FHRCÌý.ÌýYou should useÌýcereals as a proxy for high value crops in this scenario, subject to exceptions.ÌýThis is explained inÌýAppendix B.ÌýÌý

You may need to assess the economic value of agricultural landÌýuseÌýand businesses in more detail if Scenario 3 affects large areas of prime agricultural land.ÌýÌýThis is also explained inÌýAppendix B.

4. Appendix A:Ìý rationaleÌýandÌýsensitivityÌýtestingÌýÌý

The appraisal methods are designed to be proportionate in terms of the effort of analysis and the FCERM decision context.ÌýYou should use:Ìý

• standard procedures and estimatesÌýÌý
• readily accessible published data on agricultural land prices and farm business managementÌý

We assume thatÌýFCERM interventions will not result in significant agricultural economic impacts at the regional and national scale. If large scale non-marginal effects are possible,Ìýyou should seekÌýadvice from DefraÌýwho can confirm if you need aÌýmore detailed assessment. This is explained inÌýAppendixÌýB.ÌýÌýÌý

Your sensitivity analysis should cover the extent to which valuation is sensitive to critical and uncertain estimates in the assessment process. This is especially relevant to:Ìý

• alternative values for the prices of agricultural land (Scenario 1)Ìý
• agricultural commodity prices, yields and key farm business indicators (Scenarios 2 and 3)Ìý

You should use:Ìý

• observed ranges in time-series data, supported byÌýÌýfrom published sourcesÌý
• central,ÌýlowÌýand high estimates of key variablesÌýÌý

These will help youÌýtoÌýdetermineÌýthe range ofÌýpossible outcomesÌýover the investment period.Ìý

You should note the impact on:Ìý

• theÌýmainÌýassumptions and outcomes of medium- to long-term climate change scenariosÌý
• possible shiftsÌýin agricultural (andÌýagri-environment) policy and marketsÌýÌý

5. Appendix B:Ìý exceptionsÌýtoÌýstandardÌýguidanceÌýÌý

UseÌýofÌýwheatÌýasÌýaÌýproxyÌýforÌýhighÌývalueÌýcropsÌýÌý

You shouldÌýconsider using wheat values as a proxy for other crops in most appraisals. This helpsÌýsimplify the process and avoid unnecessary analysis. Winter sown wheat is the dominant arable crop by area and gives the highest profit. This appliesÌýin a typical arable rotation that excludes high value field crops such as potatoes and fieldÌývegetables.ÌýÌý

You should not use aÌýsimplified approach, whereÌýthe:Ìý

• impact of repeated flooding in the appraisal area affects a high value production system (including dairy farming), which in turn impacts on national levels of productionÌý- for example, the Lower River Trent flood plain grows a significant share of national production of red beetÌý
• appraisal area enjoys significant advantages over other areas in terms of better-quality soils and market conditions, whichÌýrenderÌýrelocation elsewhere a lessÌýviableÌýoptionÌý- for example, the Cambridgeshire Fens grow lots of specialist salad crops, which would be lessÌýviableÌýto grow in other locationsÌý
• appraisal areas involve large land areas of Agricultural Land Classification (ALC) Grades 1 and 2 of strategic national importance, often served by regional pumping schemes, where the consequences of agricultural change are significant at the regional and national scaleÌý
• infrequent large-scale flooding occurs in areas of high value cropping, such as field vegetables, and specialist dairy and livestock productionÌý- the value of the actual crops lost should be used rather than the value of wheat as a proxy where it is not possible to offset the losses in output by production elsewhere within the production yearÌý

More detailed analysisÌýÌý

While most appraisals will follow the standard Supplementary Guidance,Ìýyou may need aÌýmore detailed appraisalÌýwhere the consequences of the FCERM decision could permanentlyÌýimpactÌýlarge areas of prime agricultural land. In theseÌýsituations, theÌýoutcome of the FCERM strategy is fundamental to key policyÌýobjectives. These include:Ìý

• adaptation to climate changeÌý
• national food securityÌýÌý
• the resilience of rural communitiesÌý

In these cases,Ìýyou will needÌýdetails of current andÌýpossible futureÌýland use and agricultural production and businesses. This should beÌýsupported by area-specific data and engagement with land managers and/or representative organisations.ÌýYou should alsoÌýidentifyÌýand describeÌýpotentially significant effects on:Ìý

• employmentÌý
• income generationÌý
• business viability in the agriculture,ÌýfoodÌýand allied industriesÌý

Your methodsÌýshould be consistent withÌýHM Treasury Green Book. Practical guidance on detailed assessment is contained in the FHRCÌý.