Guidance

FCERM guidance for RMAs: valuation of agricultural land and output for appraisal purposes

Updated 1 April 2026

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 Multi-Coloured Manual (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 the Green 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 and background 

2.1 Purpose and scope 

This guidance provides an update on the valuation of agricultural land and output. You should use it to assess FCERM projects in England only. It replaces previous guidance on the topic contained in the supplementary note: Valuation of Agricultural Land and Output for Appraisal Purposes (2008). 

Its main purpose is to ensure that economic appraisals of agricultural benefits properly account for how government support to farmers affects land values and agricultural output. This is consistent with HM Treasury’s Green Book guidance on appraisal in central government. This supplementary guidance helps you determine the value of agricultural land in a way that excludes financial benefits directly transferred to farmers from the UK exchequer. 

You should use this guidance to support the appraisal of FCERM options that include the continued or increased protection of agricultural assets against future flooding. Examples include protecting high-grade agricultural land against increased flooding due to climate change.   

You should also use this note for:  

• the appraisal of NFM interventions on agricultural land where appropriate and follow the current NFM appraisal guidance 
• actions that include working with natural processes (WwNP) on farmland that aim to benefit people and nature 

Examples include the use of agricultural land: 

• to retain water in the general landscape 
• to store flood water in floodplains  
• for the managed realignment of river or coastal defences 

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

2.2 Updates to the guidance 

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 the previous Basic Payment Scheme (BPS).   

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. 

We are adopting this revised guidance in April 2026 when there will be less than one year remaining of the delinked payments which replaced BPS. This means you should assume that the influence of direct income support on agricultural land prices in 2026 and beyond will be negligible and can be ignored. 

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. Appraisal scenarios  

This guidance focuses on 3 scenarios typically encountered in FCERM appraisals where land and agricultural output need to be valued. These are: 

• land is abandoned or no longer fit for agricultural use for the foreseeable future - this situation typically arises because of the abandonment or permanent breach in sea or river embankments, sometimes due to a non-active intervention policy 
• occasional losses of output because of flooding - this refers to losses where there is a periodic reduction in agricultural output, due, for example, to a breach that is subsequently repaired 
• permanent change in agricultural output per hectare - where 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 - abandonment of agricultural land 

You should consider this scenario for: 

• the do-nothing option for an existing embankment scheme or coast protection situation, after it has failed  
• the managed realignment ‘do something’ option 
• options where breaches in embankments are not repaired, for example for management reasons 
• the withdrawal or modification to pumping and land drainage infrastructure and operations 

The land in this scenario ceases to have any value for agricultural use, although it may retain value for other uses. For example, land might convert to salt marshes or freshwater wetlands. This may have limited agricultural use for seasonal grazing, the benefits of which you may need to assess separately. You may need to assess other residual issues where, for example, an appraisal option involving abandonment affects agricultural productivity on adjacent land.  For example, options may impact upon freshwater aquifers or change wetlands to saline conditions. This may affect adjacent land drainage, water supply and/or irrigation regimes. 

The value of land that is potentially lost or abandoned under Scenario 1 should be based on unequipped agricultural land with vacant possession that reflects the productivity of arable and grassland farming of 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: 

• RICS - RAU Farmland Market Directory of Land Sales 
• quarterly publications of land sales, prices and valuations by land agency firms 

Agricultural land values (£/ha) in England are highly variable, affected by a wide range of factors. These include the: 

• quality and suitability of the land (or land grade), which you can find in agricultural land classification maps and the Agricultural Land Classification of England and Wales  
• size and arrangement of fields, drainage, irrigation water, roads and other infrastructure 
• location 

You should take care to derive values that align with the characteristics of the land that is lost. You must use a minimum 3-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 for inflation using GDP deflators.   

You may need to make a more detailed assessment of the economic value of agricultural land use and agricultural businesses if a change in FCERM services could result in the permanent loss of large areas of prime agricultural land. This is explained in Appendix B.

3.2 Scenario 2 – occasional losses of agricultural output 

You should consider this scenario for:  

• breaches in sea or river embankments which occur and are subsequently repaired 
• alternative flood design standards that change the frequency of high return period events, without a permanent change in agricultural land use and output 
• 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 probability 

This scenario applies when flooding: 

• results in a one-off partial or complete loss of crop or livestock output 
• makes the land unusable for production for a year or longer 

The scenario assumes that agricultural output subsequently recovers, and land use is unchanged. 

In this scenario, agricultural output is lost for a period, usually a single year but sometimes longer. You can generally use a gross margin to reflect losses to the farmer. Gross margins are: 

• usually expressed in £ per hectare and aggregated according to the area of land affected 
• broadly defined as revenue from sales less variable costs such as seeds, fertiliser and agri-chemicals 

Gross margins may reduce due to flooding. This is because the yields of crops (in tonnes per hectare) and stocking rates (the type and number of animals carried per hectare) are negatively impacted.  In some cases, farmers who can’t plant winter crops due to autumn flooding may switch to spring sown crops that tend to have lower gross margins.  

This approach assumes that the farm’s fixed costs do not change. Fixed costs include those associated with:  

• permanent hired labour 
• machinery 
• use of contractors 
• farm buildings 

However, you need to consider the circumstances where some elements of fixed costs, as conventionally defined in farm business management accounts, may change due to flooding. For example, you may need to include the cost of additional field operations to replant damaged crops.    

Depending on the seasonal timing of floods, you may need to adjust for ‘savings’ in variable costs that have not yet been committed. This will reduce the losses incurred.  The same applies to the potential savings in the costs of harvesting crops that do not reach maturity. However, there may be additional costs for removing damaged crops and restoring soil condition.    

You should consider if losses are likely to extend to more than one year. For example, the knock-on effect of damage to soil structure that can affect yields in subsequent years.  Impacts on livestock kept for breeding and interruptions to livestock production cycles can result in additional output losses and costs beyond the year of the flood. A critical yield indicator here is the stocking rate (number of animals per hectare).  

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

• potatoes 
• sugar beet 

High value use also includes intensive dairy production. 

If an area experiences losses of output due to flooding, you should assume, for appraisal purposes, that the production of high value crops and livestock will move to other areas where production is feasible and economically viable.  

This means the 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 on the high value crop or dairy production itself. Exceptions to this approach are described in Appendix B. 

You should refer to the FHRC Handbook: Chapter 9, Appraisal of Flood Risk Management for Agriculture, for further information on assessment methods. The most recent farm business data are available from: 

• the farm management handbooks, including the Nix Farm Management Pocketbook  
• the Farm Business Survey for England 
• Defra agricultural statistics  

You can use these sources to modify the standard values provided in the FHRC Handbook.  

You should derive estimates of average yields, gross margins and net margins from farm business management data over a series of 5 years. Adjust this for inflation using GDP deflators to: 

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

Where Scenario 2 applies to large areas of prime agricultural land, you may need a more detailed assessment of the economic value of agricultural land use and agricultural businesses. This is explained in Appendix B.

3.3 Scenario 3 - permanent change in agricultural output 

You should use this scenario for partial loss and partial gain situations.  

Partial loss scenario 

The partial loss scenario may apply in the appraisal of: 

• do nothing (non-intervention) options for agricultural flood defence and land drainage schemes 
• do something options providing alternative standards of FCERM service 
• wetland creation and restoration options on agricultural land within areas served by previous and/or future FCERM infrastructure 

You should apply the partial loss scenario if there is a permanent: 

• change in the annual frequency of flooding  
• rise in seasonal water levels 

In both cases these will result in: 

• crop losses 
• persistently lower yields  
• increased costs 

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

• gross margins 
• fixed costs 
• overall profitability and economic value 

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

• flood control 
• water quality 
• biodiversity 
• carbon emissions 

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

Gain scenario 

The gain scenario applies where an FCERM option increases or avoids a loss in agricultural productivity. This may be associated with:  

• retention of the standards of flood protection and agricultural land drainage services under projected climate change scenarios  
• 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 advantage 

As with Scenario 2, you should refer to Chapter 9 of the FHRC Handbook. You should use cereals as a proxy for high value crops in this scenario, subject to exceptions. This is explained in Appendix B.  

You may need to assess the economic value of agricultural land use and businesses in more detail if Scenario 3 affects large areas of prime agricultural land.  This is also explained in Appendix B.

4. Appendix A:  rationale and sensitivity testing  

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

• standard procedures and estimates  
• readily accessible published data on agricultural land prices and farm business management 

We assume that FCERM interventions will not result in significant agricultural economic impacts at the regional and national scale. If large scale non-marginal effects are possible, you should seek advice from Defra who can confirm if you need a more detailed assessment. This is explained in Appendix B.   

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: 

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

You should use: 

• observed ranges in time-series data, supported by forecasts of agricultural futures from published sources 
• central, low and high estimates of key variables  

These will help you to determine the range of possible outcomes over the investment period. 

You should note the impact on: 

• the main assumptions and outcomes of medium- to long-term climate change scenarios 
• possible shifts in agricultural (and agri-environment) policy and markets  

5. Appendix B:  exceptions to standard guidance  

Use of wheat as a proxy for high value crops  

You should consider using wheat values as a proxy for other crops in most appraisals. This helps simplify the process and avoid unnecessary analysis. Winter sown wheat is the dominant arable crop by area and gives the highest profit. This applies in a typical arable rotation that excludes high value field crops such as potatoes and field vegetables.  

You should not use a simplified approach, where the: 

• 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 production - for example, the Lower River Trent flood plain grows a significant share of national production of red beet 
• appraisal area enjoys significant advantages over other areas in terms of better-quality soils and market conditions, which render relocation elsewhere a less viable option - for example, the Cambridgeshire Fens grow lots of specialist salad crops, which would be less viable to grow in other locations 
• 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 scale 
• infrequent large-scale flooding occurs in areas of high value cropping, such as field vegetables, and specialist dairy and livestock production - 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 year 

More detailed analysis  

While most appraisals will follow the standard Supplementary Guidance, you may need a more detailed appraisal where the consequences of the FCERM decision could permanently impact large areas of prime agricultural land. In these situations, the outcome of the FCERM strategy is fundamental to key policy objectives. These include: 

• adaptation to climate change 
• national food security  
• the resilience of rural communities 

In these cases, you will need details of current and possible future land use and agricultural production and businesses. This should be supported by area-specific data and engagement with land managers and/or representative organisations. You should also identify and describe potentially significant effects on: 

• employment 
• income generation 
• business viability in the agriculture, food and allied industries 

Your methods should be consistent with HM Treasury Green Book. Practical guidance on detailed assessment is contained in the FHRC Handbook.