New Paths To Farm Profitability

07:00AM Dec 27, 2019
Global Average Carbon Dioxide Concentration
Practices such as minimal tillage, cover crops and crop rotations have the potential to sequester carbon from the atmosphere and return it to soil.
( Data Source: Indigo Ag; Photo: Lindsey Benne )

On the southern Great Plains, a dozen farmers and ranchers collectively are working 50,000 acres to resolve a question 30 years in the making: How can stewardship of soil, water, air and livestock translate into financial benefits for farm businesses?

One answer is part of a new initiative called the Ecosystem Services Market Consortium (ESMC). It is designed to help farmers’ bottom lines in the form of cost-sharing, cash incentives and long-term contracts in exchange for providing good stewardship of  resources.

A growing number of initiatives, such as ESMC, by associations, companies and food manufacturers, are working with farmers to study financials and scour scientific data for clues that could build the case for funding conservation systems on farms.

“Eighty percent or more of our demand right now comes from within the food and beverage sector, but additional demand is out there,” says Debbie Reed, executive director of ESMC, which includes organizations such as Cargill, Danone North America, General Mills, McDonald’s, Indigo Ag and The Nature Conservancy.

In November, ESMC secured a $10.3 million grant from the Foundation for Food and Agriculture Research to support research that will underpin a U.S. environmental credit marketplace.

Track, Measure, Monetize

The protocols ESMC is developing will be designed to measure environmental change and pay for farmers’ performance. Rather than create a single payment model — in which farmers adopt a single practice, outcomes are measured and a check is distributed — ESMC has chosen to develop rules of the road that could support a host of avenues to pay farmers for soil and water stewardship in a stacked approach.

“We’re trying to harmonize a national system to ensure we can track and measure change and monetize it,” Reed explains. ESMC is focused on science-based  measurement of soil carbon sequestration, methane emissions from livestock and rice, nitrous oxide emissions (primarily from chemicals and fertilizer), as well as improved water quality and water use conservation.

The key, Reed says, is transparency. “What we need is to ensure we have certainty and transparency to show consumers, the food and beverage sector,  EPA and other regulators that we have the data to prove these changes are happening,” she says.

Farmer demand for new revenue streams is high, adds David Perry, CEO of Indigo Ag. In June 2019, the company launched its Terraton Initiative to begin enrolling U.S. farmers in a new service that will extensively sample soils, create a baseline of carbon sequestration data and pay farmers for sequestered carbon as early as summer 2020. The program guarantees at least $15 per ton — a level that could double the bottom line of some farm businesses.

“Our forecast was that we would sign up 1 million acres before the end of 2019,” Perry says.

Over 5 million acres are contracted in the Terraton Initiative as of December 2019, and he expects tens of millions of enrolled acres in a year’s time. “We’ve already had more than 13 million acres worth of land volunteered,“ Perry adds.

New Solutions, Old Challenge

The challenge of measuring and funding resource stewardship isn’t new. Reed has worked in the carbon market arena for three decades. Historically, she says, it’s been difficult to pin down the environmental effects of agriculture because it is largely a nonpoint source industry.

You can’t hook up a meter to a drainage tile line or a no-till field and understand its impact.

By comparison, the energy sector is a point source industry. Therefore, you can measure changes in output of resources such as water or electricity by studying the efficiency of a washing machine or a refrigerator.

But this time, Reed says, it’s different. More data points are available to the agricultural value chain than ever before, and public demand for transparency in the system is driving action at scale. Researchers on her team are examining agriculture through a systems lens.

Another change shifting the conversation over the next several years is the uptick in engagement among lenders and investors. They are starting to understand how farmland stewardship creates business resilience, adds Maggie Monast, senior manager on Environmental Defense Fund’s ag sustainability team. Fifteen years ago, most people believed farmers and federal cost-share dollars should be responsible for advancing conservation ag.

“We’ve seen the great expansion of interest from the ag supply chain that is driven by consumer interest, as well as expansion and interest in ag tech and ag chemical companies trying to understand their role in sustainability and conservation,” Monast says. “The emerging frontier is in the financial institutions.”

The Profit Piece

Lenders informed about the value of conservation agriculture, she says, could consider better rates on operating loans to farmers and might be more apt to fund conservation practices or products.

In some cases, stakeholders outside of the farm could and should pay for a practice because of the advantages it provides to communities.

“Not every conservation practice is going to pay in every scenario, and that’s OK,” Monast says. “There are some practices that provide a great public benefit and very minimal, if any, benefit back to the farmer. Those are important uses of public dollars.”

The Farmer’s Role

Growing up on an Arkansas farm gave Perry a front seat to the challenges facing farmers. Since his return to agriculture in 2014, he’s seen yet more headwinds.

“We’re using a lot more fresh water than the planet can replenish,“ he notes. “Nitrogen runoff is creating significant problems in rivers and oceans. Pesticide residue is creating concerns in consumers, and ag contributes 25% to 30% of greenhouse gas emissions.”

For all those barriers, Perry is convinced farmers are the most equipped to contribute to carbon drawdown through the photosynthetic process of the many crops they grow. He says success will require seeing farming as a service that benefits everyone, not merely as an industry that buys and sells products.

“As long as farming is commoditized, solving the problems I’ve described is going to be hard,” Perry explains. “But if you decommoditize agriculture, it can change things really fast.”

From every indication, farming as a conservation solution will only accelerate. Now might be the time for farmers to explore how stewardship might pay off after all.


How Agriculture Became A Carbon-Fighting Darling

Dozens of organizations across food and agriculture are developing solutions to pay farmers to remove carbon from the atmosphere. Why now? Indigo Ag CEO David Perry has a theory.

“In April, scientists measured 415 parts per million (ppm) of carbon dioxide (CO2) in the atmosphere,” he explains. “It was about 280 ppm before the Industrial Revolution. That’s an increase of 135 ppm. If you multiply that, that’s a trillion tons of CO2 in the atmosphere that wasn’t there before we started burning coal and oil. You can get into a debate about what caused that and what the effect is, but those numbers are just math. It’s a fact.”

The only way to capture carbon is through photosynthesis — a process that happens only in the trees of forests, the seaweed or algae of oceans, and the commodities of agriculture.

“Ag is the only solution big enough to impact the problem; it's immediate, we don’t need any new technologies to get started and it is affordable,“ Perry says. “Fifteen dollars to $20 a ton for carbon dioxide [sequestered in soils] would be a significant improvement to farm economics.“


To learn how your state ag commissioner could fund conservation projects, visit AgWeb.com/state-resources


Read the 2019 America's Conservation Ag Movement Annual Report in Farm Journal.