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Despite growing interest in soil health & carbon farming, climate tech needs more investment: report

February 18, 2021

Everyone agrees that soil health is something to address in our food system, but is there enough capital coming to the table to clean up our dirt?

A new report called ‘Transformative Investment in Climate-Smart Agriculture,’ published by US Farmers & Ranchers in Action (USFRA), analyzes the current state of soil health tech adoption while also pinpointing new sources of capital that could be used to improve on-farm adoption.

“There are a ton of reports talking about the potential of agriculture to be a net carbon sink. I think what we tried to do differently with this report is to be practical and actionable,” Rob Trice, founder of The Mixing Bowl, told AFN. “We focused on where the rubber hits the road in terms of scaling this up. How can we actually use finance and technology innovation to make that leap?”

Also participating in the report’s preparation are agrifoodtech networking outlet The Mixing Bowl, nonprofit research center Croatan Institute, and the World Business Council for Sustainable Development (WBCSD). The authors are making the case for increased investor activity in climate-smart agriculture along with sustainable forestry and renewable energy.

The report tackles a few key topics around climate-smart agriculture and investment including barriers to adoption for farmers and ranchers, the currently available climate-smart technologies, financial mechanisms available to farmers and ranchers, and the investment case for including agrifoodtech in their climate-focused investment portfolios.

There are already over 150 companies providing climate-smart technologies by its count, including data collection, analysis, and sharing capacities. Some of the climate-smart practices that the report considered include rotating crops, planting cover crops, reducing tillage, and integrating crop and livestock systems.

But farmers are struggling to adopt them due to a lack of standardized data collection, rural broadband, and more. This is where investors have a key role to play, according to David LeZaks, senior fellow at Croatan Institute.

“We are looking at operating loans, land loans, and different financing mechanisms that are currently used within agriculture to support the way it works and looking at how we can structure them differently to more gracefully allow farmers and ranchers to transition to climate-smart agriculture,” LeZaks explains.

There’s plenty of capital pouring into the sector, too. Institutional, retail, and government investors pour $972 billion into the agricultural value chain across a variety of asset classes. New pools of capital would certainly help press the gas pedal, too.

“We need to retool that capital so it works better in supporting transitions. Capital needs to go directly to supporting production on the farm and farmers’ value chain networks,” LeZaks adds.

Some practical examples of bringing more capital directly to farmers include financing for new equipment like a no-till drill or cover crops as well as financing to help farmers make the right decisions about which practices fit their operations best, according to Trice.

Knowledge is climate-smart power

Educational support is a huge piece of the puzzle, too.

“We don’t have as much information online about cover crops — what types I should be growing, which seed mix will help me. Tools exist, but they are not broadly embraced. The technology farmers and ranchers are using to exchange information is Facebook and group chats,” Trice says. “How can we actually digitize this information so that it can become more predictive and helpful for guiding farmers’ and ranchers’ implementation of these new practices?”

But education isn’t just a matter of giving farmers more information.

“Too often we think that if we could just get the farmer or rancher to change their mind. They shoulder the burden of changing the practice. The reality is, though, that they’re operating in an ecosystem with other players including a banker, input provider, agronomist, off-taker, and the ultimate customer,” Trice says.

Some of the report’s specific recommendations around meaningful action steps to turning climate-smart farming from talk to action include:

  • Investing in solutions that measure soil health indicators instead of just outcomes
  • Investing in a national repository of soil carbon reference data
  • Encouraging the adoption of farm management software
  • Standardizing some of the data, language, and methodology around soil health
  • Supporting collaborations between farmers and ranchers to improve education and expertise

Other reports have identified education and networking among farmers and ranchers as a primary barrier to the increased adoption of regenerative agriculture. A recent Patagonia-backed report surveying farmers and ranchers about their challenges concluded that a lack of trusted technical assistance continues to frustrate on-farm transitional efforts.

The juice is worth the squeeze, according to the authors.

Adopting some of the climate-smart practices outlined in the report could cut total US GHG emissions from 9.9% to 3.8% by their estimate. By 2035, integrating some of these “promising frontier technologies” along with increased investment and partnerships could sink roughly 4% of US GHG emissions.

Financing climate-smart farming 

So, how do we turn climate-smart farming from a widely discussed topic to an actuality? Through better financing mechanisms, according to the report.

“The report is an invitation to the finance sector to say come in and let’s have this discussion around the role of finance and investment in creating a more climate-smart agriculture,” LeZaks explains.

The report highlights eight levers that can help move the needle including tweaking existing lending programs to help farmers adopt or dabble in new techniques. This can be a daunting proposition and the financial horizon doesn’t always fit with existing lending structures.

Better matchmaking between investors and opportunities is also in order. Bringing more capital to the table will require developing mechanisms that reflect the risk and return goals of ESG investors. Fortunately, the authors think there is enough incentive for investors to come to the table and consider different financing mechanisms.

“Investors want to be able to tell the story of their impact and reduced risk. They need to be able to show impact investment or an ESG perspective. And the market is getting close to demanding that it not only be about the financial return of capital but broader social and environmental returns as well,” LeZaks says.

Other levers include connecting more capital with producer ecosystems that are ready to transition to climate-smart agriculture, promoting more adoption of digital tools among farmers, and finding ways to make farmers more money when they up their climate-smart farming game.

To read about all eight levers that the report identifies and learn how to better support climate-smart farming, check out the report here.

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