Sustainable farming practices like crop diversification and tillage reduction have long been championed for their ROI and conservation benefits.
But while 90% of US farmers are aware of sustainable practices, fewer than 30% of acres implement even one. Barriers like limited markets, financing gaps, inadequate risk tools, and insufficient technical assistance continue to hinder progress, especially for middle- and late-adopter farmers who need better support to succeed in making their operations more resilient.
Nothing can replace premiums or incentives, but lack of broad adoption of regen ag practices highlights the need for more and better financial tools. Here’s a practical overview of what those might look like for row crop production and how the ag value chain can embrace these tools to fuel the adoption of regen practices that will support resilient farmers and value chains in the coming decades.
Background: The Limits of Pay-for-Practice and Pay-for-Outcome to Drive Ag Resilience
From the USDA’s 1935 response to the Dust Bowl with creation of NRCS to the farmer-led initiatives of the 1980s to improve ROI amidst the farm crisis, the goal has always been resilience. By the late 2010s, market-based approaches expanded rapidly as carbon platforms like Nori and Indigo Ag connected farmers with voluntary markets.
Simultaneously, major actors like PepsiCo and Cargill developed climate-smart programs to meet Scope 3 requirements and strengthen supply chain resilience. Despite hundreds of existing programs, a huge gap remains. Climate change is projected to decrease row crop yields by 20% or more by 2050.
While agriculture accounts for one-third of global greenhouse gas emissions, it receives only 7% of climate finance. Farmers today face a perfect storm: industry consolidation and rising environmental threats have squeezed margins, leaving them without the financial cushion to adopt new practices that might threaten near-term yields.
Most of the farmer-facing programs that exist today rely on pay-for-practice or pay-for-outcome programs.
For example, a farmer implementing reduced tillage, nitrogen reduction, and cover cropping on an operation can receive ~$30 per acre in payments from an ag value chain company via a farmer-facing organization that serves as a resource to both support practice implementation and to monitor and track the environmental benefit for the company.
Incentive payments are key, but they don’t address major barriers like yield risk or equipment investments needed to make the change. What if the new practices reduce the farmer’s overall yield?
A risk guarantee could be helpful for a more cautious grower. What if the grower needs to purchase a new drill to implement reduced tillage? It might be helpful to have access to low-interest equipment loans, backed by catalytic capital to lower the interest rate, to purchase the equipment necessary
To bridge this risk and finance gap, early-mover ag value chain companies, mostly CPGs as well as some grain traders, manufacturers/retailers, and lenders, are guiding the industry toward two key strategies to address financing and risk gaps:
- More Money: Tapping more ag value chain and external funders beyond sustainability budgets.
- Better Financing: Integrating alternative financial tools beyond traditional pay-for-practice or pay-for-outcome structures.
Let’s look at how both can move the needle on regen adoption and therefore the protection of US ag supply chains.
More Money: Activating the Full Value Chain
Value chain stakeholders including lenders, insurers, retailers, and manufacturers are increasingly realizing that farmer resilience is the foundation of their own long-term success. They are finding budgets beyond their sustainability team dollars to invest more into farm-level resilience.
Recent examples:
- Collaborative Funding: EDF and Innovation Center for U.S. Dairy have created the Dairy Impact Fund. A great example of a collaboration of value chain partners, this fund brings low-cost revolving loans paired with incentives from dairy companies to help dairy farmers overcome financial barriers to adopting methane-reducing practices and technologies.
- Lender Innovation: Innovations from lenders like Farmer Mac, Farm Credit and Farm Credit Canada on low-cost and revolving loans funded by ag value chain partners that act as first-loss catalytic capital are scaling up.
- Philanthropic Scaling: Philanthropic buy-downs from organizations like the Walton Foundation and others are continuing to support innovation and testing of different financial funding mechanisms, as well as frameworks to scale up these learnings.
- Value-Add: Innovative value-add mechanisms include programs to improve land value and resilience (e.g., Fractal), organic value-add strategies (MAD), and credit-enhancement mechanisms (Akiptan, and Food System 6) are scaling.
- New Models: TNC and Purdue are working on scaling up ag retail product → service models to shift away from synthetic input revenue streams toward service models.
- Capturing Value: Arva is doing interesting work on scope sharing with CPGs to help bring in payments for “stranded assets” on the carbon value chain.
Finding ways to bring in laggard or smaller companies through coalitions is an exciting next step to bring in the most value chain dollars. Also necessary: more accurately quantifying operational risk of climate inaction and right-sizing program budgets.
Better Financing: Reduce Farmer Risk, Facilitate the Flow of Funds
1. Risk tools
Beyond federal crop insurance, risk-transfer instruments such as Growers Edge warranties can de-risk practice transition risk for farmers.
Collaborations like Forever Green, AgroForestry Partners, and others are developing similar partnerships that prototype risk-sharing structures.
Examples:
- Nitrogen management: Growers Edge works with groups like Practical Farmers of Iowa, PepsiCo, Nutrien, Mondelēz and Coop Elevator to provide nitrogen rate risk protection for growers interested in nitrogen management. If a grower reduces nitrogen rates and their yields take a hit, they’re made whole by the warranty.
- Non-synthetic input providers: Growers Edge works with Advancing Eco Agriculture to back ROI for their bio-coat gold product: “Regenerative relationships and shared risk-taking between vendors and growers are essential to restoring farm profitability.”
2. Lending tools
Note: More debt is not better. However, more flexible terms, including longer payback periods, different credit requirements, lower rates, and more, can increase the utility of lending tools for sustainable practices.
Sustainability-linked loans include:
- Equipment loans
- Mortgages
- Operating loans
- Bridge loans for NRCS funding or guarantees
Example: if you’re a farmer looking to plant cover crops in a region where there are no cover crop services, you’ll need to buy or lease a cover crop planter, which can be expensive. An equipment loan with a bought-down interest rate can help make the planter a possibility.
To fully scale adoption, we need better coordination of these types of tools so farmers have a menu of options at their fingertips.
The Need for a Coordinated Marketplace
The current landscape of financing sources and mechanisms is fragmented both on the farmer-facing and ag value chain collaboration sides. This is largely because each farm and each ag supply chain is unique.
On the farmer side, coordination is happening mostly on a regional / local level or via individual programs. On the corporate side, coordination is mostly happening at a supply shed / supply chain level or regionally (e.g., where a specific crop is at acute risk, such as wheat production over the over-drafted Ogalala aquifer in Kansas or water-constrained tomato production in California).
Expanding this requires a coordinated pipeline of capital providers and tools, both farmer-facing and value-chain facing.
Great work that’s already happening:
- Cooperative Frameworks: Facilitators like EDF, Pollination, TIFs, TransCap, and Field to Market / Cornell are helping coordinate funders and ag value chain partners. Groups like Sustainable Food Lab, Midwest Row Crop Collaborative and Leading Harvest are bringing together food companies to scale projects and coordinate funding efforts.
- Digital Portals: Platforms like Opterra or FarmRaise streamline access and allow farmers to pick from a “menu” of regional financing options that could expand with additional financing tools.
- Quantifying Risk: Klim, Agcor, and Climate Resilience Platform are helping ag value chains quantify and act on supply chain risk. These should mobilize more funding and could include financing options. Groups like Ceres are benchmarking and engaging public company shareholders to push for climate action.
- Farmer-Facing Groups: Some MRV firms like Agoro Carbon already integrate financing options like reduced-rate loans directly into their existing carbon and water solutions; other MRV groups should do the same. Farmer-led groups like PFI already offer programs like N Rate Risk Protection, and many others are considering how to do the same.
Farm resilience will require more than sustainability payments from food companies, which have paved the way to date. While pay-for-practice and pay-for-outcome programs play an important role, they cannot drive the transition alone. Scaling adoption will require a broader ecosystem of capital providers, risk-sharing tools, flexible financing, and coordinated implementation support.
The good news: many of these building blocks already exist, from innovative lending and risk-transfer tools to value-chain coalitions and digital financing platforms. The next step is connecting them into a coordinated menu that gives farmers easy access to capital, technical assistance, and risk protection.
If you’re ready to explore how collaboration could help your organization ensure resilience in the years to come, let’s talk. We’d love to help you explore your options for supporting growers with the exciting tools and programs available today.