It seems like almost every month companies of various sizes across many industries are announcing new sustainability commitments, along with sustainability programs and markets that farmers and ranchers can participate in. Advancements in technology and increased capital have provided farmers more opportunities to generate additional revenue from participation in those markets. But with so many options and so many potential partners, it may be difficult for farmers to get all the information they need before signing a contract.
It’s important to note that credit markets are constantly evolving; many are still under development or being refined in pilot stages. Information provided here should be used as background information only. There is much more to explore, company-by-company and asset-by-asset, before making any decisions.
Regardless of the stage of development, there are a few common themes throughout all ecosystem-credit markets. Chief among them is they are all voluntary incentive-based markets that connect buyers and sellers of ecosystem-services credits. Typically farmers are the sellers. They are paid for using animal- and land-management techniques proven to meet certain ecosystem-benefit criteria. The most common target for those practices is carbon sequestration. Some common practices include cover crops, livestock grazing, crop rotation, no-till or strip-till, anaerobic digesters, nutrient management, buffer strips, tree establishment, etc. As outlined in a contract, participating farmers opt into some version of data-monitoring and -measurement procedures. Once enrolled farmers and ranchers will typically be paid based on measured outcomes, either on a per-acre basis or by asset generated.
Once an ecosystem asset is quantified and verified, it can be made available for purchase via the market. Credit buyers, like corporations looking to meet sustainability goals and compliance standards, can purchase those credits.
The American Farm Bureau has been vocal about the markets remaining voluntary and economically viable for farmers and ranchers. Also a priority is that they go sensibly hand-in-hand with climate-smart practices in place on the farm.
Ecosystem-credit markets are market platforms being developed to help farmers and ranchers generate agricultural-ecosystem assets. The most common asset is carbon but there are also efforts to quantify net greenhouse-gas credits, water-quality credits, water-quantity credits, other soil-nutrient credits and more. The credits are attracting corporate buyers like General Mills, Nestle and McDonald’s as well as agribusinesses like Cargill, Syngenta and Corteva – and even government entities. Farmers and ranchers are being compensated for a generated asset in different ways, including cash payments or input credit discounts.
From public to nonprofit to private, there are already several markets in various stages of development that allow farmers and ranchers to generate agricultural-ecosystem credits and sell them to a variety of buyers.
Public markets include those called for by the Food and Agriculture Climate Alliance to establish a U.S. Department of Agriculture-led Commodity Credit Corporation carbon bank. There is also the Growing Climate Solutions Act. Introduced in the 116th Congress, the bill called for a certification program at the USDA to help farmer and forest landowners participate in carbon-credit markets. There is likely to be another version of that public legislation introduced during the 117th Congress.
On track to be the largest credit-exchange platform in the United States when it launches in 2022, the Ecosystem Services Market Consortium is an example of a nonprofit platform. Private markets have been launched by companies including Indigo Ag Carbon, Nori and Farmers Business Network. Private agribusinesses that have developed carbon-market programs include Bayer and Nutrien.
Markets are at different stages of operation and development, with some already enrolling farmers and ranchers into programs with committed acres. Others are operating pilot projects on specific crop and grazing systems to research scientific methods of quantifying assets.
Many market developers still in the early stages are looking for farmer and rancher partners. Some companies are developing protocols for working agricultural lands that will go on to be reviewed and certified by third-party verifiers. That could be particularly important in establishing widely accepted standards for agricultural-ecosystem asset credits. A significant amount of research is being done to quantify and verify the assets to ensure they hold value for buyers. Much of that research testing and refinement is being done through pilot projects in cropping systems across the United States.
There are many reasons companies and organizations are jumping into the development of those markets. The No. 1 theme is the voluntary incentive-based structure that comes with launching independent markets. Markets vary in shape and size, as well as in stages of development. But a common driver for their development is to foster healthy soils and ecosystems, and reduce emissions. Many corporations involved are focusing on the public goodwill they’ll earn as consumers see them as playing a part in improving conservation and biodiversity, as well as pollinator and wildlife habitats.
The markets also provide diversified revenue potential for farmers and ranchers who want to participate in them. But before any contracts are signed, farmers and ranchers should consult trusted advisers to determine if enrolling in a market is truly the best thing for their farms.
Conservation practices included in contracts
USDA-Natural Resources Conservation Service conservation practices are commonly utilized in agricultural-ecosystem credit-market contracts and current adoption rates. Those conservation practices are used to improve soil health, reduce soil erosion, improve water quality and provide other natural-resource benefits.
To maintain basic soil health, the Natural Resources Conservation Service calls on farmers to utilize several practices.
- Keep soil covered.
- Disturb soil minimally.
- Keep a living cover that feeds soil throughout the year.
- Diversify crop systems on the soil through crop rotations and cover crops.
- Incorporate livestock into the cropping system.
Many of those practices contribute to carbon sequestration, as well as nutrient reduction and water-quality and water-quantity improvements.
Cover crops, livestock grazing – Cover crops like grasses, legumes and forbs can provide conservation cover if planted before grain crops are harvested or immediately after harvest. Depending on the cover-crop mix planted, cover crops can reduce soil erosion as well as trap and sequester nutrients like carbon in the soil. Cover crops have also been used to improve soil biology, reduce weed competition, improve water infiltration and increase organic matter in soil. Cover crops are especially helpful when incorporating livestock grazing into a cropping system, providing an added nutrition source. The Natural Resources Conservation Service has Field Office Technical Guides for each state. The localized guides are scientific references containing technical information about conservation, including cover crops.
Crop rotation – Beyond market incentives, reasons for planting different crops each year include improved soil health and enhanced biological diversity. Crop rotation can reduce soil erosion and reduce pesticide costs while also improving water quality. If a farmer incorporates a rotation of alfalfa and other legumes there are fertilizer reduction benefits as well.
No-till, strip-till, conservation tillage – Soil compaction is a constant challenge for farmers post-harvest and moving into the following year’s planting. Limiting disturbances to the soil improves carbon retention and minimizes carbon emissions from soils. Avoiding full-width tillage, regardless of depth or timing, if done long-term can add organic matter to the soil as it decomposes. And it helps to reduce soil compaction. Avoiding full-width tillage reduces soil erosion and protects water quality because the soil is not disrupted. It can help keep water available for plants into the growing season after planting. Overall the reduction in soil disturbance creates fewer inputs ahead of planting a crop.
Anaerobic digester – An anaerobic digester takes organic matter such as livestock manure and breaks it down to produce biogas and biofertilizer. When captured the biogas reduces methane and greenhouse-gas emissions that would otherwise be released into the atmosphere. Captured biogas can also be used to generate electricity or as a natural-gas energy stream, which is a renewable-energy source. Management of the solid- and liquid-waste streams that enter an anaerobic digester can further maximize the digester’s efficiency and make available more methane for capture and combustion.
Nutrient management – Precisely managing – through precision technology, for example – the source, rate, timing and placement of nutrients like nitrogen or animal manure as fertilizer can reduce the potential for waste or runoff of plant nutrients That can improve soil conditions and overall crop production, prevent excess nitrogen runoff and reduce input costs. Think the 4Rs – right source, right rate, right time and right place can help keep nutrients on and in the field.
Buffer strips – Strips of grass, mixed grasses and legumes run along the contour of a farmed field to create a “buffer.” Buffer strips comprised of native plants and grasses remove sediment, nutrients and pesticides as they pass through – all while helping reduce soil erosion. Buffer strips can also provide habitats for pollinators and other beneficial insects.
Tree, shrub establishment – Adding compatible trees and shrubs to pastureland or around livestock buildings, and establishing woody plants, could reduce soil erosion. It can improve air and water quality. Additional trees and shrubs provide wildlife habitat that can also store carbon and be used as biomass for energy.
Adoption of conservation practices – Available data regarding conservation adoption and the practices used on farms is limited due to the privacy of individual farmers and the limited resources the USDA has for conducting surveys. Taken only once every five years, the USDA Census of Agriculture is a survey-based count of U.S. farms and ranches, and the people who operate them. The survey looks at land use and ownership, operator characteristics, production practices, income and expenditures.
The 2017 Census of Agriculture provides the most recent data regarding land-use practices by the number of farms and the number of acres. In 2017 there were more than 900 million acres in farmland. Of the 900 million acres, 366 million acres or 41 percent used tile and water management, conservation easement, no-till conservation, conservation tillage or cover crops. That’s an increase of 3 percent from the number of acres utilizing those practices in 2012.
When compared to 2012 when the Census of Agriculture was previously published, land-use practices aligned with the Natural Resources Conservation Service conservation practices have been increasingly adopted – practices to improve soil health, reduce soil erosion, improve water quality and provide other natural-resource benefits.
- Conventional tillage was reduced by 24 percent from 2012 to 2017.
- No-till conservation increased by 8 percent.
- Conservation tillage increased by 28 percent.
- Cover crops increased by 50 percent.
The Natural Resources Conservation Service has resources and information related to conservation practices used to improve soil health, reduce soil erosion, improve water quality and provide other natural resource benefits. But adoption rates on U.S. cropland have been limited due to a variety of barriers. The Market Intel series will analyze those barriers in the next article.
Though adoption rates may be small, the most recent data shows the pace in which farms have adopted conservation practices has increased. That indicates many farms have been able to implement some version of conservation on their acres.