According to “The Hidden Cost of UK Food,” a report by the Sustainable Food Trust (SFT), the costs of damage caused by our food production systems aren’t paid for by the businesses that cause them, nor through the retail price of food. Instead, they’re passed on to the public through taxation, lost income due to ill health, and the price of mitigating and adapting to climate change and environmental degradation.
Tackling measurements
“Clearly, we need a change in policy where agricultural subsidies are used to encourage a shift to more sustainable forms of production,” said Patrick Holden, founder and CEO of the SFT. He was speaking at the recent Regenerative Agriculture Summit Europe along with other experts who were discussing how to finance such a shift. “There is a need for a third income stream for farmers to make changes to their practices. If farmers were paid for their positive externalities, that would shift the balance of financial advantage toward regenerative farming.”
Holden also addressed another big challenge, namely, the lack of harmonized measurement and auditing frameworks to better understand the impact of regenerative farming practices on climate, nature, and social outcomes.
“There is a great need for collaboration among banks, asset managers, and other stakeholders to harmonize what is measured and how it is done,” he said, citing the chaotic conditions at his own farm as it undergoes five different audits per year using five different frameworks.
One of Holden’s suggestions is to create an auditing system driven by the European Commission and the UK government. The idea is to send licensed auditors to farms on behalf of banks and asset managers to assess their impact on climate, nature, and social outcomes. Their role would be to collect baseline data.
Taking on new roles
Holden’s fellow panelists agreed that a uniform flow of data is needed from the farm up to the asset manager, the bank, and the insurance company. Without the right data, it is impossible for banks to manage risk, provide debt, and align stakeholders.
Nicoline van Gerrevink, Executive Director of Food System Transition at Rabobank, explained that banks are essentially backward-looking institutions, meaning they perform their risk analyses on historical data. The data must be built up for a number of years before it can be used in bank models.
According to a study of the Dutch central bank, Rabobank’s portfolio has around twice as much dependency on Nature than other Dutch financial institutions because of its food and agricultural portfolio.
“We need a system to classify farmers so that you can track the difference in credit risk. It’s not just about their financial results, but how they run their farms,” van Gerrevink explained. “We need to assess their resilience and ability to future proof by mitigating climate and transition risks. At the moment, the credit and sustainability ratings for our farmer clients are separate scores. But going forward these scores will become integrated. At Rabobank, we already provide incentives to farmers that are classified as sustainable frontrunners.”
Banks are helping to finance the transition by providing debt which must be repaid. The panelists agreed that the traditional role of banks is changing significantly, because most customers simply can’t afford any more debt. A new model is needed as banks can no longer lend their way through such a transformation.
Indeed, the lack of capital available for the food transition as described in the recent World Bank report, is concerning. While there is approximately US$80 billion in climate finance available globally, only 2.4% is directed toward the agriculture and forestry sectors. This limited allocation is particularly worrisome, given that these sectors play a crucial role in addressing both climate mitigation and adaptation, especially in developing countries where livelihoods depend heavily on these areas.
Banks can begin by advising customers how to make their business more resilient in the long term. Banks must demonstrate leadership and act as conveners to bring people together to address the issue collaboratively. One suggestion is to learn from the energy transition and other sectors undergoing transformational shifts.
Finding new strategies
On the other end of the equation are the investors. SLM Partners, for example, supports the production of grains, forages, and specialty crops by replacing synthetic inputs with organic ones. The company fosters practices with recognized beneficial impacts on soil, climate and biodiversity such as crop nutrition and multiyear crop rotations. Its core strategy is to acquire conventional farmland and partner with local farmers to implement regenerative and organic farming models.
João Roseiro, Europe agronomy director at SLM, cited two investment examples that are working well. The first is a buy-and-lease model used in the United States, where land is bought and then leased to farmers at lower rates to support the transition to organic productions systems. The second is an aligned interest financing system used in Portugal and Spain, where SLM finances sustainable operations on local properties purchased by the company, and operated by local operators.
“While supporting small farmers is crucial, the only way to achieve global impact is through large-scale investment,” he concluded.
While the cost of producing food sustainably is certainly a factor, if farmers, banks, investors, and consumers all align to support regenerative practices, the return on the investment will benefit people and the planet.
When it comes to data analytics, the good news is that many players in the food supply chain are already digitalizing farming processes and services. “The SAP Intelligent Agriculture solution helps agribusiness companies increase efficiency, improve data quality, and connect existing data sets to gain insights and support auditing tasks,” said Anja Strothkaemper, vice president of agribusiness and commodity management at SAP. Strothkaemper was speaking at the same event on the benefits of harnessing data for regenerative agriculture.
