Farm Conservation Practices are Profitable. But Will Lenders and Insurers Step Up? | Civil Eats

Farm Conservation Practices are Profitable. But Will Lenders and Insurers Step Up?

A new report shows sustainable farming increases the bottom line, but farmers need financial institutions to help them make the shift.

Scott Henry is a partner and business developer for LongView Farms, a grain operation in central Iowa that specializes in seed production. (Photo courtesy of EDF)

For the last 15 years, Justin Knopf has opted out of tilling the soil on his farm. More recently, his family’s operation—4,500 acres where he farms wheat, corn, soybeans, and sorghum with his dad and his brother in Central Kansas—has also incorporated cover crops, most often mixes including triticale and canola or millet, radishes, flax and sunflowers. These crops cover the soil in winter and prevent the fertilizer nutrients left over from the growing season from running off the field.

These approaches are good for the soil and water quality, but they’re not practiced by many commodity-scale farmers because they’re often seen as too expensive or cumbersome. Knopf believed these practices have not only improved the land, they have put money in his pocket.

To see if this hunch was correct, Knopf, along with two other Midwest farmers, gave farm accounting service K·Coe Isom AgKnowledge access to their financial books to conduct detailed case studies featured in the Farm Finance and Conservation report, published by the nonprofit environmental group Environmental Defense Fund (EDF) last month.

It turns out, their collective guts were right. And at a time when commodity grain prices are low, causing a 52 percent drop in farm income over the last five years, finding ways to increase returns is more appealing than ever.

Knopf’s operation, for example, neatly balanced his out-of-pocket costs and savings. Per acre, he paid $15 more on seed, $5 more on fertilizer (early on), and $5-10 more on chemicals, but he saved $15 on labor, $5 on fuel and oil and $5-10 on fertilizer needs over time. And, he scored big gains in yields—$45 more per acre for soybeans and $15 per acre more on sorghum.

Justin Knopf farms in Kansas with his farmer and brother, raising wheat, alfalfa, soybeans, grain sorghum, and corn in a dryland, no-till environment. (Photo courtesy of EDF)

Justin Knopf farms in Kansas with his farmer and brother, raising wheat, alfalfa, soybeans, grain sorghum, and corn in a dryland, no-till environment. (Photo courtesy of EDF)

Comparing the three case studies to 36 records from 10 other farmers, the EDF researchers found that conservation farm management produced lower costs than conventional management. While conservation-oriented farmers spent some money that conventional farmers didn’t—most notably on cover crop seed and herbicides—they saw savings in the form of fertilizer costs, labor, equipment, and fuel costs. In the starkest comparison, net returns for a conventional soybean farmer were $182/acre, while a soybean farmer using conservation tillage and cover crops netted $292-$319/acre. According to the report, the farmers using conservation practices also saw an increase in yields in good years and less yield loss in bad weather years.

Healthy Soil Pays Off

Cover crops, reduced tillage, and other practices add to the organic matter in the soil. Decades of research shows that greater organic matter improves soil structure, increases yield, and decreases the risk of erosion, among other things. Knopf says his organic matter has increased from 1.8-2 percent 15 years ago to around 3 to 3.5 percent today. “I wish I had a dollar amount per acre to know what 1 percent of additional organic matter is worth economically,” he laments. In a nutshell, the value of conservation isn’t captured in the short-term financial equations. “That’s part of the frustration and one reason why we see such a slow adoption curve of these conservation practices,” says Knopf.

While the three case studies offer intriguing insights, Knopf, as well as Scott Henry, a fourth-generation corn and soybean farmer in Iowa, hope their stories will motivate larger studies of the financial returns of conservation practices. Like Knopf, Henry is dedicated to land stewardship. Henry farms using precision nutrient management, diverse crop rotations, cover crops, and reduced tillage. Cover crops have increased his soybean yields by 1-2 bushels per acre and corn yields by 2-4 bushels per acre. The farmers regret that more of their peers aren’t adopting conservation practices, but they realize that the bottom line is the only true motivator for most growers.

“If we can get those values captured, and generate better data to share the true return to the whole chain, that’s a win-win,” Henry adds. The whole chain—notably, landowners, lenders, and insurers—could use that information to develop plans that will help farmers make the transition. Lease terms, land appraisal practices, and crop insurance policies could be altered to provide incentives to adopt these soil-boosting practices—generating more financial value and lower risk for farmers as well as their business partners.

Scott Henry is a partner and business developer for LongView Farms, a grain operation in central Iowa that specializes in seed production. (Photo courtesy of EDF)

Scott Henry is a partner and business developer for LongView Farms, a grain operation in central Iowa that specializes in seed production. (Photo courtesy of EDF)

“Tying insurers and lenders to better soil practices is a brilliant idea—especially in the Great Lakes [area],” says Peg Kohring of The Conservation Fund, a nonprofit that has a program focused on reducing nutrient inputs into Lake Erie. Due to changes in the climate, Kohling adds that the area is “projected to have heavier rain during the non-growing season, when we lose the most soil, and drought in the summers.” Given the grim outlook of increasingly extreme weather events predicted by a new U.N. climate change report, conservation practices offer a way to make farms more resilient.

As it stands, however, the up-front costs and risks are borne almost entirely by the farmer, says Maggie Monast, senior manager for economic incentives and agricultural sustainability at EDF. “Where I’ve seen farmers have success is when they pay attention to the interconnections between practices,” says Monast. For example, they may be able to reduce an herbicide or nutrient application, or combine the planting of cover crop seed with another operation to eliminate another trip through the field.

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“A lot of financial entities have a stake in conservation but very few are talking about it,” says Monast. She and colleagues have started to broach the topic with insurers and lenders.

“Crop insurance has the potential to be used as a fiscal incentive for producers who are considering adopting new conservation practices,” says Sam Bunz, one of the reviewers of the EDF report and a product analyst for Crop Pro, an insurance company based in Clive, Iowa. For example, Bunz notes, a producer incorporating conservation practices could receive additional crop insurance coverage over their federal coverage. But such plans aren’t commonly in use—yet.

Henry believes that the farming community’s continued embrace of technology and data will force big changes throughout the agricultural industry—especially after several years of negative farm incomes. “You have to believe that within agricultural lender offices, they are looking at portfolios to see what is separating the farmer who is doing well from everyone else,” he says. “I can’t impact how much rain falls on my farm each year, but I can influence how the physical soils underneath my farm take on or release that water.”

To that end, Bunz says insurers need more robust data to develop private insurance options. “The data that is most valuable to us shows a direct correlation between conservation practices and a reduced risk profile of the producers utilizing conservation practices during adverse weather conditions, such as drought and heavy rains,” he says.

Getting Lenders On Board

As Henry wrote in a recent Des Moines Register opinion piece, in many cases, farmers must currently get approval from lenders, insurers, or landowners before they can try a new conservation practice—a structure that creates a disincentive, one that ultimately impacts the financial and environmental returns for the entire farm system.

But that value is real to financial partners, Monast says, and it’s time to figure out how to realign incentives to encourage farmers to make the shift.

Josh Yoder, an Ohio corn and soybean farmer involved in the EDF study. (Photo courtesy of EDF)

Josh Yoder, an Ohio corn and soybean farmer involved in the EDF study. (Photo courtesy of EDF)

The U.S. Federal Crop Insurance Program carries $100 billion in liabilities each year. Yet very little research has been conducted to evaluate the ties between credit, insurance and conservation outcomes, according to the Crop Insurance, Credit, and Conservation report published last year.

“There are three primary legislative efforts that could positively and significantly impact the adoption of conservation practices which may make it into the final farm bill, currently being negotiated,” says Callie Eideberg, a senior policy manager at EDF.

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She noted that the Senate version of the next farm bill contains language to improve ties between crop insurance and conservation, as well as compare data on practices, yields, and risk across U.S. Department of Agriculture (USDA). The House version of the Farm Bill contains provisions to assess the efficacy of conservation programs at USDA. However, it’s unclear what will make it into the final Farm Bill that eventually replaces the one that expired on September 30.

If incorporated, those three provisions could provide a much-needed base to build further links between insurance, lending, and conservation.

“I know it’s easy for people on the outside looking in to ask why farmers aren’t adopting conservation practices, but there are valid reasons why the adoption curve is slow,” says Knopf. He notes that learning how to incorporate new species and practices—without hurting short-term productivity is a tedious process, but one that will undoubtedly have a long-term payoff.

“We’re in a consolidating industry; People unwilling to adapt aren’t going to survive,” Henry adds. “If we can prove that others get value out of [conservation] practices, we’ll see the adoption rate pick up.”

Virginia Gewin is a freelance science journalist who covers how humans are profoundly altering the environment – from climate change to biodiversity loss – and undertaking extraordinary endeavors to preserve nature. Her work has appeared in Nature, Popular Science, Scientific American, The Atlantic, Bloomberg, bioGraphic, Discover, Science, Washington Post, Civil Eats, Ensia, Yale e360, Modern Farmer, Portland Monthly and many others. Read more >

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  1. Greg Johnson
    Note the age of these farmers. If we want to see mass, broad-scale adoption of these conservation practices, we need to facilitate the transfer of farm ownership to the next generation. We also need absentee landowners to sell their land to beginning/younger farmers (and by younger I mean under 50). There are lots and lots of 70 year old farmers who simply are not interested in changes at this point in their life.
  2. Great article. In Canada, we have developed a market-based system to support farmers and ranchers to restore, monitor, and manage natural features (ecosystem services) on working landscapes. It’s producing 18,000 acres in six provinces. In the Great Lakes region, we are studying the cost-benefit of these projects on nutrient pillution. FI’s are engaged in our work. Our model might interest people who found this article useful. Twitter: @NewAcreProject

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