Growers who are investing in regenerative agriculture are finding themselves slipping through the farm safety net in the U.S., as new financing options and programmes could prevent this from happening, a panel of experts shared on a recent CIBO Technologies webinar.
Many U.S. farmers rely on a series of programmes — from private crop insurance to government-supported emergency payments — which can have stipulations that run contrary to regen ag tenants, Eric Gibson, farm input and crop production sustainability analyst for Rabobank, shared.
For instance, agriculture risk coverage and price loss coverage cover 23 crops, “so if you want to diversify into a different crop, you may be giving up on the support that you receive from some of those programs,” Gibson elaborated. Crop diversification is a “critical part of regen ag,” he noted.
However, reforms to the farm safety net are needed, as the U.S. faces tougher competition on the global ag stage, Gibson noted. Brazil has already surpassed the U.S. in terms of soybean production, with the Latin American country just behind the U.S. in beef, according to USDA data.
“There are a lot of folks around the world that are growing more soybeans. When those markets get tougher and a farmer wants to deviate, they are struggling to do so because they do not have that risk support in other areas, and same with crop insurance. You can get crop insurance for a large array of different products and crops, but the support may be at different levels,” he elaborated.
Does the commodity market need to change?
The commodity industry ─ developed with support from the farm safety net ─ puts regen ag producers at “a competitive disadvantage for those that deviate away” from that established system, Gibson said.
The commodity market also plays a huge role in lending, Lauren Manning, executive director at regen ag lender Food System 6, explained.
When expanding her farm operations into grass-fed goats, Manning sought a loan to buy a farm but faced challenges securing the capital because the lenders would not factor in the premium associated with her produce.
“I had a lot of great data. I had a business plan. I had receipts showing how much we were selling our grass-fed beef and lamb for, and [I] thought things were going to cash flow just fine. I was very excited to buy this piece of property, and they quickly burst my bubble and said, ‘We do not really care what prices you are getting. We have to give you commodity prices for what you are intending to grow or what you’re intending to do in the future.’ That obviously gutted my cash flow, and they said, ‘We cannot finance this farm for you,’” she elaborated.
Traditional agriculture lenders “have some of the lowest loss ratios of any capital markets that are out there,” and thus lack incentive to take bets on regen ag, Ben Gordon, CEO of Fractal Ag, explained.
“If you are looking at lenders, they are going to underwrite crop insurance or renting the land because if a great operator ends up defaulting, it just is going to go to another commodity producer — that is the way that they look at it. And so, they are not actually underwriting a given farmer. They are underwriting a market at the end of the day and then looking at the farmer, finding their probability of default, meaning that ... they are not going to look at that asset in that individualized way of the performance on that asset overall,” Gordon elaborated.
He added, “There is just no business case really for them in today’s system — with today’s safety net and crop insurance — to get to that next level, even with more data."
