Agricultural Finance

The agricultural finance system is a key mechanism to advance adoption of conservation practices on working lands. Although improving soil health through conservation practices is an important tool for reducing on-farm risk (among other strategies), the agricultural finance system generally fails to recognize and capture the economic benefits of conservation practice adoption. Currently, banks and other ag lenders do not explicitly recognize soil health in their ratings of their borrowers (producers). We believe that demonstrating the risk reduction benefits of conservation investments will help to re-align financial signals and incentives throughout the agriculture financial system. This is needed to drive greater adoption of conservation practices on working lands.

COLLABORATION AND POLICY

The AGree E2 Coalition has a track record of making the case – backed up with data – that conservation practice adoption reduces producers’ risk and increases profitability. Given this correlation, we are working to build understanding of the risk reduction and financial benefits of conservation practice adoption within the agricultural finance community.

Our approach is threefold:

1) Serve as a connector for NGOs and others working to integrate conservation practice adoption into agricultural finance. A growing number of NGOs, financiers, and researchers are active in this space – conducting analysis, building partnerships, and developing pilot projects. The AGree E2 Coalition – given its related work on agriculture data and risk management – is poised to serve as a connector and a conduit for policy ideas from the NGO, research, and innovative finance community.

2) Pursue policy ideas – both legislative and administrative. The AGree E2 Coalition will explore and develop policy concepts that create incentives for the agricultural financial system to incorporate the benefits of conservation practice adoption into investment and lending. Leveraging established relationships with leaders on Capitol Hill and at USDA, we will consult with policy makers to refine ideas and develop implementation strategies to bring policy ideas to fruition.

3) Proof of concept products to help socialize these concepts and their rigorous data underpinnings with the agriculture finance community

  • Develop a banking and finance framework to build understanding within the agricultural finance community of the risk reduction and profitability benefits of conservation practices. We are working with ag data experts, economists, finance experts, and other technical partners to develop a scalable banking and finance framework to help lenders and investors convert the environmental and economic benefits of conservation practices into relevant financial metrics to guide investment and lending. The purpose of this framework is to demonstrate the bankability of new hybrid conservation investment approaches. It will model data automation and financial integration for use cases relevant to targeted financial institutions.
  • Investable pilot projects. To make the banking and finance framework actionable, the AGree E2 Coalition will support pilot projects to apply the framework to a financial product for farmers and landowners who want to invest in conservation practices that increase profitability, enhance land value, and reduce producers’ long-term risk. We intend to engage the necessary partners to enable a pilot for a specific case focused on Midwest corn/soybean systems and a second focused on financing and investment for regenerative agriculture. Through these pilot projects, the Coalition will take the important step of demonstrating how conservation investments impact the bottom line and reduce risk.