Value chain

Foster innovative finance in the agricultural value chain

Companies in the agricultural value chain are committed to reducing the environmental impacts of agricultural production. They are now engaged in the hard work to achieve these goals by developing programs to increase farmers’ adoption of conservation practices.

As value chain sustainability programs mature, increasing attention is being paid to the financial barriers to implementing sustainable agriculture at scale – and questions about how financial innovation can overcome these obstacles.

A recently released report, Financial Innovations to Accelerate Sustainable Agriculture: Blueprints for the Value Chain, provides businesses in the food and agriculture sector with 12 tangible innovative financing mechanisms and value-added incentive strategies to help American farmers to scale conservation practices and achieve lasting results. . The plans include innovations for transition risk sharing, pay-for-performance, hire incentives and more.

Here are three key ideas for those looking to take action.

1. Start with the problem you are trying to solve

The Field to Market Innovative Finance Task Force, co-chaired by the Environmental Defense Fund and the American Farm Bureau Federation, has 21 representatives from value chain companies, producer organizations, industry groups civil and academic institutions. The working group met monthly in 2021 to learn about financial innovations that are helping farmers adopt conservation practices.

There are many financial barriers to adopting conservation, which can be further complicated by additional operational and cultural barriers to change. Those wishing to promote innovative financial incentives must recognize that there is no one-size-fits-all approach to overcoming the diversity of barriers farmers face, and they must carefully match chosen financial incentives to specific barriers.

The working group frequently came back to a fundamental question: what problem are you trying to solve? Some of the financial barriers discussed include upfront costs, inflexible capital, lack of return on investment, and risks of lost returns or increased costs during the transition.

The report links each financial innovation to the barriers it can overcome, narrowing the range of possible interventions to those that best suit the problem identified.

2. Learn from innovators

The level of interest and experimentation in this space is frankly inspiring. It can also be difficult to keep up, which was one of the main reasons the task force decided to develop the plans contained in the report.

Each of the 12 plans follows a common format to allow for easy comparison and includes examples of leading innovators or projects to learn from. Plans are also mapped along a continuum that includes those that will require a longer time horizon to develop, those that are currently in development and testing, those that are ready to scale, and those that are widely available. . This actionable insights are designed to drive increased collaboration and investment.

3. Use your unique interests, strengths, and relationships to get things done

Shifting the agricultural system to one that supports the livelihoods of a wide range of farmers, while minimizing environmental impacts, is a complex challenge that cannot be solved by any single company or organization. At the same time, each organization in the value chain has a unique set of interests, strengths and relationships that it can bring to this challenge.

This report presents the different ways in which value chain actors are leveraging innovative financing, whether by directly purchasing environmental outcomes, subsidizing risk-sharing mechanisms for supplier farmers, or collaborating with financial institutions to design bonds and loans that help them achieve their sustainability goals. .

The opportunity to realign financial signals and incentives across the agricultural financial system is excellent. The promise is to close the knowledge and financing gap so that farmers, value chain actors and investors understand the risks and returns of adopting conservation and embrace solutions that overcome barriers and maximize benefits. This report is a valuable resource for any organization interested in embarking on this journey.

This post was originally published on EDF+Business.