Financial Impacts of Soil Health

OMAHA (DTN) -- A new study highlights the potential long-term profitability increase from 15% to 25% for producers who embrace soil health or regenerative agriculture, but the study also points to barriers, such as revenue losses in that three-to five-year transition period.

The Boston Consulting Group released its report, "Cultivating farmer prosperity: Investing in Regenerative Agriculture," along with One Planet Business for Biodiversity, known as OP2B -- a coalition of nearly 30 companies, including several in food production. The study makes the case that there is a business case for regenerative agriculture with longer-term profitability by converting farming practices.

Mitchell Hora, a farmer in southeast Iowa, said his family's operation has been no-till since 1978 but started experimenting with cover crops more around 2015. Initially, the Horas planted a cereal rye in fall 2015 then planted a corn crop into it in spring 2016. The family could tell a contrast in the growth rate of corn plants that suggested they planted the cereal rye too thick. They lost some corn yield in that field as a result, he said.

"We struggled in that initial part of that transition period," Hora said Wednesday in a livestream discussion about the report findings. He added, "We tried to push things too far, too fast in one year.

The farm needed more agronomic support to better understand soil biology and what went wrong. Over time, their practices improved and they began to see more benefits. The Horas still plant corn and soybeans into cereal rye crops. Hora said the farm has lowered fertilizer use 50% in recent years and lowered pesticide costs 75% as well. Organic matter on the farm has increased 1.4% and the farm has gone more than three years without a crop insurance claim.

"Our yields are going up, our profits are going up. We're more resilient," he said.

Hora said his operation has shifted some of those costs to micro-nutrients and biological products instead of synthetic fertilizers.

"For a lot of farms, it's risky to cut back on your fertilizer," Hora said.

Hora's experience fell much along the lines of what the Boston Consulting Group study found. In debating the need for regenerative agriculture, most groups see positive environmental benefits but companies saw a need to further look at economics on the farm, said Doug Petry, the report author. That led to conducting interviews with more than 100 U.S. farmers early adopters to get their perspectives.

INCREASE PROFITS IN LONG TERM

Long-term, the report found farmers can increase both profits and crop yields up to 25%, but getting to that point also means producers can face increased expenses early on and potentially a decline in yield.

"We saw a need to further assess the farm-level economic viability of transitioning to regenerative agriculture," Petry said.

Sonya Hoo, managing director and partner at Boston Consulting Group, pointed to the challenges in the transition period for producers due to costs for seed and machinery, as well as temporary yield losses. Farmers could lose anywhere from $11.50 to $39 an acre in transition losses.

"That transition cost and that dip in profitability in the first few years is very real and that's what we need to tackle here," Hoo said.

NEED FOR TRANSITION SUPPORT

From those conclusions, Hoo said the study showed farmers require between three to five years of transition support to effectively make the move from conventional tillage farming to no-till and growing cover crops.

Citing some possible aid through the transition, the study said government programs, such as those through USDA's Natural Resources Conservation Service (NRCS), would be a "key bridge" for producers moving forward. Other options to support producers would be discounted loan rates or improved insurance terms. Price premiums naturally would help, but so would long-term land leases as well. Producers also need agronomic advice.

A few costs have been offset by some changes in policies in recent years. For instance, farmers got a $5 insurance premium subsidy discount for 2021 and 2022 for soil health practices. Hora said that should be continued. He also suggested RMA should offset the premium costs for producers who use cover crops as well to raise their coverage to 85% coverage levels.

Asked about where Hora learned most of his cover crop information, he cited "YouTube university," pointing to videos from other producers on YouTube and other social media platforms.

"There is a ton of information that is out there," Hora said.

INCENTIVES FOR FARMERS

The study comes as USDA is finalizing agreements under the Partnerships for Climate-Smart Commodities, a $3.1 billion effort to provide more incentives to producers to sequester carbon in the soil and lower emissions. USDA announced 141 potential partners and seeks to reach more than 60,000 producers and 25 million acres of farmland. Each of those programs is expected to provide farmers with more financial and technical support to transition their farms.

USDA also has released more funding directly to producers through the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP) because the Inflation Reduction Act last year provided USDA with $19.5 billion to help increases conservation practices that reduce greenhouse gas emissions or sequester carbon in the soil.

Private companies also are expanding their various carbon credit or regenerative agricultural programs. Cargill on Tuesday announced it would expand its RegenConnect to nine more states as well as parts of Europe this year. Indigo Ag is now working with more food companies to help reduce carbon emissions in their agricultural supply chains -- known as Scope 3 emissions. TruTerra announced last week it paid farmers $5.1 million to sequester the equivalent of 262,000 tons of carbon last year.

A link to the full study, "Cultivating farmer prosperity: investing in Regenerative Agriculture," can be found at https://www.wbcsd.org/….

Chris Clayton can be reached at Chris.Clayton@dtn.com

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