Conservation's Bottom Line

Farmers see financial gains, but landowners are the big winners.

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A conservation practices finance study found the net impact of these practices boosted income on Iowa farmer Scott Henry’s farm $9 to $32 per acre for corn and $12 to $38 per acre for soybeans, Image by Chris Clayton

Conservation practices can pay out financially for farmers, but landowners are the ones who see the most benefit by increasing long-term value and resiliency of land.

To better understand the impact of specific practices on farm budgets, farmers asked the Environmental Defense Fund (EDF) to analyze conservation and finances. EDF brought in accounting firm K∙Coe Isom to run the numbers on three farmers, as well as compare the outcomes to 10 other farms already in one of K∙Coe’s finance programs.

The report found net annual returns were positive for practices such as no-till and cover crops, and detailed farmer expenses and gains. But, K∙Coe also considered what the financial value means for business partners such as lenders, crop insurers and landowners.

FARMERS PAYING THE BILL. Maggie Monast, senior manager of economic incentives and agricultural sustainability at EDF, says the report “shows conservation can pay for farmers, but usually they take on all of the costs themselves in making that transition.”

Conservation’s bigger value, then, comes down the road in long-term benefits for the land.

“But, so many of our leases are negotiated on an annual basis,” says Scott Henry, who farms near Nevada, Iowa. He is one of the farmers who took part in the study.

“There is a benefit to landowners for having conservation practices implemented on their farm ground, but the real question is, what is their role at
the table? Does the operator carry all of the burden, or are they [landowners] able to, or should they be encouraged to, participate in implementing these practices?” Henry asks.

LITTLE CHANGES ADD UP. EDF detailed the findings in a roundtable to farm groups, lenders and conservation organizations to see where opportunities can develop to help farmers better leverage their conservation work.

One of the more significant takeaways from what the farmer gains financially from stewardship is an overall management change for the farmer, Monast says. “There are lots of little changes throughout the budget. You’re not seeing one massive change in one budget item. But, those little changes, cost savings and yield impacts add up.”

Alan Grafton, a principal and director for K∙Coe Isom, analyzed the farmers’ financial records and talked with the three farmers from Iowa, Kansas and Ohio about their overall operations, then compared them with other farmers in a finance course, some of whom adopted various conservation practices, and some who did not.

“We’re kind of used to breaking down that information,” Grafton says. “We looked through operations when it came to fuel, fertilizer, chemicals, labor and cover crops. There’s no silver bullet or one aspect that is a phenomenal game changer, but it’s the transformation of the land that changes it and makes it more highly productive when you look at the balance sheet.”

Henry uses precision agricultural practices, nutrient management and cover crops on more than 1,900 acres of seed and commodity corn. He also uses no-till practices on most of his 4,600 total acres, as well as waterway buffer strips, split-nitrogen applications and slow-release nitrogen products throughout his farm. And he participates in state cost-share programs for cover crops.

On a one-year basis looking at 2016, Henry spent $8 to $10 per acre on cover-crop seed, plus $8 to $12 an acre on burndown costs for those cover crops. He saw a savings of $6 to $14 less per acre on fertilizer costs, as well as per-acre savings of $4 on labor, $4 on fuel and $10 to $12 on equipment costs. He also saw a bump in yields equal to $7 to $14 an acre for corn and $10 to $20 an acre on soybeans.

All of that translated into a net-positive impact of $9 to $32 an acre on corn and $12 to $38 an acre on soybeans.

“There wasn’t just one overarching line item that provided the most impact,” Grafton notes. “It really took several areas to build up that balance sheet.”

He explains, “Farmers need to keep in mind you don’t have to have a wholesale change that has
to happen all at once. You can try out a practice on a smaller piece
of ground.”

CASH RENT MAY SLOW ADOPTION. Today’s cash-rent aspect of farming disconnects the annual cost benefit for operators compared to the long-term increase in land productivity for landowners. The renter typically bears all the cost and risk for trying new practices on the land.

“That actually disincentivizes the farmer from trying something new and also goes against the landowner’s own interest in maintaining and increasing the productivity of their own land,” Monast says.

Henry began planting cover crops because one landowner he works with had a focus on conservation and agreed to share the costs of initially implementing those practices. Other landowners haven’t made that commitment, but Henry says he has seen landowners asking for more information on his farming practices year to year.

Kansas farmer Justin Knopf and Ohio farmer Josh Yoder also participated in the EDF study. They saw similar increases in net incomes from similar conservation practices.

K∙Coe Isom also showed financial benefits for farmers while not factoring in any federal or state conservation payments the farmers might receive. Pulling out the program payments better showed what it truly costs to produce the crop, Grafton says.

“We obviously need more data on the environmental and financial case for conservation,” Monast says. “But, we think there is a clear value proposition to farmers’ business partners--insurers, lenders and landowners. And, right now, this is not being recognized by these entities.”

PRIVATE DRIVEN INCENTIVES. Henry realizes none of this will be in a policy book next year but, over time, hopes it translates into more cost-saving benefits for farmers. Private crop insurance policies outside of the federal program may be more willing to move ahead.

Henry adds, “I think there’s a lot of apprehension on trying to propose or force certain practices from a federal level. Where we see this really having some applications is maybe in some private products. If we can start having this data or more reports proving there are real economic incentives or risk-mitigation potential to what the conservation practices are bringing to the farm, then that should have some sort of trickle-down effect in the different areas.”

Henry hopes such studies can boost conservation practice adoption rates by farmers, if both farmers and landowners can see the net financial benefits.

“That’s what I think I get excited about is a farmer-led initiative, or at least producer-inspired, that can at least get the ball rolling,” Henry explains. “There are some really cool spider-web type of opportunities that I think can come out of this, and hopefully this is only the beginning.”

For More Information:

> Environmental Defense Fund Report: Environmental Defense Fund Report: bit.ly/2Oi4tvZ

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Chris Clayton