Why monetary incentives for farmers will be pivotal in our fight against climate change By Davide Ceper, CEO, Varda

It is possible that when looking at sustainability, many agree with the famous saying that ‘‘you have to be part of the solution, or you're going to be part of the problem.” But in the case of agriculture, it is not so simple.

Agriculture's capacity to absorb carbon through crops, hedgerows and trees, along with the carbon storage potential of well-managed soils, positions it as a critical component in reducing the effects of climate change. However, the sector also generates 11% of the EU's total Green House Gas emissions (GHG). This contradiction exposes a pressing need for transformation within agriculture, aiming for regenerative practices that can meet the demands of productivity whilst maintaining environmental sustainability.

Recognising this challenge, the European Commission has explored policy approaches to encourage sustainability in agriculture. It commissioned a study by ESABCC, which put forward proposals for pricing GHG emissions within the agri-food value chain and to provide financial incentives to farmers and landowners for climate-friendly practices and carbon farming.

This is a major step for the industry, as it recognises that the economic viability of sustainable practices is a major obstacle for many farmers and large corporations within the food value chain. The current economic framework often makes it challenging to implement such practices without financial strain. And the unfortunate fact still remains: money talks. It is also unfair to place the entire burden of change on the shoulders of growers that are subject to increasing unpredictability of climate patterns and decreasing profitability of their operations.

Why a lack of investment is limiting development

Many farmers worldwide don’t have access to the financing needed to make their operations more resilient to climate change. As much as a farmer may care about implementing sustainable technology and practices, if it’s not financially viable (or too risky) for them and/or their farm, then they will be restricted in their ability to adopt such practices.

There are also those who may be less concerned about changing their ways and without a carrot to entice them, will simply carry on working as they are. There is always the option of the stick. Which in this scenario comes in the form of regulations, such as the EU Deforestation Regulation. However, such regulations present implementation complexity and may end up only shifting global commodity flows by diverting “non compliant” crops to unregulated markets. Creating inefficiency and therefore unnecessary food inflation. The carrot will always be the more effective option.

If innovation comes at the price of breaking the bank and requires a huge amount of change to bring in, why would farmers go for it? Why would retailers opt for it? Unfortunately, ‘for the love of the world’ isn’t enough justification in modern business.

That said, incentives for farmers don't need to be exclusively monetary. Acquiring greater power and control over their own data and its use in supporting crop commercialization throughout the supply chain can also motivate adoption. This is especially true when compliance with ever-changing regulations is involved.

Tools that provide financial benefits, better market access, and easier compliance are likely to promote sustainable farming practices effectively. These tools create a positive feedback loop that encourages the adoption of sustainable techniques.

How financial incentives are creating change

 A new report by the World Economic Forum revealed that “over $300 billion a year needs to be spent on the global food system by 2030 to make it sustainable”. In particular, the report highlighted that agriculture currently receives less than 4% of overall climate finance (despite being responsible for 30% of global GHG emissions), requiring 15 times more investment “to meet the expected annual costs of transformation”.

There are initiatives attempting to meet this demand. Equity financing is emerging as a way to support smallholder farmers in Asia and provide incentives to build climate resilience, with investment funds helping farmers transition to sustainable methods of production. The UK also has in place its Sustainable Farming Incentive scheme, which pays farmers to take steps, such as methods to improve soil health, to build a sustainable farming business.

Tax reliefs, favorable loan rates and private/public funding are all necessary in creating an ecosystem of financial incentives, empowering farmers to combat the threats of climate change and build resilience against them. And the adoption of climate tech by farmers can have mutual benefits for their farms, their communities and the wider supply chain.

The technology behind financial incentives

Green finance, however, needs to be backed by serious evidence and cannot rely exclusively on self-reported data or industry averages. Unlike other sectors, where verifying adherence to new processes or investment in climate-smart technologies is relatively easy due to the concentration of capital, one major drawback in agriculture is the enormous complexity in identifying, sharing, aggregating and analyzing field-level data.

Hundreds of millions of land plots are farmed every day and the ability to report and measure the adoption of certain practices is still very limited, particularly in areas with low digital penetration.

Also, climate finance mobilization is tricky. Investors and donors are constantly discouraged by the risk of exaggerated claims, while farmers are overwhelmed by the many voluntary schemes that sometimes even overlap.

The industry desperately needs a digital public infrastructure built as openly and economically as possible to support data storage, identification, permissioning and sharing, from farmers up-and down the supply chain.

Farmers and agribusinesses tend to use too many different software products and formats that differ across countries, creating data silos. This makes establishing collaboration, trust and transparency through the food supply chains much harder.

It all starts with naming and identity: there is a real, urgent need to create a common geospatial reference system that can identify fields across private data platforms and to liaise with publicly generated data to reduce fragmentation. Technology like Global FieldID is doing precisely this, by mapping agricultural land and assigning each land plot a unique ID – similar to a QR code. This is the foundation for greater industry collaboration, improving efficiency, reducing costs and ultimately helping to find and reliably use farm and field-level data, always subject to growers’ consent.

On top of this, many farmers have limited understanding and make sporadic use of digital farming applications and platforms. For farmers, being able to manage their data and know with greater clarity where it is being stored, and how it is being used, means that they will have real agency on their data - providing additional opportunities for innovation and support. Too often, the exploitation of farm and field data is hindered by the absence of a universally trusted system or infrastructure. Such a system would ensure the fair distribution of value, enabling farmers to benefit from sharing their data.

Incentivising adoption

A public digital infrastructure with an open and fair governance model can ensure the creation, maintenance and effective deployment of the technology needed to drive greater transparency and improve trust across the food system. 

Until every field is assigned a unique ID that is universally accepted and used by farmers and the industry, our ability to reap benefits from farming digitization will be limited. Expensive and time-consuming verification of sustainable farming claims will make it hard for a greater volume of green finance to be mobilised.

Technology is mature and stakeholder’s alignment is greater than ever, thanks to the increasing severity of the Climate and Nature crisis. Governments, regulators, investment funds, donors and industry leaders have a unique opportunity to collaborate in the creation of a shared digital infrastructure to underpin a large-scale transformation of the industry. And rest assured, if this happens, the planet will be thankful.