To Change the Food System, Change Finance
Farmers gathered at a Regenerate Restore Reclaim event on a hot, dry summer day at an American Legion Hall in Wetmore, Kansas, population 344. David Brandt spoke to the group about regenerative practices. The event focused on soil health and Brandt was an expert. He was not a soil scientist or a consultant. Brandt was a fifth-generation farmer. In many ways, Brandt typified farmers’ hard work and sacrifice. He served in Vietnam. His family had to sell their land after his father was killed in a farm accident. Brandt restarted as a tenant farmer before purchasing his grandmother’s farm in 1971.
But Brandt was not typical. He adopted regenerative practices fifty years ago. Over those decades, Brandt increased his farm’s soil organic matter from .75 percent to 8 percent and built up the land’s “A horizon,” or topsoil layer, from 6 inches to 47 inches deep. For context, building an inch of topsoil can take 500 to 1000years.
Brandt’s soil health case study should have sparked interest in an area where the USDA Natural Resources Conservation Service (NRCS) designates soils as highly erodible. Losses of agricultural topsoil in Kansas range an estimated 12 to 30tons per acre per year, comparable to the erosion rate of the 1930s Dust Bowl.
However, Brandt’s finance data, not soil health metrics, took center stage. Despite soaring fertilizer prices, Brandt reduced input costs by 72-78% between 2009and 2019. Each year, Brandt’s direct costs of production were less than half that of a typical Midwest crop farm.
As Brandt wrapped up his presentation, hands flew up for questions. Brandt acknowledged a farmer in the second row. “This all sounds great,” said the man. “But how do I get my bank to sign off on it?”
 Sadly, Dave Brandt died in an accident on May 20, 2023. His loss is mourned by many across the regenerative agriculture and soil health ecosystem.
How finance and crop insurance limit the growth of regenerative agriculture
The farmer attending Brandt’s talk is not alone. In the United States, the Federal Crop Insurance Program (FCIP) covers over 370 million acres. Banks and farm credit recognize the role of crop insurance in reducing agricultural loan risk and lending rates.
The FCIP requires farmers to adhere to approved good management practices (GMPs) to remain eligible for crop insurance. GMPs exist to prevent producers from not managing crops and collecting a full payout. Even so, the program designed to reduce financial risk from crop failure prevents farmers from adopting regenerative practices that reduce climate risk and increase farm profitability. Transitioning to regenerative practices can initially decrease yield, making farmers ineligible for crop insurance.
However, reduced yield does not always mean reduced profits. Regenerative farms often achieve a premium for their products, from food companies wanting to reduce greenhouse gas emissions in their supply chains or consumers concerned about climate change. Regenerative farms also rely on fewer costly inputs, such as inorganic fertilizer. The increased product price and reduced input costs can make regenerative farms up to 70 percent more profitable than conventional farms.
How crop insurance and limited access to capital affect our food system
The FCIP offers the most coverage for a small number of commodity crops with less support for fruit and vegetable production. When a farmer chooses to add a new crop to his operation, crop insurance costs increase, and coverage is reduced until the farm establishes a yield history.
As a result, farmers are disincentivized to grow a wider variety of crops, even when those crops are better suited to their land or more resilient than commodity row crops. The limited diversity results in a food system with an abundance of highly processed foods, higher costs, and limited availability of fresh produce.
While FCIP is a U.S. subsidy program, the impact of agricultural subsidies on food systems is a global issue. Worldwide, agricultural producer support, including price incentives and subsidies, amounts to USD 540 billion. More than half of this public funding is based on historical yield and supports monocultures and conventional agriculture with limits on the types of crops produced.
The role of finance in changing the food system
If agricultural policy and traditional finance are barriers to a more sustainable and diverse food system, what are the solutions?
Ideally, the finance sector would factor climate risk into lending decisions and partner with farmers’ operations. That approach may not exist with large banks, but it has been key to the success of Walden Mutual in New England.
“We’ve looked at situations where those practices enhance the farm’s ability to weather climate-related changes in yields and view that as an important element of underwriting,” said Charley Cummings, founder, and president of the bank. Walden Mutual fills a gap in agricultural funding for smaller operations and includes fiscal and community responsibility in its mission.
Flexible lending tailored to a farm’s practices also decreases the risk of default. So, why don’t larger banks embrace this strategy?
According to interviews with the banking sector by AGree, there are four key reasons traditional lending is a barrier to the adoption of conservation agriculture practices:
- Conservation practices are seen as a cost without a recognized market benefit or premium.
- Large banks lack expertise to understand farm management decisions.
- Land rental, which comprises 39% of agricultural land access, does not support conservation investment.
- There is a lack of measurement and monitoring of conservation practices and their impacts on yield and profitability.
These barriers are also an issue for transitioning land to agroforestry. The process can take up to a decade to become profitable. One solution, Propagate, provides the technical support, planning and management software, financing, and supply chain to transition farms to profitable and sustainable agroforestry operations.
Where crop insurance relies on historical yield data, Propagate’s solution looks forward, using agronomic and climate data with economic models to identify potential revenue. Propagate’s financing solution enables the transition of leased land holdings by providing payments upfront to landholders based on future projections. Agroforestry operations produce specialty crops typically not covered under crop insurance, increasing the diversity of food crops while providing environmental benefits such as carbon sequestration and improved water quality.
Impact investment is another source of capital for regenerative ag. Impact investment groups include AgFunder, Astanor, Tenacious Ventures, S2G, and other funds and family offices. Like traditional venture capitalists, these investors fund promising startups, but their motives include societal and environmental benefits, not just financial gain.
Regenerative Food Systems Investment states that venture capital deals for regenerative agriculture startups increased 270 percent between 2012 and 2021. Some of these investments include monitoring, reporting, and verification (MRV) platforms and precision agriculture tools. MRV platforms allow farmers to track yield, soil health, ecosystem benefits, and profitability. MRV platforms can also provide banks with more data than just yield history for lending decisions.
Finance options as a catalyst for food system change
By supporting regenerative ag and innovation, alternative finance options and impact investors build a business case for resilient and profitable practices. Such proven success will catalyze changes to the food and Agri-finance system, ultimately benefiting the larger sector of banking and farm credit.
The future could be one in which climate-resilient practices inform lending rates and reduce financial risk, where farmers and producers profit through sustainable production and land stewardship, and we all have access to a healthier, more diverse food supply.
Check our sources
We invite intellectual curiosity and hope this topic sparks further inquiry. The references for this article are provided below.
AGree.(2022). Conservation Practices and the Federal Crop Insurance Program (FCIP).In foodandagpolicy.org. https://foodandagpolicy.org/wp-content/uploads/sites/17/2022/06/Conservation-Practices-and-FCIP-Barriers-6.2.22.pdf
Cummings, Charley.(2023, April). Interview with Walden Mutual.
Hayes, T. O.(2021, November 3). PRIMER: Agriculture Subsidies and Their Influence on the Composition of U.S. Food Supply and Consumption - AAF. AAF.https://www.americanactionforum.org/research/primer-agriculture-subsidies-and-their-influence-on-the-composition-of-u-s-food-supply-and-consumption/
FAO, UNDP and UNEP. 2021. A multi-billion-dollar opportunity –Repurposing agricultural support to transform food systems. Rome, FAO.https://doi.org/10.4060/cb6562en
LaCanne, C.E., & Lundgren, J. G. (2018). Regenerative agriculture: merging farming and natural resource conservation profitably. PeerJ, 6, e4428. https://doi.org/10.7717/peerj.4428
Steinberg,Ethan. (2023, March). Interview with Propagate.
Woodard, D.,Sherrick, B., Coppess, J., & Muth, D., Jr. (2019). The Role of the Banking and Financing Sector in Encouraging Conservation Practices and Transitions to Organic Production. In FoodandAgPolicy.org. AGree. https://foodandagpolicy.org/wp-content/uploads/sites/17/2019/03/Woodard-et-al.pdf
UnderstandingAg. (2021, March 24). Brandt Farms Case Study - Understanding Ag. https://understandingag.com/case_studies/brandt-farms-case-study/