Regenerative farming has a significant role to play in safeguarding food security and sustainable nutrition. While it has been shown that regenerative agriculture can increase farmers profits by up to 60%
– with added benefits of reduced input costs and resilience against extreme weather – farmers must first undertake a one-to-two year transition period, during which yields may decline.
This presents the main obstacle to scale: most farmers are unable to carry this short-term financial burden alone. Already facing extreme climate-change-induced weather events such as drought and heatwaves, farmers will struggle to carry additional costs. To switch to regenerative agriculture, they need financial incentive and support from other food value chain stakeholders.
1. Agree common metrics for environmental outcomes
2. Build farmers’ income from environmental outcomes
3. Create mechanisms to share the cost of farmers’ transitions
4. Ensure government policy rewards farmers for transition
5. Source differently to share cost across value chains
For crop farmers to be compensated with a fair and standardised sum for ecosystem services, it is crucial that they know what success looks like. Standardised metrics on soil health, carbon sequestration and ecosystem biodiversity are key to unlocking scale.
At the other end of the value chain, standardisation would also increase corporate ambition to implement regenerative agriculture. Simplifying measurement, verification and reporting would encourage a competitive race to the top – as seen with net-zero targets
, underpinned by industry-wide reporting standards – with companies challenging one another to set ever more ambitious targets. An industry-wide outcomes-based framework could also simplify corporate communications on regenerative agriculture across the industry, thereby enhancing public understanding of this still-nascent concept.
Work on this is already underway through the multi-stakeholder Regen10 Initiative,
which plans to build on – and ideally distil – existing certifications to develop the principles, metrics and framework needed for an inclusive regenerative food system. The initiative is bound by a two-year time commitment on the delivery of this crucial building block for scale.
Build farmer income
One of the simplest ways to incentivise farmers to transition to regenerative agriculture is through payment for ecosystem services (PES): financial compensation for sustainable land use. This provides farmers with an additional revenue stream, alongside the sale of crops, and increases overall food system resilience. “Services” can include soil carbon sequestration, soil erosion reduction and biodiversity protection, amongst others.
PES schemes vary in structure and payment type. Alongside the better-established voluntary carbon markets
used by corporates to offset unavoidable emissions, credits are now sold for broader regenerative outcomes. PES can be “stacked” or “bundled” for sale.
Stacking gives farmers access payments for multiple ecosystem services on the same land, sold to different buyers. One buyer might pay for biodiversity services, and another, carbon sequestration. The UK’s government has recently confirmed
that biodiversity credits and nutrient credits can be sold in this way from the same land.
Bundling combines multiple ecosystem services in a single landholding. An example of this is Carbon Farmers
’ sale of premium quality ’’carbon+’’ credits, for carbon sequestered with co-benefits, including soil health, biodiversity and the soil’s water-holding capacity. The German-based non-profit helps farmers with the measurement and verification of services, and the sale of credits, which are all crucial for PES to work.
Though nascent markets for PES already exist, demand for ecosystem services is increasing faster than the marketable supply. To address this issue, smallholder farmers must be connected to well-regulated and robust markets.
's compensating farmers for ecosystem services policy brief
notes the need to “develop the secure financial, commercial, and legal arrangements for linking demand to a flexible and diverse supply of carbon and other environmental outcomes”. Technical and financial support will also be necessary.
Sharing the cost
Cost-sharing mechanisms and blended finance approaches allow farmers to share the financial burden of their transition to regenerative agriculture throughout the food value chain. Models range from supply-chain financing and debt instruments, to private, government and philanthropic funding.
Major food companies are investing in farmer transitions through various mechanisms. Dairy giant Danone, for example, has provided financial and technical support to 100,000 farmers through its Ecosystem
funds. The farmers have also been granted longer-term contracts to guarantee stable revenue during the transition years. Unilever’s regenerative programme
similarly provides financial, technical and social support to farmers, who receive cost share from Unilever for planting cover crops, and technical assistance from partners.
Nestlé have committed to invest 1.2bn CHF by 2025
to support farmers in their transition through premiums, investment support, and technical advice. Some will go towards co-investments with key partners on pilot programmes. They note that this should be complemented by additional schemes from financial institutions and public support to reward farmers for ecosystem services, as collective action is required to incentivise farmers to change practices.
Investors can also play a significant role in sharing the cost of farmers transitions across supply chains. Replant Capital
creates partnerships with food companies such as Danone North America, to directly access their supply chains, before developing financing options for farmers choosing to adopt regenerative practices to restore soil health. The farmers receive further support through expert technical assistance.
Investors are also supporting farmers through their transition with new debt instrument innovations. One pioneering example is Mad Capital’s transition loan’
: a 10-year, low-cost loan offering farmers flexible repayment options. It will be crucial for mainstream banks to follow innovative leaders, and offer more equitable and inclusive options.
As with definitions and standards, there is no one comprehensive financial mechanism for farmers transitioning to regen ag. Financial players should come together to build a co-ordinated and established financial pathway. Further than supporting early adopters, this should be a means of attracting and funnelling farmers through a regenerative transition.
Government policy that rewards farmers
While supply chain cost-sharing and technological support can help farmers to transition in the short-term, government has a responsibility to create an economic system that incentivises and supports farmers in the long-term.
Policies could include support for PES schemes, backing for insurance and contracts that de-risk farmer transitions, and the development of markets for rotational and cover crops to diversity farmer income.
The most obvious course of action for governments is to reallocate subsidies for farming practices that degrade soil and ecosystems. A 2021 FAO report
found that 90% of the $540bn given to farmers annually paid for outcomes that were harmful, to human and planetary health, nature and smallholder equality. It is imperative that governments replace these with subsidies which support regeneration and protect the food system.
The UK’s new Environmental Land Management
programme is an example of policy moving in the right direction. Three new schemes under the policy provide farmers with a much higher Sustainable Farming Incentive and encourage soil nutrient restoration and landscape recovery, amongst other nature-positive outputs.
Governments can also enable regenerative transitions through grant funding. Through its Partnerships for Climate-Smart Commodities
grant of $3.1bn, the US Department of Agriculture has recently funded 40 regional projects focusing on regenerative practices such as agroforestry, cover-cropping and no-till farming. This will enable the channelling of finance and resources to farmers, in federally-backed initiatives. This year’s new US Farm Bill should work alongside these grants to enable a largescale shift towards regenerative agriculture, as advocated for by multi-stakeholder coalition, Regenerate America
At the US state level, Iowa’s Crop Insurance Demonstration Pilot Project
has shown that innovative crop insurance mechanisms can work as another farmer incentive. Farmers who participate and plant cover crops are eligible for a $12 per hectare reduction on their crop insurance premium. Only in its third year, the project has seen 1,200 farmer applications, and over 120,000 hectares of cover crops planted.
Crucially, farmers must be able to expect a stable and consistent policy environment which fosters a regenerative food system from one electoral cycle to the next. It’s ultimately in governments’ interest to support and scale regenerative agriculture in their jurisdictions. Beyond delivering on climate and biodiversity commitments, this will bolster national food security and sustainable nutrition, as well as international exports of good quality produce, in the long-term.
Sharing cost across value chains
As powerful actors in the industry, large food companies are coming under increasing pressure to source sustainably. The Sustainable Markets Initiative advocates
for landscapes sourcing approaches, which involve buyers from different sectors sourcing from the same land, collaborating to provide “a package of economic, agronomic and social support to enable farmers in a specific area to transition to a regenerative system”. One actor might buy corn, whilst another buys the peas which act as a cover crop. Farmers access multiple revenue streams.
The Regenerative Production Landscape Collaborative
(founded by IDH, the Laudes Foundation and WWF), is implementing this jurisdictional sourcing approach in Madhya Pradesh, India. This project, supported by a compact between companies including H&M Group, Ikea, Inditex and PepsiCo India, will reach 20,000 farmers and bring 20,000 hectares under regenerative agricultural practices. The collaborative aims to establish two further compacts in Madhya by 2026.
Determined brands can initiate this sourcing approach themselves. Iowa Pilot Program
me is a prime example. The alternative milk brand provides cost-share support, technical assistance and coaching for farmers to add oats and legumes (as a cover crop) to existing crop rotations of corn and soy. Whilst farmers can sell the corn and soy to pre-existing off-takers, they now have market access to an additional value chain, in exchange for implementing sustainable farming techniques.
As yet such initiatives are not accelerating real scale in regen ag. Further leadership and collaboration amongst brands and suppliers are needed to bring more farmers and more land into these regeneratively farmed supply sheds.
Broad farmer support
Whilst several of the Sustainable Market Initiative’s actions focus on financing farmer transitions, they also demonstrate that this is not enough. Many of these given examples highlight that supply-chain financing – from cost-sharing, to government subsidies, to PES – must go hand-in-hand with technical assistance and wider farmer support. This includes enabling knowledge-sharing between farmers, as well as social support for families and communities around regenerative projects.
The Regenerative Food Systems Investment Forum
notes that the most innovative financial vehicles are going beyond covering transition risk. Instead, they are paying for technology and tools that enable transition on the farm, the processing and infrastructure that can help get regenerative products to premium markets, and the food companies that are building regenerative supply chains. To build a resilient and secure food system that provides sustainable nutrition for all, it is imperative that actors collaborate to break down barriers for farmers in this way.