Tag: finance

Financial and climate impact of regenerative farming practices

Posted on May 2, 2024 by - Insights, News

Recently, we completed a piece of work with SOS-UK that presented the financial and climate impacts of different regenerative farming practices, based on the best available evidence we could gather that relates to the UK. The full report is available here and over a series of three articles, we’ve outlined the need for more of this work, the current evidence on the impacts of regenerative farming practices – and in this final article – we share our overall conclusions from this work.

What did we find out?

Overall, from the financial partial budgeting we carried out, we found a potential for margins to be maintained if not improved, from the adoption of some of the regenerative farming practices we looked at. Mainly though, only if SFI payments are included where they could be available.

Table 1: Regenerative farming practices and their financial viability, including external support where available
Table 1: Regenerative farming practices and their financial viability, including external support where available (organic maintenance payments not included). Source: Farm Carbon Toolkit (2024), Understanding the financial and climate impacts of regenerative farming practices. Report available here.

Typically, the adoption of more regenerative farming practices can result in lower yields, lower livestock stocking rates and lower output (without external support), especially where land is turned over to fertility building leys and reliance on artificial fertilisers is removed. Many studies in recent years have evidenced this, including the National Food Strategy. The extent of the challenge is unclear and from our assessment of the research; the current evidence base for any estimate on this is poor.

However, reducing input use can reduce business risk (vulnerability to input costs changes reduced with lower use). As more farmers learn how to implement more regenerative farming practices effectively the risk of reduced output will drop.

Confirming what is often cited anecdotally, there is also evidence that a transition period is required to allow soil and ecosystem health to improve so that it can function effectively with reduced or no chemical inputs. Depending upon the starting point, this can be up to five years, which highlights the need for support to bridge the financial gap, alongside other support for farmers as they acquire a new range of skills and knowledge. In England, the introduction of the Environmental Land Management Scheme provides financial support for the introduction of some key regenerative farming practices, such as growing cover crops and herbal leys. However, for more holistic changes to farming systems, such as moving to longer and more complex rotations including grass leys, it is less evident that the current financial support will facilitate this transition unless the farm has a profitable use for the grass and the individual crop gross margins are not compromised significantly.

There is also a cultural and social aspect to the acceptability of a transition to more regenerative farming systems which should not be underestimated. For instance, a more regenerative farm is often considered to be less “tidy”. Acceptability is increasing, especially where farmer networks exist to reinforce decision-making in favour of more regenerative farming practices. 

Practices which reduce greenhouse gas emissions

In the previous article, we introduced some of the broad sustainability impacts of different regenerative farming practices. Specifically on greenhouse gas emissions, many of the recommended ways to reduce farm greenhouse gas emissions are part of the suite of more regenerative farming practices, e.g.

  • Reducing the use of cultivations
  • Reducing reliance on artificial fertiliser (which can only be achieved when other more regenerative farming practices are in place which support enhanced soil health and fertility)
  • Changing feed sources for livestock away from reliance on imported protein sources such as soya- this is easier for ruminants than for young monogastrics
  • Maximising use of forage for livestock feeding

Adopting these practices generally reduces the emissions per hectare, due to various factors such as reduced synthetic fertiliser and fuel use, improved soil health and more efficient use of resources. However, lower yields and lower livestock stocking rates are a trade-off and this will ultimately impact the carbon footprint of the end product unless any associated increases in soil carbon removal are factored in. 

Typical, more regenerative farming practices include replacing fertiliser with legumes within cropping rotations and grassland; reducing cultivations for crop establishment; growing herbal leys; challenging received wisdom on the level of artificial fertilisers required by crops1 and the requirement for the use of insecticides. For livestock farmers, typical regenerative farming practices being adopted include reducing the use of supplementary feeds and keeping livestock grazing longer into the autumn, alongside practices to improve soil health and structure.

Financial viability of more regenerative farming practices

In our recent work with SOS-UK, we created partial budgets for the majority of the regenerative farming practices across a range of typical farm types: dairy, arable, mixed (non-dairy livestock and arable), lowland livestock and upland livestock.

In all budgets, costs were calculated on an annual basis. Input and sale values reflect prices in 2023 and are drawn from reliable industry sources. For future years the actual impact will be affected by changing prices and costs.

Whilst we are finding out more every year about the impact of many regenerative farming practices, which is helping to fill the information void, machinery manufacturers are also coming to market with improved equipment to enable some of the machinery linked regenerative farming practices such as reduced cultivation and intercropping/ companion cropping. These innovations are both reducing the cost (in some cases) for practice implementation and also improving the effectiveness of the practice itself.

A number of key issues surfaced which have a significant bearing on the introduction of these practices:

  1. Capital investment required: This is particularly relevant where specialist machinery and/or equipment is required. For instance, adopting minimum cultivations, intercropping and holistic grazing. For reduced cultivations, the need for more specialist drills is sometimes balanced by the ability to reduce the overall machinery inventory. In addition, Defra has made a capital grant available for some innovative items of machinery and equipment through the Countryside Productivity Scheme in the past, which reduces the initial capital required to adopt these practices. Other mechanisms to support access to appropriate machinery and equipment might be through machinery rings or syndicates or through third parties such as landlords underwriting the capital costs for these investments, or use of contractors.
  2. New technical skills required: It is clear that some practitioners have acquired the necessary skills to adopt regenerative farming practices with little or no yield penalty, which increases the financial viability of their adoption. As these skills become more common the adoption of these practices should increase. However, supporting a wider understanding of the skills and techniques required will accelerate adoption alongside an inherently better understanding of their financial viability.
  3. Linkage of the value of regenerative farming practices to the price of farm resources and inputs: Many of the regenerative farming practices described in our report involved a reduction in farming intensity. However, this can be difficult to implement when the cost of the key resources required (especially land) is high. There is no easy answer for this challenge, but many farmers will cite their need to finance their ongoing business to their adoption of more intensive farming practices, although external support for more sustainable farming is bridging this gap for some practices.

With support from SFI (in England), over 50% of the practices we budgeted show a neutral or positive financial impact, which is largely due to this support. The full report includes partial budgets for each practice together with the assumptions used to arrive at the budget outcome shown. It is intended that these budgets can be adapted to fit individual farm circumstances to enable farmers and growers to better estimate the impact of adoption on their holdings.

Recommendations

Our recommendations from this work are aimed at researchers, the Government and the industry itself:

  1. More research is required to provide clearer evidence of the impact of the adoption of regenerative farming practices on yield and output as this is seen as a key barrier to adoption by many farmers
  2. Increased support for farmers to build the confidence, skills and knowledge required for effective adoption of regenerative farming practices 
  3. Institutional Landlords provide transition support to tenants undertaking a whole farm approach to the adoption of regenerative farming systems, especially where more complex and longer arable rotations are a central theme of the transition
  4. Support the development of Machinery Rings or Syndicates to facilitate access to the type of equipment required to facilitate the transition to more regenerative farming systems

Footnotes

  1. It has been estimated that £397 million of artificial fertiliser is wasted each year in the UK due to over-application. AHDB Research suggests UK farmers could potentially reduce up to 50% of the nitrogen fertilisers on specific crops without seeing a significant reduction in yield.

The Impact of Regenerative Farming Practices: What Does the Evidence Say?

Posted on May 2, 2024 by - Insights, News

In the first of this series of three articles, we discussed the need to better understand the financial and climate impacts of regenerative farming practices. In this article, we summarise our recent work with SOS-UK (report available here), to contribute to this understanding. This article focuses on the practices themselves and the state-of-the-art regarding what we know about their impacts on farms.

What practices are we talking about?

We started with a focus on the five commonly cited principles of regenerative farming practice:

  • Minimise soil disturbance
  • Keep soil covered
  • Maintain living roots in the soil as much as possible
  • Maximise plant diversity
  • Integrate livestock

Then we assembled a list of typical farming practices which can support these principles, supporting a more regenerative farming system. In practice, we are clear that where these practices are adopted together, the impact will be greater.

  • Reduced tillage 
  • Introduction of Silvopasture
  • Enhanced hedge management
  • Introduction of herbal leys 
  • Replacement of monoculture ryegrass swards with grass/ clover swards
  • Holistic grazing
  • Maximisation of forage in dairy cow diets
  • Improved use of manures and composts
  • Introduction of cover cropping
  • Introduction of longer crop rotations
  • Retention  and incorporation of  crop residues
  • Introduction of Agroforestry
  • Intercropping/ companion cropping
  • Use of living mulches
  • Winter grazing of cereals

What’s the evidence for their impacts?

We assessed a range of evidence for the sustainability and financial impacts of the farming practices described above. Of the various papers and reports we assessed, we highlight two reports in this article, which we felt were helpful in bringing together evidence on sustainability impacts. First, the recently published paper by Maskell et al. 2023, Functional Agro Biodiversity: An Evaluation of Current Approaches and Outcomes. This paper contains some of the most up-to-date analysis of the state of the art and contains two key tables which are reproduced here. The first table assesses the strength of the evidence for the impact of key practices which are considered to support enhanced Functional Agro Biodiversity (FAB). This list shows that the strongest evidence for the impact of these practices is on soil health (>60% of practices have strong evidence for impact). By contrast, less than 20% of practices have any evidence of impact on crop yield. For water quality, biodiversity and control of pests and weeds more than 50% of the practices listed have strong evidence of impact.

Table 1: Strength of evidence for the impact of practices designed to improve functional agro-biodiversity (FAB). Source: Maskell et al. 2023.
Table 1: Strength of evidence for the impact of practices designed to improve functional agro-biodiversity (FAB). Source: Maskell et al. 2023.

The second table brings together findings from a wide range of research in recent years to identify the contributions of these farming practices to ecosystem service provision and farm management. Again, what stands out is the low level of reporting of any improvements in crop yield from adopting these practices. In general, the reverse has been found more commonly. Similarly, conflicting findings on the impact of these practices on GHG emissions are present. However, there is a clear consensus for the positive impact of the vast majority of the practices listed on pollination, biodiversity, soil and water quality, alongside flood regulation. In fact, all the elements of ecosystem service provision are enhanced through the adoption of these practices.

Table 2. Selected FAB measures and their contribution to ecosystem service provision and farm management.
Table 2. Selected FAB measures and their contribution to ecosystem service provision and farm management. GHG = GHG emissions. Source: Maskell et al. 2023.
Table notes: GHG= GHG emissions, SOC= Soil Organic carbon, ↓=Decrease; ↔= no significant effect, ↑= Increase. The cells have been shaded green (positive effect on ES), red (negative effect on ES), orange (mixed). Presence of multiple arrows indicates good evidence for different effects, often depending on specific context.

As a follow-up to the likely impact of these practices on soil carbon sequestration, we carried out desk research to identify the likely range in potential for some of these practices. We reviewed a report produced in January 2022, led by the Green Alliance for the Oxford Farming Conference, which reviewed the evidence for soil carbon removals and reduction in emissions following the adoption of some  “more regenerative farming” practices and land management changes. The authors reported a relative scarcity of robust data for the impacts on soil carbon stocks arising from a shortened range of farming practices. In addition, a large range of results was found from some practices (see Table 3), which makes it difficult to assign any specific level of carbon removal or reduction in emissions without measurement.

PracticeLand efficiency
tCo2e/ha/yr		Source of dataTotal UK potential
MtCo2e/yr		Assumptions
Paludiculture19.0 – 39.0*C Evans et al, 20172.0 – 4.1*25% of lowland peat drained for agriculture becomes paludiculture to meet CCC targets
Halving drainage depths for arable on peat12.7 – 18.9*C Evans et al, 20215.3 – 7.9*Drainage depth halved on all drained lowland peat
Agroforestry4.4 – 10.0(mainly tropical data so likely a lower range in the UK)D Kim et al, 20161.8 – 4.2Adoption at 416,700 hectares, A Thomson et al, 2018
Hedgerows3.1 – 7.3S Drexler et al, 20210.5 – 1.2Adoption at 168,200 hectares, A Thomson et al, 2018
Organic matter incorporation from residues or amendments-0.9 – 2.3 depending on clay content in soilC Poeplau et al, 2015-1.1 – 2.8Mid – range rate, adoption at a third of arable area
No till system as part of conservation agriculture0.3 – 0.6S Jayarama et al, 20210.4 – 0.7Mid – range rate, adoption at a third of arable area
Table 3: On-farm measures and their carbon sequestration land use efficiency. Source: Green Alliance (2022). The opportunities of agri-carbon markets. Available online.

Agroforestry and hedgerows are the best on-farm measures for carbon sequestration but will need management of woody biomass to sustain sequestration as the trees and hedges reach maturity. While soil carbon measures have low potential per hectare, and appear to be limited in terms of the length of sequestration possible, they have perhaps the highest potential for adoption whilst also keeping land in food production. 

In the next article, we focus on what we found out: which regenerative farming practices have the most potential for reducing greenhouse gas emissions together with the financial impact of their adoption.  You can also read the previous article on this topic here.

The Need to Understand the Financial and Climate Impacts of Regenerative Farming

Posted on May 2, 2024 by - Insights, News

It’s often cited that there’s limited, robust evidence for the financial and climate impacts of adopting more regenerative farming practices. This article explains our recent work to explore the evidence base and conduct financial analysis on regenerative farming practices.

Context

The UK market for ecosystem services, including carbon offsetting, has been developing rapidly over recent years in response to the growing urgency of the climate crisis and rapid loss of biodiversity1. With 70% of the land mass in the UK under agricultural production2, farmland managers are being encouraged and incentivised towards more nature-friendly farming practices. As such, new revenue streams are opening up, from public and private sectors, which are looking to meet statutory or voluntary greenhouse gas emissions and nature restoration outcomes3. 

Yet, it is still often cited that there is limited, robust evidence for the financial impact of adopting more regenerative farming practices. This uncertainty poses a significant obstacle to more widespread adoption4. Alongside the lack of robust evidence around the financial impacts of many regenerative farming practices, there is also often a knowledge gap which affects the effectiveness of practice adoption. This gap is being addressed as practitioners learn more, share their experiences, alongside greater research that’s happening on how best to implement these practices. It is certainly true that research into the impact of these practices in the UK is in its infancy, with farmers often leading the way in investigating their impact in the field.  

What we did

To respond to this challenge, SOS-UK commissioned the Farm Carbon Toolkit, using funding from NEIRF, to conduct financial modelling on the costs or benefits to farm businesses of adopting a range of regenerative farming practices. This work supports SOS-UK’s Farming for Carbon and Nature Project, providing a better evidence base to explore ‘carbon insetting’ opportunities for university and college farmland across the UK. Carbon insetting describes the approach when actors within a value chain collaborate to reduce the total greenhouse gas emissions, and may involve interventions in the financial relationship or transactions between those actors. 

This work builds on previous work that’s explored the financial implications of shifting to regenerative or agroecological farming (such as the Cumulus report for the Soil Association5) in two key ways. First, it gives granular data on specific regenerative farming practices, whereas previous modelling work was based on farm-level or food-systems level outcomes. Secondly, it incorporates payment rates for the recently confirmed Sustainable Farming Incentive in England (January 2024 rates). 

FCT approached this task through:

  • Evaluating the most up-to-date and comprehensive research into the carbon, climate and financial impact of the adoption of an agreed suite of farming practices considered as “regenerative”. 
  • Developing farm models for three key farming systems – dairy, arable and lowland beef and sheep farms based on data within the Farm Carbon Calculator database which enabled us to identify the impact on farm greenhouse gas emissions from adopting more regenerative farming practices and systems.
  • Developing partial budgets for the adoption of key regenerative farming practices using information from key industry sources and innovators in this space.

For the first time, we have been able to bring in real-world data from the Farm Carbon Calculator to demonstrate the impact of practice change on-farm GHG emissions. 

Click here to read the report in full

In the next two articles on this topic, we explore:

Footnotes

  1. IPCC (2022). Factsheet – biodiversity. Sixth Assessment Report: Working Group II – Impacts, Adaptation and Vulnerability.
  2. Office for Statistics Regulation (2024). Agricultural Land Use in United Kingdom at 1 June 2023 [website].
  3. Green Finance Institute (2024), Farming Toolkit For Assessing Nature Market Opportunities [website].
  4. Magistrali, Amelie at el. (2022) Project Report No. PR640-09 Identifying and implementing regenerative agriculture practices in challenging environments: experiences of farmers in the north of England. AHDB.
  5. Cumulus (2002). The Economics of a Transition to Agroecological Farm Businesses: Report for the Soil Association.