Farm Data's Journey to the Bank

Some farms are being paid new money for field records today… proving that management changes can create new markets for grain.

Context

In many ways, farmers are worried about sharing data. From a certain angle, it can appear that governments and corporations could use it to dictate land management practices in the future.

That’s most likely true… and unstoppable. The fact of the matter is that satellite imagery can validate how individual fields have been managed, and there’s no covering that up.

Going forward, incentives and consequences (carrots and sticks) associated with field activities will continue to grow, as was unpacked in this popular report. The biggest culprits causing greenhouse gas (GHG) emissions in commodity agriculture appear to be:

• Tree removal,

• Confined animal feeding operations (CAFO’s),

• Nitrogen fertilizer.

As was discussed earlier this week, the quickest fixes at a farmer’s disposal today are:

• Grazing croplands,

• Restoring water systems,

• Protecting grasslands.

The purpose of this report is to outline how doing less of the former and more of the latter will steadily improve farm-level economics and resiliency. This is important to businesses that deal in crop inputs and grain, because the variables that determine supply and demand are changing in ways that haven’t been seen before.

Layering Revenue Potential

Marketing revenues on conventional grain farms are the product of yield and price. Return on investment (ROI) takes into account input costs.

For most farms, ROI analysis from different land management strategies is a tight and basic calculation comparing potential revenues and expenses from different crop options. Decisions are refined by the farm’s crop rotation, growing season, financial state, and market outlets.  

Advanced ROI analysis also accounts for variations like the equipment and storage used by different crops. Accruing every expense to the appropriate crop as accurately as possible informs choices for maximizing profitability.

Fuel use and crop input applications are expected to be taxed or otherwise newly disincentivized soon, which will increase the variability in ROI between different crops. At the same time, there are new sources of revenue adding to (yield*price) of cash crops.

For example, Canadian government reimbursements for best management practices (BMP’s) are flowing out to farmers. Carbon payments are also swirling around, but they can’t be inked into a farm’s long-term ROI yet. Regulations based on appropriate models for trading and compliance are being developed, in order to quantify and validate the impacts of payments for carbon removal and other ecosystems services. Today’s private trading platforms are risky to participate in because they all lack sound research and/or integrity, in one way or another.

Monetizing Field Records: How it Works Today

1. The farmer must first create valuable field-level data and attract interest in how ecologically desirable outcomes have been accomplished.  

2. Regional authorities, consultants, and/or consumer packaged good (CPG) brands seeking to support ecologically desirable outcomes on farmland reach out to learn more. Sometimes they pay the farmers to show and explain production philosophies and tactics.

3. A pilot project is then set up to support expansion of field practices that will create data to validate label claims and organizational mandates.

4. Eventually the farmers are asked to populate a series of reports that measure field activities and ecological outcomes, to turn them into scores.

Where to Next

The amount of money farmers are paid for ‘supplying data’ depends on the level of detail and credibility. Currently, the range runs from from signing an affidavit on a grain contract to submitting all the records required for organic certification.

These 2 paper-based systems for measurement, reporting, and validation (MRV) are unlikely to withstand new technology and demand for field-level traceability, and more detailed information. The trends with the greatest momentum currently are blockchain and nutrient density, because they have the greatest potential for disrupting the economics of existing grain marketing models.