Redefining Performance for Value Creation

Agribusiness corporations must abandon nitrogen use efficiency (NUE) as a performance metric, and stop targeting yields, to open up the best new markets for regenerative farms.

Over the past century, the North American agriculture economy has evolved for productivity. Efficiency has been the defining goal in industrial development, defined as maximizing output and minimizing unit costs of primary producers, handlers and processors.

But now, as economist Mark Carney writes in his book Value(s): Building a Better World for All, “the values of economic dynamism and efficiency have been joined by those of solidarity, fairness, responsibility and compassion.” Using nitrogen use efficiency (NUE) to measure farm-level greenhouse gas (GHG) emissions is thus revealed as one cause of market failure in carbon credit trading initiatives.

Here's How It Happened

Nitrogen use efficiency is calculated as the crop’s yield divided by the amount of nitrogen fertilizer applied on it. Absent from the equation are biodiversity, pollution, enterprise and community finance, leading NUE scores to over-report the benefits of the products and practices it measures, by multiple factors.

As a result, the farm’s emissions in CO2-equivalency terms are understated. Attached credits are thereby overvalued in carbon markets, and NUE-based projects and products fail over time to deliver promised outcomes.

The agriculture industry has done nothing but bleed money and blow up nearly every company that has tried to monetize carbon assets so far. Today, Prairie Routes Research is proposing a new ratio that could effectively score the performance of regenerative farms.

It has long been understood that negative environmental costs (externalities) have been incurred and natural capital lost along the path of industrial agriculture development, but stakeholders couldn’t see what to do about it until climate change became broadly understood and the regenerative agriculture movement gained credibility as a solution. Now we know that linear, decades-old metrics such as NUE must be redesigned to account for multiple influences on the long-term profitability of farms restoring natural ecosystems.

The point is, using nitrogen efficiently in producing commodity crops is not the same thing as restoring natural ecosystems.

Society is asking a lot more of agriculture than precision fertilizer applications.

As a case in point, witness how global food consumer packaged goods (CPG)’s struggle with NUE as soon as their corporate commitments extend beyond CO2-equivalency Scope 3 emissions reporting. The specific flaws in using NUE as a baseline are as follows:

1. Yield as the numerator sets the wrong target. Profitability and well-being define farm success; these rely on diversity and environmental health.

2. Applied nitrogen as the denominator incorrectly presumes that all farms use the same suite of commercial fertility products in raising crops, and that no other factors influence soil health. Regenerative farms rely on plant diversity, livestock integration and micronutrient applications.

3. The essence of efficiency is producing more with less, which only benefits the farm enterprise – not society, the environment, or any stakeholders. This attitude of ‘look at me and how sustainable I am’ – when in fact they are not – is commonly expressed by farmers with the sole aim of optimizing NUE.

Luckily, math is politically agnostic, enabling performance ratios to be redesigned as society’s values evolve. Consider the following calculation for scoring performance on regenerative farms: