Leveraging sustainable practices to increase value for farmers

A critical gap exists in the Australian agricultural industry for farmers to gain value from their sustainable farming practices.

In collaboration with 50 farms and industry collaborators Research Centre for Future Landscapes is integrating financial, farm management and environmental data into farm-scale natural capital accounts. It is a three-year project combinating in a digital platform in 2023.

A question the Farm-scale Natural Capital team are asked regularly is why should farmers invest time working with our scientists to produce natural capital accounts?

The answer is twofold. First, by measuring the outcomes of their management practices on natural capital, farmers can use their accounts to track changes in natural capital (which has a material benefit for their production) and inform their farm management decisions accordingly.

Second, by demonstrating their practices are sustainable and building natural capital, farmers can offer an enhanced value proposition to a range of buyers and stakeholders. Natural capital can add value to farmers through:

  • Market access
  • Security of supply
  • Favourable lending rates
  • Lower insurance premiums

In addition, measuring natural capital can position a farmer to be a supplier of choice as demonstrated by these case studies below.

Kering is a global luxury fashion group, including labels such as Gucci, Saint Laurent, Bottega Veneta, Balenciaga and Alexander McQueen, among others.

Kering has developed and championed several strategies to promote sustainable practices among its agricultural suppliers around the globe. These include the group’s annual Environmental Profit and Loss (EP&L) statement that measures carbon emissions, water consumption, air and water pollution, land use, and waste production along their entire supply chain.

With Kering’s blessing, we have adapted their EP&L and will include an equivalent assessment – at farm-scale – in each set of natural capital accounts. Kering uses the EP&L to guide its sustainability strategy, improve its processes and supply sources, and choose the best-adapted technologies.

By providing a way for farmers to value the benefits of natural capital, farm-scale Natural Capital Accounts will contribute to farm planning to maximise environmental and agricultural outcomes.

MJ Bale is a leading menswear fashion retailer that produces high-quality woollen suits and garments and is the official tailor to the Australian Men's Cricket Team, the Wallabies (Australian Rugby Union team) and the Kangaroos (Australian Rugby League team). Six-generation Tasmanian farmer, Simon Cameron, supplies wool to MJ Bale to be used exclusively in their Kingston Collection suits – named after Simon’s farm.

Simon participated in a natural capital accounting pilot study, funded by Australian Wool Innovation and run by Integrated Futures and Vanguard Business Services in 2019. The greenhouse gas emission assessment in the natural capital accounts showed that more carbon is being sequestered than emitted on Kingston – a finding proudly showcased by MJ Bale. The accounts support the mutually beneficial arrangement, with MJ Bale leveraging Simon’s sustainable management practices to promote the quality and provenance of its product, and Simon gaining financial security and support for his sustainable management and biodiversity conservation actions.

In New Zealand, the Bank of New Zealand has entered into a pilot program with dairy investor Southern Pastures, offering lower interest rates on loans if their dairy farmers meet water and biodiversity targets on their farms. The deal requires farms to improve on-farm plant biodiversity, total water quality and reduce on-farm greenhouse gas emissions. In return, the banks have lower risk exposure associated with loans on assets that might be subjected to severe regulatory penalties or reduced capital value, if managed unsustainably.

Along similar lines, a recent study from the US has found that healthy soils reduce crop insurance payouts. The research found that counties with higher soil organic matter have higher yields, lower yield losses and lower rates of crop insurance payouts under drought conditions. Soil organic matter was positively correlated with corn yields under normal conditions, but the positive effects on crop yield become progressively greater as drought becomes more severe. Specifically, the study found an increase in soil organic matter of one percent at the county level was associated with a 36% reduction in insurance payouts under severe drought conditions. A logical extension of this is that premiums will eventually come down for farms that manage and maintain or increase their soil organic matter.

As buyers of agricultural products seek greater transparency of the environmental impact of their products and business, producers who use a standardised, verifiable tool, such as natural capital accounting, to demonstrate their sustainability credentials will be in the box seat to capitalise on their sustainable farming practices.

Dr. Jim Radford 
Principal Research Fellow in the La Trobe Research Centre for Future Landscapes.