Instead of rewarding farmers only for what they produce, we also reward them for what they preserve...

For Janet Heathcoat, supporting the banking needs of RBC’s agriculture clients has been a big part of her life for over 20 years. It’s also personal. Her family has been farming Canada’s lands to grow cereals for our breakfast tables and grass for livestock to graze for more than 100 years. So, she’s acutely familiar with the challenges that come with managing nearly 30,000 acres of farmland.

But the one challenge that’s keeping farmers like herself up at night? Costs.

“Costs are the biggest factor farmers have to consider today because we are at the mercy of the world’s demand for food,” Janet said in a recent interview. “Not in 40 years have I seen it such that managing cost is actually more work than farming itself.”

Canadians everywhere are feeling the pinch of rising prices due, in part, to the disruptions in supply chains and international security challenges. Farmers and their families bear the burden of these costs as much as the next person. Many parts of the world rely on food supply from Ukraine, one of the world’s key agricultural regions. Due to the war, its ability to supply global markets has been severely limited. That’s had a big impact on supply, already constrained from the pandemic. In just one example, fertilizer, prices rose by as much as 300% in 2022.

While large industrial farms can better absorb this volatility, small and mid-sized farms have much less control over the cost of an input. With commodity prices rising fast, and input costs going up just as much, farmers have to rely more on shopping around or timing the market to buy at the right price. For farmers whose love is working their land, the added burden of finding the right price is an unwelcome one.

Meantime, persistent supply disruptions caused by COVID are stalling farmers’ plans to upgrade or replace equipment and machinery. Across the board, machinery and equipment is more expensive and harder to find than ever and suppliers are often unable to commit to delivery dates or a final price because of constrained supply. That makes budget planning a lot harder for many farmers.

“In some cases, rising rates are doubling the cost of a loan payment for clients,” continued Janet. “Interest payments used to be a non-event for clients. Now, they’re making conversations about cash flow are more in-depth and more frequent as clients need our help adapting to this environment.”

Listening to Janet tell it, you almost feel bad asking farmers to take on more. But a climate conscious world is doing just that.

Climate disruption, global population growth, economic volatility and geopolitical stability are all putting enormous pressure on Canada’s farms to feed the world, sustainably.

That’s the basis for a recent report from RBC Economics & Thought Leadership – Fertile ground: How soil carbon can be a cash crop for the climate age, which examines three ways to mobilize the capital needed to reduce emissions from Canada’s agriculture sector.

“Canada’s farms manage one of the world’s largest inventories of agricultural land and sustainable practices can give farmers unparalleled power to cut emissions, and improve air and water quality, soil health, and biodiversity,” said Mohamad Yaghi, Ag Policy Lead, RBC Thought Leadership, and author of the report. “And while the credit market could be enormous – as much as $2 billion to $4 billion more by 2050 – there remain significant economic obstacles to farmers adopting these practices.”

The report finds that, to scale the transition to sustainable agriculture practices, while also de-risking the endeavor for farmers, we need capital. Three financial instruments could help provide it: carbon offsets, carbon insets and government funding. Of these, insetting and government funding hold the greatest potential to make an immediate impact.

To make the money work, and to build a foundation of market integrity and trust, we also need reliable measurement, reporting and verification systems (MRVs). The more we invest in improving measurement, the better our benchmarks for driving improvement will be. Further, a national MRV protocol, and cross-industry partnership, can be the foundation of a world-leading sustainable agriculture strategy.

To Janet and her clients, the idea of being rewarded for what they preserve is a welcome one.

“You preserve your land and soil so that the next generation can farm,” continued Janet. “But soil is your moneymaker and whatever you can do to upgrade its ability to preserve and produce, is in your best interests.”

Janet recognizes the challenge ahead and knows a lot needs to change for farmers to remain competitive during the transition. But she still believes there is no better profession to be in.

“Producing food is truly a noble profession. I’ve lived my whole life in such a beautiful industry and, save for the financial barriers, I don’t know how anybody wouldn’t want to farm.”

 

You can access the report on the Next Green Revolution
Project website: thoughtleadership.rbc.com/the-next-green-revolution-project/