3 ways agricultural lenders can help farmers reap millions in savings from conservation

The U.S. farm economy is in its worst condition in decades due to several years of low crop prices, ongoing trade disputes, natural disasters and other variable weather. But many farmers are adapting and innovating – implementing conservation practices that build soil health and resilience, such as nutrient optimization, cover crops and no-till.

Still, there is a growing need for farmers to understand the full financial benefits of these practices and prove their value to ag lenders and other financial partners.

Conservation could save farmers $265 million in Iowa alone

New analysis undertaken by the Iowa Soybean Association (ISA), in collaboration with Environmental Defense Fund (EDF), Walton Family Foundation and Iowa-based Regional Strategic, Ltd., offers significant insights into the link between conservation adoption and farm profitability. This research builds on previous studies published by EDF on conservation and farm finance for both grain and dairy farms.

The report analyzed the crop budgets of 20 Iowa farmers representing 29,000 acres across the state that have adopted a variety of conservation practices. The analysis focused on the 2018 cropping year and found that, despite a challenging farm economy, many farmers are experiencing significant savings from adopting conservation practices.

For example, moving to no-till and strip-till generated savings of $10-88 per acre relative to conventional tillage, and total pesticide expenditures were consistently lower for acreage following a cover crop when compared to acreage without a cover.

When extrapolated across Iowa’s ag economy, ISA concluded that transitioning half of Iowa’s conventionally tilled acres to no-till and strip-tillage statewide could save Iowa farmers up to $265 million annually in fuel and equipment costs.

While this is promising news, the reality remains that any change in farm management involves some risk and cost, and these challenges fall primarily on the farmer. That’s where lenders – farmers’ closest financial partners – can help.

Conservation makes financial sense for ag lenders, too

When farmers’ financial partners share an interest in understanding the financial impacts of conservation adoption and support farmers in managing the transition successfully and profitably, they can create lasting returns for themselves and their clients. That’s because the benefits of reduced risk and reduced cost extend across the farm financial system.

Here are three ways that ag lenders and other financial partners can support farmers in achieving growing returns on conservation:

1. Support good business management, which supports good conservation management.

An interesting observation from the ISA analysis was that farmers with the most complete financial records were also implementing the most conservation practices, thereby saving the most from those practices. That’s no coincidence.

These are undeniably challenging times for farmers, but ag lenders can help by supporting farmers' adoption of conservation practices that pay. Click To Tweet

Agricultural lenders often emphasize the importance of good recordkeeping, and this adds one more reason.

2. Gain familiarity with practices that work best.

Lenders should be familiar with locally relevant assessments of the financial impacts of conservation adoption and learn about strategies to minimize cost and maximize benefits.

As a follow-up to the initial analysis, ISA will be releasing case studies detailing eight key conservation and profitability topics. These case studies will be excellent resources for lenders and their farmer clients who are considering conservation practices or who have already implemented conservation practices but may not be reaping the full financial benefits.

3. Integrate conservation into financial strategies.

With the many economic and environmental challenges farmers currently face, there is an increasingly important role for lenders to collaborate with farmer clients and new partners to examine the relationship between conservation and finance. The most useful analysis of conservation and profitability is the one that speaks directly to farmer and lender decision-making.

Such analysis can enable lenders to integrate the financial value of conservation into their decision-making and develop new products that support farmers as they transition to increased conservation adoption. Agricultural lender Rabobank’s new organic transition product is a good example; there are also opportunities to develop products focused on soil health practices.

These are undeniably challenging times for farmers across the country, which means it is even more important to maximize the connections between financial health and conservation, and support farmers in achieving both.

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