A large field of soybean crop.
The Regenerative Agriculture Finance Program, also known as RAF, was launched in January 2022 by Farmers Business Network in collaboration with Environmental Defense Fund. The pilot year of the RAF program included 48 corn, wheat and soybean farmers seeking access to lower interest rates on operating loans by achieving standards for soil health and nitrogen fertilizer management practices.
When launched, the RAF program quickly became Farmers Business Network’s fastest selling financial product ever. Of the participating growers who completed data collection, 83% met the environmental standards and received a rebate payment equal to 0.5% of their loan interest rate.
The success of the pilot year of the RAF encouraged Farmers Business Network to expand the program. Learn more about the 2023 program results, as well as new opportunities and challenges for the RAF.
Expanded enrollment and new funding opportunities in 2023
Farmer interest in operating loans that reward environmental performance remains strong. In 2023, 84 RAF loans were made to 81 farmers, representing a nearly 70% increase in farmer participation. The total value of loans made through the RAF was $41 million, with an average loan value just under $500,000. The program also continued its wide geographic spread, with farmers from 25 different states enrolled.
One of the key benefits of the RAF is farmers’ ability to pair the operating line with other sources of public and private funding for farm sustainability improvements. A core component of the long-term vision for the program has always been identifying opportunities for farmers to “stack” RAF financing with other financial incentives.
This vision received a major boost when the RAF was included among the eight projects in Field to Market’s Climate-Smart Agriculture Innovative Finance Initiative, which was awarded $70 million from the U.S. Department of Agriculture’s Partnerships for Climate-Smart Commodities program. As part of this initiative, Farmers Business Network is collaborating with Field to Market, PepsiCo and ADM to distribute $13 million in marketing incentives to qualifying farmers alongside their RAF financing.
Challenges associated with the farm economy and data collection
Fluctuations in crop prices and the cost of capital will impact participation in a year-to-year financing program such as the RAF. Corn prices fell substantially in 2023, dropping from $6.54 per bushel in 2022 to $4.75 in 2023 — a trend set to continue with a 2024 price of $4.40 per bushel. The weakening farm economy led to an increased loan delinquency rate, causing those farmers to be ineligible for the RAF rebate.
In addition, other enrolled farmers did not complete the data collection that would have enabled them to receive the RAF rebate. Gradable, a joint venture between Farmers Business Network and ADM, collects data from farmers annually to determine whether they met the environmental standards of the RAF and will receive the rebate. One significant reason for the lower data completion rate is that collection interviews started late in 2023 because of uncertainty around the start date of the Partnerships for Climate-Smart Commodities project. This constricted the time available to engage farmers and input data. Some farmers may also have self-selected out of the program by choosing not to submit data if they judged themselves unlikely to receive a large rebate or to meet the environmental standards.
Of the 38 farmers who completed data submission, 36 met the environmental criteria and received the rebate, representing a 95% success rate. The remaining two farmers did not meet the criteria due to over-application of nitrogen fertilizer to corn.
The future of the RAF and other loan programs for sustainable agriculture
As the year and harvest seasons draw to a close, the Gradable team is currently in the process of collecting data from and making rebate determinations for the 133 farmers who enrolled in the RAF in 2024. In addition, Field to Market’s Climate-Smart Agriculture Innovative Finance Initiative is now fully rolled out, providing farmers better access to both the RAF and additional financial incentives. Interested farmers should visit the RAF information page to learn more.
Farmers Business Network is also planning to launch a RAF land loan in the coming months, expanding the variety of loans that farmers can access with preferential rates for meeting environmental standards.
More broadly, the development of financial products that reward environmental performance is picking up steam. CoBank, the largest U.S. agricultural finance institution, recently announced its first sustainability-linked loan. Several other financial institutions have come together to create the Agriculture Finance Sustainability Coalition which aims to develop more financial solutions for farmers through public-private funding partnerships.
This progress is essential, as farmers will need increased support to finance sustainable practices in the face of a weak farm economic outlook.