Addressing the Challenge of Financing Regenerative Agriculture

Regenerative agriculture may be a way for farms to reduce their environmental impact while improving soil health, conserving resources, and enhancing resilience. However, the upfront investment needed to transition to regenerative practices  has been seen as a challenge.  

Helping farmers and investors find ways to overcome the financial hurdles to make this happen was the focus of the panel “Financing Alternatives for Regenerative Agricultural Practices Within Row Crops” at the 20th annual BMO Farm to Market | Chemicals Conference in New York. Joining me were three leading experts in the field: 

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  Alma Cortés Selva, Senior Advisor, Climate Modelling, BMO Climate Institute 

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  Andrew Keech, Partner, Bain & Company 

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  Holly Sullivan, Specialist, Regenerative and Climate Adaptive Initiatives, Food and Water, World Economic Forum 

Below are key insights based on the discussion. 

The upfront investments made by farmers to transition to regenerative practices, including farming and ranching methods that rehabilitate the soil and surrounding ecosystem, can be significant and may not be recovered in the short term. Referencing an economic model published in a joint report by Bain & Company and the World Economic Forum, Bain’s Andrew Keech described the economic reality for a typical row-crop farmer in Illinois as they transition to regenerative techniques: the initial years of implementing practices like no-till farming and cover cropping can mean new equipment costs, increased input costs and potentially lower yields. A steep learning curve also eats into already narrow profits.  

While these practices can result in yield improvements over time, farmers operating with thin margins can’t easily absorb the upfront costs and years of uncertainty. It’s a significant economic risk that requires innovative financing solutions.  

It’s clear that the financial burden of transitioning to regenerative agriculture can’t be borne by farmers alone. As the World Economic Forum’s Holly Sullivan pointed out, the solution requires a coordinated approach across the agricultural value chain. Emerging models blend catalytic, concessionary and commercial capital sources to create financial products that meet farmers’ unique economic needs. Per-acre practice or outcomes payments, carbon offset programs and new lending or insurance offerings can all help farmers embarking on the transition while creating long-term value for the system.  

Innovative programs with these models already exist, such as ADM’s re:generations program that offers financial incentives and technical support to farmers making the transition to sustainable practices, and Indigo Ag’s Carbon By Indigo Program, which partners with 40 agribusinesses to help farmers implement soil-improving practices that generate carbon credits and conserve water.  

The task ahead is to scale programs like these by mobilizing more capital. The World Economic Forum, supported by Bain & Company, have brought together multiple stakeholders across the sector, collaborating with 50 global systems leaders in the First Movers Coalition for Food to mobilize more financing, build market confidence for farmers to transition and demonstrate how to de-risk sustainable practices for farmers and investors.  

Developing financing solutions for regenerative agriculture is crucial as the sector faces significant environmental challenges.  

As part of our discussion, our own Alma Cortés Selva pointed out that while we may think of North America as water rich, researchers are finding that water-stress levels are quite high across the continent. We’re using water resources that can’t be replenished, and the problem is only being exacerbated by warmer, drier conditions in parts of the continent.  

Modeling scenarios through 2050, BMO’s Climate Institute estimates that without wider-spread adoption of regenerative agriculture, the U.S. may face US$11 billion in drought-related losses. Sustainable farming can help mitigate these losses by around US$2 billion with practices like cover cropping, which can lower irrigation costs by improving the soil’s ability to retain water and nutrients. 

Developing financing solutions that can scale is critical for widespread adoption of regenerative agriculture. It will require innovation, diverse and strategic financing sources, and a nuanced understanding of the challenges that farmers face in transitioning their operations.   

Transitioning to regenerative agriculture practices can ultimately help farmers reduce their business’ long-term exposure to drought and flood risks. As Cortés Selva put it, reliance on nature can pose a business risk, and farmers who don’t plan ahead could face losses in the future.