Carbon Credits: Patience Will Pay for Farmers

I think it’s safe to say that anyone who has read an agriculture-related publication over the past few months would have read articles about carbon, writes Agworld’s Reinder Prins at PrecisionAg. From opportunities to monetize farmers’ carbon sequestration abilities to carbon-focused company mergers and acquisitions and businesses focusing on the carbon ESG factors affecting sustainability measurements, it’s safe to say that carbon is quickly becoming the flavor of the month… or maybe the decade?

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What is becoming very clear already, is that it’s the farmers in this case who own a commodity, carbon credits, that is in hot demand with businesses around the world. And right now, it’s the buyers or dealers of carbon credits who are trying to work out how they can negotiate best to buy these carbon credits. Almost every annual report of listed businesses that I’ve read recently talks about ESG — Environmental, Social and Governance — and offsetting carbon emissions is high on everyone’s priority list. With investors increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities, I envision this to only become more important in the not-so-distant future.

One of the hot topics with farmers and other industry stakeholders has been the fact that buyers and traders only award carbon credits to those farmers that have recently changed their farming practices. In other words, if a farmer has been doing “the right thing” for quite a while already, they are not able to get any carbon credits awarded for this; this hardly seems fair for those farmers that have already been farming in a way that sequesters more carbon than their peers.

Bayer’s announcement on expanding their carbon initiative earlier this year seems to address this exact issue, backdating the implementation of certain practices to January 1, 2012, which makes more farmers that have been “doing the right thing for a longer time” eligible to participate. What this means is that farmers need to be able to show a solid set of field records from before this date all the way to today, something I talked about in a previous article about carbon.

I did also notice in Bayer’s announcement that participating farmers have to lock-in to a 10-year term along with another 10-year retention period. So, for this program to work, farmers will have to supply Bayer with their last 10 years’ worth of farm data, their next 10 years’ worth of farm data, and potentially another 10 years of farm data — depending on how a “retention period” is defined — in order to sell their carbon credits. And, if the price of carbon credits goes up in the meantime, the farmers are still locked-in for the whole 10-year period, and possibly for the 10-year retention period as well.

So what does this mean for farmers?

Read more at PrecisionAg.

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