In collaboration with Delta Institute, we’ve identified economic strategies for incentivizing “water-friendly” farming that could help improve drinking water for millions of people.
Clean water is one of the biggest environmental priorities in the world right now—it’s a critical resource that affects human health, biodiversity, and so much more. And it’s directly related to the way we grow our food.
Today, industrial agriculture is producing crisis levels of runoff—pollution that washes off farm fields after rain events and into our rivers, streams, and oceans. That runoff carries synthetic chemicals, fertilizers, and eroded soil that can contaminate waterways like the Delaware River, Chesapeake Bay, and Gulf of Mexico—threatening wildlife, our food supply, and drinking water.
Rodale Institute, with our partners at Stroud Water Research Center, is taking a critical look at the linkages between agricultural management and clean water with our Watershed Impact Trial, a new side-by-side comparison study that aims to determine the impact of organic, conventional, and conservation farm management practices on our water supply.
While research like ours, which hopes to identify the agricultural strategies that best support clean water such as cover cropping, reduced tillage, and increasing soil health, is crucial to improving our systems, financial barriers still exist. These barriers can prevent farmers from implementing regenerative organic agricultural practices that could protect clean water for us all.
Farms are businesses. Farmers need to know that when they take steps to transition towards conservation and regenerative practices, and provide ecosystem services such as clean water, that these practices will bolster their bottom line. In order to improve clean water through farming, a financial model for transitioning farmers is an important part of the picture.
Currently, a small number of loan programs, grants, and private investment initiatives are available for farmers. However, if we want to spark a change in our food system, we need to explore economic strategies that stimulate farmers to adopt regenerative practices.
That’s why, with support from the William Penn Foundation, Rodale Institute joined Delta Institute to identify ways the financial sector can invest in a regenerative future and support farmers in adopting water-friendly growing methods.
Economic Strategies for Incentivizing Regenerative Agriculture & Clean Water
To identify financial opportunities to support regenerative systems we spoke with Dr. David LeZaks, former leader of the Regenerative Food Systems Practice at Delta Institute. Delta Institute is a nonprofit focused on using integrated systems to find solutions for environmental, economic, and social challenges across the country.
The table below, compiled by Dr. LeZaks, identifies how our financial system could make room for the kind of transition, adaptation, and innovation that would open doors for farmers to implement clean water practices. This summary encapsulates how everyone in the economic system can come together to overcome obstacles and support clean water and regenerative agriculture, including investors, banks, philanthropists, and government agencies.
Broken up into investment sectors, this table identifies economic strategies for incentivizing clean water farming practices, how they would help, if any current examples of those approaches exist, and next steps to implementation. The sectors described are:
- Private debt: loans to private companies or business owners that don’t come from a bank
- Public debt/fixed income: loans that must be paid back on a fixed schedule
- Public equity: shares in a publicly owned company (stocks)
- Private equity/venture capital: money that derives from high net worth individuals or firms that purchase shares of private companies or invest personal money into innovation
- Cash: short-term loans that pay regular interest, such as Certificates of Deposit
- Real Assets: physical assets that have worth such as property
- Philanthropy: private investments focused on social good rather than profit
- Supply chain: establishment of markets for regenerative products
The ultimate goal of this analysis is to stimulate the development of new streams of financial support that farmers looking to protect clean water could pursue.
Private Debt
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| EQIP bridge loan revolving fund | Federal cost-share programs, such as EQIP, require up-front costs be paid by the producer. A bridge loan fund would provide a short-term loan to purchase materials and USDA payment would go back to revolving fund | Foodshed Investors | Develop partnership with local / regional angel investment or impact investment groups. Develop loan structures and pilot with farmers. |
| Equipment loans | Transitioning to agricultural systems with clean water and healthy soil outcomes usually requires the purchase of new equipment (no-till drills, roller crimpers, fencing & water systems for livestock). Philanthropic funds could be used to buy down interest rates or provide credit enhancements to make the purchase of equipment more feasible. | States, such as Kentucky, have equipment revolving loan programs. The PA Pennsylvania Industrial Development Authority could also be used, if the breadth of the program and terms were appropriate. Pennsylvania has indicated that Pennvest funds could be used for equipment needs when transitioning to organic crop production. | A stand-alone revolving loan fund, capitalized with philanthropic dollars could be created, or state / local programs could be adapted to ensure programmatic fit with desired soil / water outcomes. |
| Business loans | In addition to producers, appropriately structured capital is needed for businesses across the food system value chain, whether it be for water-quality oriented services, food products, distribution, infrastructure, or other needs. Low-cost or other flexible capital sources that more fully account for the positive social and environment outcomes of the business are needed. | RSF Social Finance Soil Health Capital Collaborative | Interface with local lenders or mission aligned lenders to customize loan pools that support businesses that positively affect soil health and water quality. |
| Organic / soil health transition loans | Until recently there were no financial products structured to help farmers transition to organic, or other production systems that had long-term positive soil, water, and economic benefits (with significant upfront costs). Two programs are now available in the US, although coverage in the Chesapeake may be limited. | Rabobank Organic Transition Loan program | Develop organic / soil health / water quality focused lending program with local Farm Credit association or rural agriculture bank. |
Public Debt / Fixed Income
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Rural Regenerative (organic) Agricultural districts | This approach is a land-secured financing mechanism is modeled after the Property Assessed Clean Energy program, with a novel application in agriculture (with a focused on regenerative organic agriculture. | This concept was developed as part of a USDA Conservation Innovation Grant proposal. Contact Croatan Institute for more details. | Expand pilot project for ROAD into Chesapeake geography. |
| Aggie Bonds | Aggie bonds are used in 16 states in the US to provide low-cost flexible capital, mostly to beginning, limited resource, and socially disadvantaged farmers. Theoretically, these programmatic structures could also be used to support farmers who are working to improve soil health and water quality. | In Pennsylvania, aggie bond funds are distributed through the Next Generation Farmer Loan Program | A similarly structured program could be used to support farmers that meet certain environmental outcomes of criteria based on their farming systems. |
Public Equity
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Screen (positive / negative) holdings of philanthropic and other institutional investors | Positive screens for companies accelerating the transition to improved water quality / organic
Negative screens for companies actively degrading water through their products and services. |
As you Sow has created screens for Fossil Free Funds, Deforestation Free Funds, companies reducing pesticide usage, and for other social and environmental issues. | New screens can be launched to highlight either those improving or degrading soil and water quality. |
| Shareholder advocacy | Shareholder advocacy can occur in several ways, including shareholder resolutions. This form of advocacy becomes more powerful if the issues raised are of material significance to the company. | Advocacy strategies and their social sector advocates have activated across many themes (as referenced above). Wealth holders (such as philanthropic endowments) and their constituents have used this tool to change the behavior and operations of many publicly traded companies. | Identify companies whose activities or influence in the region could be positively swayed through a shareholder advocacy approach. |
| Development of new funds | Funds with novel investment theses that focus on water and agriculture can be developed and offered to investors. | ETFs and mutual funds have been developed around water, organics, and renewables, but new vehicles could be developed around an agriculture / clean water thesis. | Engage with fund managers to develop the criteria for public market vehicles. |
Private Equity / Venture Capital
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Seeding new private equity funds | Development of new private equity or venture capital funds that support companies that serve the food system and support organic / soil health / water quality. | Seed 2 Growth, Fresh Source Capital | Philanthropic capital can be used to support fund design and thesis development and to invest in general partner. |
Cash
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Creation of new CDFAs or retail banks | In some cases, existing banking institutions are insufficient to meet the needs of a food system that provides clean water, healthy soil, and nutritious food. In that case, new financing entities could be needed. Structures might include banks, credit unions, or could include designations such as Community Development Financial Institutions (CDFIs) | Maine Harvest Federal Credit Union | Determine if current value chain financing opportunities are sufficient to meet needs. If not, then alternative financial institutions might be needed. A first step would need to gather information from constituents on unmet financial needs. |
| Deposits in existing financial institutions | Deposits (savings / certificates of deposit) in existing financial institutions could be used to launch a “water quality focused certificate of deposit” that would provide loans to those adopting certain sets of practices that improve water quality. | Many | Engage local financial institutions to develop a targeting loan product that could be paired with deposit accounts. |
Real Assets
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Purchase of farmland assets | Farmland can be directly purchased with philanthropic housed investment assets and then leased out to farmers with lease terms that mandate soil health and water quality practices be used. Farmland can be sold back to farmers at the appropriate time. | New Island Capital Management, Farmland LP, Iroquois Valley Farms, Dirt Capital Partners | Determine if existing investment funds would be used or directly invest in agricultural real assets |
| Farmland management companies | Few, if any, agricultural management companies exist with a management thesis focused on organic / regenerative / water quality. There are opportunities for new business entities to be created in this space, or invest in existing entities that could then add alternative management strategies to their portfolio. | People’s Company, Farmers National Company | Partner with existing companies and work to integrate new land management services focus on water quality / soil health / organic transition or invest in the startup of a new company in this space. |
Philanthropy
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Conservation loan guarantees and loan loss reserves | The USDA Farm Services Agency currently offers a loan guarantee for the installation of conservation practices on farms. The program is poorly structured and never used. A philanthropic loan guarantee fund could help banks loan for the adoption of more conservation practices, especially those that improved water quality. | FSA Conservation Loan program | Assess the viability and utility of such a guarantee funders with stakeholders including banks, farmers, and USDA. |
| Price floors for crops / livestock grown using specific conservation methods | Farmers often face uncertain markets and fluctuating prices for crops, especially non-commodity crops that are important in diversified rotations and in improving soil health and water quality. Some of these crops may not be adequately covered under existing crop insurance and new programs that provided a price floor would give farmers certainty when planning their short & long-term financials | Identify gaps in current crop insurance programs and develop new program in coordination with mid-tier value chain businesses to incentivize diversified production and improving environmental outcomes. |
Supply Chain
Mechanism, Instrument or approach |
Details & rationale |
Examples / references |
Potential next steps |
| Long-term offtake contracts (w. risk sharing) | Farmers who use diversified rotations, or integrate livestock into their systems often have difficulty identifying markets and stable prices for their goods. Long-term offtake contracts for diversified rotations can mitigate some of these risks | Pipeline Foods | Identify other value chain actors and supply chains where there are or could be markets for a diverse rotation. Work to educate on the co-benefits for diverse rotations and opportunities to open new markets for products that currently have less value. |
| Institutional procurement | Institutional buyers, such as schools, hospitals, businesses and government are large buyers of food and are increasingly interested in providing healthy food to their stakeholders. | Center for Good Food Purchasing, Healthcare Without Harm | Engage institutional buyers in the procurement of good grown in ways that increases water quality in soil health. Existing programs are a bridge into forming procurement policies. |
David LeZaks, Ph.D., is an environmental scientists, financial activist, and Senior Fellow at Croatan Institute. At the time of this project’s completion, Dr. LeZaks led the Regenerative Food Systems initiative at Delta Institute in Chicago.
This material is based upon work supported by the William Penn Foundation under Grant Award Number 188-17. The opinions expressed in this publication are those of the author(s) and do not necessarily reflect the views of the William Penn Foundation.