Putting a price on soils: can farmers benefit?

Healthy soils do much more than produce food. They perform a multitude of vital functions, like filtering water, supporting biodiversity, and even protecting the planet from climate change. Just as the environmental costs of intensive farming never factor into the price of food, farmers who build soil health are rarely compensated for the ecosystem services they provide. As a result of these misaligned incentives, the hidden costs of the agrifood system are estimated to be around $10 trillion.

Given that the current agrifood system is no longer fit for purpose, it's now time to rethink our approach to farming. The agrifood system faces the uphill task of producing more food for a growing population on increasingly stressed and limited arable land, while adapting to inevitable climate change, and without adding to greenhouse emissions.

While the problem seems intractable, the solutions – ranging from conservation agriculture to efficient pasture management and the appropriate use of organic and inorganic fertilizers – are available and can be affordable. For instance, soils could sequester about 1 billion tons of solid carbon per year cost-effectively.

The promise of Payment for Ecosystem Services

To reduce emissions from soils without compromising resilience and productivity, the right economic incentives need to be in place to encourage the adoption of climate-smart agriculture practices. Payment for Ecosystem Services (PES) is an approach that could reward farmers for adopting sustainable soil management practices – and generate revenue – in a context where many struggle to make a living, let alone steward the environment.

Under this system, the carbon market offers a platform to incentivize carbon sequestration and promote sustainable soil management practices. It primarily operates on a results-based payment mechanism, by monetizing quantified carbon sequestration or emissions reduced, and incentivizes on-farm climate mitigation efforts by leveraging soils as net carbon sinks rather than net carbon sources.

Unfortunately, the carbon market is currently limited by inadequate measuring, reporting, and verification systems. These systems are essential for ensuring that payments are based on actual, quantifiable reductions in greenhouse gas emissions or increases in sequestered carbon, and preventing greenwashing.

Actionable interim measures

Meanwhile, as science develops robust measurement systems, practical steps can be taken to advance and pave the way for a thriving Payments for Ecosystem Services market.

One approach is to move away from relying solely on the measurement of actual results, towards assessing expected environmental benefits. The U.S. Conservation Reserve Program and the European Union's Rural Development Programme are two examples of initiatives that offer such financial incentives to farmers who set greenhouse emission reductions objectives among a myriad other ecosystem services. According to the USDA for instance, the Conservation Reserve Program alone contributes to mitigating over 12 megatons of CO₂ equivalent annually and was able to pay farmers to the tune of $1.77 billion in the process.

Another important step is to equip and prepare farmers with the knowledge, information and technology to capture a high proportion of benefits when PES enter the mainstream. That includes providing a package of support to help farmers capitalize on the transition, combining finance together with technical assistance and the collection of baseline data.

In the process, policymakers and investors must identify and address complex tradeoffs: between livelihoods, food security and climate goals; conflicting ecosystem services; and different types of greenhouse gases.

Policy coherence is critical

A successful transition towards sustainable agrifood systems is not possible without getting public policies and spending right. Current global support to agriculture averages more than $650 billion annually, yet a majority of it is rolled out through mechanisms that harm both the environment and national budgets.  Repurposing these policies and programs can significantly impact the economy, setting the stage for new incentives and market mechanisms that expedite the transition to soil health and low-carbon practices.

Repurposing these environmentally harmful public subsidies towards rewarding adoption of practices that promote soil health offers a win-win outcome. For example, linking fertilizer subsidies to adoption of certain soil management practices and adoption of best fertilizer practices can protect soil health and improve returns to public spending. The World Bank is supporting several countries, like Malawi, Bangladesh and Tanzania, to revise the delivery mechanism of their fertilizer input subsidy programs to improve soil health.

Advancing the transition, one step at a time

Paying farmers to nurture their soils makes solid economic sense and is a measure that will ultimately produce both local and global benefits. Like many other climate priorities, however, PES will require countries to advance on many fronts not limited to measurement and reporting issues. Getting it right could have profound implications for soils and food systems in all countries.

*The blog was authored with help from Julian Lampietti.