By David I. Gustafson, Adjunct Research Faculty at Washington State University
This article is part of a series, Climate Friendly Fruit & Veggies, highlighting work from the Fruit & Vegetable Supply Chains: Climate Adaptation & Mitigation Opportunities (F&V CAMO) project, a collaborative research study co-led by investigators at the University of Florida and the Agriculture & Food Systems Institute. Other collaborators include researchers at the University of Arkansas, University of Illinois, the International Food Policy Research Institute, the World Agricultural Economic and Environmental Services, and Washington State University. This project seeks to identify and test climate adaptation and mitigation strategies in fruit and vegetable supply chains.
I’m a fan of action movies, where a Middle Eastern bazaar is a popular place for high-speed chases. Even without the careening bullets and motorcycles, there are hints of danger and mystery amidst the clamor and unknown languages filling the air. You barter over the selling price of exotic objects that cannot be found anywhere else. Am I about to pay ten times what something is really worth? So it is with the emerging carbon market and U.S. agriculture today. Major companies like Bayer and upstarts like Indigo Ag and Nori are now offering to purchase carbon credits directly from producers for the adoption of new practices they agree to begin employing on their fields. But what is this worth to producers?
For producers who can participate (mostly corn and soybean growers), payouts are not very impressive, starting at less than $10 per acre. But producers are being tempted to join these programs with promises that future payments will balloon as global carbon markets mature and grow. However, there are reasons for producers to be skeptical. Getting more than a ton of net carbon reductions per acre is challenging. For instance, one of the most effective strategies, winter cover crops, generally yield no more than half a ton per acre. Also, producers have heard this story before, and remember the balloon that popped when the Chicago Climate Exchange (CCX) ceased operations back in 2010 after only about seven years of trading, the price of carbon having dwindled to a few cents per ton of CO2.
Yet there are also some reasons why this time might be different. First, carbon prices have rebounded. Although there is no true global carbon market, the effective price in the European Union is now around $75 per ton, and the California price is about $18 per ton, representing a 100 to 1000 times increase from the 2010 collapse of CCX. Secondly, major companies are making large commitments to achieve carbon neutrality by mid-century or sooner. They see purchasing carbon credits from farmers as one of the least expensive ways to zero out their “carbon balance sheet.” In the case of Indigo Ag, the publicly disclosed buyers include large non-ag players like JPMorgan and Ralph Lauren. The third factor is politics. Yes, the pendulum swings both ways, so we don’t know if this will change again in the next cycle. But the new Administration certainly has a renewed focus on climate change. For example, USDA is evaluating a new concept: “climate-smart commodity crops,” which would be produced using climate-smart practices and then garner a premium in certain export markets, or from buyers looking to book a claim related to emissions reductions. Although it is not yet clear which crops will ultimately qualify, the concept could eventually parallel the current USDA Organic Standard.
What about fruit and vegetable growers? Very few are currently eligible to participate in these programs. The Bayer and Indigo programs are limited geographically to the Midwest, South, and Southeast, with no availability in key fruit and vegetable producing states like California, Florida, and Washington (Figure 1). The Nori pilot program is the most applicable, being at least theoretically available to any U.S. grower of carrots, oranges, potatoes, strawberries, and a few other fruits and vegetables. California now operates a complex carbon cap and trade program. However, most farming operations are currently excluded by its stringent rules, like the “permanence” requirement that carbon must be sequestered underground for 100 years in order to qualify.
Another consideration is that fruit and vegetable growers are typically targeting financial returns in excess of $1000 per acre per year, with little prospect that carbon credits will amount to much of that, at least in the near-term. However, systems such as Nori’s may be tempting, especially to those seeking diversification in their income streams. Nori’s program includes a standard “additionality” requirement: payments are only made for a “discrete and verifiable activity or practice change” that would not have occurred without the payment. It also is based on cryptocurrencies, which not all growers might be comfortable with.
So what’s the bottom line for fruit and vegetable growers? States like Washington are beginning to launch new opportunities such as the Sustainable Farms & Fields Program, but it’s not quite available yet. In the meantime, it seems likely that most will be compelled to pursue carbon neutrality not because of carbon markets, but because of contractual requirements from their buyers. Companies like McDonalds are committing to carbon neutrality by mid-century, which will likely translate into new practices being imposed on its growers of potatoes, tomatoes, etc. So now may be a good time for growers to begin exploring who might pay them the most to begin employing practices that avoid emissions and sequester more carbon. Our F&V-CAMO project has used Life Cycle Assessment to identify opportunities for growers to reduce carbon footprints (Figure 2), for which they could someday receive payments.
For every grower who dares to enter this new marketplace, this is a time to carefully examine the wares being offered before signing up. Who knows, maybe there is a genuine bargain hiding in a corner of that bazaar that would be the perfect and profitable fit for your operation.
David I Gustafson, Ph.D., is an independent scientist who uses modeling to help food systems meet human nutrition needs in more sustainable ways. He recently joined WSU in an Adjunct Research role and now resides in Bellingham. This #NIFAImpacts research was supported by USDA NIFA Award: 2017-68002-26789.