Is the Sustainable Grain Market Worth It?

Whether it’s a planter, fungicide, or seed variety, most people don’t decide to invest in something new without first asking if the benefits outweigh the risks and if it’s the right solution for their business. Investing in new market opportunities for grains — like the sustainable grain market — is no different. Grain growers won’t change their planting or crop protection practices without knowing how the switch will affect their profitability and long-term goals.

The market for sustainable ingredients is continually expanding due to an increasing number of food, pet food, and biofuel companies setting goals to reduce their environmental impacts. As farmers consider entering the market for sustainably-produced grains and turn to ag retailers for guidance and advice, both groups must understand the opportunities and challenges this market brings.

What makes grain sustainable?

Many farmers have already implemented practices that fit under the sustainable agriculture umbrella. For example, the benefits of no-till or conservation tilling have been known for decades, and cover crops are a common method of improving soil health, increasing organic matter, and reducing erosion and nutrient loss. Other sustainable agricultural practices (which, again, are not new concepts) include crop rotation, strategic irrigation, and using inputs with a low environmental impact.

As farmers consider entering the market for sustainably-produced grains, they will turn to ag retailers for guidance and advice.

The difference between what farmers are doing now and what practices must be used for an ingredient to be considered sustainable can depend on who’s buying. There are suggestions of a regulated market for sustainable ingredients in the future, but for now, companies tend to have their own definitions of what agricultural practices make an ingredient sustainable. To sell in the sustainable grain market, growers may need to add more sustainability practices than they’re currently using — depending on who the buyer is.

A third party is often used to help food and biofuel companies source sustainable grains. Technology and data will also have an increasing role in connecting sustainable grain growers with buyers and helping agribusinesses market products and services that support grain sustainability.

Why grow sustainable grain?

Sustainable agriculture practices help restore and protect natural resources for future generations. Additionally, there are advantages for crop production, such as improved soil health, reduced herbicide use, and more efficient fertilizer use that come from these practices — although often at a higher initial cost.

The inputs for sustainable practices tend to cost more, but there are opportunities to offset these costs. For example, some companies offer premiums for sustainably-grown grain. Ag retailer Producer Ag offered a $0.25 per bushel premium for sustainably-grown wheat for the 2023 growing year. To participate, producers were asked to provide proof of purchase of approved certified seed, complete a premium grain contract and a sustainability survey, and deliver to a pre-approved location.

Opportunities can also be found through local connections. Gaesser Farms in Iowa harvests some of their cereal rye cover crop to sell the seed to other farms. They also secured a contract with a local distillery for 9,000 bushels to meet the distillery’s entire rye needs for the year.

Assistance during the transition period is needed

The path to increased profitability through sustainable practices can be challenging for growers, particularly in the first few years. This was highlighted in a study by the Boston Consulting Group and One Planet Business for Biodiversity (OP2B) titled “Cultivating Farmer Prosperity: Investing in Regenerative Agriculture” and reported recently by DTN Ag Policy Editor Chris Clayton.

The study found that producers who use regenerative agriculture or soil health practices could increase their long-term profits by 15-25%.

The study found that producers who use regenerative agriculture or soil health practices could increase their long-term profits by 15-25%. However, there were barriers during the three to five-year transition period that included revenue loss, increased expenses for machinery and seed, and temporary yield loss.

The study concluded that farmers need support during the transition period to move from conventional tillage to no-till and cover crops. It suggested that programs like those available through the USDA’s Natural Resources Conservation Service (NRCS), as well as discounted loan rates, improved insurance terms, price premiums, long-term land leases, and agronomic advice could help during the transition period.

Ag retailers as sustainability advocates

Helping grain growers access sustainable ag resources and technical advice is where agribusinesses can find opportunities within the sustainable grain market. As advocates for sustainable ag practices, they can use their expert knowledge to support the sale of their own sustainability products and services.

Purdue University and the Nature Conservancy studied how farmers and ag retailers viewed conservation practices, what opportunities and challenges farmers faced in adopting them, and the role of ag retailers in supporting conservation practices. Data for the research was collected by doing focus groups with ag retailers and their customers in Indiana, Ohio, Michigan, Illinois, Iowa, and Nebraska.

The study found that retailers have the opportunity to become trusted advisors for sustainability and conservation practices by providing equipment, supplies, technical advice, record keeping, and financial and evaluation assistance that help keep farmers profitable and successful. There is also a need to change the bias toward what conservation means and what happens if the practices are — or are not adopted — particularly as more sustainable food systems are demanded in the future, so the value chain will have to adapt.

Not surprisingly, the study also found that farmers are willing to adopt conservation practices as long as there are proven benefits in doing so. They need evidence from retailers, nongovernmental organizations, universities, and government agencies to prove these practices are beneficial.

Make informed decisions — together

Retailers can help farmers decide about implementing sustainable ag practices by sourcing resources and tools for them. Programs like Partnerships for Climate-Smart Commodities, Environmental Quality Incentives Program (EQIP), and Conservation Stewardship Program (CSP) offer potential financial assistance for sustainable practices, and the USDA provides conservation technical assistance at no cost.

An example of the tools available includes the cover crop economic simulator tool developed by the Iowa Soybean Association, which estimates the economic outcomes of cover crops based on a range of market prices, yield changes, income, and cost offsets and creates a sensitivity analysis of net return. The USDA cover crop chart can also help producers choose which cover crops to plant.

Carbon credit opportunities are expanding

Ag retailers can also help farmers enter the carbon credit market. Carbon credits have been around for a while, but their demand is about to go up significantly, according to a recent report by McKinsey. The report estimated that global demand for voluntary carbon credits could increase by a factor of 15 or more by 2030 and 100 by 2050.

The report estimated that global demand for voluntary carbon credits could increase by a factor of 15 or more by 2030 and 100 by 2050.

Iowa State University compared the requirement to grow and sell carbon credits across 13 private voluntary agricultural programs in the United States. They found that the carbon market for agriculture is not cohesive or transparent, with programs having different rules, incentives, and penalties. It means there’s an opportunity for ag retailers to help their customers navigate the market while marketing their sustainable products and services.

Food, pet food, and biofuel businesses are moving toward goals that require increasing amounts of sustainably-grown grain. The market for sustainably-produced grain has a lot of players, and the rules can be complicated. However, the opportunities it presents are worth exploring for both grain growers and ag retailers.

 
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