The Future of Small Farms is Selling Cleaner Water
Fighting Farm Consolidation with Pay-For-Success Conservation
River water in Wilmington, DE is dirty. Like most rivers in the US, it contains sediment and nitrates that have to be filtered out by local water districts to ensure safe drinking water for the city. Cleaning water is an expensive endeavor, it takes time, technology, and electricity.
Some, or possibly most, of the pollutants runoff farms along the river’s banks, and now efforts are being made upstream to encourage farmers to prevent that — not with new rules or regulations, but with cash.
The (Vastly Simplified) Details
The basic model, specifically championed by the Revolving Water Fund in Delaware and Pennsylvania, works like this. Say it costs Wilmington Water Works $1 per gallon to make water from the river potable. But if there was some mechanism to compensate farmers upstream for their efforts to limit runoff, that price per gallon could drop to $.25, which means as long as you’re paying less than $.75 to the farmer, the water company is getting a discount.
To glaze wildly over the details, the actual market for this works on credits. When a farmer installs a wetland or a dedicated riparian zone, or changes their fertilizer application methods to limit runoff, a credit is created (involving sometimes controversial methods of placing an economic value on resource services). A contract with the water company requires they purchase a certain amount of credits every year as long as they see that drop in the cost of water filtration, effectively creating a market for cleaner water, which farmers can sell and companies and municipalities can buy.
Farmers will say this isn’t a very revolutionary idea. Wetlands programs like this have existed for years. Those programs, which are usually federally regulated, dictate that when a company eliminates a wetland (say because they drain it to build a shopping mall or an apartment complex), they have to purchase credits, effectively ensuring that another wetland was created or re-established somewhere else. Farmers are able to take advantage by building wetlands on marginal plots of farmland that can be more profitable as paid conservation spaces than they can growing crops.
The Big Deal
American agriculture is fast approaching a full decade of slumping farm incomes and low commodity prices. The trend of farm consolidation has been hurried along by disasters and the drying up of rural communities, which limits the opportunities for off-farm employment when times get tough. We’ve been obsessing about the loss of mid-sized farms for years, with no real solutions surfacing — namely because the economics of scale (and the immovability of farm policy) that rule in the countryside.
The basic explainer for farm consolidation; as farms become more mechanized and seed and chemicals become more advanced, machinery and other inputs become more expensive, which means if you have more acres, you’re spreading the costs across more production, and you can do it now with fewer people. But it seems to me that pay-for-success conservation programs could be just the thing that upsets that economic equalibrium.
Farmers who can find a way to profitably harvest their conservation practices may actually drive reverse consolidation precisely because the economics of conservation are reverse economies of scale. The less land you have, the more intensively you can manage and care for each acre, and the more you can earn from it.
The economies of scale in agriculture assume that almost every acre in production is about the same. The same machines can be used on them to grow about the same crop. But in a well-managed pay-for-success program, that would no longer be true. When a farming operation is paid not only to maximize production but also paid to maximize environmental impact, more intensive management is more effective. The more efficiently in terms of conservation of natural resources a farm can be run, the more money is on the table. Farmers who find a way to partner with organizations who are developing these natural resource markets (or organize and negotiate their own) will be the first to benefit.
There are naturally lots of risks and uncertainties the still exist with these models, as most are still young. Venture Capital has fueled many of them, getting the ball rolling where government organizations and individual interested groups could not, and it shouldn’t be overlooked that growth- and returns-obessessed venture often comes with some serious strings attached. Ensuring that efforts are driven by sound science will be another key.
This is my 100th story on Medium! Thanks for reading my ideas, and for baring with my opining on issues I research everyday. I look forward to some spirited debate! I’m in the midst of doing some deep dive reporting on these topics, so keep an eye out, but in the meantime, you might enjoy exploring another aspect of this issue in The Daily Yonder, rural investment. Or learning more about me. @sarah_k_mock
