Agriculture Risk Pricing Models Could Calculate Discounts Similar to Those Offered to Good Drivers & Non-Smokers
Ever since the federal government created the Soil Conservation Service following the Dust Bowl, the correlation between soil health and agricultural resilience has been generally well understood. However, almost a century later, we’re still struggling to accurately quantify how specific soil health practices reduce production risks. As a result, these practices remain largely unaccounted for in risk pricing models across finance, investment and insurance, and farmers are not compensated through financial discounts for adopting them.
Land Core’s goal is to address this knowledge gap by offering a tool analogous to those used to calculate discounts for other low-risk behaviors, much like “good driver” or “non-smoker” discounts.
Good Soil Discounts?
For decades, the health risks of smoking were known, but widespread cultural acceptance lagged. Unsurprisingly, around the same time that insurers began pricing in the risks of smoking, public perception shifted substantially. Objective, market-based incentives (like insurance discounts) are very powerful in shaping culture, and we believe that a “good soil discount” across the agricultural industry will go a long way towards ushering in a new understanding of the true value of soil health for all producers.
To facilitate this, Land Core is developing an actuarially sound, predictive model to measure the risk reduction and cost savings associated with specific soil health practices, such as cover cropping, reduced tillage and increased crop rotations.
Thanks to the generous support of the Foundation for Food & Agriculture’s Seeding Solutions grant program and our fantastic philanthropic partners, Land Core’s multidisciplinary team is expanding the scope and scale of our work, analyzing 17 years of remotely-sensed data across nine Midwest states and millions of fields over the next two years.
The model will be capable of predicting risk at diverse scales, from individual fields and farms to counties and entire states.
Given the intricate regulatory context of U.S. federally subsidized crop insurance, we are initially focusing on finance, where loan pricing, land valuation and other incentives are more immediately actionable.
Carbon Markets Vs. Risk Pricing: Which is Best for Incentivizing Change?
Compeer Financial, the upper Midwest lender and insurer with approximately $30 billion under management (and the first major agricultural financial services provider to consider approaching risk through the lens of soil health), has joined us to help pilot this concept. Together, we’ll be examining the potential impact of various incentives with their farmer clients over the next two years.
While the prospect of carbon markets holds considerable promise in this space, their pay-for-performance nature and unknown future market value make them a difficult tool to incentivize change. Appropriately pricing risk is a more equitable, scalable and actionable approach to drive the adoption of de-risking practices and may, in fact, pave a more financially prudent pathway for producers to access future carbon and ecosystem services markets as they mature.
Ultimately, when the empirical connection between soil health and reduced risk is fully accepted, and “good soil discounts” are in place throughout U.S. agriculture, it will radically scale the transition to a more economically and ecologically resilient future for our farmers, ranchers and country.
About Harley Cross
Harley Cross, co-founder and director of strategy at Land Core, is an accomplished entrepreneur with a background in business and creative strategy. Prior to Land Core, he co-founded and led Interconnected, a Los Angeles-based creative agency.
His entrepreneurial journey extends beyond just creative ventures. In addition to founding a global quality control business based in China, he also spearheaded Hint Mint Inc., a designer candy company that boasted sales in over 40 countries with clients as diverse as Mont Blanc, BMW and the Four Seasons. His stewardship led the company to its successful sale in 2016.
His multifaceted background in entrepreneurship, combined with his passion for innovative communication strategies, drives his work at Land Core. His efforts help fuel the organization’s mission to scale soil health adoption in the U.S., fostering resilience, profitability and a thriving agricultural community.
More About this Grant
Read the June 22, 2023 News Announcement About this Grant
Mitigating Farm Risk Through Improved Soil Health