Rabobank says precision agriculture can be an instrument for new business models for farmers. Rabobank’s RaboResearch Food & Agribusiness states this in an article about the opportunities of precision agriculture. One of the opportunities identified is ‘ecosystem services’.
According to Rabobank farmers can use precision farming technologies to optimise their farms and to increase the income from existing activities, such as increased product quality, better grading and less storage loss.
But these innovative technologies can also help find new sources of income, for example with a fee for ecosystem services provided. These are services ‘for society’, such as better soil quality, carbon sequestration, water storage or erosion control.
It currently is difficult for farmers to earn money with this, because it is often not clear how much carbon is stored in the soil, or how much extra water a field can store due to a change in cultivation practices. Capturing more information on the farm lays the foundation for monetising ecosystem services and creating additional revenue streams, according to RaboResearch.
However, “We are not there yet,” says Rabobank. “For a well-functioning pricing/rewarding system, a number of preconditions must be met.” The first is market forces. Apart from food and CO2, there are no functioning markets for ecosystem services, where demand and supply come together to determine a price.
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As a result, individual farmers are struggling with very high levels of transaction costs for upgrading ecosystem services. Secondly, there is not yet a universal (European) standard for measuring these services. This has resulted in various measuring instruments. This multiplicity of instruments creates uncertainty and raises the barrier to invest in it.
The third condition is the further development of precision agriculture on farms. For simple sharing of data, a further standardisation of operating systems and / or platforms between value chain partners is required. In addition, it is important that arable farmers and value chain partners make clear agreements about who owns the data.
More and more arable farms have ‘smart’ technology available such sensors and gps, in combination with decision support software. “This is the first step towards a business model”, say Rabobank analysts. “And now it is important that arable farmers take the next steps together with value chain partners. Such as setting up markets, setting standards and further developing precision farming to create the conditions needed to be rewarded for delivering ecosystem services.”
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Although one of the biggest challenges for monetising ecosystem services on farms is finding buyers, there is a number of startups in the United States, including Nori and Indigo Ag, who want to solve this problem. These startups aim to create a market for carbon sequestration in the soil. Farmers provide records and the company helps to quantify, monitor, report and verify them. The captured carbon is converted into carbon credits, which are sold to third parties.
Currently, both initiatives are only available in the United States, but Indigo Ag announced in September 2019 that it will eventually introduce Indigo Carbon in Europe as well. In 2019 it already opened a European headquarters in Basel, Switzerland and the company wants to service smallholders and largeholders, first in the German market and then gradually in other European countries.
Co-author: René Koerhuis