March 17, 2022

By Ben Palen, Ag Management Partners

Sustainability is a challenging and complex topic. It brings to mind something from my law school days that seems on point to the present day. A case was before a panel of administrative law judges on the Federal Communications Commission, and the factual record was extremely complex. In describing that record, one of the judges made an analogy that went something like this—it was once said of Immanuel Kant’s Critique of Pure Reason that only God and Kant knew what it meant, and that even God wasn’t sure….In many ways, that is an apt description of sustainability. It can mean different things depending on one’s role in the agricultural/food space.  

In the course of some recent research on the ag fund world, I have reviewed many fund websites and other documents pertinent to the activities of those funds. With few exceptions, “sustainability” was the key word for all funds. Some went into a great amount of detail about it, while others mentioned it in a more casual manner. 

Similarly, if one reviews the upstream companies in the ag sector, the broad themes are the same, and, if anything, sustainability is even more prominently mentioned than it is at the “farmer level”.  It is front-and-center of their branding strategy in a way that is intended to resonate with consumers.

Further, there are dozens of organizations, some industry related, and some with links to governmental entities, that in one fashion or another, address the topic of sustainability.   

For the most part, the entities that fall into the above three categories have programs based on aspirational goals, and on the self-assessment of practices. The goals are laudable, and typically are necessary for the economic viability of the particular industry. However, the goals are often focused on the more efficient use of a certain resource, say, water, and not necessarily on the sustainability of such use. There are trade-offs in play here, and there are potential contradictions between productivity and sustainability. Further, one can talk about sustainability all day long, but, ultimately at the end of the day, the practice also has to be profitable.  

Unlike the world of accounting, there is generally a lack of clear quantitative standards by which to demonstrate sustainability when comparing companies within a certain subset of the agricultural world. To be sure, that world is complex and diverse, but as the saying goes, one cannot improve what one cannot measure. Many of the key aspects of sustainability are financially material, and when transparency is lacking, credibility suffers—with investors, consumers, and regulators.

Is it possible that sustainability means the same thing to all of these participants? Is it extreme to suggest that it means replacing the resources that one consumes in order to grow a crop?  Or is it the creation of benchmarks for resource use against which progress is measured by means of charting improved practices? Or, is it something else? How is sustainability related to carbon sequestration (another buzzword in today’s world)? Can a word mean different things to different people, and still have the same fundamental basis in truth?

The intent of this article is not to make value judgments about whether a particular approach is “right” or “wrong.”  Instead, the intent is to provide examples of how sustainability is being approached by several entities in the world of agriculture, and to discuss the merits and challenges of a quantitative versus a qualitative approach for measuring it. It is important for the agricultural production and food processing industries to have some measure of commonality of approach, otherwise, there is the risk of confusion, and, potentially, claims of greenwashing from investors, regulators, and consumers. It is not unreasonable to suggest that there is a herd mentality of sorts with regard to sustainability, and that may mean—for all industry segments – taking  a step back, reassessing the approach, and finding ways to provide greater transparency for all interested parties. This is, we believe, a fundamental mission for the ag and food industries. In other words, it is important that the substance of the notion of sustainability aligns with the understanding of that word by consumers and others outside of the food production sector.   

Strictly speaking, sustainability in the context of growing crops might be viewed as seeking to replace the resources that are consumed during the production season. . That is a tall task, because crop inputs often include finite resources such as water (in some irrigated regions) and fertilizers, of which the base materials are generally non-replaceable resources.   These are massive questions of social policy that are beyond the scope of this article, but they are topics that cannot be viewed as solely of academic interest. It would be a mistake for the ag industry to ignore them. A recent example where this issue became front and center was in Saudi Arabia, where, in 2018, the government banned (with very limited small farmer exceptions), the production of alfalfa. The reasons were rooted not in politics, but in science. The massive aquifers in the Saudi farming regions were declining at a rate that exceeded their recharge, and the choice was made, at the highest levels of the Kingdom’s government, to accept the fact that the country could not be self-sufficient for raising its own feed crops, and instead had to begin relying on imports. Of course, that opened a can of worms also known as food security, but the hard reality is that the continued use of the available water resources for alfalfa was not sustainable.

In the context of other real world scenarios where sustainability is being addressed in large scale agriculture, there are some examples that are helpful in understanding the approach of specific segments of agriculture. These represent good faith efforts by stakeholders in certain segments of the ag and food industries to do the right thing for the environment, the end users of the products, and for the stakeholders themselves.

Sustainable Water Usage

The San Luis Valley in southern Colorado is basically a high-elevation desert with significant groundwater and surface water supplies. The area is known primarily for the production of potatoes and malting barley, with lesser crops including alfalfa, quinoa, and canola. The Rio Grande River crosses the Valley, and when irrigation was first developed half a century ago in the area, it was a primary water source.  With the advent of center pivot irrigation, wells drilled into a shallow aquifer became the primary water source, with the Rio Grande intended to serve as a source of recharge for the aquifer. The primary water source for the Rio Grande is snow melt from the nearby mountain ranges.

The usage of irrigation water by farmers in the Valley is managed by a water district, which is a quasi-governmental organization funded largely by fees charged to water users. The district has struggled with the over-pumping of the aquifer, and most recently I learned that a periodic measurement of the static water level in test wells in the Valley was the lowest ever recorded.

It is undeniable that climate change is impacting the amount of water that flows into the Rio Grande, hence, the ability of the aquifer to sustain itself is being compromised. Various efforts have been made over the years to find policies that would reduce water use, and the success of such policies has not been as large as hoped. Now, the district governing board has proposed a policy that can be described in simple terms as the 1:1 deal. That means that the acre inches of water pumped from the aquifer by a given water user must match the acre inches of water represented by that water user’s ownership of shares in the various irrigation ditch companies that draw water from the Rio Grande River. The penalty for exceeding the 1:1 benchmark would be $500 per acre foot. There is no crop currently grown in the San Luis Valley that would be economical with water at $500 per acre foot. Crop options are limited by the 7,000 foot elevation, and the subsequent short growing season.

The almost certain result of this policy will be the idling of some acres of land. The water rights associated with the idled land will be available for lease by the water rights owners to farmers who lack sufficient water rights of their own to irrigate their crops in a profitable manner.

This is at the same time, a harsh policy and a necessary policy for it recognizes that true sustainability means keeping usage and replacement of a finite resource on an even keel. It will be painful, but it will increase the likelihood that agriculture will remain viable in the Valley on a long-term basis.  It might also tend to bring more stability to crop prices in the area, and to other irrigated acres where water availability is an issue. The reason is that the limited water may tend to reduce wide swings in crop quantities from year-to-year.  This may be especially true in areas that feature many acres of permanent crops.

Importantly, it must be noted that this is a quantitative approach to sustainability. We will return to that approach, and compare it to qualitative approaches, later in this article.

Another example of an effort to deal with a declining resource is evident in  irrigated regions in the northern Texas panhandle. Note that I did not say preserve the resource – in this case, there is no significant source of recharge, and the efforts are geared towards prolonging the life of the Ogallala aquifer in this area. As is the case in the San Luis Valley, there is a groundwater management district in the area, and wells are closely monitored each year for levels of decline. There is a “water budget” for each farm, and usage that exceeds this established  budget is quite costly.  Simply put, the focus is on monetary penalties for over-pumping. There are similar approaches in large areas of Nebraska, where there are numerous locally managed groundwater districts. Basically, sustainable water use translates to financially viable water use based on benchmarks.  

The disincentives to over-pump water in this part of Texas have led to a shift away from water intensive crops such as corn, and towards cotton and grain sorghum. There is a massive cattle feeding industry in this part of Texas, and the fortunes of all aspects of agriculture are closely tied to the aquifer.

One can imagine that there is, in addition to the groundwater district’s system of regulation, peer pressure to do the right thing.  Another way to view this is that the approach is focused on the greater good, or the big picture.

Referencing the prior mention of how “sustainability” is defined in a strict sense, it is challenging to argue that the Texas and Nebraska approaches are sustainable. The reason is in plain sight—a finite resource is being used, and not being replaced. It is not a matter of if the water will run out, but when.  On the other side of the table, however, is the notion that sustainability is ultimately measured in quantitative, not qualitative, terms. From that perspective, having benchmarks for water use against which improvements are expressed in numbers, not words, has meaning. In other words, rather than simply saying we are using sustainable practices, we have points of reference (district-wide water budgets) so that there is true meaning. Without trying to parse words, extending the life of the Ogallala in these regions, while not fitting squarely within the four corners of “sustainability,” does point towards “responsible practices.” There again, they are being quantified, so stakeholders can point to actions, not just words, that leave a third party wondering about the heart of the matter.  

It is also of vital importance to note that the examples from Colorado, Nebraska, and Texas are based on more than just aspirational goals. They are rooted in benchmarks for all users of water for irrigated crops, and while there is some measure of self-assessment, there is a framework of regulation that is quantified. One can look at the annual reports from these irrigation districts, and see the data. In effect, those reports are akin to audits.  

Sustainability “Audits”

When one thinks about audits, what typically comes to mind are financial audits that are based on a set of generally accepted standards for measuring various aspects of a company’s financial condition.   Those standards typically apply across broad swaths of industries.

In agriculture, by contrast, there is an enormous variety of crops, geographic regions, agronomic practices, and the like, and it is probably impossible even to try to identify a sort of one-size-fits-all standard for the notion of sustainability. There are many organizations ranging from global entities such as the UN, to certain ag industry segments, that have established platforms intended to provide guidance for members and other interested parties on “sustainable practices” in the particular contexts.

The challenges  we see for these approaches are that most are based on self-assessments, and there are few points of reference with which to tie a certain practice to a measure of sustainability. Here are a couple of examples. We have harped on input usage to a large extent in this report, but the truth of the matter is that water and fertilizer are huge parts of the discussion about sustainability:

~ Water use. The heart of the issue is finding the level of water use that optimizes crop production, while prolonging the life of the water source. It is not sufficient to have a goal of cutting water use across the board by 15 percent when some users may not be efficient to start with. That approach misses the mark in considering what is sustainable. And promoting a reduction in water usage in and of itself—without revealing the whole picture—can lead to mistaken impressions by third parties. In other words, the questions of first impression include looking at the available bucket of water, the water-holding capacity of the soils on the farm, the water needs of various potential crops, and on which acres that water can be most efficiently used. The result may include taking some acres out of production. Indeed, with the implementation of the Sustainable Groundwater Management Act in California, that is precisely what is happening. A market for the leasing of water, similar to that noted for the San Luis Valley, is taking shape in California. Further, there are differences in water use efficiency among varieties of crops, and the potential for developing more water efficient crops, particularly with such technologies as CRISPR, holds promise.  

~ Fertilizer use. Different crops have different response rates to, say, nitrogen applied versus pounds of the crop that are produced. Simply stating that a farm has cut nitrogen use by 20 percent, means little unless one digs deeper, and considers such things as whether the soil capabilities and the reduced fertilizer usage are accurately “matched”.  Although it is generally agreed that nitrogen fertilizer is produced from non-renewable resources, there are some promising developments, such as plant breeding to produce varieties that have some ability to “fix” nitrogen, along with agronomic practices, such as cover crops, that can add nitrogen and certain other nutrients to the soil.

There are various agtech tools available to help capture the parameters of each topic noted above. With those tools, a user can produce data to show the how’s and why’s of improvement in resource use. While the results on that particular farm may differ from the one down the road, the point is that a framework is used to create common data points regardless of the farm.  That can provide assurance to an auditor and/or to other third parties, especially the consumers of the products, when considering whether the statements about sustainability in a particular context are credible.  

For a subset of the agricultural world, some steps could be established to ensure that the noted parameters are considered. Thus, a group of growers for a particular commodity could then “tell the world” of the basics of their sustainability approach, and the story would be told such that the dots were connected in a way that had meaning beyond broad statements of goals or somewhat vaguely defined accomplishments. We view this as a way forward that is closer to the traditional notion of an audit, and one that addresses topics that have financial materiality in a way that provides the needed transparency and clarity to third party observers.  

Further, and admittedly, this is a controversial topic, and there has to be some discussion about the reality of the agriculture industry which relies, in part, on non-renewable inputs—and the consequences of such reliance. This is something that no one likes to talk about. While there have been great advances in ag related technology in recent years, with more no doubt coming down the pike, it is highly likely that the basic notion of sustainability, when viewed in the context of available resources, and with climate change as the overhang, must reflect a reality that some crops—regardless of technological advances–will not make financial or environmental sense with the ways or at the scale in which they are currently being produced. Trade and consumption patterns will also shift.

This is not to suggest a doomsday kind of scenario, but rather a recognition of the fundamental fact that the use of non-replaceable resources in all segments of agriculture must be looked at with a different lens than has been the case. There are many hardworking people with sincere intentions, thinking about this topic and acting on it, and it is vital for all stakeholders in the industry to take part in that discussion. Two good examples of those efforts are the Potato Sustainability Alliance, and the Almond Board of California. A renewed emphasis on a quantitative approach seems appropriate.  Thought also should be given to the idea of “responsible” practices because of the potential that “sustainable” practices might end up being a sort of Pandora’s box for the world of agriculture.  

ABOUT THE AUTHOR:

Ben Palen is a fifth generation farmer with experience in many aspects of agriculture, including projects in the United States, Africa, and the Middle East.  The focus on all projects is sustainable practices based on a mix of boots on the ground work and selected use of agtech tools.

** All views, data, opinions and declarations expressed are solely those of the author(s) and not of Global AgInvesting, GAI News, or parent company HighQuest Group.