While a few years ago it seemed unlikely, sustainable products are gaining a financial advantage in Western markets. Recently there has been a seismic shift in consumer preferences, with a steady demand for sustainable products. Meanwhile, governments have been raising billions of dollars in support of sustainable practices in agriculture. This trend isn't fleeting; it's expected to gain even more momentum in the years ahead.
Today we are looking at whether farmers can also be winners in the changing landscape.
Climate-friendly is the New Consumer Craze
Consumer choices are evolving, with a spotlight on products that boast ESG (Environmental, Social, and Governance) claims. Products bearing ESG claims have experienced growth at 28%, a rate 40% higher than their non-ESG counterparts, which grew at 20%. Within the array of ESG products, dairy holds significant promise. Yogurt and cheese, for instance, ranked 3rd and 8th respectively among the 32 product categories in terms of growth from ESG claims (source).
Furthermore, a study found that already 50% of consumers say they are willing to pay more for sustainable products, while over 30% spent more than half of their purchased environmentally friendly products.
Europe and US are Making the Subsidies Rain
Governments globally are acknowledging the urgency and importance of sustainable farming. The European Union, for instance, under its Common Agricultural Policy, has earmarked an impressive €270 billion to support farmers in implementing sustainable practices over the next four years.
In the US, while one magnitude smaller, the commitment is still commendable with over $30 billion of support for farmers. Given the comparable size of the US and EU economies, we can safely expect these figures to catch up to their European counterparts.
Most of the US programs have been rolled out through the USDA (US Department of Agriculture) such as:
- Climate-Smart Commodities: $3 billion
- The Agricultural Marketing Service (AMS): Over $100 million annually
- Farm Service Agency (FSA): Over $10 million annually in grants, with a more significant amount in loan programs
- Natural Resources Conservation Service (NRCS): Over $3 billion annually
- Rural Development: Over $1 billion annually
- Sustainable Agriculture Research and Education (SARE): Over $40 million annually
In addition to the USDA funding sources the recently launched The Inflation Reduction Act also contains $19.5 billion earmarked to encourage farmers to embrace climate-smart practices.
State-specific funding also shows remarkable promise, with more than $250 million allocated annually across various states. Notably, the California Air Resources Board has set aside over $2 billion for renewable natural gas ventures, like those stemming from anaerobic digesters.
These subsidies often pay for half or all of the investment needed to set up interventions like solar panels, dairy digesters, or energy efficiency improvements.
Can Producers Really Capitalize on this Trend?
The math could be fairly simple: producers could both benefit from increased payouts and improved operational costs while pocketing government subsidies in the process. Sounds too good to be true? Let’s see.
Demand for sustainable milk: This surge in demand for sustainable dairy products translates to a heightened need for sustainable milk at the source: the farms. And increased demand for a higher value-added product should mean more dollars per gallon. This is not only theory but cold, hard reality: leading European companies like Friesland Campina and Arla are offering premium prices to farmers who produce lower-emissions milk. The US is following closely behind, with companies like Organic Valley introducing an insetting program, compensating farmers for carbon credits earned from their emission-reducing practices.
More efficient farms for less: Adopting sustainable practices doesn't only cater to market demand; it directly benefits the farm's bottom line. Reducing or even eliminating the energy bill of a farm with solar panels or energy efficiency investments, and switching to electric equipment can bring huge savings while reducing your vulnerability to fossil fuel prices. And with half, or all of the upfront cost of these interventions subsidized by grants? Even better.
A Greener 💵 Future?
The trajectory toward sustainable dairy farming is clear, and it can be financially rewarding. As consumer preferences tilt towards eco-friendly products, and as governments fuel this shift with financial incentives, dairy farmers stand at the threshold of a greener, more prosperous future.
With the right advocation, knowledge, and support system, farmers can reap the benefits of this shift. Here at Lasso, our goal is the give as much transparency, knowledge, and thus, control to farmers as possible, so they can enjoy the benefits of this new market reality.
Do you want to stay updated on-farm emission reduction technologies, financial benefits, funding opportunities, data integrity, and carbon markets for the cattle sector? Stay updated with our blog!
Would you like to get recommendations on the most financially and environmentally attractive interventions, tailored to the specific needs of your farm? Write to us!