Measuring and valuing sustainability: A third income stream for farmers

  • 09.08.2023
  • article
  • Measuring Sustainability
  • Policy
  • True Cost Accounting
  • UK Farming Policy
  • Patrick Holden

Enabling a country-wide transition to truly sustainable farming can only be achieved if farming in a sustainable way becomes more profitable than the current extractive system. At present, however, if you farm in ways that reduce greenhouse gas emissions, increase biodiversity and deliver a range of social benefits, you are likely to make less money than if you farm extractively.

I should know – we have just celebrated the 50th anniversary of our arrival at Holden Farm Dairy since when we have been striving to produce food in harmony with nature on our 300-acre mixed organic dairy farm in West Wales. Yet, during this time, there have only been short-ish periods when we made money, notably in the very early days, when milk prices were higher, and then in the golden era of carrot production when, for a brief few years, I was the organic ‘carrot king of Wales’ and demand exceeded our supply.

We went into cheese production in 2007, adding value to our organic milk, which would currently fetch about 40p a litre if we sold it in the wholesale marketplace – probably at least 10p below the cost of production. This is why so many of the small family dairy farms producing milk from fewer than 100 cows have disappeared in recent years.

Even though we are currently producing around 25 tons of cheese a year and tripling the value of our milk by so doing, the high costs involved and our heavy borrowing siphons off much of our net income through interest and capital repayment, meaning that I have needed a day job for much of the last 20 or so years to keep the farm afloat.

This is hardly the advertisement one would want to broadcast to the tens of thousands of farmers in this country – and millions throughout the world – who are increasingly concerned by the threats arising from our extractive farming systems, which are damaging nature, releasing greenhouse gases into our atmosphere and producing food that isn’t healthy. If adequate financial incentives were in place, I am certain that the vast majority of farmers would transition, but currently that isn’t the case.

A third income stream for farmers

At present, most farmers in the developed world derive income from two main sources: sales from the food that they produce and government subsidies. This is where the need for a third income stream comes in.

If we are to enable a mainstream transition to truly sustainable farming systems, we need to ensure that it pays. This could be made possible through the generation of a new income stream from so-called ‘public goods’ that farms can, and in some cases already do, deliver. I’m speaking here of the sequestration of carbon in our soils, the increased biodiversity that derives from farming in harmony with nature, along with the wide range of social and cultural benefits, including employment skills and education that farms like ours can deliver.

Someone feeding a small flock of chickens

Although we can hope that the post-Brexit UK farming support schemes are being designed to move in this direction, there is much more that can be done, specifically through leveraging public and private sector financing for the climate, environmental and social goods that farmers deliver alongside their produce.

The importance of harmonising measurement and pricing

Without reliably and accurately measuring these ‘public goods’, as described by then Defra secretary, Michael Gove, when he took office after Brexit, it is impossible to justify paying farmers for these benefits. That is why, in 2015, the Sustainable Food Trust established a ‘Farmers and Land Managers Working Group’ whose aim was to develop an internationally harmonised framework for measuring the sustainability impacts of farming systems of all shapes and sizes.

Long before that, I became convinced that the combination of the absence of the polluter pays principle (whereby those responsible for causing environmental harm are held financially accountable for these negative impacts) and the misdirection of subsidies were perpetuating intensive farming systems. As a direct consequence, farming practices which are essentially extractive, mining the natural and social capital that has accumulated over generations, have remained more profitable than the sustainable alternative for the whole of my farming lifetime.

In response, just after the establishment of the Sustainable Food Trust in 2011, we organised a succession of conferences in London and the United States: ‘The Future of Food’, ‘True Cost Accounting’ and the ‘The True Cost of American Food’. By this time, it became obvious that we needed to put an accurate price on the consequences of this global depletion of nature’s reserves, so we researched and published a report in 2017 entitled, The Hidden Cost of UK Food.

The headline conclusion of this report was that if you buy £1 worth of food in a UK supermarket, there will be another hidden pound, which doesn’t appear on the price tag. This ‘hidden pound’ is split equally between damage to natural capital and public health but, ultimately, it still ends up being paid by the public in the form of water bills, which include clean-up costs, or our taxes paying for ever escalating NHS treatment costs.

Since then, further research by the Sustainable Food Trust and others indicates that our conclusions actually underestimated these hidden costs. One can conclude from this that we live in a world of dishonest food pricing where the polluter doesn’t pay, and the subsidies are misdirected in such a way that our current farming and food systems have disastrous negative consequences on the health of our planet and its population.

Headwinds to the sustainable transition

You really can’t blame farmers for producing food this way. After all, they are just following the best business case. And, for as long as these so-called ‘externalities’ are not accurately attributed to those who cause harm or deliver benefits, the system will be locked into a potentially disastrous cycle of resource depletion, water pollution, greenhouse gas emissions and damage to public health.

Any farmer who wants to challenge the current economic orthodoxy and farm more sustainably will be met by a headwind – by farming extractively, they would be reaping the financial benefit of not having to pay for the negative external impacts arising from unsustainable practices. We’ve all seen this playing out recently: the catastrophic pollution of the river Wye, the devastating loss of biodiversity, air pollution caused by nitrogen fertilisers, pesticides in our food causing a range of previously uncommon health disorders – the list goes on.

The cost of this damage is astronomic and if things don’t change, intensive agriculture will have played a major part in making the planet uninhabitable for future generations and bankrupting our health services. Yet governments of all political hues seem oblivious to these financial risks, possibly because they believe – arguably correctly – that tackling the problem will cause food price inflation, which is politically unattractive. These economic distortions need to be overcome if we are to ensure that truly sustainable farming becomes economically viable.

Once again, I should know, because that is exactly what we tried to do back in the 1980s with a group of around 100 sustainable farmers, setting up the organic marketplace and standards. Our naive wish was to produce food in a sustainable way – but once we started doing that, we quickly realised that the prices on offer would not cover the higher costs of production. This led us to create what we saw as a prescription for sustainable farming, a story that we shared with the media, who came to trust us, laying the foundation stone of the organic market.

Fast forward 40 years and how are we doing? The answer is not yet well enough! Not only have we failed to break into the mainstream, with organic UK sales stuck at around 5% of total market share, but we have even created a prejudice amongst many consumers that organic food is merely an indulgence of the rich and privileged who can afford to spend more on food that may or may not be better for their health and the environment.

That may be a harsh summary, but if we want to ensure that the farmers of the future adopt production methods that rebuild lost natural capital, address climate change and improve public health, we will definitely have to change the economic environment in which they operate.

Paving the way for the third income stream

Now we are nearly up-to-date and there is some good news! Just imagine that the system for measuring sustainability impacts became a globally accepted norm. This would enable governments throughout the world to use it to measure the impact of farming on carbon, biodiversity and health in a harmonised way. Initially, measurement would be focussed on gathering baseline data, which would then pave the way for the introduction of policy incentives and market premiums that reward farmers who have high scores when it comes to delivering positive outcomes for climate, nature and health.

All this could be possible if governments, banks, insurance companies, investors and retailers entered into a new collaborative partnership, collectively agreeing to measure the sustainability impacts of the farming community, and producing financial incentives which reward positive sustainability outcomes.

Recently, there have been positive steps towards making this a reality, including collaboration of the CEOs of some of the world’s biggest companies through the Sustainable Markets Initiative (SMI). Through the SMI, leaders from across the aforementioned sectors have agreed to collaborate on measuring sustainability impacts, representing huge potential when it comes to financing and scaling the transition to more sustainable systems of agriculture.

For the last three years, the Sustainable Food Trust has received funding from philanthropic sources and from NatWest Bank to develop this harmonised sustainability assessment framework and we have built a coalition of more than 130 organisations committed to using it.

My hope is that, in a few years’ time, our farm will be able to derive a significant percentage of our farm income at Holden Farm Dairy from payments for net carbon gain, mainly achieved through soil carbon sequestration; biodiversity credits or their equivalent; and income for building social and human capital, hopefully rewarded through a combination of job creation and the development of the farm’s educational platform for schools, business leaders and anyone who needs to learn more about the story behind their food.

More than that, these metrics would enable the people who buy our cheese and meat, vegetables and other staples to preferentially choose foods with a good sustainability score, perhaps represented as a number or maybe by colour coding or barcodes, either way accurately informing citizens about the sustainability impacts of their diets.

Could this really happen? Yes, it could, and it is beginning to happen right now. There may be a long way to go, but I believe that there is real cause for optimism and that this momentum can be accelerated over the coming years.

Graphic separator Graphic separator