B. Financing Options

The seasonal nature of farming makes loans particularly important for farmers. In 2017, almost 1.3 million non-real estate loans were made to farmers.³ To put that in perspective, fewer than 900,000 farm operations grossed $10,000 or more in agricultural sales that year.⁴ The vast majority of agricultural loans are to pay for operating expenses, and while many of these loans are relatively small,⁵ they are nonetheless critical for farmers to stay in business.

Many of these loans are granted by small banks, some of which rely on agricultural loans for a substantial part of their business. These banks, called agricultural banks, have enjoyed much higher average rates of return on assets than other smaller banks in recent years, even as farm incomes have

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fluctuated.⁷ However, agricultural lenders often hesitate to make loans to farmers using new or experimental practices, which can make it difficult for farmers to adopt innovative carbon-farming techniques, regardless of their actual exposure to risk.

The energy efficiency financing experience provides a possible model for encouraging financing for innovative practices. There, philanthropic support has often been critical for private and public financing of energy efficiency projects, which were new to lenders and thus underserved.⁸ Similarly, the private philanthropic sector (either directly or through advocacy organizations) or USDA should support agricultural banks in lending to farms that use practices that are less well known and widely accepted. At a minimum, USDA and environmental organizations should ensure that agricultural banks are familiar with the benefits of carbon farming, which makes farms more resilient to weather disturbances and therefore exposes the lending institution to less risk.

Private financing also has a role to play. While there has been a significant increase in venture capital funding for “ag-tech,”⁹ most of the funding has focused on precision agriculture and a narrow range of practices. Philanthropists, impact investors, and foundations should instead focus investment on a broader range of carbon-farming practices.