New McKinsey research shows that applying regenerative agriculture practices to US corn and soy farms could not only help limit the industry’s effect on the environment but also provide promising returns for most of the farmers across the country, bringing an average of $20 to $60 per acre annually for the first 10 years.
Corn and soy are two of the largest crops in the US, covering nearly 180 million acres across the country. By achieving 80% adoption of no-till and cover cropping regenerative practices, American corn and soy farmers could reap an incremental economic value of up to $250 billion over a decade because of the potential for net income increase, land value appreciation resulting from higher productivity, and ecosystem payments (such as carbon credits and biodiversity credit payments).
According to the analysis, farmers who implement both no-till and cover cropping can anticipate yields that are 10 to 30% higher, on average, than those of their conventional peers, which means that the same amount of food can be produced using 10 to 25% less land.
Financial incentives are needed
Without support, however, farmers would have to invest up to $200 per acre up front in regenerative practices and assume the risks from sporadic weather patterns and market conditions, highlighting the need for a more robust network of support mechanisms and short-term financial incentives to increase adoption.
The data is “compelling”, says Tom Brennan, a McKinsey partner within its agriculture and chemicals practice, and a co-author of the report.
“There are good reasons why people talk about the environmental sustainability benefits of regenerative – from water quality, biodiversity, carbon sequestration. But putting the environmental benefits to the side we wanted to ask what do the economics say.
“If we think about regenerative agriculture purely on its own as a source of wealth creation and economic development in the rural parts of the US, that’s an exciting story.”
Takeaways from McKinsey’s latest regenerative farming report
- Environmental benefits: Practices, such as cover cropping and no-till farming, can improve soil health, reduce chemical inputs, and enhance long-term yields, providing economic and environmental benefits.
- Economic potential: Applying regenerative practices to US corn and soy farms could yield an incremental economic value of up to $250 billion over a decade, with potential annual returns of $20 to $60 per acre for the first 10 years.
- Barriers to adoption: Farmers face significant barriers to adopting regenerative practices, including high up-front costs, lack of financial and technical support, and uncertainties about ROI and yield impacts.
- Regional variability: The effectiveness and economic returns of regenerative practices vary by region, influenced by factors such as precipitation, temperature, and soil texture. Areas with drier, cooler, and finer soils, like Nebraska and North Dakota, tend to benefit more.
- Support mechanisms: To increase adoption, financial incentives, technical support, and reliable funding mechanisms are needed including insurance to bridge the cash flow gap during the transition period, ensuring farmers can sustainably implement regenerative practices.
Suprises in the data
The potential of regenerative practices in helping to build farmers' resilience to climate-related events such as drought and flooding is especially encouraging, Brennan believes.
Techniques like no-till farming can enhance the soil’s ability to retain water by improving its structure and porosity, reducing compaction, and maintaining a protective layer of crop residue to help regulate soil temperature. This benefit can prove especially significant for rainfed farms, which account for around 85% of the corn and soy acreage in the Corn Belt, the McKinsey report discovered.
“This number jumped out at me when I first saw it,” says Brennan. “I thought that can’t be right. We always think of much of agriculture relying on irrigation but the vast majority of acres in the US are purely rainfed – so that’s where we’re seeing a lot of the economic benefits of regenerative practices. Instead of getting a substantial drop off in yield in drought years, you’re only seeing a modest reduction in yield. That’s linked to improved water retention in soil.”
Big questions
The big question now, however, given the positive net present value (NPV) and return on investment (ROI) available for them is why is why aren’t more more farmers adopting these practices. Many in the US are adopting them (close to 20% for cover cropping and around 50% for low- or no tilling). is 50% in the US. But they are implementing them on only a small share of their acreage – generally less than 30%.
But upfront costs of around $200 per acre are “meaningful” says Brennan. “We need to think about making that more palatable and more achievable for a farmer,” says Brenan.
The report gives some suggestions. There are opportunities, for example, for equipment rentals and equipment sharing that allows for the benefits of the equipment to be spread over multiple operations. Brenan also wants credit lenders to read the report so that more financial instruments like bridge financing might become available. “If you look at the ROI if you’re a lender,” he notes, “they should feel pretty good about the business case of the customer”.
Ditto insurers. Some 25% of farmers highlight crop insurance requirements as a barrier to adopting cover crops. “The biggest yield benefits are being seen in the low yield seasons,” repeats Brennan. “But are we rewarding farmers for their different risk profiles? I think that’s an opportunity there but we haven’t seen differentiation for these farmers.”
He adds: “Sustainability on its own doesn’t drive adoption of practices in our experience. A compelling ROI is what gets farmers to do something and gets them to be sticky.”
