There is a lot of action in the beef industry to capture value and/or carbon credits for management practices that reduce greenhouse gas emissions or sequester more carbon in the soil. Most of the impetus for this action is 2-fold; 1) many major companies have made climate pledges to reduce or eliminate their carbon emissions throughout their production chain, and 2) the US Securities and Exchange Commission now requires publicly traded companies to report greenhouse gas emissions. These two factors are driving major packers, distributors, and retailers to get more hands-on in the daily operations of farmers and ranchers.
The goals of these companies have initiated their interest in financial investments in production agriculture including beef. Some companies are developing networks (block chain agreements) up and down the supply chain that will allow them to track the greenhouse gas emissions of their business. The objective of these relationships is to share data down the supply chain from rancher to feedlot to packer to retailer, which means there is value in this data that a rancher could get paid for. Additional value will be in data demonstrating management practices that reduce greenhouse gas emissions. Thus, producers that have better than average greenhouse gas emissions can capture value in these block chain agreements.
Preconditioning programs are a good comparison to these networking arrangements. In preconditioning programs, the rancher weans, vaccinates, and transitions calves to feed ration on the ranch before the stress of shipping cattle to the feedlot, and in return the rancher is paid a premium for 2 things: the management practices that produce healthier feedlot calves and the information verifying that these practices have been implemented. Block chain agreements will work in a similar way except a specific agreement will need to be developed because currently there is not a free-market avenue like special preconditioning sales available to capture the value of sustainable practices and information verifying reductions in greenhouse gas emissions.
Another avenue that companies are using is to develop agreements only at the farm and ranch level where they will pay the producer for implementing sustainable management practices. Payments may be to help the producer overcome the initial cost of implementing sustainable management practices or some other cost, but the company then wants exclusive rights to the carbon credits to count toward their sustainability goal. The practice agreement will limit the ability of the producer to sell those carbon credits on the open market ensuring credits for the company, and the producer will have interest-free capital investment to enhance their operation. A practice agreement can be very beneficial for both parties if details are outlined appropriately.
There is at least 1 significant issue with carbon credits. Carbon credits can only be counted from the initiation of the agreement going forward. Thus, producers that lag behind in innovation have the opportunity to be rewarded for improving their management, but producers that have been progressive in implementing the latest innovations have little opportunity to create carbon credits. The practice agreements to implement sustainable management practices could be very beneficial to those producers that have yet to implement new practices helping them to get over the initial hurdles, but the blockchain agreements would likely have little financial benefit because they have no greenhouse gas emissions reductions to document. In contrast, the blockchain agreements would have value to those producers that have been progressive in implementing sustainable management practices, but the direct practice agreements would provide little opportunity for capturing value.
The last issue surrounding carbon credits and greenhouse gas emissions is the concept of carbon insets versus offsets. Carbon insets are reductions in greenhouse gas emissions within the supply chain. Carbon offsets are reductions in greenhouse gas emissions outside the supply chain. For example, a rancher enters a practice agreement with a beef retailer so that the retailer can count the greenhouse gas emissions reduction in their supply chain carbon emissions. This would be a carbon inset as the carbon credit is within the beef supply chain. In contrast, an airline company buys carbon credits from a rancher on the open carbon market to offset their carbon emissions from jet fuel. This would be a carbon offset. In both examples, the rancher will be compensated for the reductions in greenhouse gas emissions, but with the carbon offset, those carbon credits will no longer be counted toward the carbon neutral goal of the beef industry potentially damaging the industry.
In conclusion, capturing the value of sustainable management practices is attainable, but different avenues will likely work better for different producers. there are many companies and groups interested in participating in capturing carbon credits, which means many opportunities for producers. But beware of accepting any offers. Spend considerable time gathering information and understanding the choices and thinking through the details and long-term ramifications before entering into any agreements.