Natural Capital Protocol: Valuing Ecological Farming Practices

Crops growing in greenhouse
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Imagine if business leaders scrutinized the environmental deficit of valuable natural resources as vigorously as policymakers tackled federal budget deficits.

According to new research by Trucost, a research firm that helps companies and investors manage risk and create sustainable growth, agriculture is a huge contributor to this environmental deficit, resulting in global environmental costs of US$3.33 trillion per year.

That’s more than the United Kingdom’s GDP and more than triple the American federal budget deficit. The study, Natural Capital Impacts in Agriculture: Supporting Better Business Decision Making, included 80 percent of the production of four major commodity crops, accounting for farming practices in more than 40 countries.

The U.N. Food and Agriculture Organization (FAO) commissioned the study from Trucost to find out how costly bad farming practices are, and how better ecological practices might lead to economic benefits instead. Some of the findings were sobering, indicating that environmental costs exceed profits in most cases. Crop production worldwide, for example, costs the environment US$1.15 trillion per year, which is equal to 170 percent of its production value. Chinese production of corn had the highest environmental costs at US$130 million followed by the United States at US$90 million, due to land use change and water pollution.

Wheat farming in Germany results in costs of US$62 million, which are mostly from nitrogen fertilizer pollution.

However, the study also provides unique examples of positive externalities from environmental practices ranging from holistic grazing management to organic farming. For instance, a system of rice intensification (SRI) could cut environmental costs of rice farming in India by 25 percent while simultaneously increasing profits by 18 percent.

And in Brazil, holistic grazing management, where cattle are penned in smaller paddocks to allow grassland to recover elsewhere, could reduce environmental costs by 11 percent due to increased carbon sequestration.

By quantifying positive externalities in agriculture, farmers and policymakers alike might recognize the potential of sustainable practices to generate economic benefits. “The high environmental cost of industrialized farming practices is not reflected in food prices, leaving us vulnerable to supply disruption and price shocks as the effects of climate change worsen,” says Richard Mattison, Chief Executive Officer of Trucost. “Our research for the FAO shows how alternative approaches to agriculture can benefit farmers and the environment, ensuring sustainable and affordable food supplies for all.”

And businesses are taking the lead on valuing ecosystem services and sustainable practices in the food sector. A consortium of civil society groups, non-governmental organizations, and business groups will develop a Natural Capital Protocol (NCP) to provide a standardized framework for businesses to measure their impacts on the environment and dependencies on natural capital. Within the new protocol, sector guides will develop sector-specific business cases for the valuation of natural capital, which is the stock of natural resources from which people derive benefits.

Another partner, the Natural Capital Coalition, will conduct a public consultation process on this topic beginning November 23, 2015, to obtain the views of all stakeholders. This collaborative process will focus on a draft Natural Capital Protocol and its sector guide for foods and beverages. The final protocol will launch in July of 2016.

During the consultation period, which will last until February of 2016, Natural Capital Coalition will conduct webinars for members to engage with those involved in the development of the protocol. The webinar for the sector guide for foods and beverages will take place November 18, 2015.

Trucost is working closely with the Natural Capital Coalition to develop the sector guide for Food and Beverages, which will be informed by the past research on environmental costs and benefits of agricultural practices. By quantifying and valuing the environmental impacts of operations, supply chains, products and financial assets, Trucost aims to put a monetary value on pollution and resource use.

The continuing research may have important implications for policy and economic analysis. “Unveiling the hidden costs of mainstream agriculture is necessary to convince decision-makers that investing in conversion to sustainable food and agriculture systems is a much cheaper option than current expenditures for environmental mitigation and public health,” says Nadia El-Hage Scialabba, Senior Natural Resources Officer at FAO. “True food prices entail reflecting producers’ efforts to meet their needs for the time required to reproduce the value, while the cost of environmental damage should not paid by society through higher food prices but by those who irresponsibly abuse common goods offered by our natural environment.”

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