Publication of the report “Financing the agricultural transition: obstacles and levers”.
As part of its work on financing the transition, the Institut de la Finance Durable (IFD) is today presenting its new report ‘Financing the agricultural transition: obstacles and levers’. Its recommendations are based on work that mobilized over 150 players (farmers, manufacturers, financial players, experts, public authorities), on the basis of more than 70 hearings carried out to analyze concrete cases across France.
Back in May 2023, the ‘ Action plan for financing the ecological transition ‘ emphasized that the main brake on the emergence of transition projects was not the availability of resources, but the low economic profitability of projects. At the request of the Minister of the Economy and Finance, the Institut de la Finance Durable has extended its work by sector, with an initial focus on the decarbonization of the building industry, and now a study dedicated to the financing of the agricultural transition, carried out with the support of the consulting firm Kearney:
‘ The ecological transition implies adapting the agricultural model while strengthening its competitiveness and preserving our food sovereignty. To make this transition a success, we need to create the conditions for greater economic value from the activity, and strengthen our ability to finance the necessary investments, ‘ said Yves Perrier, Chairman of the Institut de la finance durable.
Agriculture: a key sector for the ecological transition, but long and costly investments for farmers with little room for maneuver
Although it accounts for 19% of France’s GHG emissions, the carbon intensity of French agriculture is one of the lowest in the world. By adopting more sustainable practices (energy production, diversification, input reduction, carbon storage, ecosystem restoration), it can become a powerful lever for ecological transition. But the agricultural transition is currently hampered by a number of structural challenges. The changes in practices required for the transition are hampered by uncertain economic outlets, high levels of farmer debt (63% on average in France, 66% in organic farming) and low returns on capital employed (1 to 1.5%). The economic reality is holding back farmers’ commitment.
The challenge of renewing the farming population, which could be an opportunity for the sector and the transition
In addition to the challenge of conversion, there is also the challenge of setting up young farmers, with one in two farmers due to retire within the next 10 years. This generational renewal could also be an opportunity, as the time of a young farmer’s installation is the most propitious for investments in the productive apparatus and changes of direction for the farm.
The Institut de la Finance Durable has formulated 15 concrete recommendations for financing a strong, resilient and sustainable agricultural sector, based on three main points:
- Improve the profitability and financial value of sustainable practices: by ensuring a fair distribution of value within supply chains (in particular by strengthening the Egalim 2 law and long-term tripartite contracts), and by developing remuneration for environmental services rendered by farmers (carbon credits, payments for environmental services, eco-carbon score), which can complement other tools.
- Develop innovative financial tools to reduce investment costs and manage risks : IFD recommends the massive development of land portage, where private investors temporarily carry the land to reduce initial debt. It is also crucial to make crop insurance widely available, adapted to encourage changes in practices and complemented by a ‘transition insurance’ experiment. Finally, the development of multi-activity farms will help reduce the risks borne by the farmer.
- Facilitating access to financing and reducing the cost for farmers : IFD recommends exploring the possibility of a zero-interest eco-loan for farmers, and significantly increasing the use of public guarantees for farm transition investments, in order to de-risk projects and lower financing costs.
Find out more about the report’s recommendations below.The Institut de la Finance Durable will present this work at a webinar on Thursday June 5 at 4:30pm , with Laure Verdeau, Managing Director of Agence du Bio; Nicolas Lioliakis, Chairman France, Kearney; and Samuel Dugas, dairy farmer in Ille-et-Vilaine, spokesman for Carabes & Canopée. Register today!