Proper accounting in agriculture

As concerns about the impact of industrial farming grow, a visionary company in southern Germany has developed a tool to recognise and incentivise sustainable practices.

Industrial farming has many harmful effects, including soil erosion, loss of soil organic carbon, biodiversity loss, nitrate leaching and water contamination. On the other hand, diversified farms, managed under agroecological principles, may have many positive effects. However, neither the negative nor most of the positive impacts of agriculture are reflected in farm balance sheets or translated into market prices for agricultural products.

In response to these challenges Regionalwert AG Freiburg/Br, a citizen shareholder company in southern Germany, has developed a method for “proper accounting in agriculture”. The founder Christian Hiß grew up on one of the first organic farms in Germany. He had his own organic gardening business for some years, but quickly realised that sustainable farming in small, regional cycles was not financially worthwhile. However, turning to mass production and giving up the diversity of his farm was out of the question for him. Instead, he began to fundamentally rethink operational performance accounting.
The work started in 2016 and was done in collaboration with practitioners, society and academia, and the first commercial version of the calculator was launched in 2020. Since 2021, the tool has been managed as a separate business (Regionalwert Leistungen AG).

“Our mission is to reform the accounting practices in agriculture,” says Johanna Norris who works for Regionalwert Leistungen’s international team, in explaining the core idea. “The task is to assess sustainable practices on the production side – anything the farm can do that contributes to sustainability, whether it is ecological sustainability, supporting social infrastructure or supporting the regional economy. These are our three pillars.”

The performance calculator identifies and values sustainable farm management activities and assesses them based on the three pillars. These in turn are subdivided into ten thematic areas: soil fertility, biodiversity, climate and water, animal welfare, expertise, role in the community, quality of employment, economic sovereignty, regional economic cycles, and regional network. Each area includes sub-areas that are assessed using indicators.

She explains the procedure: “We have around 300 key performance indicators (KPIs), which we use to assess how sustainable a farm is. Farmers type in their data, they are asked a series of questions, the data entry takes up to five hours, in some cases a lot less.”

In most cases the farmers themselves pay for the service. Norris sees the time it takes to enter the data as one of the main challenges. “Farmers have a lot to do already, they don’t really want to do all the bureaucratic work.” But she believes that the effort pays off, since “this can bring them a lot of planning benefits, strategic advice”.

The result of each KPI is measured and rated on a colour-coded scale with the sustainability level expressed as a percentage. The reported efforts are also valued financially, which is a key element of the tool. “The aim is for the farmers to be compensated for these actions.”

In addition to individual farmers, a handful of food processors, millers and producers of breakfast cereals have purchased bundles of codes for their suppliers to enter data into the tool. The aim is to monitor and support their farmers in their sustainability efforts.

There are also ideas about collaborating with other actors downstream of the supply chain. “Retailers could play a major role. They could make big leaps in choosing growers or supporting growers to move towards more ecologically sound practices.”

Several hundred farms have already assessed their sustainability level. “The tool has been used to assess twelve different branches of farming all the way from livestock to vegetables and fruit farming”.

Most are based in Germany, but the tool is also being developed for use in other parts of the world. “The biggest farm that has put their data into the sheet was a farm from Latin America with 700 hectares.”

There are other tools that measure farm sustainability. “Though most of them are outcome-based, for instance they simply count how many bird species are found on the farm.” By contrast, the new tool measures “the actions that a farmer can take to contribute to a certain category, whether it is biodiversity or soil fertility”.

Besides being a tool for farmers here and now, there is also an ambition to introduce an alternative model for valuing the work of farmers and landowners on a broader scale.

Ultimately this would mean “a Common Agriculture Policy reform that is more based on the effort put in, rather than how many hectares a farm has, of course there are a lot of compliance rules, but the bulk of the money is distributed based on area, and we would like to see that changed”.

Kajsa Pira

Regionalwert Leistungen https://www.regionalwert-leistungen.de/about-us/

This article will be part of a report on sustainable food system policy, which will be published later this spring.