Paying for Performance: Outcomes Based Regenerative Pilot Program

Will it Boost Farm Income?

Do outcome-based incentives work on a large scale?  The Trump Administration will be putting the concept to the test with the launch of a Regenerative Pilot Program. While it is not the first time government funding has been dispersed based on specific performance metrics, it is a pivot from a policy structure largely built upon tax credit incentives.

Using existing USDA funds, the program is meant to create a path for farmers who have traditionally relied on chemicals to guarantee yields but who want to explore regenerative practices. With the overarching goal of boosting soil health and, in turn, the nutrient density of food, the outcome-based structure is intended to create wins for both growers and consumers.

Tax Credits Verses OBIs

At their most basic explanations, both incentive models use money collected by the federal government to entice people into an action that they otherwise would not take. Buffering the risk increases the impact of the desired action since, in most cases, a larger group of people take the same step in the same direction. 

A closer look reveals the fundamental differences between the two approaches. Tax breaks and rebates are tied to the action step taken not necessarily to any success parameters whereas outcome-based incentives are. For example, a sales team might get a bonus for every 1,000 calls they make or, they might get a bonus for hitting revenue goals. One method rewards quantity of action taken while another rewards successful transactions.

In agriculture the difference between the two structures looks like a farm receiving a tax break if they purchase a specific category of soil amendment versus receiving payment for changing the biological makeup of their soil.  One method encourages the growth of a specific sector of agricultural industry with the happy side effect that it might have a meaningful impact on soil health. The other encourages farmers to develop the best plan for their soil using any tools at their disposal.

One isn’t necessarily better than the other and we can find many examples of successful deployment of each type of fiscal policy initiative. If the goal is to reduce synthetic fertilizer application, then giving farmers a tax break on organic compounds might drive adoption. The Trump administration's goal of increasing soil health is not tied to a specific product or business.  It is tied to a farmer’s ability to build a holistic plan for their land and adjust the management structure of their operation.

Single Issue Policy Versus a Holistic Approach

The new Regenerative Pilot Program, it seems, is constructed to support a holistic approach to agriculture that considers the farmers, the consumers and the ag adjacent businesses just as much as it considers water quality, wildlife and long-term environmental health.  No farmer is rewarded simply for purchasing a single regenerative item like a piece of precision technology or cover crop seed.  Instead, the farmer is rewarded for a measurable difference in water quality and soil erosion.

For growers who have already taken steps towards conservation and regenerative agricultural practices the outcome-based system rewards them for work they are currently doing and shields them from having to overhaul a working system for the sake of a tax break.  For farmers who have previously viewed the process of shifting away from traditional methods as too risky, the OBI model means they could be some of the biggest winners under the pilot program.

A holistic perspective also leaves room for more people to engage in the movement. And the USDA plans to make use of the Sustains Act which allows them to accept private funding. This means, in the long run, support for regenerative agriculture practices won't be funded by tax money alone but by businesses who also benefit from better soil, healthier food, cleaner water and drought mitigation. Increasing corporate partnerships means risk is spread across a whole supply chain and one point doesn’t have to shoulder the entire load. 

For example, a restaurant chain could choose to privately invest in the development of affordable farm technology that supports biologically healthy soil which becomes a core tool on the very farms they source ingredients from. Yield increases for their farm partners, as does the flavor of the food. Supply stabilizes, prices are less volatile, and the restaurant chain has a predictable expense sheet and satisfied customers. 

The trick is that whatever is developed must have real impact. No one wins if investments don’t produce real and measurable changes.  It's the kind of incentive that could set the stage for innovative advancements and holistic perspective shifts in American agriculture. Will it give farm incomes a boost? As a pilot program it might not increase the amount of dollars a farmer has in their wallet, but it could remove financial risk for farm families considering ways to change farming methods without losing money.

Originally posted on Stratagerm's blog