Publication of the report ‘Financing the agricultural transition: obstacles and levers’

As part of its work on transition financing, 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 involving more than 150 stakeholders (farmers, manufacturers, financial players, experts and public authorities), drawing on more than 70 interviews conducted to analyse specific cases throughout France.

In May 2023, the ‘Action Plan for Financing the Ecological Transition’ highlighted that the main obstacle to the emergence of transition projects was not the availability of resources but the low economic profitability of the projects. At the request of the Minister for the Economy and Finance, the Institut de la Finance Durable has therefore extended its work on a sectoral basis, with an initial focus on decarbonising the building sector, and now a study dedicated to financing the agricultural transition, carried out with the support of the consulting firm Kearney.

‘The ecological transition involves adapting the agricultural model while strengthening its competitiveness and preserving our food sovereignty. Successfully achieving this transition means creating the conditions for better economic value for the activity and strengthening the financing capacity for the necessary investments.’ said Yves Perrier, President of the Sustainable Finance Institute.

Agriculture: a key sector for the ecological transition, but long and costly investments for farmers with little room for manoeuvre

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, reduction of inputs, carbon storage, ecosystem restoration), it can become a powerful lever for ecological transition. However, the agricultural transition is currently being hampered by several structural challenges. The changes in practices required for the transition are hampered by uncertainties about economic opportunities, high levels of debt among farmers (63% on average in France, 66% in organic farming) and very 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 attracting 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 moment when a young farmer sets up is the most conducive to investment in production equipment and changes in the farm’s orientation.

The Institute for Sustainable Finance has formulated 15 concrete recommendations for financing strong, resilient and sustainable agriculture, based on three main areas:

• Improving the profitability and financial value of sustainable practices: by ensuring a fair distribution of value within the supply chains (in particular by strengthening the Egalim 2 law and long-term tripartite contracts) and by developing remuneration for environmental services provided by farmers (carbon credits, payments for environmental services, eco-carbon scores), which can complement other tools.
• Develop innovative financial tools to reduce investment costs and manage risks: the IFD recommends the large-scale development of land banking, whereby private investors temporarily take on land ownership to reduce initial debt. The widespread use of crop insurance, tailored to encourage changes in practices and supplemented by a trial of ‘transition insurance’, is also crucial. Finally, the development of multiple activities on farms will help reduce the risks borne by farmers.
• Facilitating access to finance and reducing its cost for farmers: the IFD recommends exploring the possibility of a zero-interest eco-loan for agriculture and significantly increasing the use of public guarantees for investments related to the transition of agricultural holdings, in order to reduce the risk of projects and lower the cost of financing.

The report’s recommendations are available below.

The Sustainable Finance Institute will present this work during a webinar on Thursday 5 June at 4.30 p.m. in the presence of Laure Verdeau, Director General of the Agence du Bio; Nicolas Lioliakis, Chairman France, Kearney; and Samuel Dugas, dairy farmer in Ille-et-Vilaine, spokesperson for Carabes & Canopée. Register today!