New true value language offers farmers perspective

Boerenbusiness We'll discuss this with Rabobank's Food & Agri Director Alex Datema and senior agricultural sector analyst Harry Smit. We'll also discuss with Datema what the initial plans of the parties forming the coalition government could mean for farmers' prospects.

When we talk about true value, what exactly are we talking about?
Harry Smit (HS): "If you have products, besides the visible costs and revenues, you also have invisible ones that aren't reflected in the farmer's profit and loss account. These include greenhouse gas emissions and nutrient leaching into groundwater and surface water. Hidden benefits include the potential to use agricultural land as a water buffer, the potential for biodiversity, and the potential for agriculture itself to contribute to strategic autonomy and create an attractive countryside that looks better than if you simply built a whole lot of residential areas. You need to find a way to measure these invisible costs and revenues and create a basis for valuing them, so that stakeholders and the farmer are all speaking the same language."

Isn't the same language spoken now? 
HS: "We now have dozens of different certifications, from organic to pasture milk to Better Life and PlanetProof. They all look at different things: animal welfare, social conditions or environment. They have different requirements, and while some can be obtained with a little effort, others require much more. An arable farmer with Cosun has to meet one set of requirements for sugar beets, and yet another for the wheat they want to sell to Agrifirm for a bread initiative. If you then want green financing from a bank, you have a third set of requirements. 

What does this mean for existing quality marks? Should they fear for their continued existence?
Alex Datema (AD): "We don't intend to make others disappear. We want to offer a framework so everyone can be assessed in the same way. Once we've designed this, you can compare them to see how they actually score on sustainability, because we're based on data, not measures."

HS: "We won't get there with all these separate sustainability initiatives. As good as it is for a company to develop certifications for its suppliers, if everyone does it individually, we won't get there as a sector as a whole. So we need to create a system where everyone uses the same language and all the small rewards can be stacked up, which will actually get things moving."

It sounds a bit like a NutriScore, or shouldn't you see it that way?
TO: "It is indeed a kind of score that is used in the same way throughout the chain. But if you look at how NutriScore is developed – so that they compare colas with other colas and do not conclude that water might actually be healthier – then I find that comparison strange." 

HS: "You can better compare it to a Circular Economy Indicator. That measures all sorts of sustainability aspects. The water board could require farmers to meet a certain nitrogen soil surplus, the government could require ammonia emissions to remain below a certain ceiling, and FrieslandCampina might reward a low CO2 footprint."

There are already numerous reporting requirements for agricultural businesses, including combined declarations, allowances for milk flows, and certifications like PlanetProof. Should we be doing even more reporting?
AD: "If you look at the reports being requested, it's definitely heading in that direction. The urge to know more is partly driven by the government, but also partly by the parties themselves. Because they have that obligation under the CSDR (European directive for large companies, ed.), but also by pressure from society. We're trying to structure this, so you only have to collect that large amount of data once and can share the right data with the right party from your own database. And also so that you know that if someone asks for the CO2 footprint, everyone is asking for the same figure. In such a system, you're bound to see differences between countries. There are large parts of Europe where nitrogen emissions via the air aren't really an issue, while in the Netherlands, it's one of the most important things we need to address."

You've sparked the discussion. Which parties are already on board?
AD: "We now have more than twenty parties at the table, including three supermarkets: Superunie, Lidl, and Jumbo. FrieslandCampina, Arla, and Vion are also at the table, as are the FNLI (the umbrella organization for the food industry), the greenhouse horticulture sector, LTO (the Dutch Federation of Agriculture and Horticulture), NAJK (the Dutch Association of Youth for Youth), and BoerenNatuur (a farmer's nature conservation organization). The Ministry of Agriculture, Nature and Food Quality (LVVN) is also part of the consortium; we also want to connect it with the government's target-based management. Parties across the entire value chain have joined in and are now working with us to explore how we should design such a true value language and what already exists."

We're also trying to include the quality marks. The Milieukeur Foundation (including PlanetProof, ed.) is part of the discussions; the Animal Protection Association of the Beter Leven quality mark has joined. We're also in contact with Beter Voor, but they haven't joined yet. There's still some resistance to coordination sometimes. You sense that hesitation from all parties, like: gosh, I've already designed a few things, should I do them differently? That applies to us as a bank as well. Yet, you see that everyone feels that going forward, we simply have to do this together.

Is the intention to first get everyone in the Netherlands on the same page and then perhaps roll it out Europe-wide?
AD: "Preferably in parallel. We export a great deal, so if we in the Netherlands come up with a fantastic system for how we can make things more sustainable and we don't include export production in that, then that won't help enough. We are trying to take the initiative in the Netherlands and at the same time we are having discussions about this in Brussels. That also fits in with what is being done in Brussels: the Strategic Dialogue on the future of EU agriculture. The benchmark on sustainability at farm level is one of the action points listed there (Member States want to harmonize sustainability assessments across the EU, ed.). Well, that's actually what we're doing."

In the document that Rob Jetten and Henri Bontenbal of the D66 and CDA parties drafted as a starting point for the cabinet formation, I read that agreements must be made "with agricultural chains for fair prices for sustainable products, so that farmers have more left over." That aligns perfectly with what you're currently working on, doesn't it?
AD: "If we have a true value language If you have, you can make good use of it to give substance to that. Then you have to ensure that the sustainability of the company is linked to higher returns. With true value language We try to provide insight into an entrepreneur's current situation and help them see where they can improve. If you can add value to that improvement through the market or the government, then it becomes worthwhile to pursue it. However, you do need a system to base that on. That sentence in that "document from informateur Buma" is a necessary foundation. 

And the rest of the document as it relates to agriculture, what could that mean for farmers and the future?
AD: "It can certainly provide some clarity for farmers. That's what the sector is really waiting for. Starting with nitrogen: if you look at the three-pronged approach they're taking, we'll need a significant reduction in emissions before we can do anything else. They want to achieve this through targeted management, partly generic and partly by working area-specifically. Only then can you give a little more leeway. Well, that's something we've been saying for a few years now." 

I'm just a little hesitant about their generic approach. They're leaving the 2035 targets in place, and adding an interim target for 2030. To move quickly, the level of that interim target will be crucial. As an entrepreneur, you also have to outline what you need to achieve in a relatively short timeframe. 

The second thing that stands out is about entrepreneurs around nature reserves. That's obviously a very sensitive issue, but I think it's sincere and honest that they simply stated that if you're close to nature reserves, you'll have to do more than you would at the national level. To properly facilitate that, you need to establish a process. We all know what it should include: offering farmers the opportunity to adapt, close, or relocate their businesses. I think that's what it's supposed to include. At some point, you also need to organize some kind of enforcement authority in those areas and say: we now have a plan, we've broadly agreed on it, so we're going to implement it. That's all in there. It all comes down to how it's ultimately implemented and how much funding is available for it.

It's also mentioned that we need more public-private partnerships. I'm glad that's being mentioned: the call for a kind of product board 2.0. I think we desperately need that. We're currently missing a place where the sector and government can make joint agreements and more easily shape their implementation. Currently, implementation is either entirely dependent on the government or on the goodwill of everyone in the sector, because you can't make binding agreements.

"Land-based farming is said to be important from the perspective of circular agriculture, but nowhere does it say how they intend to implement it. Will the government take action, or is it a desire for the sector to do something about it?" 

As a bank, it's also helpful to have clarity on who has and hasn't benefited from financing. Two-thirds of your sustainability budget is still available...
AD: "It all starts with the entrepreneur, of course. Once the government provides clarity, they can develop a plan for how they intend to achieve those goals. Then we'll assess whether it's financially feasible and what our role is. We do indeed still have €2 billion left in our €3 billion pot to finance sustainability efforts more affordably than we normally do."

Another issue affecting farmers' earning power: the Dutch Banking Association has sent a letter to the Provincial Council of Brabant regarding the legal viability of the nitrogen policy. According to the NVB, this leads to high investments without legal certainty or payback. What does this mean for financing?
Let me put it this way: Brabant's plan doesn't solve our current problem. Brabant is trying to find a way to gain some room to invest without needing a permit. We operate throughout the Netherlands, and we're facing the same problem everywhere: companies that want to become more sustainable have to make such adjustments that they need to apply for a new permit. And that's at a standstill. I'm pleased that provinces like Brabant and Utrecht are exploring options, but we keep coming back to that legal issue. We can't finance things without a permit; that's simply the way the law works. Furthermore, when a company makes a major investment, it normally also tries to increase its production capacity, because that makes it easier to bear the investment. Brabant's current plan doesn't allow for that leeway anyway, so it's already difficult from a business economics perspective to make investments.

Finally, once a coalition is formed and plans for agriculture are being developed, would you also like to discuss the language of true value?
AD: "The ministry is sitting at our table, so they're aware of this. We'd like to present our ideas to enrich theirs."