A "Farm Powered" Business Model for Scalable Renewable Energy Production from Waste

(This article was first published on Forbes on 10/29/2022)

(Image above: The logo for Vanguard Renewable's business arrangement with dairy farms to generate energy from what could have been waste) It has been pointed out that “waste is only really waste if you waste it.” That is of particular concern when what is being wasted is potential renewable energy. Our food system generates two major waste streams that have traditionally ended up on the negative side of their potential – the manure that comes from farm animals, and the inedible food waste that happens at the food manufacturing or retail level. There is a solution that addresses both of these missed opportunities and reduces our reliance on landfills and incinerators. A company called Vanguard Renewables has developed a business model that connects farms with food companies and retailers to combine their waste streams and use them to generates renewable natural gas which can then serve to decarbonize the energy supply for society as a whole. This solution hinges on a technology called “anaerobic digestion” or AD that has been used extensively for decades in Europe. An organic waste source like manure is put within a closed tank without oxygen. Under that “anaerobic” condition there are specialized microbes from the gut of the cow that can digest the organic matter. Unlike most living things that generate carbon dioxide as they metabolize their food, these “anaerobic” specialists generate methane gas - the same energy-rich fuel we call natural gas. The difference between the gas from one of these digesters and the fossil fuel version is that the carbon in the gas from a digester was created biologically, and not by fossil extraction. That means that when the methane is burned to produce energy, the carbon dioxide that is emitted is “carbon negative” and isn’t a net contributor to the total amount of CO2 in the atmosphere. Then, if the methane from a digester (also called “green natural gas”) is piped into the existing natural gas utility stream, it has the same sort of “decarbonization” effect that is achieved by putting electricity generated by solar, wind or nuclear into the overall electricity grid. Vanguard Renewables was started in 2014 by solar energy investor and entrepreneur John Hanselman who had been a skeptic about AD until he saw how widely it was being used in Europe. At that time anaerobic digestion was being used to some extent in the US dairy industry, but there was much more untapped potential. The limiting factors for AD implementation are the significant capital cost to build a facility and the need for considerable expertise to operate the system. Large diary operations are a logical place to build digesters because they generate a continuous stream of manure – often more than can be reasonably spread back on the surrounding fields. Also, if the manure has to be stored in a lagoon for later use it creates methane and an odor issue for any neighbors, and the ammonia that volatilizes from stored manure causes other environmental problems. A digester can be run on a continuous basis so that the need to store the manure is virtually eliminated.

(Image above from Vanguard Renewables - photo by John Maciel. Dairy cows with anaerobic digester in the background) The Business Model Vanguard makes lease arrangements with the dairies for the land where it builds digester facilities. They then take the manure and after they have generated the methane, the farmer gets back “digestate” that as been fortified with all the food nutrients at no charge. He solid part of what they get makes excellent bedding for the cows and the rest makes a soil-injectable fertilizer that avoids the odor and massive volume issues of raw manure or even composted manure. The farmer doesn’t need to purchase nearly as much synthetic fertilizer and so a life cycle analysis of the milk reflects a smaller carbon footprint ( in an almost ironic way that savings is because less fossil natural gas is needed to make nitrogen fertilizer for that farmer’s forage crops). Vanguard dries and purifies the methane and feeds that into the regional natural gas network and gets their income from the utility company. The dairy farmer has no upfront capital cost, does not have to play any role in operating the plant except collecting and delivering the manure, gets a monthly lease income and then the digestate fertilizer and bedding. This farm side of Vanguard’s business it described as “Farm Powered.” The other part of the business model is that Vanguard makes agreements with companies that have food waste issues such as processing side streams at a food manufacturer or brewery, or inedible food waste that is generated at grocery retail based on items that have gone past the date at which they can be sold or donated to a food bank. Vanguard has organic waste recycling facilities built specifically to accept and process this waste including even packaged foods that have to be opened to get to the organic waste.

(Image above from Vanguard Renewables, photo by John Maciel. A truck delivering food waste from a partner company to the recycling facility in Agawam, MA that prepares it for delivery to a farm with a digester facility) This organic waste is then sent to the farm where it enters a hydrolyzer and is heated to 104 degrees for five days before entering the anaerobic digester to be combined with dairy cow manure. This addition can actually lead to even better performance of the anaerobic digestion process. The farmer gets even more digestate. Some municipal waste haulers also arrange to bring their excess organic waste to the farm sites.

(Image above from Vanguard Renewables - photo by Todd Balflour. A co-digested for manure and food waste on the Goodrich family farm in Salisbury, VT) Over the past several years Vanguard has been refining their system and so they recently pursued a round of funding for expansion. They had several offers and took the one from BlackRock Real Assets, an ESG-focused finance company. It takes a reasonably large dairy in terms of the number of cows to justify a digester installation, but in areas with smaller dairies Vanguard has set up arrangements where the manure from several farms can be pooled at a single location. Currently they have 150 dairy farms under contract ranging from those with only 400-1000 cows to one that has more than 10,000. In all cases these are family farms, and they greatly appreciate the steady lease income since the prices they get for their milk can fluctuate a great deal. So far, the company has recycled more than 1.7 million tons of organic waste (food was and dairy cow manure) and produced enough digestate to fertilize more than sixty-one thousand acres of crop land. So, what this business model achieves is recovery of energy from both manure and food waste, a reduction in materials going to landfill and incineration, cleaner air around a dairy, a stabilizing income for family dairy farms, a reduction in the need for fertilizer, and an increase in the proportion of renewable energy for society. Further expansion is now underway. This is just one of the ways that the US dairy industry is pursuing sustainability and overall carbon footprint reduction.

Who Owns America’s Farmland? And What Is Their Role In The Response To Climate Change?

 (This article was originally published on Forbes on 7/18/22)

No-till Soybeans Following Corn (NRCS image)

1870 was the first US Census in which farmers were in the minority (47.7%).Today, only 1.3% of Americans are still farming and increasingly do so on operations of over 2,000 acres. Even so, family farms still make up 98% of our agricultural sector. Farm ownership still reflects the legacy of the Homestead Act of 1862 as a great deal of current farmland still belongs to descendents of the 19^th century homesteaders. According to the most recent USDA Census of Agriculture in 2017, the largest share of the US agricultural land is owned by families and individuals (201.5 million acres of cropland and 223.8 million acres of pastureland). Partnerships and family corporations own most of the remaining private land with non-family corporations holding only 3.1 million acres of cropland and 6.4 million acres of pastureland (see graph below)

US agricultural land is mostly in the hands of families and individuals, many with ties to to historic farming families 

GRAPH BY AUTHOR BASED ON USDA DATA

The remaining farmers have typically expanded their operations by renting additional acres rather than by purchasing land. That approach makes perfect sense in the high risk, moderate reward business of farming the likelihood of a year with bad weather or low commodity prices makes it too risky to take on a big mortgage. In the USDA’s TOTAL Survey from 2014, rented land accounted for around 28% of US pastureland (~144 MM Acres) and 54% of US cropland (~214 MM Acres).  That survey also found that 31% of farmland (pasture and crop) was rented from “non-operator landlords” and 8% from farmers (see graph below)

The land that farmers rent is mainly from non-farmers (31%) and the landlords are either individuals, partnerships, family corporations or trusts

FROM THE USDA TOTAL SURVEY SUMMARY

Farm operations that rent some or all of their acreage dominate in all but the smallest farm size categories (See chart below with partial rental operations in light blue and full rental operations in orange).

The majority of farming operations include at least some rented land. (USDA ERS and NASS)

The landlords who lease this property are a mix of still-active farmers, retired farmers, farm widows, city-dwelling descendants of farm families, and some unrelated investors. Many of these landlords have a hands-off relationship with their farmer tenant and simply collect their annual rent payment directly or through a farm management company. In an age of climate change there are good reasons to consider a more active role for these owners.

Agricultural Land Value In An Age Of Climate Change

Agricultural land is an asset with both short and long-term value. It generates annual income for the farmer and a significant portion of that is applied to rent if the property is owned by someone else. Ag land rental rates are closely tied to historic and regional production history – better land commands higher rent.  Around 1/2 of the cropland in the highly productive Midwest is rented and the percent of land rented from non-farmer owners is highest in the states with the highest rental rates driven by their productive potential (see graph below).

In the major farm states, the percent of land leased from non-farming owners is highly correlated with rental rates which are linked to yield potential for key crops

GRAPH BY AUTHOR BASED ON USDA DATA

The property value of agricultural land has been increasing at a brisk pace in recent years making it interesting for a range of investors. A projection from the 2014 USDA survey of land ownership and tenure was that around 9.3 million acres of land would change ownership between 2015 and 2019 and that 60% of that would be through gifts, trusts, or wills, but that some of that may then be sold by the new owners, increasing the supply of land available for purchase. Land values and land rents are highly correlated (see graph below)

Land rental rates are highly correlated with property values within these seven USDA regions. In the Northeast and Western Pacific states other factors tend to drive property values. 

GRAPH BY AUTHOR BASED ON USDA DATA

Risk and Opportunity

Climate change is creating both new risks and new opportunities related to the annual and long-term value of agricultural land. On the risk side, agricultural productivity in any given growing season is intimately linked to weather. The shifting climate exposes crops to more frequent extreme weather events (drought, flooding, wind…), yield-robbing warmer nights, and increases in the range and severity of pest challenges. Farmers can get some relief through government subsidized crop insurance, but there could eventually be the need for some risk sharing by landlords.

On the opportunity side, plants can capture carbon dioxide from the atmosphere and store it underground in relatively stable forms of organic matter – this is one means of climate change mitigation through carbon sequestration. There are certain farming systems that focus on the improvement of soil-health, and they do a particularly good job of carbon sequestration. If this kind of “climate-action farming” could be implemented at large scale (e.g. 100+ million acres), it would be of great benefit for society as a whole. There is a further upside associated soils that have captured and stored a lot of carbon – they become more resilient in the face of climate change because they are better able to capture and store rainfall in ways that buffer crop yields in both excessively wet and dry years. The land becomes more “climate-resilient.” While there is no one system suited to all situations, the basic elements are keeping plants growing in a field to feed the soil ecosystem for as much of the year as possible (double cropping, cover crops), having different species there over time including some which are particularly deep rooted (diverse rotations), and most importantly doing all of this with little to no mechanical soil disturbance in the form of plowing or tillage since that sort of operation leads to the release of sequestered carbon. There are also benefits from certain livestock integration practices.

The Transition Challenge

While dual climate-resilient/climate-action farming systems are very attractive as concepts, it is not at all trivial for a farmer to implement them in the real world. They must also be customized to fit different soils types, regional climates and primary cropping options. These changes require upfront investment in things like seeds or equipment. There may be reduced income from some of the rotational crops chosen for their soil enhancement characteristics rather than profitability. It also typically takes 3-5 years years for the yield and yield stability benefits to kick in and so the key hurdle is financing the transition. These changes are difficult enough to justify for land the farmer owns, but far more difficult to justify for rented land. It will be increasingly important to educate landowners that there will be a growing perverse incentive for a future tenant to “mine” the soil of nutrients for a few years by tilling --- essentially what the original sodbusters did.  That future conventional tiller will actually pay more to lease the ground, knowing that his non-land operating costs will be lower than on his/her other fields.  An unwitting landowner might think this is a good deal and switch tenants for a slightly better rent offer --- not appreciating the asset degradation the land is about the suffer in the background.  It is a poor trade, but not very visible.  This has been a major source of friction in some communities.

Carbon Offset Markets

There are initiatives underway to pay farmers to sequester carbon, but there is considerable skepticism as to whether such programs offer enough money to justify the costs and complications involved. There are also questions about whether these programs can be administered in a way that is fair and verifiable. Hopefully carbon markets will contribute towards more climate-ready farming, but other mechanisms are needed to enable the extensive and timely adoption of climate-resilient farming needed to protect the food supply.

Regenerative Farming

The farming methods described here are related to what is variously defined as “Regenerative Farming.” Unfortunately there is an effort to link the regenerative designation to organic through a certification process that would continue the ideologically-driven technology limitations of organic. The organic business model is to compensate the farmer for lower crop yields through consumer-paid price premiums, and that is not a workable approach to drive the system change on a large sale in row crops. The shift to climate-resilient farming methods needs to be enabled by all the best available technologies including biotechnology and well regulated crop protection chemicals.

Is This Kind of Change Even Possible?

Yes, there is reason to believe that this is possible based on a historical precedent for a farming huge system paradigm shift that happened in mainstream agriculture:  “no-till farming”. That change was also a response to a climate crisis of human origin – the Dust Bowl phenomenon of the 1930s, and it demonstrates the fact that farmers can make changes when they need to. This year marks the 60^th anniversary of the first “no-till” field grown in Kentucky in 1962. Growing crops without plowing or tillage was such a radical idea that early adopters had to avoid social gathering spots like coffee shops to avoid getting harassed about their “trashy fields.” Fast forward to 2017 and 104.5 million US acres were farmed using a no-till approach.  No-till or the related Strip-till farming methods are the ideal foundation for the full suite of climate ready systems, and so it is important to consider what enabled that kind of large-scale change. The key elements were applied public research, the development of specialized machinery, and the availability of key technologies such as herbicides and biotech crops.  But perhaps most importantly, the change was pioneered by a distinct and innovative subset of the farming population. Today there are still self-identified “no-tillers” and “strip-tillers,” and they are at the adoption forefront of other farming methods that enhance climate-resilience. Grower oriented publications like No-till Farmer or Progressive Farmer are filled with narratives about farmers that are working out the practical details of adding things like cover crops or unusual rotations or livestock integration. The key is not to tell growers how to farm, but rather to ask these leaders what works and what would help them and others to move in the right direction in terms of a climate change response.

How Could Farm Leases Be Modified To Help Drive Change?

As mentioned earlier, it can take several years for the crop yield benefits of modified farming practices to kick in and typical leases are on an annual cash basis.  Longer leases would be a step in the right direction, but probably not all that is needed.

As the growing climate becomes more challenging, land with enhanced climate resilience will become more valuable, both in terms of potential rent and as a premium property. It would make sense to structure a lease to include some cost sharing between the farmer and the owner during the transition process, and then have some mechanism for the farmer to share in the for the increased rent potential and land value. There would also need to be a cooperative lease model for land that is going to be enrolled in a carbon market program. Getting carbon credits requires a commitment to the “permanence” of the carbon sequestration which is not something that a renter can promise since a subsequent renter could return the land to full tillage and release the stored carbon back into the atmosphere. A land owner who wants to have their land in a carbon program will need to find a capable and willing farmer and it would be appropriate to do that with some sort of cost and value sharing arrangement.

Another possibility would be to identify farmers with the most experience with transitioning to climate-ready farming methods, and engage them to upgrade land that hasn’t been optimally farmed in the past. Once again a cost sharing arrangement would be appropriate up front followed by some mechanism for the grower to share in the upside value. It would also make sense to set up an apprentice-like arrangement for young farmers to learn from those same experts.

Connecting the Key Players

In order for there to be widespread adoption of new lease models that support climate-ready/climate-active farming, to be there needs to be a way to connect progressive farmers with enlightened landowners and other entities. The goal is not to tell farmers how to farm, but rather to enable them to optimize the climate resilience of land in ways that make sense for specific settings. There could be a role for environmental or climate-action NGOs to generate interest among non-farming land owners and provide them with background information and lease models. Federal and state agencies involved with agriculture as well as farm industry organizations could help in the development of the new lease models. The operators of carbon offset programs should clearly “be at the table” as should individuals or organizations who want to invest in farmland. There could be a role for entities pursuing corporate sustainability or climate goals. There could be a role for climate-oriented charitable foundations. On the surface these diverse groups might seem like “strange bread-fellows,” but with a commitment to mutual listening and respect, they could join forces to make a meaningful difference for the future of the food supply and the trajectory of climate change.