Public Funding for More Efficient Land Use Practices: Evaluation of USDA's Partnerships for Climate-Smart Commodities as a Catalyst for Private Investment

Abstract

The project is an extension of work done with a climate-focused venture capital fund entering the sustainable land-use space. The United States government has allocated more funding for conservation practices in the agricultural sector to reduce its greenhouse gas emissions. To provide additional guidance for how venture-backed startups can benefit from these funds during the due diligence process, programs launched as part of the USDA’s new Partnerships for Climate-Smart Commodities were evaluated based on their accessibility and potential carbon impact, two critical components of an investment thesis written for investments in the smart farming space. First, this project considers significant factors impacting farmers’ current situation. The agricultural sector is becoming increasingly consolidated, although most are considered family farms. There’s an increased reliance on fewer commodities as farmers are contending with increased uncertainty from climate change’s impacts. While federal funding for conservation practices has existed for decades, funding is growing more as crop insurance costs increase and the private and public sectors seek to meet greenhouse gas emission targets. With farmers citing yield increases, cost reductions, and confidence in adherence as major factors motivating their adoption of conservation practices, the private sector has created a new market for crop services and smart farming to capitalize on these opportunities. Second, accessibility was evaluated based on responsiveness to the United States’ public comment process. Engagement and references by other engaged parties can be an early indicator of future funding awards. As a result, familiarity with and access to these parties can be one mechanism for investors and startups to pursue while evaluating business opportunities. Third, impact is evaluated using data and processes similar to those used by farmers and the government. Potential emission drivers evaluated are commodities sold, geographic markets accessed, and conservation practices employed. Using data from the USDA’s 2022 Census and an emissions impact tool for conservation practices at the county level, the potential impact of these programs was evaluated and assessed against the accessibility. Four criteria can be valuable when evaluating startups in the growing smart farming or precision agriculture space: access to engaged stakeholders, focus on certain commodities, complementarity or substitutability with existing conservation practices, and entry into specific geographies. The process employed here connects public funding accessibility and potential carbon impacts. Investors can apply a similar approach using publicly available information to evaluate potential investments along similar lines used by the government.