What Do Farmers Need to Know About Climate Change? Commodity Plus Carbon Futures

What Do Farmers Need to Know About Climate Change? Commodity Plus Carbon Futures

September 4, 2018
Climate Column

Dr. Richard Gilmore, President/CEO of GIC Group

Do any of us recall that U.S. Environmental Protection Agency (EPA) initiated the Climate Change Impacts and Risks Analysis Project (CIRA) in 2015? Absent new technologies and risk mitigation production strategies, the analysts forecast a decline of irrigated soybeans by 23 percent, sorghum by 22 percent, and wheat by 13 percent by 2100. These figures are based on five- to ten-year-old assumptions for carbon emissions.

Estimates vary widely for agriculture as a source of GHG (greenhouse gas) emissions in the U.S., most notably carbon. A lot depends on what goes into the calculus, such as land use, soil, fertilizer, and transportation. From any perspective, emission exceed sequestration levels.

Therein lies the source of the dilemma. We have a vested interest in maximizing yields and to get there, U.S. producers – the leading shepherds of our piece of the earth — have every interest in curbing emission levels. There’s no magic wand to be sure, but there is a way to begin.

GIC Group is seeking grant assistance to begin a trial to determine if growers of select crops in the U.S. would benefit from a new risk mitigation instrument: Commodity Plus Carbon (CPC) futures contracts. The new contract would be based on crops which would be certified for carbon reduction levels below their present baselines. These contracts, listed on the major exchanges, would be traded like any futures contract. We know from focus groups and inter-agency reviews of CPC that merchandisers would be inclined to trade the contract. What we don’t know yet is whether growers would gain in their cash and basis contracts from delivering crops produced at lower carbon reduction levels.

If the premium holds in the market, the gain goes to participating growers who observe good agricultural practices; to merchandisers and processors in the supply chain who recognize that the highest growth markets in the U.S. are the “green markets;” and to environmentally conscious consumers. Closing the loop, growers could also gain from their contribution to lowering carbon emissions levels nationwide, thereby raising their crop yields.

CPC might just be the first real unicorn we’ve ever seen in our fields.

Rick Gilmore, President/CEO of GIC Group, founded GIC Trade, Inc./GIC Group in 1980. He has a PhD in trade economics and extensive experience in policy analysis, trade, investment, and market research for agro-industries. Dr. Gilmore has served as an advisor to the U.S. government in a variety of capacities, a member of private and public sector boards, a trustee of international companies and regulatory agencies in the U.S. and Canada, and is an author of books and articles as well as a media commentator on global agricultural issues. Prior to founding the GIC Group, Gilmore was project director for food policies at the Carnegie Endowment for International Peace, a Rockefeller Foundation fellow, director of food policy at the Overseas Development Council, and staff member at the Rand Corporation.