Agricultural Finance Review. In Review
Financial Exposure to Environmental Liabilities in Lake Huron Drainage Area Farmlands: A GIS and Hedonic Pricing ApproachChung, K., and P. Adriaens
Sustainable Agriculture Financing
About the Project
Agricultural impact on nutrient runoff and climate change is significant. Instead of government subsidies, this project develops asset pricing models to engage the capital markets to drive behavioral change.
Agriculture in the US is financed through private loans and the farm credit system. Farm credit is derived by sales of bonds to Wall Street investors, the use of proceeds funds farm credit banks who, in turn lend to farm credit associations and farmers.
Neither private capital nor farm credit are conditioned to sustainability conditions, resulting in environmental liabilities, resulting in 56 thousand tons of nitrogen and phosphorus leakage in the Great Lakes from Michigan farming alone.
In collaboration with the Great Lakes Protection Fund and the Croatan Institute, we are exploring new mechanisms to address pollution through market mechanisms.
Specifically, we are interested in understanding how farm assets should be repriced for contaminant risk using data fusion of land transactions and farm characteristics, as well as hedonic pricing models. Since currently farm land value increases with contaminant levels due to cash crop yields, we are structuring new financing models with interest-rate adjusted loan products such as sustainability-linked loans and green farm bonds.
