Plan for future operators with carbon contracts

A solid transition plan is vital to keeping a farm operating for generations to come. While many know to consider how assets such as land and equipment will be passed down, the transfer of less tangible assets can be more confusing.

Voluntary carbon markets offer farmers both monetary and environmental benefits. With contracts lasting as long as 10 years, farmers planning for succession may want to ensure the next generation will continue to benefit from enrollment.

Including younger operators in initial discussions can help ensure mutual understanding from the start. 

“It’s something that comes up quite often, especially with the type of folks that we’re targeting,” says Clay Craighton, a strategic account manager at Agoro Carbon Alliance. “A lot of farmers are at that transition time where either the younger generation is coming home from college and is interested in regenerative practices or the older generation wants to pursue carbon programs, but have something in line for the future.”

Who owns the contract?

Carbon contracts can be made out in the name of the farmer enrolling or the farm company. The latter allows for contracts to be active within family partnerships regardless of who is serving as the head. 

“We make sure in the language that contracts can be transferred to a successor on their ground,” Craighton says. “There is language in the contracts that indicates we have thought about what happens if a farmer is no longer able to farm.” 

Things can get more complicated if the farmer doesn’t own the land enrolled in the program. Often, a separate agreement with the landlord is put in place at enrollment. 

“That is also helpful to avoid potential double counting,” says Sam Schiller, founder and chief executive officer of Carbon Yield. “It would be bad to have a landlord and an operator both registering the same practices and selling credits separately.”

Is the contract flexible?

The long length of carbon contracts requires flexibility to make the programs worthwhile. Instead of counting carbon credits year over year, many programs with 10-year contracts look at the average credit count over that time period.

This average can allow for changes in carbon sequestered due to events such as tillage to be “smoothed out” over the life span of the contract, Schiller says. 

How are payments made?

It’s important to consider how payouts are made within the program as well. Some programs offer up-front payments while others offer payouts after a set number of years. Understanding requirements for payouts and any contingency costs is key to setting any contract holder up for success. 

“It’s typically a long-term agreement. There are reasons and advantages for this, and alternatives depending on each producer’s operation,” Craighton says. “The goal is to improve the soil microbiome while increasing profitability. While looking at various programs, producers need to be aware of contract terms. We need to be transparent throughout this process, as producers are navigating through some uncertainty.”

Editor’s Note: The Context Network is a global agribusiness consulting firm that helps organizations achieve results through strategic management insights and a network of ag industry professionals, creating business solutions that deliver actionable outcomes. Learn more at contextnet.com.