Risk-free farming (Sort of)

Outcome-based warranties and guarantees can reduce agronomic risk. Still, make sure they fit your farm.

Do you wish your seed and chemical inputs would work exactly as promised – or your money back? These days, maybe you can. 

“There will never be risk-free farming, but there is tremendous innovation coming that is driving agronomic performance,” says Jim Hedges, vice president of seed marketing for WinField United. 

Several companies have recently introduced programs that guarantee a certain metric, such as a yield goal, disease-free field, or irrigation equipment alert. If this metric is not reached, farmers receive a refund in cash or product. That’s a switch from today’s sales model that companies use to sell seed by bags or bulk or chemicals in jugs. 

Guaranteeing outcomes used to be impossible, because agricultural companies had no predictive capabilities.

“That is rapidly changing,” says Liam Condon, president of Bayer Crop Science. Digital agriculture now makes it possible to form a predictive model that establishes performance metrics if certain products are used as recommended, he says. 

Ideally, outcome-based models remove input risk for farmers, he says. 

“As an example, U.S. corn growers know on average that when they use a fungicide, they get a better yield than if they don’t,” he says. “The problem is, they might get a lower yield in some cases if they use a fungicide. Most farmers want to avoid negative results, so their willingness to try a fungicide is relatively low because they don’t know when to use it.”

Under its outcome-based pricing models, Bayer teams its research and development (R&D) data with data from a farmer’s field to build a predictive model outlining if, when, and where a fungicide will pay. 

In 2019, Bayer piloted an outcome-based program that compensated corn farmers if a yield goal wasn’t reached. If the farmer’s yields swelled above the predetermined metric, Bayer proposed equally sharing the extra bushels with the farmer.

Bayer is still pursuing this model, and it’s expanded the program to include the fungicide model and other outcome-based pricing offerings, says Alex Buschermoehle, Bayer new business models platform lead. 

“We are looking at a broad portfolio of ideas, rather than only one specific idea,” he says. “It’s like the early stages of an R&D portfolio. You know many ideas could fail or change significantly at a later stage in order to find an idea that works in the end.”

Risk Reducer

“Data without action is irrelevant,” says Hedges. Outcome-based models take this to heart, as they use data-generating digital agricultural tools like yield monitors and sensors to back product performance. 

“I think it makes sense that companies are embracing this idea of guarantees and zero-risk agriculture,” says John Bourne, vice president of marketing for Ceres Imaging. “The idea of guaranteeing performance is powerful. It’s a way for companies to separate themselves in a sea of new technologies, convey a specific ROI [return on investment], and stand behind their product or service.”

“It’s not for every grower,” says Tracy Linbo, executive vice president and chief commercial officer for Growers Edge, a digital farming firm. Recommendations still have to fit the farm and the farmer’s comfort level. Still, such plans offer a low-risk way for farmers to find products that improve their agronomic performance, she adds. 

These programs also allow farmers to tap into company data they otherwise couldn’t use. “Farmers can access this incredibly valuable database that can maximize their crops,” says Peter Carstensen, professor of law emeritus at the University of Wisconsin. 

Cory Atley, who farms and owns the crop consulting firm Advanced Yield, LLC, actually considered backing his crop consulting services and products with a yield guarantee. 

“I wondered if it was something that could help mitigate risk,” says the Cedarville, Ohio, farmer. “I talked myself out of that rather quickly.” 

Wacky Weather

That’s because there’s one factor that these strategies cannot trump: weather. 

“Mother Nature still holds all the cards,” says Atley. “We can do everything right. But at the end of the day, Mother Nature can go into a drought, flood, or a cold snap. If Mother Nature’s winning, our yield goal is going to change and so is our use of inputs.” 

Unfortunately, this wild card is growing even wilder. Gully washer 3- and 4-inch rains within short time increments used to be rare. They’re now morphing into mega rains, in which 6 inches of rain falls in a short time over 1,000 square miles. Before the 2000s, this type of rain would occur once or twice every decade in Minnesota, says Dan Luna, meteorologist in charge at the National Weather Service in Chanhassen, Minnesota.

“Now, we’re averaging one every couple of years, and we don’t see that trend changing,” says Luna. “These events can be catastrophic for agriculture.”

Sandwiched in between rampant rainfall is drought, which struck a wide swath of the Midwest in 2020.Volatility is actually redefining normal weather, says Bob Nielsen, a Purdue University Extension agronomist. 

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“Today, normal weather consists of an unpredictable number of unpredictable extreme weather events, each occurring unpredictably with unpredictable severity,” he adds. 

It’s one reason firms such as Growers Edge that offer outcome-based warranties require farmers to have federal crop insurance. 

“Crop insurance that provides risk mitigation for severe weather ensures that retailers [that work with Growers Edge] don’t pay for weather events out of their control,” says Linbo.

Farmer Independence

Outcome-based pricing and warranty/guarantee programs also smack into historical farmer independence.

“I am leery of anything that tries to make decisions for farmers and turns them, more or less, into farm employees,” says Karen Corrigan, a Goodfield, Illinois, independent crop consultant. “If a grower buys generic chemicals, using them may be more profitable than those offered in outcome-based models.”

“You just can’t do a catch-all approach with farmers and say, ‘This is how to grow 300-bushel corn,’ ” says Atley, who has won the National Corn Growers Association (NCGA) corn yield contest for Ohio each of the past four years. “It doesn’t work that way.”

Nor are metrics like yield always applicable. 

“It’s not always who can swing the biggest yield stick,” Atley says. “A lot of my clients just want to sustain the bushels they’re getting, but grow them at a cheaper price.”

Still, there’s much to like about the downside protection that outcome-based strategies give. 

“Just as in grain markets, if you can give me a floor to stand on, I’ll make it,” says Atley. 

That’s not the case, though, for outcome-
based models that include upside sharing if a yield goal is surpassed, says Atley. 

“If I do 320 with a 250-bushel [per acre] yield goal, I don’t want to share that,” he points out. 

Benevolent Santa

One knock against outcome-based programs is that they lock farmers into just one company’s products. “There may be nothing wrong with those products, but I like having the option to choose products from different companies,” says Atley. 

“It reminds me of the movie Miracle on 34th Street, where the Santa Claus at Macy’s tells a mother, ‘Well, we don’t have that product here, but you can get it at Gimbels,’ ” says Carstensen. “What farmers need is that kind of Santa Claus.” 

Companies are listening. The warranty program offered by Growers Edge gives retailers freedom to sell products from several firms that fit their recommendations, says Linbo. 

Ditto for WinField United’s Elite Rx service, which is one of three offerings in its Advanced Acre Rx prescription program. WinField United agronomists work with farmers to choose seed, seed treatments, and crop protection products from several firms.

“It gives the grower the ability to look at all the new innovation from basic manufacturers and select what they think will work best on their farm,” says Hedges.

Buschermoehle says a key factor in understanding agronomic risk is performance data that Bayer has on its own products. Still, Bayer may eventually open its outcome-based strategies to products from other companies.

“Our natural starting point has been to work with what we know best,” he says, referring to Bayer products, “but it’s not the end point.” 

Are We There Yet?

Digital agriculture tools make outcome-based pricing and yield warranty/guarantees possible. Still, they aren’t foolproof. 

“Yield data always has problems,” says Scott Drummond, a USDA-ARS information technology specialist based in Columbia, Missouri. “I can think of only two fields in 25-plus years of cleaning yield data where I have removed less than 10% of the data. In some cases, I remove or repair 50% of the data. With others, there is nothing we can do to fix it.” 

Growers Edge data scientists thoroughly vet the data the firm uses to build warranties, says Linbo. To improve accuracy, Growers Edge also uses a field’s federal crop insurance actual production history (APH) that dates back four to 10 years. Retailers Growers Edge works with put their own brand on a warranty-backed crop plan that typically covers 90% to 100% of a farmer’s APH crop insurance yields. 

WinField United also bases its service warranty on APH yields, using 95%, 100%, and 105% levels. 

Companies don’t always hit these numbers. 

“We hit the APH warranty most of the time in 2020, but there were drier areas where we paid up,” Hedges says. “That’s the reason we go across the United States to spread risk. If you get hit really hard in one area, other areas will offset it.”

Compounding data accuracy is the fact that crop production revolves around weather and biological unpredictability. This causes data and digital agriculture tools to sometimes miss, says Hedges. Still, improvements constantly occur. 

“We’re not there yet, but we’re further than we were a year ago and way further than we were five years ago,” he says.

4 Questions

Are you intrigued by outcome-based pricing and yield guarantees/warranties? Ask these questions first. 

1. Do I need the agronomic protection these plans offer? “A heavily mortgaged farmer who has just bought that once-in-a-lifetime piece of ground may tolerate risk less than a farmer who has no debt,” says Ron Geis, Corteva Agriscience market development specialist. 

2. Do these programs address my agronomic problems? Marketing programs can leave out some long-term agronomic challenges farmers face, says Bryan Young, Purdue University weed scientist. 

“If we continue incentivizing a farmer doing just enough to kill the weeds and maximize yield in any given year, what happens to the long-term goals for herbicide-resistance management?” he asks. 

Program offerings and flexibility that include multiple effective herbicide sites of action are key in addressing such long-term challenges, he says.

3. Do program metrics match my agronomic goals? “Farmers have different criteria for selecting products,” says Cory Atley, who farms near Cedarville, Ohio, and owns Advanced Yield, LLC, a crop consulting firm. “It could be a yield goal, it could be a price point, it could be service.” 

4. Do companies charge a service fee for these programs? Some do, some don’t. Bayer Crop Science does not assess a service fee for its outcome-based pricing pilot models. Farmers in some models pay for products as they normally would, while other plans are priced by the acre, say Bayer officials. 

WinField United’s service warranty assesses a service fee that peaks in the low teens (dollars) per acre for its plan that’s based on 105% of a field’s federal crop insurance actual production history. Fees, which may vary among retailers offering the service warranty, can substantially decrease with lower service and protection levels, say company officials.

BASF charges a fee for its European Healthy Fields disease-management performance program that guarantees minimal disease presence in a field, say BASF officials. 

Ceres Imaging inserts an issue-alert guarantee in basic imagery packages, say officials.

“Nuttin’ Fancy”

Feeling uncomfortable with using all the razzle-dazzle technology and outcome-based models that companies tout to limit agronomic risk? 

Chill.

Famed restaurateur Toots Shor dominated the 1950s New York City nightclub scene by serving a “nuttin’ fancy” menu to a celebrity clientele. A “nuttin’ fancy” strategy also can work to limit corn agronomic risk. Keep these three agronomic areas in mind, recommends Bob Nielsen, Purdue University Extension agronomist. 

* Select resilient genetics. “Choosing hybrids is partly about identifying hybrids with good yield potential,” Nielsen says. “It’s also about identifying hybrids that tolerate a wide range of growing conditions. This plays a huge role in determining resilience to a range of unpredictable stressors.” 

Scour the results of as many varietal test plots as possible, he adds. “This helps represent a wide range of possible growing conditions that we might experience in years to come on our own farms,” he says. 

Hybrid selection isn’t foolproof. “Even though we can make the crops more resilient to stress, we can’t stress-proof against single-time weather events,” says Nielsen, “such as straight-line 60- to 70-mph winds that can flatten a cornfield in a matter of minutes.”

Hybrids are improving in resiliency, though. 

“Risk mitigation includes innovation in plant breeding and products like short-stature corn,” says Alex Buschermoehle, new business models platform lead for Bayer Crop Science. 

Bayer plans to commercialize the first of these 6- to 8-foot-high hybrids for U.S. farmers in the early to mid-2020s. 

Yield potential remains the same between a hybrid offered in taller conventional hybrids and a short-stature one, says Calvin Treat, who heads corn crop technology for Bayer.

Since short-stature corn has narrower spaced internodes than conventional hybrids, it’s better at withstanding high winds and lodging, adds Treat. 

* Identify and mitigate a field’s yield-limiting factors. Drainage particularly stands out, says Nielsen. 

“Improving soil drainage minimizes the risk of ponding and saturated soils,” he says. 

Better drainage also reduces the potential for soil nitrate-nitrogen losses through leaching or denitrification. Diminished risk of soil compaction and improved timeliness of field operation also result, Nielsen adds. 

* Make good agronomic decisions. “Proper resilience relies heavily on what happens in the first 30 to 45 days during corn’s establishment period,” says Nielsen. “This period, which covers the time from emergence to V6 (roughly the knee-high stage), determines how well corn tolerates stress during the remainder of the season,” he adds. Corn that reaches this stage with minimal stress will better tolerate stress the rest of the growing season vs. corn that struggled to reach this stage.

Starter fertilizer placed in a 22-inch band can help early-stage corn, says Nielsen. 

“This aids the early transition of young plants from reliance on the kernel reserves and the seed roots to reliance on the primary root system,” he says. “If conditions are not conducive to rapid vigorous growth at that point in time, that transition can really be a struggle.

Other Plans

Yield isn’t the only metric that outcome-based strategies use. Other plans on the market or in the works that use a variety of metrics include the following. 

* BASF’s Healthy Fields brings an outcome-based approach to pest management. European farmers who follow recommendations from BASF’s Xarvio Field Manager app receive a performance guarantee for optimal disease control. 

“If not, we pay out based on a sliding scale of how far under a predetermined target we are,” says David Gray, U.S. commercial operations lead for Xarvio, BASF’s digital agriculture division. BASF is working on a similar plan for weed management in Brazil, with plans to establish similar disease and weed management outcome-based models in the United States. “Our goal is to reduce risk through data-driven decisions,” says Gray. 

* Syngenta has expanded its AgriClime risk-sharing program to the United States. AgriClime initially risk-shared the chance of low rainfall during August to October with participating Australian farmers. If they followed Syngenta recommendations and sufficient rainfall did not occur, the firm refunded up to 30% of the money spent on Syngenta inputs such as seed and chemicals. 

“We’ll likely attach it to a specific protocol around a particular pest control problem,” says Vern Hawkins, Syngenta crop protection president. If excessive rain or drought limits the effectiveness of Syngenta herbicide or fungicide products, farmers may receive money back. 

“This gives growers and retailers more confidence in protecting the best agronomic solution with the highest ROI [return on investment] potential,” Hawkins says.

* Ceres Imaging offers an issue-alert guarantee to its irrigation customers as part of its basic imagery package. 

“We guarantee we will alert customers to issues that impact more than 5 acres that they didn’t know about, or their money back,” points out John Bourne, vice president of marketing for Ceres Imaging. “It may be plugged nozzles or pressure issues that ultimately impact yield. We typically catch an average of 27 issues per year – many of which are quite large – for the typical 1,000-acre grower. By catching them early, growers can save yield potential.”

Parametric Crop Insurance

It’s easy to see the yield-slicing impact of hail or flooding that’s covered by federal multi-peril crop insurance policies. Not so easy to spot are weather maladies such as intense heat that invisibly pick the pockets of yield potential. 

Enter parametric insurance. These policies pay out on specified adverse weather parameters, rather than loss adjustment at year’s end. If yield-squelching maladies such as high temperature exceed a level that dents yield potential, payments are made as soon as these events occur. 

Companies offering parametric insurance face a tough sell, though. A farmer who buys a federal multi-peril crop insurance policy often pays just a portion of the premium, while federal subsidies pick up the rest. Since parametric insurance doesn’t have this cost-sharing, coverage can be more expensive. Parametric weather policies may also carry significant risk across data-sparse regions, due to insufficient publicly available data.

That’s changing, though. Farmers Edge is collaborating with reinsurer Munich Re to develop data-driven parametric weather insurance solutions. Company officials say this collaboration centers around a digital infrastructure that combines precise site-specific data sets with science-based analytics and artificial intelligence. 

“As a farmer myself, it was paramount for us to provide a solution to help growers across data-sparse regions access more protection,” says Wade Barnes, Farmers Edge CEO and cofounder. “This collaboration completes the missing piece of the long-standing parametric puzzle — controlling risk with better data — and gives insurers a defined competitive advantage to attract new customers and enrich existing relationships.”

A crucial piece of this model: Farmers Edge weather stations installed directly on the farm, says Barnes. He adds that this level of precision, combined with Munich Re’s reinsurance expertise, provides growers with secure protection that mirrors the impact of weather events on their fields. 

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