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Could Smallholder Dairy Farmers Make Money in the Carbon Markets?

Could Smallholder Dairy Farmers Make Money in the Carbon Markets?

Carbon credit trading is already a multi-billion-dollar global industry. Figuring out how to tie struggling smallholder dairy farmers into the ever-expanding market for carbon offsets could open up vast sums of money to potentially transform these farmers’ lives while lowering their carbon footprint.

Counting carbon

Governments across sub-Saharan Africa (SSA) have been busy encouraging and, where they can, supporting dairy operations to boost rural economies, nutrition, and food security. A detailed study issued last year by Rwanda’s Department of Agricultural Engineering revealed just how important dairy farming has become to the continent.

“Currently, smallholder dairy farms provide more than 80% of SSA milk production,” Hakuzimana et al. estimated in their review of the industry. The rise of smallholder dairy farming isn’t all upside, however. “Livestock in general and dairy farming, in particular, has significantly contributed to global warming,” the study concluded, finding substantial increases in emissions of carbon dioxide, methane, and nitrous oxide, the three major greenhouse gases.

Poor handling of manure is one culprit, the researchers determined. They also discovered Africa’s smallholder dairy farms have a much larger carbon footprint compared to commercial-scale operations, releasing almost four times as much CO2 per ton of milk produced compared to North American dairy farmers. “Africa emits the highest [greenhouse gases] per unit of milk and meat production,” their study showed.

Better inputs mean fewer GHGs

Hakuzimana et al. argue that adjusting the type of feed given to dairy cows may be the most efficient and cost-effective way to lower smallholder dairy sector emissions. Other agricultural scientists agree.

In an earlier study, the International Livestock Research Institute and Unique Land Use, a German agricultural sustainability consultancy, teamed up to review 382 smallholder dairy operations in Kenya to determine how they differ in their contributions to global warming, and why. They discovered the same inefficiencies revealed in the Rwandan study—smallholder dairy farms are far less productive than operations in Europe and North America but emit far higher levels of greenhouse gases (GHG) per unit of production.

Herein lies an opportunity. “Since the GHG intensity of milk production decreases as milk yield per cow increases, increasing productivity represents an important GHG mitigation strategy,” the ILRI-led study says. There are several ways to better manage smallholder dairy farms resulting in lower emissions per yield, but they discovered the best way is likely more concentrated feeding and less open grazing. Dairy operations that relied on open grazing only had substantially higher carbon footprints, they found.

Funding a transition

Carbon markets try to internalize an externality—by making the avoidance or destruction of greenhouse gas pollution a fungible product that can be traded like stocks or bonds. Though there is little evidence that carbon markets actually put a dent in global warming, they are nevertheless becoming popular. More corporations are making so-called “net-zero” greenhouse gas emissions reduction pledges. Virtually all of them are factoring in purchases of emissions offsets to reach their goals.

Could carbon market money be tapped to supply smallholder dairy farmers with better feed, boosting their production while making this fast-growing agricultural sector relatively more eco-friendly? The academic literature suggests carbon accounting methodologies at dairy farms need to be tightened up first to provide investors with better clarity on how certain interventions will lead to quantifiable reductions in greenhouse gas output.

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