Description financing model: Corporate price premiums as a de-risking mechanism for preferential bank lending, conditional on sustainbility performance
Corporate offtakers leverage their sustainability procurement commitments to de-risk upstream dairy farmers, bundling price premiums and technical assistance with preferential bank financing - incentivising the adoption of measurable on-farm sustainability practices.
Applicability: Best suited to supply chains where corporate buyers can formalise sourcing specifications and offer measurable price incentives.
Considerations: Scalability depends on sustained corporate willingness to maintain price premiums and on the availability of robust MRV systems to reliably quantify and verify on-farm GHG reductions and sustainable practices at scale.
Description of de-risking tool(s):
Price premium / offtake agreement: Nestlé and Vreugdenhil commit to defined sourcing specifications and pay farmers a premium on their milk for adopting measurable sustainability practices. This revenue certainty de-risks the farmer's business case for investment and improves their bankability, enabling Rabobank to offer discounted interest loans directly linked to programme participation.
Case study description:
This model supports dairy farmers across the Netherlands in transitioning to more sustainable practices - including GHG emissions reduction, regenerative agriculture, and improved farmer livelihoods. The Tomorrow's Dairy programme operates as a downstream-driven financing mechanism: Nestlé and Vreugdenhil create an incentive programme granting price premiums on milk to enrolled farmers who adopt measurable on-farm sustainability practices. This revenue certainty acts as a de-risking signal for Rabobank, which in turn offers preferential loans to participating farmers, allowing them to access discounted financing for sustainable business improvements, supporting their transition and strengthening their financial resilience.
As part of the programme, enrolled farmers work with agricultural advisors to develop tailor-made business plans with measurable sustainability goals.
(1) Nestlé and Vreugdenhil, under a five-year collaboration agreement, define sourcing specifications and commit to paying a price premium for milk produced with measurable on-farm sustainability practices
(2) The price premium acts as a de-risking mechanism: it provides revenue certainty to farmers and signals demand for sustainably produced dairy to Rabobank
(3) Rabobank links its lending conditions to the incentive programme, offering preferential (discounted) interest loans to farmers who meet minimum performance standards on a selection of the following sustainability indicators:
a. Number of cows per hectare
b. CO₂-equivalent emissions per kilogram of milk
c. Share of protein from own land
d. Share of permanent grassland
e. Nitrogen surplus per hectare
f. Productive lifespan of dairy cows
g. Grazing practices
(4) Nestlé and Vreugdenhil provide technical assistance to farmers to help them implement measurable on-farm sustainability practices, including supporting them in working with agricultural advisors to develop tailor-made business plans with measurable sustainability goals
(5) Farmers repay their loans to Rabobank; the premium revenue from corporate offtakers supports their financial position and ability to service the debt
Since its launch in 2022, over €50 million has been committed through 2030, more than 150 farmers have been engaged, and the programme targets a 50% reduction in GHG emissions by 2030 compared to 2018 levels.