Rational farmers seek to avoid large losses. Future climate change and energy price fluctuations therefore make adapting to increased risks particularly important for them. Managing soil natural capital has been proven to generate the double dividend: increasing farm profit and reducing associated risk.
In this paper we explore whether managing soil natural capital has a third dividend: reducing the downside risk (increasing the positive skewness of profit). This we refer to as the prudence effect which can be viewed as an adaptation strategy for dealing with future uncertainties through more prudent management of soil natural capital. We find that managing soil natural capital can not only improve farm profit while reducing the risk, but also reduce the downside risk. Prudent adaptation to future risks should therefore consider the impact of current agricultural management practices on the stock of soil natural capital.