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(The Oct 16 story corrects reference to splitting the cost of the program in paragraph 2. Rabobank and the U.N. are finalizing plans for funding, the bank said)

NEW YORK (Reuters) - Rabobank NA is launching with the United Nations $1 billion in financing for farmers to transition to more sustainable practices as food companies and consumers are demanding more supply chain transparency.

Rabobank and the United Nations are implementing the program to push farmers to consider more sustainable practices despite higher costs and potentially lower yields at the outset, executives for the Dutch bank said on Tuesday in an interview.

Rabobank and the UN are finalizing details on funding the program, a spokeswoman for the bank said.

With the three-year program, Rabobank plans to offer a mix of grants, loans with lower interest rates and insurance products.

“We have to incentivize farmers to change their practices,” said Berry Marttin, a member of Rabobank’s managing board. Marttin said the bank had done a project in Brazil to curb deforestation and encourage farmers to extend their crop rotations to boost soil productivity.

The bank did not provide a full range of specific criteria for sustainability but said that farmers are regularly measured. The bank will provide updates on the program’s progress. That could include lower ratings for high use of pesticides, for example.

Large food manufacturers like Mars Inc and Mondelez Internatonal Inc have made public commitments to boost sustainability in their supply chains. The industry has been under pressure from consumers to increase transparency and provide healthier products, reducing demand growth for conventional packaged foods.