March 25, 2019

This article will be featured along with other articles addressing investment opportunities in agriculture and surrounding themes in Volume 6, Issue 1 of the GAI Gazette, which will be distributed in conjunction with the 11th annual flagship Global AgInvesting event, held in New York City on April 1-3, 2019. Join us in New York to hear valuable insight and best practices for investment strategy from the expert speaking faculty. Learn more and register.

By Lynda Kiernan, GAI Media

American scientists and policy makers alike are calling for more attention to be paid to the environmental challenges attributed to global climate change, and as outlined in the dire climate report issued by 13 U.S. federal agencies last November. The report, the second volume of the National Climate Assessment required by law every four years, suggests that climate change could eliminate up to one-tenth of U.S. gross domestic product by 2100, with agricultural yields potentially down to 1980s levels by as soon as 2050.¹ In the early days of February 2019, Democratic U.S. Congressional members introduced the Green New Deal – a massive legislation package setting aggressive goals to revolutionize the U.S. economy, create jobs, and fight climate change through eliminating U.S. carbon emissions across the transportation, agriculture, and energy industries.²

The introduction of such aspirational legislation may have little chance of passing into law, but it does spur conversation and debate, which might have the potential to result in bipartisan solutions and plans for the future. It is indeed easy for agricultural producers, investors, scientists and policy makers alike to be overwhelmed by the scale of change required in order to hasten a shift toward production systems that align with ambitious environmental goals. However, farmers aren’t without weapons in their arsenal.

“Regenerative Agriculture” refers to a holistic method of production that rebuilds soil health and organic matter, restores biodiversity, improves the nutritional profile and resilience of crops, improves the water-holding capacity of soil, and sequesters carbon to draw down atmospheric CO2 levels.

The Carbon Underground and Regenerative Agriculture Initiative defines Regenerative Agriculture practices as:

• Practices that (i) contribute to generating/building soils and soil fertility and health; (ii) increase water percolation, water retention, and clean and safe water runoff; (iii) increase biodiversity and ecosystem health and resiliency; and (iv) invert the carbon emissions of our current agriculture to one of remarkably significant carbon sequestration thereby cleansing the atmosphere of legacy levels of CO2. ³

I’m sure we can agree that these goals sound not only worthy, but necessary. However, I can also hear the sighs of lingering doubt that whisper back that farming is not purely a philanthropic activity – but a for-profit business. And indeed, regenerative agriculture and profit are not mutually exclusive.

By the Numbers

It is understood that agriculture, like mining, is a primary sector of the economy, meaning that the growth and development of other economically important sectors depend upon it. And like mining, since the 1800s, it has been widely accepted that farming, by its very nature, is an extractive industry. But whereas mining is obviously so, the extractive nature of farming is much less so – embodied in water pollution, soil degradation, erosion, and loss of fertility.

Along with this, we have done a poor job in modernizing how we look at the profit and loss associated with farming. Higher crop yields and more animals, partnered with low cost of inputs, have traditionally meant higher profit. For centuries, the unaccounted losses tied to traditional extractive farming have been viewed as unavoidable, and inherent – but it need not be this way, according to the Union of Concerned Scientists, who state that a shift from extractive to regenerative agriculture is not only possible, but profitable, when taking a more modern, learned, and complete approach to the costs and output of agricultural production.⁴

As proof, The Delta Institute and Earth Economics, with funding from the Department of Agriculture’s (USDA’s) Natural Resource Conservation Service (NRCS), have worked with Farmland LP, an agricultural investment firm that has been using regenerative farming practices for almost a decade on more than 6,000* acres of farmland in its portfolio.

“With the current system that focuses on growing more cheap food, we face a dire situation that intensifies the degradation of critical farmland,” David LeZaks, Ph.D. in Environmental Resources, and leader of the regenerative food systems project for the Delta Institute, told Forbes.⁵ “Recent evidence demonstrates that by re-orienting capital and the institutions and people that move capital, we can reverse farmland degradation and build regenerative food systems that undo much of the damage that has been done over the past century.”

Through its funds, Farmland LP purchases conventionally-farmed operations, and integrates sustainable production methods and management systems with the multi-faceted goal of generating competitive return on investment, while also realizing positive environmental and social effect. However, the ability to quantify these “tangible but hidden” metrics, which are not included in financial statements, are only now being developed.

Working with its partners, Farmland employed Ecosystem Service Valuation (ESV) and Greenhouse Gas (GHG) accounting models on a field-by-field basis to quantify biophysical. And on a deeper level, ecosystem service valuation metrics that reflect the environmental, social, and economic value that Farmland’s managed farms generate through clean water, biodiversity, healthy pollinator habitats, and improved soil.

Together with mapping generated by Farmland LP’s Geographical Information System (GIS) and management data from its farms, Farmland LP employed a combination of three models to quantify biophysical and ecosystem service values:

• The Ecosystem Value Toolkit (EVT) – a primary reporting tool that uses a set of calculators to estimate the dollar value of ESV generated by each property.

• COMET-Farm – Developed by the USDA NRCS and Colorado State University, COMET-Farm estimates the carbon footprint of a farm or ranch based on information on management practices and spatially-specific data on climate and soil conditions.

• Revised Universal Soil Loss Equation (RUSLE) – Developed by the USDA and the University of Tennessee, RUSLE estimates soil loss due to sheet and till erosion.

The resulting report: Valuing the Ecosystem Service Benefits From Regenerative Agriculture Practices found that the 6,011 acres of farmland valued at $85 million under Fund I generated $12.9 million in ecosystem service value since inception.⁶For comparison, these same properties would have caused $8.5 million in ecosystem harm over the same time period if operated conventionally – meaning, that Farmland’s sustainable management has generated a total $21.4 million in net ecosystem service value benefit, in addition to the 67 percent net financial gain in the fund – generating what Farmland LP calls, “a true double-bottom line investment return”.

“It [regenerative agriculture] has so many benefits to the environment, to human society,” Craig Wichner, founder and managing partner of Farmland LP, told Forbes.⁷ “But we’re also demonstrating that you can grow great, healthy, wonderful food and be more profitable than conventional agriculture systems.”

Collaborative Change

As of May 2018, Food Tank listed 17 global organizations working to promote regenerative agriculture. From grassroots organizations such as Aranya Agricultural Alternatives working in rural farming communities in India; the farmer-led Soils, Food, and Healthy Communities group in Malawi; and Sustainable Harvest International working in Central America – to groups such as Terra Genesis International, a design consultancy staffed with engineers, ecologists, permaculture experts, carbon scientists, and financial analysts, that advise large-scale agricultural producers on how integrate regenerative production practices and redesign their supply chains.⁸

One common thread is clear – whether you are a smallholder in Peru, or one of the largest agricultural producers in California – the shift to regenerative agriculture is a collaborative effort.

Another group fostering such collaboration is the Regenerative Agriculture Investor Network (RAIN).⁹ With funding from the Conservation Innovation Grants program of the USDA’s Natural Resources Conservation Service (NRCS), RAIN’s aim, according to its website, is to use open networking and light facilitation to “increase our shared literacy, understanding of deal flow, [and] investment opportunities…,” while asking, “How do we capture the carbon farming potential of restoring and enhancing ecosystem and soil health while providing food, fiber and other human material needs?”

RAIN is currently partnered with some of the top agricultural investors and proactive players in ag today, including the Delta Institute, Compeer Financial, Bickford Organics, Croatan Institute, Dirt Capital Partners, Encourage Capital, Equilibrium Capital, Farmland LP, FoodCrunch, Green America Center for Sustainability Solutions, Meadowlark Organics LLC, Nourishn, Pipeline Foods, Plovgh, Primrose Valley Farm, Rodale Institute, Sustainable Insight Capital Management, and Vilicus Capital.

“Right now, in agriculture, there are a lot of investments flowing into alternative meat protein, for example, but there are also known pathways for how to move capital into regenerative, pasture-based systems which produce high quality meat and can sequester carbon using rotational grazing approaches,” said Erin Axelrod, in an interview by Slow Money NYC.¹⁰ “Certain approaches are drawing investors more than others — we want to better understand why.”

One large-scale company, Applegate, a provider of natural and organic meats, which was acquired by Hormel in 2015 for $775 million, is doing just that – launching a regenerative agriculture platform that will see all of its meat come from animals that are pasture-raised.¹¹

Using the Ecological Outcome Verification (EOV) program developed by the Savory Institute to quantify the initiative’s effects, Applegate aims to improve soil health and water quality, and to increase biodiversity through its operations.¹² It also plans to work together with the Savory Institute to train and offer support to producers shifting into regenerative methodologies.

“We see regenerative agriculture and biodiversity as the next evolution in food and farming, and we intend to educate people about these ideas and drive demand for products produced this way,” said Gina Asoudegan, vice president of mission and innovation with Applegate, when interviewed in January of this year.¹³

Bottom Line

Although it can be tempting for some to dismiss regenerative agriculture as the latest “feel good” ploy designed to attract capital and consumer dollars, to do so should come with the warning:

Ignore at your own risk. Not only the risks associated with the damage being done to our ecosystem tasked with feeding billions more people by 2050, but also the risks associated with loss of returns due to the degradation of soil, water, and biodiversity.

* This acreage is now more than 15,000 as of January 21, 2020.

ABOUT THE AUTHOR

Lynda Kiernan is Editor with GAI Media, daily contributor to GAI News, and frequent contributor to GAI Gazette magazine. She can be reached at lkiernan@globalaginvesting.com.

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DISCLAIMER: All views, data, opinions and declarations expressed are solely those of the author(s) and not of Global AgInvesting, GAI News, GAI Gazette, or parent company HighQuest Group.

^{1. Davenport, Coral and Pierre-Louis, Kendra. “U.S. Climate Report Warns of Damaged Environment and Shrinking Economy”. The New York Times. November 23, 2018. https://www.nytimes.com/2018/11/23/climate/us-climate-report.html (accessed February 19, 2019).↩}

^{2. Kurtzleben, Danielle, “Rep. Alexandria Ocasio-Cortez Releases Green New Deal Outline”. NPR. February 7, 2019. https://www.npr.org/2019/02/07/691997301/rep-alexandria-ocasio-cortez-releases-green-new-deal-outline (accessed February 11, 2019).↩}

^{3. “What is Regenerative Agriculture?” Regeneration International. February 24, 2017. https://regenerationinternational.org/2017/02/24/what-is-regenerative-agriculture/ (accessed February 11, 2019).↩}

^{4. Salvador, Richard. “Here’s What Agriculture of the Future Looks Like: The Multiple Benefits of Regenerative Agriculture Quantified. Union of Concerned Scientists. September 19, 2018. https://blog.ucsusa.org/ricardo-salvador/heres-what-agriculture-of-the-future-looks-like-the-multiple-benefits-of-regenerative-agriculture-quantified (accessed February 11, 2019).↩}

^{5. Thorpe, Devin. “How Investing in Regenerative Agriculture Can Help Stem Climate Change Profitability.” Forbes. December 12, 2018. https://www.forbes.com/sites/devinthorpe/2018/12/12/how-investing-in-regenerative-agriculture-can-help-stem-climate-change-profitably/#a98fc943e5cb (accessed February 11, 2019).↩}

^{6. “Valuing the Ecosystem Service Benefits from Regenerative Agriculture Practices”. Farmland LP 2017 Impact Report. https://delta-institute.org/delta/wp-content/uploads/Valuing-the-Ecosystem-Service-Benefits-from-Regenerative-Agriculture-Practices-_-Farmland-LP-Impact-Report.pdf (accessed February 11, 2019).↩}

^{7. Ibid. Thorpe.↩}

^{8. “17 Organizations Promoting Regenerative Agriculture Around the Globe”. Food Tank. https://foodtank.com/news/2018/05/organizations-feeding-healing-world-regenerative-agriculture-2/ (accessed February 11, 2019).↩}

^{9. “Regenerative Agriculture Investor Network (RAIN)”. LIFT Economy. https://www.lifteconomy.com/rain/ (accessed February 11, 2019).↩}

^{10. Yonavjak, Logan.“Why Should Investors Care about Regenerative Ag?”. Slow Money NYC. Jiune 26, 2018. https://medium.com/@SlowMoneyNYC/why-should-investors-care-about-regenerative-ag-e806e2e3ddcb (accessed February 11, 2019).↩}

^{11. https://applegate.com/ (accessed February 11, 2019).↩}

^{12. https://www.savory.global/land-to-market/eov/ (accessed February 11, 2019).↩}

^{13. Asoudegan, Gina. “How Applegate is Developing its Own Regenerative Agriculture Platform.” Chiles Kitchen. January 31, 2019.↩}