Impact Investing in Regenerative Agriculture

A new investing attitude has started to pick up momentum in recent years. No longer are individuals seeking purely financial returns on their investments; environmental and social impacts are playing an increasing role in influencing where investors place their money. This type of investing – which takes into account non-financial factors – was coined “impact investing” by the Rockerfeller Foundation1. Impact Investing is a broad term that encompasses different models of investment, with varying degrees of focus on the financial and non-financial returns. Issues of climate change, soil erosion, food security and water scarcity have led investors to consider investments in regenerative agriculture. This article will identify and discuss different models of impact investment in regenerative agriculture and briefly discuss the distinctive features of  regenerative agriculture and the rationale for its acceleration as a distinct mode of agriculture.

‘Sustainable’ versus ‘regenerative’

While the term ‘sustainable agriculture’ is commonly used, investors have become increasingly interested in the impact of investments that not only protect and support “good management” of agricultural systems, but which specifically stimulate the regeneration of these systems, advocating an approach that seeks  to “restore, improve, and enhance the biological vitality, carrying capacity and “ecosystem services” of farming landscapes.”2 Regenerative agriculture addresses the fundamental capacities and functions of the underlying systems and attempts, in an holistic manner, to strengthen the system from the bottom up. The diagram below illustrates this distinction and the spectrum from “conventional” to regenerative” modes of agriculture .

This article will maintain this distinction between sustainable and regenerative agriculture. The processes of holistic strengthening and regeneration of agricultural systems require capital and  there are a number of different models for how this capital can be financed and allocated, and a few models that have emerged are introduced here;

Crowdfunding

A crowdfunding model generally uses a platform to connect smaller investors to small farmers. The farmers are then able to use the collective funds to engage in regenerative practices, or to secure land for restoration. An example of this would be Community Supported Agriculture (CSA) like the German farm Luzernenhof, which created a cooperative comprised of over 10 other farmers. The cooperative raised over 1 million Euros to buy land from which the farmers can lease sections for farming, provided they farm under regenerative guidelines set out by the cooperative. An avenue Luzernenhof is exploring is providing return to investors in the form of a fixed basket of goods of the cooperatives’ produce.

Online platforms like Kickstarter, Indiegogo and Barnraiser allow entrepreneurs, including farmers, to create campaigns and fund-raise for their regenerative farming initiatives. The Barnraiser platform was created specifically to encourage funding for the sustainable food movement3. While there is often no traditional financial return for investors involved in crowdfunding, each farm is able to structure its own relationships with its contributors and create reward systems for different levels of engagement.

Loans

Another model for investment in regenerative agriculture is that of providing loans to farmers. In the past, farmers have been dependent on the government or large corporations for funding, which has made it difficult for small-scale farmers to obtain funding. Companies like Grow Ahead are using crowdfunding platforms to raise money in order to provide loans to smaller farmers specifically to fund “farmer-developed resiliency projects”. Investors earn a financial return from farmers’ lease repayments. 4

Land restoration and resale

Other companies are utilizing capital to purchase, convert and resell farmland. Farmland LP purchases traditionally managed commodity farmland and converts this to a sustainable farm by increasing crop diversity, buying relevant infrastructure etc., thereby increasing the land’s value. Farmland LP actively manages its properties for the longer term.5

Why bother?

While there is a growing interest from the investment community  in regenerative agriculture and supporting a shift from ‘conventional’ agriculture, it remains a small fraction of total investment in agriculture.  It is therefore important to grasp the necessity for such a shift in agricultural practices and for the investing community to play its role in enabling this shift: it is not just green trend, but rather a practical and responsible long term business strategy for farmers and society as a whole. True wealth of a society or nation is directly linked to the productive capacity of the agricultural systems supporting that society or nation. Easy access to cheap energy and the enticing “wealth” available through increasingly sophisticated financial instruments and markets has obscured this fundamental dependency.  The generation of true long-term wealth requires careful consideration of the effects of certain actions on the resource base that determines the productivity of agricultural systems. This resource base – including natural resources, infrastructure and human capital6 – is the fundamental wealth-generator, and it is vital that investment and management decisions are directed at ultimately limiting its erosion and, wherever possible, regenerating it. If an investment depletes finite resources and creates a dependency cycle on more finite resources into the future, the ultimate wealth-generating capacity of the resource base will be depleted. On the other hand, as in regenerative agriculture, if an investment uses infinite (renewable) resources, with limited finite resources, but doesn’t require finite resources past the initial investment, it has the potential to preserve the resource base – and its wealth generating potential – indefinitely. In a world in which the finite quality of certain central resources is becoming increasingly evident, any shift away from extractive and depletive activities is vital for the sustenance of wealth for future generations. Having investors assist and promote regenerative agriculture is a vital and necessary step in the transition.

And the future?

Although this investment space is exciting and growing fast, it also faces challenges. It requires a paradigm shift in the way people think and the way they view the relationship between the soil in which food is grown and the health and wealth of current and future generations. A narrow measure of financial return may be inadequate to capture what the true or ultimate “return” of these investments really is. How does one measure the benefits of healthy soils, more nutritious foods, reduced inorganic fertilizers and agrochemical use, increased biodiversity or stabilizing climate, for example? How does one attach a monetary value to these? What are the other avenues of providing returns to investors that may well not be monetary but which nevertheless transfer “value” to investors? These are the types of questions that will have to reveal themselves and be answered as investors and practitioners of regenerative agriculture   undertake this journey together. As this paper points out, the connections between impact investors and regenerative agriculture are accelerating and new innovative financing models are emerging. Time will tell if it’s happening fast enough, but what is of no doubt is that innovators, entrepreneurs and ecologically-aware individuals and companies are “grasping the nettle” and pioneering ways to exploit the links between regenerative agriculture  and real wealth creation.

 

REFERENCES

  1. Madsbjerg, S. 2018. Bringing Scale to the Impact Investing Industry. Available: https://www.rockefellerfoundation.org/blog/bringing-scale-impact-investing-industry/
  2. Electris, C. et al.. 2019. Soil Wealth: Investing in Regenerative Agriculture across Asset Classes. Available: https://lakeeriefoundation.org/wp-content/uploads/2019/07/Soil-Wealth-2019.pdf
  3. Gibson, E. 2016. Successful Crowdfunding for Agricultural Pursuits. Available: https://www.ecofarmingdaily.com/farm-management/marketing-best-practices/successful-crowdfunding-agricultural-pursuits/
  4. Grow Ahead. 2020. Available: https://growahead.org/make-a-loan/
  5. Farmland LP. 2020. Available: https://www.farmlandlp.com/our-work/#.Xj-V6q17G8U
  6. Savory, A. 2016. Holistic Management: A commonsense revolution to restore our environment. 3rd Washington DC, United States: Island Press.
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