How Investing In Regenerative Agriculture Can Help Stem Climate Change Profitably
Investing in regenerative agriculture has the potential to address not only the food supply but also climate change, peace and conflict resolution and the water supply to boot. This impact investing strategy could be the biggest lever for creating positive change available to investors today. It also appears to generate healthy financial returns.
Craig Wichner, 49, founder and managing partner for Farmland LP, a fund manager that invests in converting conventional farmland to regenerative, organic farming. “It has so many benefits to the environment, to human society,” he says. “But we're also demonstrating that you can grow a great, healthy, wonderful food and be more profitable than conventional agriculture systems.”
Farmland LP acquires traditionally managed farmland, typically used to produce commodity crops and converts it to organic using regenerative practices. Wichner reports generating gross margins of 40 to 50% on wine grapes. Margins hover around single digits for conventionally-grown commodity crops, which is why the firm works to convert its farms to other crops. He notes that returns during the three-year organic conversion period are lower.
David LeZaks, 37, leads regenerative food systems projects for Delta Institute, a nonprofit that has worked to identify market-based solutions to environmental, social and economic problems for the past 20 years.
Watch the full interview with Wichner and LeZaks in the video player at the top of the article.
LeZaks, who holds a Ph.D. in Environmental Resources and collaborates with Farmland LP, describes his work this way: “I design disruptive infrastructure that positions us to unlock substantial capital flows into the regenerative agriculture sector.”
“With the current system that focuses on growing more cheap food, we face a dire situation that intensifies the degradation of critical farmland,” he says. “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.”
Kari Cohen, projects branch chief for the Financial Assistance Programs Division at USDA’s Natural Resources Conservation Service (NRCS), notes that Delta Institute was awarded a Conservation Innovation Grant in 2017 to help drive market-based solutions in resource conservation.
“The Delta Institute project, a part of this conservation finance cohort, is developing a regenerative agriculture investment toolkit,” he says. “Regenerative agriculture is a farming system that goes beyond ‘sustainable’ and aims to improve natural resource conditions in conjunction with agricultural production.”
Carbon and Climate Change
Wichner explains how farming contributes to climate change. “The current agriculture system, the chemical-based agriculture system, is really geared around growing these commodity crops planting annual crops year after year after year that essentially degrades and burn down the carbon in the soil and the nutrients in the soil.”
In contrast, regenerative agriculture increases carbon sequestration in the soil. “When you switch to a slightly more complex form of agriculture you… actually find that you can increase the carbon in the soil, increase the overall health of the soil, increase its biological activity. It's not just dead soil anymore; it becomes nice and vital and you actually get increased crop production,” he explains.
While Farmland LP focuses on converting farms from commodity crops to higher value products, the principles of regenerative agriculture can be applied to commodity crops, too. LeZaks notes, "As an example, in a study published last year (attached) that looked at “conventional” compared to “regenerative” corn production, the farms in the study yielded less, but were more profitable."
Peace and Conflict Resolution
Scarce resources contribute to the risk of conflict. Traditional agricultural practices contribute to desertification, according to Johanna Walderdorff, vice president of Growth for Peace Organization. “The loss of habitable land will force people to relocate in search for more fruitful land. As they move towards vegetated areas, there are usually people who already own that particular land,” she says. The movement of people can lead to conflicts.
Regenerative agriculture helps to fight desertification and can help to keep people on their traditional land. “Working on the soil is the first step, and therefore the baseline for us to work with nature, anything else comes after. This is what regenerative agriculture does,” she adds.
Unhealthy soil requires more water to produce the same amount of food. Healthy soil, in contrast, resulting from regenerative agricultural practices holds more water and requires less be added.
Furthermore, all organic agriculture omits the use of chemical fertilizers and pesticides, eliminating any risk—however small—of excess fertilizers contaminating rivers or of pesticides or herbicides fouling drinking water.
As a side note, the report LeZaks cited above also showed that regenerative, insecticide-free farms that "proactively design pest-resilient food systems" have one-tenth the observed number of pests as the insecticide-treated crops on conventional farms.
Ricardo J. Salvador, director and senior scientist, food & environment program at the Union of Concerned Scientists, says he grew up using regenerative agricultural practices. It was the way his family in southern Mexico traditionally farmed. He didn’t learn another approach until he got to college at New Mexico State University in 1976.
He explains how Farmland LP generates financial returns from his perspective as a soil scientist.
Their business model is predicated on improving the value of the asset they manage for their investors. It was unique at the time they started to interpret this as improving the quality of soil (organic matter content, fertility, water holding capacity, biodiversity.) A recent study demonstrates that inside of a decade of taking over management of their properties all of these characteristics (and several others measuring total system productivity, resilience and profitability) improved markedly. From study of this report, observation of their evolving business, and direct conversations with their technical staff, it is clear to me that they are superb agronomic managers.
The USDA’s Cohen explains how LeZaks’ work at Delta Institute contributes to financial returns. “The Delta Institute’s project is designed to increase investment in regenerative agriculture. Regenerative agriculture systems have the potential to increase financial returns to landowners and investors through higher yields, more resilient operations, certification marketing, and the sale of ecosystem services credits such as carbon credits.”
Mark Gogolewski, the CEO of Realization Films, is an investor in Farmland LP, which has a total of $160 million under management, including 15,000 acres of farmland. He says, “They have significantly raised the value of all of the acquisitions.”
He notes, however, that he gets satisfaction from seeing the land converted to a regenerative approach. “Farmland has found a recipe for success that also delivers real good. How often do you get to say that?”
“I was looking at farmland because I believe in owning real assets. I had and have a strong belief that farming remains as one of the most important assets in our country and our world,” Gogolewski notes. “Plus, these assets can and should be managed far, far better for both optimizing economic activity, while being a strong steward to the long-term value of this key environmental asset.”
Growth for Peace Organization’s Walderdorff argues for changing our perspective. “We speak of trees because they are high, we talk about rising ocean levels because it’s visual, but desertification has been gradual, and the microorganisms are underneath the soil, and thus have been ignored. Our survival depends on the survival of the smallest organisms on the planet. ”
Originally published by Forbes on Dec. 12, 2018