As our economy braces for the long term fallout of the Covid-19 pandemic and investors seek to escape the volatility of the stock market, we are seeing a spike in interest in farmland investing. While it is our hope that we band together as a community to overcome the challenges of the day, we also see this influx as an opportunity to scale up investment into a growing movement with the potential to fight climate change, sustain our land, and do right by farmers.
That solution is regenerative agriculture, a set of farmland management practices that rebuild soil health. We at FarmTogether, an investing platform that to date has facilitated investment in traditional cropping systems, are so bullish on this opportunity that we were named a semifinalist for the Terraton Challenge, a competition focused on sequestering 1 trillion tons of carbon dioxide in our soils. Thinking about regenerative agriculture as an investment strategy represents an evolution in our business model and one we hope others will consider in the coming period of recovery.
After months of research, we thought it was worthwhile to share some of the reasons we came to this opportunity and why we think this is a great risk-mitigation tool in the coming months.
No one set of farming practices makes a farm regenerative and some practices take multiple years before the soil health benefits may be realized. Experts often consider four main pillars to define regenerative farming:
Farmers might have experience with some or none of these principles today. They may have tried a new crop or a grazing plan that didn’t work well for their farm previously and need to continue to fine tune their farm management plan. They might also want to start slowly to better understand how the changes in practices may impact their profitability, soil needs, or workload. Regenerative farming includes a level of flexibility that allows farmers to think about how to maximize the outcomes for their farm and the climate, making it a viable strategy for any type of farm.
One of the first questions we often hear when discussing regenerative agriculture is can it be done profitably? We were curious as well! Researchers from the Ecdysis Foundation found that when looking at conventional vs. regeneratively grown corn, the answer is yes. While a farmer might see a reduction in yield, that loss in revenue is more than exceeded from savings in inputs and the addition of new income streams.
Croatan Institute and Delta Institute with the Organic Agriculture Revitalization Strategy (OARS) recently investigated the landscape for investing in regenerative agriculture across asset classes in their seminal report, Soil Wealth. What they found was that to realize the full potential of regenerative agriculture $700 billion in capital would be needed over the next thirty years, with a net financial return of $10 trillion.
What is even more exciting about the results of this study, is how it showed that the opportunities lie across asset classes. While we might be partial to real asset investing, we love to see a market opportunity that allows for you, as an investor, to put your money to work in multiple ways. The report lays out 70 different investment strategies which support a regenerative agriculture market.
When General Mills, Danone, Kelloggs, Nestle, and more are signing on to partnerships that include regenerative agriculture as a core pillar, you know a movement has staying power. General Mills committed to supporting 1 million regenerative acres by 2030 putting its considerable resources to work for their network of farming partners. Other companies are making similar commitments that will drive resources to farmers looking to transition.
With the support of industry partners, standards and certifications are beginning to emerge that will prevent watering down of the term. Three major standards have emerged that are vying for broader market adoption. The Carbon Underground, Savory Institute, and Rodale Institute have all put forth their frameworks for how to define, categorize, and/or certify regenerative farms.
While it is too early to say whether any one of these standards will come to dominate, or if the market will support all three, we do see this as a great sign for things to come. The standards provide certainty for investors in ensuring that investments in regenerative farms live up to our high standards and deliver the environmental outcomes claimed.
Globally, food is responsible for 26% of our greenhouse gas emissions. At the same time, climate change is creating more risk for farmers, increasing extreme weather events. With regenerative agriculture, farmers can reverse course, becoming part of the solution by sequestering carbon in the soil. So much so that Project Drawdown names regenerative agriculture their 11th most impactful solution to climate change, reducing total atmospheric CO2e by 23 gigatons by 2050.
To reach this goal, we would have to see 1 billion acres farmed regeneratively by 2050, up from approximately 108 million acres currently. Investors and farmers will have to work together to achieve this goal. Farmers will seek capital partners to help them open new markets and mitigate the risk posed by climate change for their operations.
In this unprecedented time, it is our goal to source as many regenerative agriculture deals as we can find, building a market for the growing number of investors knocking at our door. We are looking for partners, collaborators, farm operators, and investors who understand the potential, and are committed to making an impact on our landscape and for our communities. We hope you will consider joining us in this transition!
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.