IN FIGHTING CLIMATE CHANGE, REGENERATIVE AGRICULTURE CAN BE A SUSTAINABLE SOLUTION

“All the world’s problems can be solved in a garden.” Geoff Lawto

Humanity’s unrivaled success over the past few hundred years has lead to rapid advances in our knowledge, technology, and population. To accommodate our species’ numbers, we have drastically changed the way we farm our food. Many of the practices used today involve large scale, mono-crop farming that requires chemical pesticides and fertilizers. After decades of applying these techniques, we now know the detrimental effect they have on our environment. Loss of biodiversity, nitrogen and phosphorus leaching, fresh water contamination, and increased carbon dioxide, are some of ways modern farming is straining our ecosystems.

There is another way to farm. Regenerative Agriculture (“RA”) is environmentally and socially sustainable. Using, technology, design, human capital, and the knowledge of our agricultural ancestors, RA can feed our global population while helping to heal much of the damage caused by our species’ mismanagement of resources.

The following are sustainable goals we have designed for the future of the farming industry while aiming to promote profitable business relationships:

• Environmental, social, and financial sustainability
• Increase biodiversity by reducing uses of pesticide
• Reduce usage of nitrogen and phosphorus in farming
• Empower small – medium farmers and businesses
• Alleviate land redistribution issues
• Connect finance and technical expertise with RA farmers
• Develop a profitable and scalable system that will rapidly expand the RA network

The goals of most large agribusinesses do not incorporate sustainability. Instead, they focus on high-yielding crops that create massive profits in the short-term while destabilizing their surrounding ecosystems in the long-term. These ill-informed farming techniques are responsible for endangering the integrity of four crucial boundaries of our planet’s biosphere:

 Image source: G.M. Mace et al., Approaches to defining a planetary boundary for biodiversity

While this chemical agribusiness form of farming continues to expand across the globe, another way of growing our food has taken root and is starting to gain popularity. Regenerative Agriculture seeks to empower the farmer by fostering land stewardship while boosting yields through intelligent farm design. There are four main tenets of RA’s sustainability goals:^[1]

• Increase soil fertility
• Work with wholes, not parts
• Progressively improve whole agro-ecosystems (soil, water, and biodiversity)
• Connect the farm to its larger agroecosystem and bioregion
• Create context-specific designs and make holistic decisions that express the essence of each farm
• Express the unique irreplaceable essence of each person, farm and place
• Make holistic decisions aimed at specific systems change
• Ensure and develop just and reciprocal relationships amongst all stakeholders
• Design for non-linear, multi-capital reciprocity
• Continually grow and evolve individuals, farms, and communities to express their innate potential
• Continually evolve agro-ecological processes and cultures
• Agriculture shifts the world

These initiatives provide a framework for small and medium size farmers and their partners to start applying new methods for their farming practice and benchmark their progress towards bettering their livelihoods and surrounding agrosystems. Each of the four points are embraced and elaborated on in the mission statements of many RA collaborations, like Kiss the Ground^[2] and Terra Genesis International.^[3]

These initiatives and collaborations are laying the groundwork for a new reality of farming. Scientists, farmers, ranchers, activists, and policymakers are constantly figuring out how to best organize and innovate towards this noble common goal. While they have been making great progress, the projects have been small to medium in scale and relatively localized. Now is the time to bring these practices to the world of finance and business. Regenerative agriculture networks are in place and have proven to be profitable.

What would be a business model innovation for a company that can help achieve these sustainability goals?

We propose a creating a private equity firm with the aim to accelerate regenerative agriculture farming practices by providing i) specialised services in transforming a traditional farm into an RA farm, ii) distribution channel to environmentally conscious retailers and iii) an additional platform for government to fight climate change through regenerative agriculture.

Key activities include:

Farming

• Screening and selecting farms that are appropriate to adopt RA taking into account the factors such as inherent environmental properties, local complementary businesses, etc;
• Creating context-specific designs and implementing the techniques with the farmers;
• Providing an analytical way of optimizing the complex factors involved in a farming plot, monitoring, and quality control;
• Facilitating cooperation with other complementary activities (e.g. cattle farm) to help achieve RA, following the success of Harvard Forest^[4] who created a sophisticated system to help quantify and understand the feedback loop of RA.

http://harvardforest.fas.harvard.edu/sites/harvardforest.fas.harvard.edu/files/grazing/Collins_Harvard%20Forest%202.pdf

Profitability: We expect to breakeven in 3 years due to large initial investments and expect the brand to appeal to environmentally conscious customers. This setup will also help achieve distribution goals:

• Distribution of products to retailers (B to B); and
• Development of a brand for products produced following RA method. 

Revenues: The fund will take a small percentage of the farm’s equity and apply for government subsidies/relocation of environmental funds.

Target customers: environmentally conscious retailers such as Whole Foods Markets and medium to high-end restaurants with strong focus on sustainability, preferably with those that have higher willingness to pay.

Funding: There are several sources of funding that we could pursue. In the public sector, organisations such as the World Bank which have a dedicated division on investments into agribusiness to promote sustainable farming^[6] and have had investments in a similar business in the past.^[7] The International Fund For Agricultural Development^[8] (UN affiliate), SARE grants^[9], National Sustainable Agriculture Coalition^[10] and many other organisation also have funds with mandate consistent with our objectives.

In the private sector, there are increasing numbers of funds being created to target sustainable agriculture which we can approach. Many institutional investors are not only choosing to become more socially conscious but are also working together to share knowledge and gain sophistication (UNPRI). Indeed, funds such as Earth Capital Partners^[11] and Sustainable Farm Partners^[12] have already had a track record of investments.

In particular, Earth Capital Partners LLP stands out. They focus on investing in growth capital for sustainable technology companies, renewable energy infrastructure development, and sustainable agriculture. As the best Sustainable Asset Management firm in the UK, they highlight the potential that can be created between businesses and regenerative and sustainable farms and how this can be a profitable business segment from an environmental perspective as well as financial perspective. ECP is also committed to sharing best practices and focuses on partnering with sustainability related thought leadership institutions and bodies, such as the United Nations Principles for Responsible Investment (UN PRI), United Nations Environment Program Finance Initiative (UNEP FI), and Institutional Investors Group on Climate Change who focus on sustainability goals as they promote:

• Reducing the use of fertilizer which will helps reduce usage of nitrogen and potassium
• Employing farming practices to allow soil to regenerate and slow the rate of erosion;
• Empowering of local farmers by helping them achieve a profitable and sustainable business;
• Mitigating land redistribution issue through improving farmers’ financial condition.

What is the context and the social/environmental challenges addressed here?

Many small and medium sized farmers do not currently have knowledge and expertise in RA in order to exploit this opportunity, ability to establish a relationship with target retailers/customers and the initial funding required to invest in transition into an RA farm. Our private equity fund can help provide the services to farmers from design stage all the way through to funding, implementation, and access to customers.

Why this approach could be game changing?

This new business model has the potential to be game changing because it helps create:

1. A marketplace/intermediary for regenerative agriculture farmers to help them find buyers;
2. Provide technical and expert knowledge and support to farmers;
3. Enable cooperation larger scale production of regenerative agriculture; and
4. Create brand and trust to the buyers that products are produced using a green and sustainable farming technique.
5. Provide governments with a reliable opportunity to collaborate in a PPP basis in the fight against climate change

This can be thought of as an adapted version of SOKO^[13] where we not only help connect buyers and sellers but also work with sellers to educate and enable them to transition into a new business model.

As one agricultural equipment assembler explained, “The economics of new technologies in agriculture disproportionately benefit scale players. My largest seeder in 2002 was able to seed 400 hectares in a month. My typical equipment today does 4,000 hectares. Only very large farming units can truly benefit from such machinery.” Meanwhile, the general manager of a farming company said, “We can pay for a Bloomberg terminal. Our trader speaks English and sits in the city. Two of the largest traders have offices within blocks from us. All of this matters. Last year we helped some of our smaller neighbors sell their production out of a policy of being good neighbors.”

In many situations, small farms are at a distinct disadvantage. For example, a 2014 Bain study in Brazil determined that the largest corporate farmers in the Mato Grosso region were able to sell their production for $15–$20 per metric ton above the prices obtained by small farmers.

How does financial growth and social / environmental impact form a feedback loop ? 

Financial growth closes the loop with the social and environmental projected impact as it makes this initiative sustainable on all fronts. The more financial growth that exists via this farming technique, the more it will attract investments and have a greater social and environmental impact. What is important to highlight here is that in addition to the above, such a technique is a long term solution that is meant to fix an important root causes of the very complex climate change problem. Nevertheless, what makes such a concept financially viable are the following points (among many others):

1. Technological advancement in precision farming, drones, and data analytics would allow farmers to analyze the soil quality, humidity levels, and perhaps gives guidance on how to organically use natural fertilizers in certain areas in a more cost effective way
2. There is a big need for organic and non-genetically modified products as people become more and more health conscience, and therefore supply will eventually catch up
3. There is a lot of awareness on the negative impact of genetically modified products as a result of overgrazing, chemical usage in fertilizers among many others
4. United Nations, governments and NGOs step up the fight against climate change, water pollution, desertification, healthy quality, among many others – so there is a huge business opportunity to create something different

What are potential costs and risks of this concept?

• This is a long term concept that might not be attractive for large farming corporations looking for short term profits. The investment horizon might not encourage investors to pump in funds and shift the investment community preferences into organic and regenerative agriculture businesses.
• At this point in time, organic products are sold at a premium for their taste and healthy qualities. Large scale organic farming are still enjoying the first mover advantage with higher margins, but this may not be applicable in the longer term – as more players come into this space
• There can be a limitation on the product supply in view of the increased demand and population explosion
• Non-market forces influencing businesses and unions including the food, chemical, and fertilizer (phosphorus, nitrogen, and potassium) industries that may push back to protect their positions

Is anyone in the world implementing this?

With the sales of organic food products increasing from $1Bio in 1990 to $40Bio today^[14], there is a huge need to cover such a rising demand and shift in consumer preferences and address health concerns. Moreover, this will continue to be a pressing issue as the world’s population is expected to reach 9.7Bio by 2050^[15]. With an easier access to technology and information, this would only imply an increased awareness level on health and nutrition related matters.

That being said, we refer to Mark Shepard’s New Forest Farm, a 106 acre establishment in Wisconsin, USA that has been developed over the past 15 years.^[16] It does contain approximately 250,000 trees, shrubs, vines, canes, etc…in addition to cattle, pigs, lambs, and chicken. The farm is also entirely powered by solar and wind renewable sources with the farm equipment completely driven by biofuels. Such an intricate ecosystem was made on purpose to optimize the use of the land and allow the cycle of life to flourish and become a self-reliant system. The farm’s income is split from the meat & walnuts sold to the region in addition to the consulting services offered by the owners on how to best design a regenerative farm plot along with providing tours and education services. Mark’s drive is to benefit from the overall ecosystem that is created by the regenerative farming concept and not solely focusing on short term profitability. By doing so, he insures a healthy subsoil conditions that are full of minerals and nutrients rather than fertilizers and chemicals that go into the water streams or the underground reservoirs and create a lot of pollution downstream. In addition, it is important to to highlight that the owners can benefit from the real estate by providing tours, eco lodging, or even farm to table restaurant concepts, consulting services to other farmers, or even support agricultural research. It is not the farm but the entire business ecosystem around it that makes it an interesting business opportunity.

Another success story comes all the way from New Zealand where “The Family Farm”, aka the Mangarara in Central Hawks Bay has been leading the charge out of personal conviction that regenerative farming is essential to improve the quality of the food provided to the future generations as well as an effective method in repairing the 1,500 acre land that has been grazed for 150 years by cattle, sheep, pigs, and chicken. In doing so, they have followed Allan Savory’s idea of holistic grazing. In principle, The Family Farm insures that their cattle is moving around the farm as to replicate a buffalo herd on the African savannas so they can access fresh grass rather than eating all of it in the same spot every day. This goes against the traditional farming techniques of keeping cattle grazing in the same area. Such a traditional method will keep the grass short and in a vegetative state and depletes the soil from the nutrients in the long run. The Family Farm also provides an eco lodge, sells an organic and ethically sourced meat box, and “friend the farm” services to add to their revenue streams and make their operation a financially and ecologically sustainable farm. Full details can be provided at their following website: https://www.mangarara.co.nz/

Picture Source: FIGHTING CLIMATE CHANGE WITH REGENERATIVE AGRICULTURE – RESTORING PARADISE – https://permaculturenews.org/2017/06/19/fighting-climate-change-regenerative-agriculture-restoring-paradise/

Written by: Nadim Jalbout, Pasarn Intarangsi, Tae Kang Kim, Olympe Bedier, & Galen Wyn Davies

Sources

^[1] https://en.wikipedia.org/wiki/Regenerative_agriculture

^[2] https://kisstheground.com/our-work/#farmland

^[3] http://www.regenerativeagriculturedefinition.com/

^[4] http://harvardforest.fas.harvard.edu/

^[5] Earth Capital Partners LLP, Memberships http://www.earthcp.com/node/96

^[6] http://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/agribusiness/overview

^[7] IFC – Impact Stories http://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/impact-stories/sustainable-farming-yields-economically-rewarding-harvests

IFC – Priorities

http://www.ifc.org/wps/wcm/connect/industry_ext_content/ifc_external_corporate_site/agribusiness/priorities/supporting+sustainability/agri_priorities_sustainability

^[8] https://www.ifad.org/

^[9] http://www.sare.org/

^[10] http://sustainableagriculture.net/

^[11] http://www.earthcp.com/

^[12] http://sustainablefarmpartners.com/

^[13] https://www.soko-kenya.com/

^[14] Investing in Organic by Eric Fink, July 6, 2016 Green Business Network http://sustainablefarmpartners.com/category/news/

^[15] World population projected to reach 9.7 billion by 2050 as reported by the United Nations, http://www.un.org/en/development/desa/news/population/2015-report.html

^[16] https://permacultureapprentice.com/successful-permaculture-farms/

^[17] Before You Go and Buy the Farm – http://www.bain.com/publications/articles/before-you-go-and-buy-the-farm.aspx