As regenerative agriculture gains momentum as both a production strategy and an increasingly mainstream topic to address the environmental and climate impacts of agriculture, it is also gaining more attention in the agricultural finance community – from banks to farmland investment funds to impact investors and more. A new report released last week by researchers at Delta Institute, Croatan Institute, and the Organic Agriculture Revitalization Strategy (OARS), entitled Soil Wealth: Investing in Regenerative Agriculture Across Asset Classes addresses the current state of and growing opportunity for capital allocation to regenerative agriculture and food.
Despite the perceived barriers to investment in regenerative food systems, including higher risk, lower returns, and few viable opportunities, the report findings paint a much more promising picture. The landmark report points toward a growing opportunity to address some significant challenges in the food system, including soil health, climate change, biodiversity loss, and rural farm community resilience.
The researchers identified and examined 127 investments, totaling $321.1 billion, which explicitly integrate sustainable food and agriculture in their investment processes. Of these, 70 of the strategies, totaling $47.5 billion in combined assets, included regenerative agricultural criteria in their investment strategy, as well. Looking across various asset classes, including banking and cash equivalents, fixed-income investing in both public and private debt markets, public equities, and the private equity and venture capital market, the report also identifies 67 distinct investment mechanisms, instruments, and approaches for further developing regenerative agriculture capital opportunities. The full report can be found at www.soilwealth.org.
Raising Regenerative had the opportunity to connect with one of the report’s authors, Dr. David LeZaks of Delta Institute, to discuss the report and some of the key take-aways.
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We are hearing more and more about soil health in today’s news and how important it is for a healthy and productive food system. But this report focuses on Soil Wealth – a new term for most people. Can you tell us briefly what this term means and why it is so critical right now?
We use the term “soil wealth” as the inclusive set of benefits to soil health and community wealth derived from regenerative agriculture. This report was supported by a USDA Conservation Innovation Grant focused on identifying innovation mechanisms to finance the transition to a more regenerative agriculture. As the project team unpacked all of the great examples of regenerative agriculture being practiced across the US, it was clear that there were a wide array of beneficiaries. There were clear public benefits, such as sequestered carbon, clean water, and increased levels of biodiversity, but also private benefits that included more profitable farmers whose operations were less risky and ultimately more resilient in the face of change. These benefits come from the soil, as does the “wealth” they produce. The age-old adage of “if you take care of the soil the soil will take care of you” surely resonated for us!
In the report, you and your co-authors have quantified the investment capital going to sustainable agriculture and food and also specifically to regenerative agriculture. The latter, you write, is being targeted with $47.5 billion. That’s incredible! How is this money distributed across asset classes?
In the report, we identify funds with assets under management that have invested in one or more aspects of regenerative agriculture across a number of different asset classes. In decreasing order, regenerative agriculture investments are held in farmland / real assets, public equity, private equity / venture capital, fixed income: public debt, fixed income: private debt, and cash and equivalents. We are heartened to see that investors are already realizing the potential of this investment theme, and have not only begun to test the waters, but are educating their peers, developing new due diligence tools, expanding their offerings, and preparing for additional capital raises.
What asset classes still need the most development?
We view farmland, cash, and fixed income as asset classes ripest for rapid development in part because bank financing remains the leading form of financing farms and businesses in rural communities. While innovation might happen in these asset classes in an isolated manner, government and philanthropic capital can play a catalytic role in the development of new mechanisms, instruments, and approaches within these asset classes that align the appropriately structured, patient, and biomimetic capital needed to grow the regenerative agriculture sector.
The report identifies how ‘regenerative ready’ the various investment mechanisms that you identified are and indicates that very few are established but many are growing, emerging, or aligned for the future. Based on this are you optimistic about the growth of capital allocated to regenerative agriculture in the next five years? Why or why not?
The authorship is highly optimistic about the future of regenerative agriculture! The field has already grown by leaps and bounds since we first conceptualized the project, and are seeing interest from across the financial and agricultural value chains. The inaugural Regenerative Food Systems Investment Forum is just one example of how financial and agricultural value chains are aligning and bringing solutions forward to regenerate soils and build community wealth. We must also realize that just the allocation of capital is not enough to address our numerous challenges. We also need changes in policy, culture, legal frameworks, and other social constructs that bring us more in line with our planetary boundaries.
What do you see as the biggest barriers to expansion of investment in this space?
We have societal expectations about food, especially around price and quality. In reality, cheap food is very expensive. We do not account for the negative externalities from many types of agricultural production that lead to the degradation of both human and soil health. Those costs are often passed on to public sources, whether in the form of health care costs, agricultural subsidies, lost biodiversity, or a number of other costs that are never paid for at the register. We need new accounting standards, financial decision-making tools, policies, and awareness that more fully account for the true costs and benefits of our food systems.
What do you hope this report accomplishes for the allocation of capital to regenerative agriculture?
This report is an open invitation to the community to think creatively about how the many forms of capital, whether financial or non-financial can be used to invest in regenerative food systems that build soil health and community wealth. We fully understand that our current economic systems might not be ready or able to allocate capital in a market atmosphere that can at times have extractive expectations. Where it is clear that building soil wealth is possible, but the circumstances may not be “market ready,” I am confident that there are enough sources of catalytic capital to step in and demonstrate proof-of-concept, reduce risk for stakeholders, and light the path toward a more regenerative economy.
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Report authors David LeZaks and Josh Humphries will present at the Regenerative Food Systems Investment Forum on Sept. 30-Oct. 1. They’ll explore Soil Wealth and the outlook for increasing capital to the space. Learn more about this program and the entire speaking line-up here.