There can be no doubt that the regenerative agriculture movement is growing. This is evidenced by the number of new regenerative agriculture market reports proclaiming an expected 14-16% CAGR through 2030, the number of multi-national food corporations conducting pilots and creating programs for regenerative agriculture in recent years, by the number of major movie projects – like Common Ground – that are focused on raising awareness about regenerative agriculture to the masses; and also (even closer to home) by the enormous demand RFSI saw for our most recent job posting in regenerative agriculture (300+ applicants!). With all this momentum comes increased awareness of and dialogue around the ecological, climate, and nutritional benefits of regenerative agriculture. Much less talked about, however, is the economics of regenerative agriculture and the important role of capital. There simply isn’t enough information about the economics of regenerative agriculture available today and that is holding the space back.
At RFSI, our goal is to support the development of a robust capital ecosystem for regenerative agriculture and food systems. While we understand that capital is not the only lever to advance regenerative systems – policy, education, and cultural shifts are among several others – it is an important one and there are some strong arguments for why we need to keep capital top pf mind as we build regenerative food systems.
Here are four reasons why we need to talk more about the economics of regenerative agriculture and the role of capital:
1. Economics will drive adoption.
While ecological, climate, nutritional and other potential benefits of regenerative are important and may play a role in the decision to adopt regenerative or not, it is ultimately economics that will drive transition on the farm and beyond. The addition of new practices or entirely new systems within an operation can be time consuming, labor intensive, and costly. The majority of farmers will only take this on if they see a path to positive economic benefits, such as cutting costs or increasing access to premium pricing (or both!), that can ultimately lead to better margins and profitability.
By the same token, most of the capital allocators looking at investments in regenerative agriculture and food – whether via venture, private equity, or philanthropy – want to see a path to positive economic outcomes for their investments. When the positive economic outcomes become better understood, engagement across the systems will come easier.
To that end….
2. Regenerative agriculture needs to be demystified.
There are a lot of myths around regenerative agriculture that need to be dispelled, not the least of which include that:
- There is a necessary yield drag during transition, and
- Regenerative agriculture isn’t profitable.
For some this may be true, but there are others – including John Kempf of Advancing Eco Agriculture (AEA) who spoke at our 2023 RFSI Forum – that argue that if you get the agronomy right, these myths do not need to be a reality.
Today, there is not enough clear dialogue, data, and real-world case studies showing the economics of regenerative farming. We need to create wide-spread understanding around:
- On-farm cost structures in both conventional and regenerative systems
- The importance of market outlets for regenerative products and the influence of premium or non-premium pricing
- Time frames… for practice change, for input cost reduction, for pricing options, and much more
Clarity on these and other economic factors can help all parties better understand the real economic risks and opportunities of regenerative both in general and then for each unique context.
Note: RFSI dug into the profitability of regenerative agriculture in this 2022 presentation.
3. To Build New Food Systems, We Also Need New Finance Systems
Economic policy and associated capital incentives are a big piece of how we got to where we are today. The current highly commoditized and extractive agriculture and food system that dominates today is, in part, a product of the policies and capital incentives that were put in place over the past 5+ decades. Among these in the U.S. are subsidy programs that encourage fertilizer use and crop insurance programs that discourage innovative farm planning that falls outside of conventional high input, monocropping systems.
We need new incentives that encourage regenerative outcomes. Understanding how past and current policies and capital incentives played a role in building the current system, can provide much needed insight into how to build alternative finance, insurance, and other policy models for the future. Fortunately, there is a growing group of organizations digging into alternatives to conventional fiscal incentives. In the U.S., Land Core is working on a predictive model of risk for soil health. The idea being lenders and crop insurers can use the model to provide “discounts” based on soil health. In the UK, a framework has been developed to encourage nature-friendly farming. Within this framework farmers would be eligible for payments for adopting practices that are better for the environment.
4. We need more capital flowing to regenerative food systems
As regenerative systems develop, the gaps that exist within these systems will continue to become more apparent. Some are already becoming obvious, such as the need for regenerative infrastructure and processing capacity in the mid-supply chain, the need for appropriate technical assistance for farmers, the general lack of consumer awareness of the term regenerative, and the need for aligned financing tools for regenerative projects. Identifying and amplifying these gaps will encourage further innovation and development of solutions, but capital will continue to be an essential tool in helping fund these solutions.
So, perhaps the most obvious reason that we need to talk more about the economics of regenerative agriculture and the role of capital is that there simply isn’t enough capital flowing to this space… yet. There’s a lot of reasons for that. Regenerative agriculture as an investment opportunity is nascent, it’s still relatively small, and (as discussed above) it still remains mysterious to many.
However, a lack of capital in the universe is not one of the reasons. From 2018-2020, annual capital flows to agriculture in the U.S. were $972 billion, according to a 2021 report by U.S. Farmers & Ranchers in Action, but most of this is flowing to conventional systems that maintain the status quo. So one of the key questions for the expansion of regenerative food systems is: how do we get significantly more capital to flow this direction?
Part of that answer lies in education, dialogue, data and case studies to increase awareness and understanding around both the business case and investment case for regenerative agriculture. At RFSI we strive to provide these resources and curate a space dedicated to these efforts.
We’ll explore these topics and more at the 2024 RFSI Forum in Denver on October 9-10. Don’t miss this unique opportunity to increase your own understanding of regenerative food systems and the opportunity to invest in them. Learn more here.
Sarah Day Levesque is Managing Director at RFSI & Editor of RFSI News. She can be reached here.