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The right way to spend patient capital for food reform

Investments alone won’t change farming at scale. That will only happen when farmers hold their land — and futures — in their own hands.  

Conceptual art about food systems investments with field and bag of money

Regenerative agriculture is one of the fastest-growing sustainability trends. In just the past year, some of America's biggest agriculture and food companies, including Cargill, General Mills and PepsiCo, have made public commitments. They want to help their producer partners adopt regenerative practices that foster soil health, improve water quality and reduce greenhouse gas emissions. 

Some of the world's wealthiest families interested in impact investing may join them after CREO Syndicate, an environmental nonprofit, released a report outlining the case for investing in regenerative agriculture. 

Investing in soil

CREO is an organization worth knowing. Bloomberg Green describes the syndicate as a "secret club for billionaires who care about climate change." Over the past 10 years, CREO has brought together over 1,000 private and institutional investors who oversee $800 billion in investable capital. Through education and collaboration, the organization aims to redirect this capital to opportunities that advance sustainability while also generating respectable returns. 

A notable feature of CREO's high-net-worth individuals is that they tend to be in less of a hurry to see returns than other investors. Regenerative practices, such as using cover crops to increase the carbon content of soils or growing trees on farms, are the kind of slow processes that require such patient capital. 

The CREO report provides a succinct overview of the investment opportunities, stressing that investments across many asset classes — including philanthropic capital, blended finance and private equity — need to be combined to help regenerative ag scale. Opportunities for investing across the food supply chain are just as diverse, ranging from agricultural inputs to environmental markets and measurement technologies to marketing platforms.

But the analysis fails to ask two fundamental questions. Is regenerative agriculture an investor’s best bet for improving food systems? And if so, what can investors do to make regenerative transitions attractive to farmers? 

Will regenerative investments pay? 

The opportunities CREO outlines are genuine, and investment is critical to developing a regenerative marketplace. Still, investors should have their eyes open because the economics of regenerative agriculture have yet to be proven. 

CREO claims that regenerative approaches can reduce the cost of inputs, equipment and labor, as well as generating additional revenue through increased yields and revenues. But these benefits will materialize only if farmers have access to credible technical assistance and peer networks, which are lacking today. Even then, farm transitions entail a long process of trial and error in which tangible benefits only materialize after around three years. 

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CREO also assumes that farmers can increase their profits by participating in environmental marketplaces that compensate them for sequestering carbon in soils. This promising concept faces technological, legislative and organizational hurdles. Whether soil carbon should be used at all for climate mitigation is itself a contentious topic

Finally, the report states that convincing consumers (and CPG companies) to pay a premium for regeneratively grown products will be part of the payoff. This isn’t an easy task either. It took decades for organic and fair trade certifications to earn consumers’ trust and dollars. Both remain far from mainstream. The organic market grew by a record 12 percent in 2020, yet makes up only 4 percent of U.S. food sales

Investors should ask themselves whether supporting organic agriculture would be more impactful than betting on regenerative. Will throwing yet another sustainability concept into shopping carts create more opportunities for greenwashing than income for regenerative farmers?

Land ownership is vital

A second issue with the report — and indeed with the larger discussion of regenerative agriculture — is the focus on market enablers, such as financing and verification technologies, rather than farmers. 

CREO's report rightly highlights the Perennial Fund, ReHarvest Partners, rePlant Capital and Steward. These organizations are using innovative financial frameworks to fund the transition to regenerative, including loans to support growers in transition periods, crowdsourcing platforms for farmland investments and financing to farmers who can demonstrate improved soil health outcomes. 

But none of these investments will change the rules of the game for farmers. One of the biggest challenges across sustainability is to give the people taking care of our lands, forests and oceans economic incentives to prioritize long-term opportunities over immediate profits. When it comes to regenerative farming, this calculation makes sense only when people own the land they work or, at a minimum, secure long-term management rights. 

That’s because owners, not farm operators, have the final say on how to manage farmland. Owners also have the incentive to look out for the long-term health of their land. Because of this, investors and lenders should enable more U.S. farmers to purchase land, instead of contributing to an increasingly inequitable system of farmland ownership

Young and BIPOC (Black, Indigenous, people of color) farmers should be another priority. Many young farmers will be more motivated to adopt innovative practices than the 34 percent of American farmers who are over 65 and about to retire. There's even more work to be done to create a level playing field for BIPOC farmers. Black farmers, for example, have lost 90 percent of their land since the 1920s and today represent less than 2 percent of U.S. farm owners. 

Creating ownership-based incentive structures for farmers to adopt regenerative practices will require more than a few impact investment funds. In addition to investment advice, CREO should inspire its privileged community to combine investment dollars with approaches that can democratize land access and, as a result, boost sustainable management.

There are many ways this could happen. Investors could connect venture capital with philanthropic grants to assist with land purchases and supply chain development. They could collaborate with land trusts that link farmland leases with the use of regenerative practices, ensuring long-term use of those methods. Investments alone won’t change farming at scale. That will happen only when farmers hold their land — and futures — in their own hands. 

What other avenues exist for investors to accelerate the adoption of regenerative practices? I’d love to hear your ideas at [email protected].

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