How impact investing can bring about the future of farming

by Dan Kirslis, CFP®, Financial Advisor


These days, each new headline about climate change seems to be more depressing than the last. Carbon dioxide and other greenhouse gases are accumulating in the atmosphere faster than ever, and the projected effects are only becoming more dire. Meanwhile, our political leaders are not only failing to address the problem, they are actively taking steps to aggravate it. This steady stream of ever-worsening news can flood our minds, dampen our enthusiasm, and even drown our hope. That’s why I was so excited when I learned about an emerging way to sequester huge amounts of carbon dioxide, make our food production systems more resilient to extreme weather, and create tastier foods and healthier communities to boot. It’s called regenerative agriculture (though it goes by many names), and its proponents are starting a movement to transform our most fundamental relationship with the Earth: our relationship with its soil.


To find out more about regenerative agriculture, I spent a weekend at the Georgia Organics conference in Athens, Georgia. Though organic agriculture is not the same as regenerative agriculture, there is a significant overlap amongst the farmers who practice these styles of production, and there were many speakers at the conference whose subject was some branch of regenerative agriculture. Topics ranged from the role of microorganisms in soil health to the design of agro-forests, farm-orchard hybrids that take advantage of symbiotic relationships between different plant species at different scales. There were also tours of farms that used regenerative techniques, so that farmers could see for themselves how their colleagues put these principles into practice. But, you may be asking, what exactly is regenerative agriculture, and why does it matter?


To understand what is so important and revolutionary about regenerative agriculture, you must first understand how the majority of agriculture in the United States is practiced today. Though there is substantial variation between the techniques of conventional farmers across the country, all conventional farms share certain characteristics: minimal crop diversity, frequent and intense disturbance of the soil, and heavy use of pesticides, herbicides, and synthetic fertilizers.


These three factors combine to create a literally toxic mix. Lack of crop diversity leads to increased weeds and pests, while excessive soil disturbance destroys the fertility of the soil. Large agricultural corporations have aggressively pushed their patented herbicides, pesticides, and synthetic fertilizers as the solution to these problems. But the weeds and pests continually adapt to the chemicals, while the farmers find themselves paying higher and higher prices for these manufactured inputs. As they spray their fields more and more, the increasingly degraded soil is able to absorb less and less of the chemicals, so they run off of the fields and into water supplies, where they damage the surrounding people, animals, plants, and ecosystems.


Additionally, after decades of such chemical treatment, fields lose their fertility, and in particular become much less resistant to extreme weather events. Conventional farmers are sometimes able to rely on crop insurance programs to survive when extreme weather destroys their harvests, but as these events become more common such insurance schemes will face increasing pressure: if premiums and payout rates rise too far, they will collapse entirely. Meanwhile, application of the techniques of conventional agriculture at the massive scale for which the system is designed causes extraordinary amounts of greenhouse gas emissions, worsening the very crisis which threatens it.


So far, this article is shaping up to be just as depressing as the headlines I referenced to begin with. However, there is a reason for hope, and its name is regenerative agriculture. Well, actually, it goes by many names: conservation agriculture, permaculture, agro-forestry, and holistic agriculture are all either synonyms or names for closely related farming philosophies, and that is not even an exhaustive list. But what they all share is one critical insight: we should use lessons from ecology, the study of natural systems, to inform the way we farm.


Why spray toxins on the food we eat when we could instead use crop diversification to mimic the diversity of the jungle, where no one pest has all of the tools necessary to dominate every part of such a complex system? Rather than relying on synthetic fertilizers, which must be mined from ever-diminishing reservoirs, why not use compost, which mimics the abundance of the forest floor using the waste that is produced as a necessary part of life? Instead of a system where the inputs are extracted from the earth and much of the outputs are discarded, why not create a circular economy where wealth is turned to waste is turned to wealth again?


This logic extends to the production of meat and dairy. Nowadays, Concentrated Animal Feeding Operations (CAFOs) dominate the production of livestock, where animals live their whole lives confined to an area not much larger than their body, while their concentrated waste creates giant cesspools so rancid they’re lethal. Some of the (underpaid and mistreated) workers who’ve been unlucky enough to fall in have actually died.


Regenerative ranchers instead let their cattle roam free on large tracts of land, intentionally shifting them from paddock to paddock in order to mimic the effect of roaming herds in the wild. While overgrazing can damage the productivity of the land, a short burst of intensive grazing followed by a period of laying fallow actually stimulates the root systems that make soil healthy. Thus, ranchers can improve the productivity of their land, allowing them to continue raising cattle or even convert it to crop production. Similar strategies exist for raising chickens and other livestock.


On top of all of the more immediate environmental benefits, the same techniques that make soil more productive also capture more carbon than they emit. By converting farms from conventional to regenerative, we could prevent the emission of or sequester hundreds of billions of tons of carbon dioxide. This could prove key as we edge dangerously close to exhausting our remaining carbon budget. And because some changes to our climate are already too late for us to avoid, the superior hardiness to extreme weather of regeneratively grown crops will be critical in the coming decades.


Speakers at the conference covered all of these topics and more, delving into the details of everything from crop pairings to grant writing. In between the talks, I met a lot of very passionate people. Those who choose to go into regenerative agriculture tend to be mission oriented: If they didn’t care about the health of their customers, communities, and the planet, they would not have gotten into the business. Indeed, their efforts are remarkable given the challenges they face: most of the existing resources for farmers are geared toward conventional farmers, and the inherent complexity of regenerative farming makes every application of it a unique challenge. However, farmers told me again and again that their largest obstacle isn’t the soil or the weather — it’s access to capital.


It’s much harder to borrow money from a traditional bank to buy farmland than it is to buy a house: required down payments are usually larger and rates tend to be higher. And leasing rather than buying is not a great solution either; because it takes a few years of lower production to convert a field from conventional to regenerative, regenerative farmers cannot expect to to see the rewards of their labors unless they are guaranteed access to the fields for a longer period of time than is usually promised by a traditional lease. Though there are some non-profits and governmental agencies with programs aimed at regenerative farmers, the supply of such resources is far outstripped by the demand for them.


And Wall Street can’t be counted on to provide financing to regenerative farmers either; if big financial institutions invest in agriculture, their preferred vehicle is the large multinational corporation. These agro-corps have managed to make a handful of shareholders very wealthy, but the key to their success in the historically low-margin sector has been gobbling up smaller farms to create economies of scale. Regenerative agriculture, which requires the time and patience to be adapted to local natural conditions, is difficult to implement at the scale that big investors prefer.


However, things are beginning to change. As science supportive of regenerative practices continues to emerge, extreme weather from climate change intensifies, and most importantly, farmers see the benefits of regenerative practices, more and more farms are converting away from conventional farming practices. A critical role in this transformation is being played by impact investors: investors who are willing to take on more risk in order to finance enterprises they believe will have positive social and environmental impacts. These investors are pioneering widely varying vehicles to support regenerative farmers, from peer-to-peer lending to larger funds that do everything from providing management training to underwriting mortgages. However, they all share the conviction that we can no longer afford to ignore the negative environmental and social effects of the enterprises in which we invest.


In fact, it’s just the opposite: we must use our resources to support the businesses that will thrive in a world where climate change becomes the dominant societal issue. The public is becoming increasingly concerned about the dangers of climate change, and movements are springing up to demand radical changes to address it. The Green New Deal was dismissed as a left-wing pipe dream only a few years ago — now it is a major part of the platform of one of the Democratic primary front runners. Once the government begins to take climate change seriously, regenerative farming will see significant public investment. In the meantime, impact investors can play a critical role to develop the sector so that it is mature enough to handle the ambitious scaling up that future administrations will eventually be forced to attempt.


Here at Chicory Wealth, we understand that values-based investing doesn’t just mean putting money into a mutual fund with ‘ESG’, ‘sustainability’, or ‘socially responsible’ in the name, though that is certainly better than the alternative. Furthermore, it doesn’t just mean divesting from fossil fuels, though divestment is critically important. Instead, values-based investing is an ongoing search to find ways for our clients to use their money to transform their lives, their communities, and the planet for the better. Every day, we spend time searching out these opportunities and assessing their potential risks and rewards. We are still figuring out exactly what role we can play in the field of regenerative agriculture, but don’t be surprised to hear more about this important topic from us in the time to come.