Regenerative Practices 101 Pathway:
Forbes: Is Regenerative Agriculture Profitable?
By Artem Milinchuk, Forbes Councils Member
Founder and CEO of FarmTogether
2020 will be a year of climate and environment. The World Economic Forum’s top five long-term global risks are all environment-related. With that, regenerative agriculture is set to take center stage. For those who aren’t familiar with it, regenerative agriculture is a set of farmland management practices that go beyond sustainable farming to rebuild soil health, a key solution to combating climate change and recapturing carbon.
Here I’ll be tackling a question that is top of mind for many investors interested in farmland: Can moving from traditional cropping systems to regenerative agriculture be profitable?
I believe the answer to that question is a resounding yes. Many might point to decreases in yield, but under the right conditions, and by taking a holistic view of farmland operations and the underlying asset value, the profitability of a farm can increase, all while reducing risk and crop loss. Below, we’ll look at research that backs up that opinion and what it might mean for your investments.
Accounting for approximately 30% of all gross crop value in the U.S., corn is a crop of special significance in the U.S. agriculture market. Nearly all of that crop is grown through conventional farming practices, which include tillage and the introduction of additional fertilizer and pesticides.
Researchers from Ecdysis Foundation investigated how the move to more regenerative systems might affect yields, pests and profitability. The 20 farms in the review were ranked based on their implementation of regenerative agriculture practices. The researchers then looked at soil organic matter, pest presence, crop yield and profit.
As expected, crop yields decreased in regenerative systems, and by 29%, no less. But while yield has served as the traditional metric of interest for farmers, that decrease in yield does not tell the whole story. The study found that the farms with regenerative practices were 78% more profitable than conventional plots. This increase in profitability was the result of two main factors: input costs and end markets.
Regenerative agricultural systems, over time, require less external inputs, primarily in the form of seed and fertilizer. The research team observed an increase in soil organic matter. Soil organic matter decreases the need for external fertilizer by ensuring that necessary nutrients are available for crops. In fact, the team found that almost a third of farmers’ gross income went into external inputs on conventional fields, compared to 12% in regenerative fields.
But the benefits go beyond fertilizer costs. Increasing soil organic matter also increased the diversity of insects found in the soil. Insect diversity has been shown to decrease harmful pest abundance in cornfields, leading to stronger crops. Now that is what I like to call a win-win.
So now we have a stronger crop that costs less to produce. But what about the market for regenerative products? The same study found that regenerative farmers received higher premiums for their crop through certifications, by selling their grain as seed or feed directly to consumers, and by using their fields for more than just corn.
Farmers are able to benefit from a higher-value product, even if they aren’t able to produce the same high yields in terms of bushels per acre. This trade-off is a net positive on the ground and confirms that soil organic matter might just be a more important driver of approximate farm profitability than yield.
Regenerative agriculture will look different from farm to farm, and this scenario might not translate to every tomato patch, apple orchard or corn field. But the opportunity is out there, and it has the potential to change our landscape and improve our climate.
As investors research regenerative opportunities, in addition to standard investment best practices (such as researching asset management teams and diversifying), they should pay attention to the following items that are specific to the regenerative offering:
Regenerative agriculture can work and can increase farmland’s profitability. Over time, this increased profitability can increase the value of an investor’s farmland asset. Regenerative agriculture also presents opportunities beyond asset ownership, including infrastructure investments, and financing for transitioning from conventional system, among other activities. I’m excited to see these possibilities in action.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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