Why regenerative agriculture is a great investment and how retail investors can participate
Updated: 6 days ago
Nestle announced in September 2021 it was committing 1.2 billion Swiss francs (US $1.29 billion) over the next five years to support and accelerate the transition to regenerative agriculture across its global supply chain.
This will involve the company working with over 500,000 farmers and 150,000 suppliers to promote agricultural practices that enhance biodiversity, soil conservation, regeneration of water cycles and integration of livestock.
Other major global companies such as Pepsi, Kellogg’s, General Mills, Danone, and Unilever have announced similar moves.
They would not be doing this unless it was also good business. And it is good business because consumers are demanding to know where their food comes, what impact its production has on the environment, how have livestock been treated, how have farmers and local communities been treated and many other factors as well. It has been estimated that at least 75% of consumers think about sustainability when making purchasing decisions. Global food companies ignore their customers passion for sustainability and knowledge on food provenance at their peril.
What is regenerative agriculture? It is a set of farming techniques or practices that strive to protect natural resources and restore farmland while drawing down carbon dioxide from the atmosphere (Carbon sequestration) to reducing greenhouse gas emissions. It includes practices such as elimination of chemical and mechanical treatments, use of all-year-round cover crops to avoid bare soils, enhancement of biodiversity, crop rotation, some incorporation of livestock into crop production and preservation of roots of perennial crops.
This great video provides a great explanation
Globally food production is responsible for around 26% of greenhouse gas emissions. It has been calculated that regenerative agriculture could be the 11th most impact making solution to climate change, reducing total CO2 emissions by 23 gigatons by 2050 if the world was able to create 1 billion acres of regeneratively farmed land.
Regenerative agriculture generates 2 products – firstly crops and livestock and secondly improved ecosystems. This contrasts with industrial agriculture which delivers products and often depletes the ecosystem in the process.
In the US alone more than US $700 billion of investments will be required over the next 30 years to scale the regenerative agriculture market – generating US $10 trillion in net financial returns. The investment required globally is around US $450 billion.
The retail and institutional interest in growing interest in regenerative agriculture has been accelerating also. This not just a green trend but a seismic change in how investing decisions are made as society becomes aware long term wealth creation requires the nurturing of the environment and resource base sustaining all agricultural systems. In addition, the farming of carbon (carbon sequestration) will drive demand for regenerative finance mechanisms, data analytical tools and new technology.
For retail investors the opportunities are limited but growing. Only two large US based funds – Calvert Investments and Trillium Asset Management are investing in regenerative agriculture in a substantive manner. In 2020 a US fund RePlant Capital raised US $250 million to assist farmers transition to regenerative agriculture.
There are still very few listed regenerative agriculture companies on major global exchanges. Some such as Wide Open Agriculture Limited are 100% committed to regenerative agriculture in all business practices. Others such as Danone Limited are embracing a move towards 100% regenerative agriculture. Danone still have some way to go as they are only at 12% of total supply chain as at mid-2021.
Danone Limited SA is a multinational food-products corporation based in Paris and founded in Barcelona, Spain. It is listed on Euronext Paris. The company was an early proponent of regenerative agriculture from 2017. The company says it is committed to growing food in a way that regenerates natural ecosystems, starting with the soil and strengthens the well-being of farmers, local communities, and consumers.
In the US Danone has the most regenerative dairy farm in the country with 82,000 acres as of August 2021 and expanding to new ingredients like almonds. Through regenerative practices the like reducing tillage and chemical pesticides and expanding cover crops the program has reduced the equivalent of 80,000 tons of carbon dioxide and sequestered more than 20,000 tons of carbon.
Wide Open Agriculture (ASX: WOA; FSE: 2WO) is the only listed regenerative agriculture company in the world dedicated to a “4 returns” philosophy. The company’s constitution recognised the importance of delivering meaningful and measurable returns across four key areas – financial, social, natural, and inspirational. The company has attracted global investor capital with Commonland Foundation with 13% and high net wealth family of Fanja Pon with 15% ad is listed on Australian Stock Exchange and dual-listed on Frankfurt Stock Exchange.
The company is tapping into the growing consumer desire to find out more about the food they consume – who grows it? How is it processed? What is the provenance?
On the company’s branded food website (www.dirtycleanfood.com.au/pages/our-food-journey#oat_tabs2) consumers and stakeholders can trace the journey of the Oats from farmer to processor to warehouse to sales/distribution.
The company is developing a global strategy around carbon neutral oat milk (“OatUp”) and plant-based foods and drinks made from modified lupin protein. The profit plus purpose philosophy is developing well with full year revenue for 2021 financial year increasing by 198% to AU $4.3 million and the business recoded its eighth consecutive quarter of growth to June 2021.
The company will focus on new, high margin products to expand the OatUp range including coffee and chocolate flavoured milks. Also in the works will be the completion of the pilot scale lupin processing facility and launch of new products under the “Dirty Clean Food” brand.
Wide Open Agriculture has delivered handsomely for shareholders since listing on the ASX in 2018 with returns of 272% in that time to September 2021.
Besides listed regenerative agriculture companies like the two mentioned above, there are several innovative funding vehicles gaining attention such as Steward Regenerative Capital providing short-term bridging loans and giving regenerative farms quick access to funds.
The business operates a unique online lending platform where users can participate in secured, interest bearing loans (fixed 5% annual interest) where the funds are exclusively used by farms engaging in regenerative agriculture. From August 2021, Steward has provided over US $7 million in farm loans to fund fifty unique regenerative agricultural projects with more than 1,200 participating lenders. The company recently closed a Series A funding round for US $8.8 million.
The surge of funding and investor interest in regenerative agriculture looks likely to continue. Soil Wealth reported in 2019 over seventy investment strategies managed over US $47.5 billion in regenerative agriculture investments in the US alone.