By Maya Zamir and M.A. Miller

In Veris’ first publication about regenerative farming and ranching, The Regenerative Agriculture Revolution, the practice was defined as “a holistic land management practice that leverages the power of photosynthesis in plants to close the carbon cycle and build soil health, crop resilience, and nutrient density.” 1

In many ways, this definition holds true today. Regenerative agriculture is a system of practices, including no till, cover cropping, managed grazing, crop rotation, integrated crop and livestock systems, and precise input application. As regenerative agriculture has continued to gain momentum within the impact investing space, Veris has expanded our firm’s definition to differentiate agricultural practices that “restore, improve, and enhance the biological vitality” of farming landscapes while supporting “the resilience of the communities and broader value chains in which they are situated” in alignment with the Croatan Institute’s definition offered in its 2019 paper Soil Wealth: Investing in Regenerative Agriculture across Asset Classes.2

Regenerative Agriculture Benefits and Potential Risks of Conventional Farming Practices

Beyond humanity’s reliance on agriculture to produce the food we need to survive, one in eight people depend on the food and agriculture system for their livelihoods.3 We believe that both communities and ecosystems can benefit from regenerative agriculture in a variety of ways including: 

  • Soil: reduced erosion, enriched biodiversity, and the maintenance of soil carbon (which can help address climate change). 

  • Water: improved soil water retention, reduction in water waste, and reduction in water pollution from run-off. 
  • People: increased farmer incomes, more resilient agricultural communities, and increased food security delivered by a more resilient and equitable food system.

Unfortunately, every one of the benefits listed above also illustrates the potential risks of maintaining the status quo. Global food demand is expected to rise 58-98% by 20504 but conventional farming practices produce greenhouse gasses that exacerbate the negative effects of climate change, including greater levels of biodiversity loss and productivity loss,5 which could then lead to farmers clear more land and accelerate deforestation to grow crops to meet the rising food demand, all of which constitute a dangerous feedback loop. We believe that the need for a global transition to regenerative agriculture across our food and farming systems is urgent.

Barriers to the Regenerative Agriculture Transition

Even with all the benefits of regenerative agriculture that are known to us, and growing awareness of the risks of conventional approaches to farming, there are still several significant barriers standing in the path to a global transition to regenerative agriculture. 

Farmers will need to overcome a variety of challenges before they can successfully transition to regenerative practices. Many growers and ranchers lack knowledge of regenerative practices, and the training opportunities and educational resources for farmers hoping to transition from conventional practices are limited. They may also face lower yields (and subsequently lower revenues) in the first few years after the transition as they reduce their reliance on harmful chemical inputs. Most will see increased initial costs in the form of buying new seeds or updating their equipment. At the same time, some fixed costs in the farm system will not decrease even if production activity decreases. This combination of rising costs and decreasing revenues presents a financial risk, especially to vulnerable smaller growers who depend on farm revenue to support their families. 

We believe that the risks outlined above could be mitigated by having the agricultural financing paradigm incorporate more patient tenor for operating capital expenses, introducing more catalytic financing mechanisms and products, and attracting more players in the agricultural value chain (e.g., financiers, CPG companies), participate in blended finance approaches to reducing the risks faced by farmers.

How Impact Investing in Regenerative Agriculture has Evolved

As regenerative agriculture has gained momentum, we have already seen trends in which themes are emphasized from an impact or financing and investing perspective. 

The welfare and security of farmers. 

A recent BCG study found that transitioning to regenerative agriculture could result in a 120% increase in profitability.6 This could significantly improve the quality of life of farmers, as 20% of farmworker families live below the poverty line in the U.S.7

The intersection of agriculture and racial equity. 

Black Americans make up 25% of the US population, but only 1.3% of the total number of farmers in this country – and they collectively manage less than 0.5% of all acres in production.8 BIPOC farmers are also the most at risk when it comes to land tenure, in no small part because of a history of systematic land theft and exclusion from wealth-building opportunities. 

The intersection of agriculture and gender equity. 

The intersectionality of agriculture and gender equity has been more prevalent in funding solutions but there is still work to be done. Globally, women made up ~38% of the agricultural labor force in 2019, but their access to assets and resources key to agrifood systems – such as land, inputs, services, finance, and digital technology – continues to lag that available to men.9

Mitigation of climate change and economic shocks.

On a separate thematic track is an emphasis on the role of regenerative agriculture in mitigating the impact of climate and economic shocks. For example:

  • Farms with healthier, low-erosion soils have been shown to experience less crop loss in extreme weather events.10
  • Intercropping shields farmer incomes when one crop fails, something that is not achievable with monocropping.11

Potential premium pricing for regeneratively produced food, as we have seen with organic labeled food, can help to lessen the impact of commodity pricing cycles on farmer incomes and the operating margins of farms. Many large consumer products companies have made commitments to source produce from regenerative farms, which can support price premium in the nascent stage of transition. 12

Financing the transition to regenerative agriculture.

There are several interesting trends in the arena of how capital is flowing to regenerative agriculture. Firstly, organizations developing thought leadership in the space have found that investment in regenerative agriculture midstream infrastructure and technology is lagging. Midstream infrastructure provides cleaning, milling, processing, and other similar services to upstream producers.13 Having midstream providers who are mission-aligned and right-sized to the producers is critical to supporting the growth and success of regenerative agriculture producers. In the AgTech space, the 2023 deal-flow in the upstream saw $9.66 billion, downstream saw $4.86 billion, and midstream only saw $1.31 billion, leaving a significant gap in the development of the tech portion of the agricultural value chain. 14

Commitments from public and private equities are both increasing and evolving. We are still seeing investments or commitments similar to prior years (e.g., Barilla working with 9,000 farms on sustainable agriculture, General Mills applying regenerative agriculture to 1 million acres by 2030)15. However, some companies are taking a corporate impact investing/venture approach to commitments. In 2022, Unilever co-invested in a private equity regenerative agriculture fund in partnership with Tikehau Capital and AXA.16

Finally, private equity – which has traditionally not been active in the agriculture sector – is starting to pay more attention, with this new attraction driven by the opportunity implied in the forecasted need for such increased food production mentioned above.17

Opportunities to Help Catalyze the Transition

Mark Watson, President of Potlikker Capital with farmer Donna Issacs, owner of DeLaTerre Permaculture Farm                                  Photo credit: Potlikker Capital

There are more opportunities than ever to invest in regenerative agriculture: supporting farmers, upstream AgTech, midstream companies and infrastructure, food and product companies sourcing regenerative inputs. In each of these categories are also a variety of impact-return options for many kinds of investors interested in supporting the space. 

Veris has historically had sustainable and regenerative agriculture as a thematic focus area. We have seen an increasing focus on investing in nature-based solutions and protecting biodiversity, inclusive of regenerative agriculture, in recent years. 

Whether providing impact first capital to catalyze the transition or seeking market-rate returns, there are many funds doing this important work. Among some of the fund managers that Veris’ clients work with are Potlikker Capital, Dirt Capital, and Root Capital. 

Potlikker Capital is a farm community governed, charitable-integrated capital fund, aiming to provide BIPOC farmers in America access to non-extractive capital & technical assistance to help farmers transition to regenerative practices and help create a more sustainable and healthier food ecosystem while promoting wealth creation.

Dirt Capital works with regenerative farmers in the U.S. and helps them expand their business by facilitating innovative farmland transitions through fair, long-term lease-to-own and other customized arrangements that allow farms to expand securely with defined pathways to ownership. They also limit future appreciation of farmland sale to make ownership affordable. In many of Dirt’s projects, they partner with other mission-aligned organizations to make land more affordable for farmers and provide technical assistance when needed.

Root Capital provides credit and capacity building to small agricultural businesses cooperatives in rural communities globally, to solve for the unmet financial need which is required to grow these businesses. Additionally, it has a focus on gender equity through its Woman Agriculture Initiative, as well as a growing focus on climate adaptation for farmers, and the use of sustainable and regenerative practices as a climate mitigation tool.

This thematic focus is also addressed by loan funds and CDFIs (community development financial institutions), such as Calvert Impact Capital Community Investment Note, Coastal Enterprise Inc (CEI) Investment Notes, Community Vision Capital & Consulting Loan Fund, and RSF Social Investment Fund.¹⁸

Given the benefits of investing in regenerative agriculture, not only for mitigating climate change, but also from a social perspective, such as wealth creation for farmers and addressing racial and gender equity issues, we wish to emphasize the importance of investing in such funds and managers accelerating the transition from traditional to regenerative and sustainable agriculture practices.

Authors

Maya Zamir is the Associate Director, Investments at Veris. She is responsible for investment manager due diligence, thematic research and evaluation of impact metrics. Learn More

M.A. Miller is an MBA Candidate at Columbia Business School who recently completed an Investments internship at Veris. Learn more.

Sources and Footnotes

  1. https://www.veriswp.com/the-regenerative-agriculture-revolution/
  2. Croatan Institute: Soil Wealth: Investing in Regenerative Agriculture across Asset Classes https://croataninstitute.org/2023/01/13/soil-wealth-2/ 
  3. CapShift, “How to Invest in Sustainable and Regenerative Food and Agriculture.;” https://www.fao.org/newsroom/detail/almost-half-the-world-s-population-lives-in-households-linked-to-agrifood-systems/en 
  4. CapShift, “How to Invest in Sustainable and Regenerative Food and Agriculture.”
  5. https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions#agriculture
  6. BCG, “Making Regenerative Agriculture Profitable for US Farmers.”
  7. U.S. Department of Labor, “Findings from the National Agricultural Workers Survey (NAWS) 2019-2020: A Demographic and Employment Profile of United States Farmworkers (Research Report No. 16)”, June 3, 2022. 
  8. USDA, “2022 Ag Census,” table 64, and table 61.
  9. FAO. 2023. The status of women in agrifood systems. Rome.
  10. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8349632/
  11. https://eos.com/blog/intercropping/#advantages
  12. AgFunder News, “The 2024 list of agrifood corporates making regenerative agriculture commitments,” February 20, 2024; Sustainability Magazine, “COP28: The biggest sustainable food and farming commitments”, December 12, 2023. 
  13. Examples of activities in the agricultural value chain include the Upstream: crop production, animal husbandry, aquaculture; the Midstream: cleaning, butchering, milling, processing, sorting; and the Downstream: packaging, transformation into processed foods, grocery stores, and farmers markets.
  14. AgFunder, “Global AgriFoodTech Investment Report 2024.”
  15. AgFunder News, “The 2024 list of agrifood corporates making regenerative agriculture commitments,” February 20, 2024. 
  16. ImpactAlpha, “AXA, Unilever and Tikehau Capital seed regenerative agriculture fund with E 300M,” May 16, 2022.
  17. Some examples of PE firms in this space include Farmer’s Gate, and Blue Road Capital.
  18. For recent examples of the work that some of these funds are doing, please refer to last three Veris Wealth Partners’ impact reports: Potlikker Capital in the 2023 Impact Report, Dirt Capital in the 2022 Impact Report, and Community Vision Capital & Consulting in the 2020-2021 Impact Report.

Disclaimer

The information contained herein is provided for informational purposes only and should not be construed as the provision of personalized investment advice, or an offer to sell or the solicitation of any offer to buy any securities. Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the authors. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass. Additionally, this document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such third-party sources and take no responsibility, therefore.