The Gating Factor in Regenerative Agriculture: Capital
Agriculture value chains across major cropping types. (from “Investing in Regenerative Agriculture Infrastructure Across Value Chains" Croatan Institute)
After three years of traveling and learning and watching and talking with experts throughout regenerative agriculture in the U.S. I have one broad conclusion: the supply chain’s ready to go, minus capital. Economics is the major lever that will move the system.
This shouldn't be a huge surprise. We live in a system driven by capital.
And yet, it's easy to get lost in the complexity of this transition:
Growers, crop retailers, multinational production and logistics conglomerates, commodities markets, lenders, equipment vendors, crop insurance underwriters, agtech companies, government agencies, new credit funds, new carbon markets, non-profits, farmland owners/lessors, processors, aggregators, distributors, ingredient companies, brands, retailers and many many more.
So many interlocking incentives and relationships and silos.
As I've tried to make sense of this complex web, it’s clear that there’s momentum across major players in every cropping system to move to regen:
Growers are very interested. A significant number of large growers and ranchers are innovative and perceptive stewards of their land who see the promise of regen. Just one example: over 700 large-scale producers attended last year’s Big Soil Health Event in the MidWest U.S. Many see the long-term cost savings that can result. Many see the negative health effects of decades-long exposure to the chemicals commonly used on-farm. And many are motivated to leave a legacy of land that's more productive and resilient for their children and grandchildren and many subsequent generations.
The middle of the supply chain is attuned and watching. Processors, aggregators, distributors and ingredient companies are very perceptive of market opportunity -- merchandising products is what they do. There are many who are willing to explore and experiment, to install segregated packing or processing lines, to work with their growers to produce products with valuable market attributes. Some of the largest are beginning to help their producers implement regen because they want to influence positive practices in their supply sheds.
Brands and wholesale customers are deeply invested in transitioning their supply chains. Many see climate change as an "existential crisis," as McCain Foods, one of the world's largest potato producers, has said. They're already seeing tens if not hundreds of millions of dollars in annual losses from severe climate events in their supply chains. They know that they have serious environmental exposure, globally, that regen can mitigate. They know they’ve made climate commitments that they need to meet. And they feel pressure on them from retail investors, from institutional capital, from capital market regulators and from their workforce.
Early real asset investors and farmland owners are looking to regen for additional upside. A handful of forward-thinking, impact-aware institutional investors are paying attention to regen and trying to find an economic lever to transition their acreage. Many of these are organic transition funds trying to figure out where regen may fit into their models.
In short, there’s momentum across these groups to adopt the better way that regenerative ag presents.
But.
There's one clear blocker. I’ve heard over and over from each group: "We want to do regen. But we need capital to make it happen.”
Most are specifically looking for premium pricing for their products, which taps into a familiar model that has precedents in both Organic and Non-GMO production.
What do they need the capital for? All of the elements that support transition: agronomic consulting and training, income protection, equipment, new seeds, new staff or staff training, new tracking tools.
The supply chain is ready to move. Capital will enable that. But the money isn’t showing up.
In a follow-up post, I’ll explore why that is – and where it might come from.