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Sustainable Finance from Farm to Fork: Impact Investing in Farmland

By Michele Demers Blog

The cycle of farm industrialization degrades fertile soil, pollutes water systems, reduces biodiversity and requires intensive energy production to yield crop growth. As consumer awareness of the environmental and health drawbacks of these production methods grows, demand for more sustainable practices has increased. About three-quarters (73%) of consumers buy organic products at least occasionally, and various food industry studies indicate approximately one-third of American consumers are willing to pay premium prices for healthful and nutritious foods that have ecological, social, and economic integrity.

The impact potential for sustainable food and agriculture investments abound. The “slow food” movement has brought insight into consuming healthy, sustainably sourced food products, carrying a premium that a growing population has been willing to pay.

Investments in sustainable food systems provide stronger rural economies, lower carbon emissions, greater health outcomes, better biodiversity and stronger ecosystems. Coupled with the potential for impressive financial returns, investments in sustainable food systems also provide holistic and far-reaching benefits to society and the environment.

Russell Conser of Standard Soil notes in our new Market Overview, “Regenerative practices allow land managers to leave the land better than when they started, solving the classic challenge of profits vs. ecosystems.”

Standard Soil is able to monetize the practice of improving soil health through beef production. Their approach, known as Adaptive Multi-Paddock (AMP) grazing uses high livestock densities for short durations between long periods of forage rest to catalyze accelerated grass growth.

This enables greater scalability, lowers input costs, improves productivity and thus lowers unit costs of production. At scale, lower unit costs and more productive acres lead to higher on-farm profitability.

Farmland investors are targeting a 9-15% IRR, which is in line with historical conventional farmland performance of 10.7%. Sustainable practices can lead to higher returns as they create a healthier asset base, reduced costs due to fewer inputs such as fertilizers and higher revenues due to the higher value at market.

The financing of sustainable and regenerative farmland can follow an owner-operated model (used when the firm continues to hold and manage activities on the land directly) or a land-lease model (the owner owns the land but leases it out to be managed). There also exist a handful of hybrid models combining the two.

Jacob Israelow, Founder and Managing Director of Dirt Capital Partners, an investment firm promoting sustainable farmers’ land access and security, notes the viability of impact investing in farmland and sustainable land management. He states, “By investing in a way that facilitates the transition of farmland to sustainable farmers, we can increase the availability of healthy food, improve environmental outcomes like soil health and water quality, and enhance rural economies.”

Examples of other business models supporting sustainable land management and the financing of sustainable farmland that impressed us were SLM Partners, Blackdirt Capital, and Iroquois Valley Farms.

Financing sustainable farmland provides impact investors with an appetite for real assets the opportunity for impressive risk-adjusted returns and outsized social, health and environmental impact.

You can purchase our new Sustainable Food Systems Market Overview here