Investor advocates of regenerative agriculture are linking with environmental entrepreneurs. But is it the right direction? Phil Edmonds reports.
The relentless demand for farmers to adopt more sustainable environmental practices is showing no sign of letting up.
Last month Greenpeace had another day in the media sun when it dumped filth and slime over Ravensdown offices in Christchurch, protesting its unchecked dedication to polluting New Zealand with synthetic fertiliser.
As we know however, it’s an easy thing to demand change, but another to assist it. And for those willing farmers, funding options for environmental initiatives have been shrinking rather than expanding.
Last year the Reserve Bank proposal to increase bank capital ratios, together with trading banks taking their own steps to reduce their exposure to dairy effectively reduced avenues for new farm borrowing. This further weakened the prospect of farmers’ ability to implement new sustainable infrastructure and methods.
But now there could be a new way of obtaining capital needed to modify farm systems.
Toha Foundry, an investment platform established to link investors with environmental entrepreneurs, was launched at the end of last year. In March this year its first initiative, Calm the Farm was born, which is designed to connect farmers with advisers and ‘impact investors’ keen to accelerate New Zealand farming’s shift to regenerative agriculture.
Toha Foundry’s purpose is to simplify and speed up access to investment for those wanting to make tangible changes. At its launch, co-founder Nathalie Whitaker (who previously set up Givealittle.co.nz) said there was an urgent need to “unblock capital, at a mass scale, to fund grassroots action”.
The platform was kicked off with seed capital provided by Movac (NZ venture capital tech investors) and supported by Sir Stephen Tindall’s investment arm K1W1. It aims to raise more than $1 billion from impact investors over the coming two years for projects that will shift NZ’s emissions profile.
With the Calm the Farm initiative, willing farmers have first dibs on the war chest.
‘A lot of the time when you are doing impact investment you are working in the dark. You sell the concept up front and the fanfare around the completion of a venture takes place when you cut the ribbon. What we are trying to do is change that by monitoring the impact and reporting back to investors.’
So how does it work for those taken by the environmental benefits of regenerative agriculture, keen on altering their farm system and looking for some financial assistance to do so?
In the first instance farmers can register their interest with Calm the Farm and indicate the support and finance they will need to transition from the use of synthetic fertilisers and chemicals to regenerative practices. The Calm the Farm team then matches those requests with advisers and investors wanting to back NZ’s transition to more climate-friendly farming.
However, it’s not quite as simple as farmers saying ‘here’s my bank account number, now fill my boots’.
The emergence of these novel kinds of funding mechanisms isn’t just about supporting farmers who want to do the right thing, but about providing investors with tangible evidence that their money is making a difference. What Calm the Farm offers investors is that confidence through science and data.
Indeed, the concept has measurement at its core.
Farmers and their advisers use Calm the Farm to create tailored data-driven farm management plans that map the results of their shift to regenerative agriculture (regen ag). Reporting against the regen ag farm management plan builds a data asset that captures the full value of the farm transition.
Professor of Physics at Auckland University Shaun Hendy is one of the three founders of the Toha investment platform, along with Nathalie Whitaker and data analytics firm Takiwa Ltd chief executive Mike Taitoko. Hendy says providing data and measurement is critical to attract investors.
“A lot of the time when you are doing impact investment you are working in the dark. You sell the concept up front and the fanfare around the completion of a venture takes place when you cut the ribbon. What we are trying to do is change that by monitoring the impact and reporting back to investors.”
So who is stumping up the cash?
Hendy says this type of investing has been started by philanthropists – those who might be putting their money into predator-free projects for example, or wetland restoration. But interest is emerging from other corporates who might want some biodiversity on their balance sheet.
“You’re already see corporates in that space, but typically there has been a lack of accountability. What Toha will give people is the ability to see the provenance, where their funding is deployed, and how it is progressing. At the moment, reporting for such investment is fairly opaque. We think there will be an increasing range of investors who are interested in it.”
Co-founder Whitaker was initially upbeat on the potential source of funds when Calm the Farm was launched, pointing to family investors, equity investors and banks. She also mentioned there had been queries from government, businesses and charities. More broadly, she noted there was no shortage of global capital looking to invest in impact initiatives. Whitaker said investors have just been waiting for instruments to help capital to flow to initiatives that show they are achieving the most impact.
There’s no doubting the enthusiasm and ambition evident, but given the novelty of the Calm the Farm model, what chance is there of it being both extensively funded, and equally significantly, being adopted at a meaningful level by farmers in NZ?
If we are looking for precedence, there are examples overseas where similar platforms have experienced success.
United States-based rePlant Capital was recently established to create financial products for identical purposes as Toha. In January this year it dedicated $84 million of its impact investing fund to a partnership with Danone North America farmers for conversion to regenerative or organic farming practices.
rePlant Capital says it is committed to integrating capital into food companies operating from ‘soil to shelf’ in order to reverse the effects of climate change.
Nevertheless, and perhaps unsurprisingly, caution about the level of likely interest has been expressed by those closely connected to conventional NZ farming systems.
Before contemplating the merits of regen ag, Federated Farmers national vice president Andrew Hoggard says “as always, farmers’ willingness to change their systems will be ultimately driven by consumer demand. If consumers are willing to put their money behind something… if you do x, y, and z, and promise to pay you ‘so much’, then farmers will assess the merits of doing so accordingly. They’ll work out how much it is going to cost, and then make a decision about potential premiums at the end of the line.”
But Hoggard says “Adding value can sometimes mean adding cost. We want to be adding value that exceeds that cost. Some of the things we have pushed have been based on adding value, but have created only marginal impact, if any to the farmer.”
As for the likelihood of more farmers embracing regen ag, there is some underlying scepticism to overcome, particularly given the open interpretation of what it means to different consumers.
Hoggard says “examples of regen ag overseas suggest farmers are talking about introducing practices like rotational grazing that have always been common practice in New Zealand. However, those contemplating regenerative farming in New Zealand are taking it to another level.
“What is needed is a clear definition of what regen ag actually is. And then put some standards around it. At the moment, anyone can call themselves regenerative and it is up to someone else to prove they are not.”
The inconsistent belief in what regen ag actually means is shared by Ravensdown general manager for innovation and strategy Mike Manning. He says awareness of regen ag has emerged overseas with valid concerns that soils which are continuously cropped have seen organic matter decrease to the point where it is causing depletion.
“In New Zealand however, most of our soils are in permanent pasture grazed by cattle and sheep. Under a system of rotational grazing and permanent pasture, we have seen organic matter in those soils increase to the point where they are at levels at the envy of many in the world.”
This is further endorsed by DairyNZ strategy and investment leader Dr Bruce Thorrold.
“New Zealand’s pastoral farmers are already well-aligned with both the philosophy and the practises of regenerative ag.
“DairyNZ has researched a wide range of farm systems and their economic and environmental impacts, including low input, biological and organic systems. All these systems follow the same biological and physical science – the challenge for the promoters of specific regenerative ag practises is to produce the evidence that their practises deliver the results, in a New Zealand context.
“Right now, our view is that many of the claims made, particularly about soil carbon, are based on research on depleted cropping or rangeland soils and are not relevant to most of the well-developed pasture soils in New Zealand.”
In its initial publicity, Calm the Farm founders suggested farmers had expressed a desire to get their ‘social licence’ back, implying that current farming practices were not adapting to the need to act fast enough on climate change and freshwater issues, and this would be a driver for change.
Manning acknowledges we need to be more conscious of those issues.
“Some time ago we had an attitude that if we owned the farm, we owned the land, then within reason we could do what we wanted within the farm boundary.
“Now we have to be more considerate of a range of stakeholders, be more public, more transparent and more open to engagement. If we become more transparent, and better at communicating what we do, particularly compared to practices overseas then I don’t think our social licence is lost.”
Thorrold suggests the industry’s social licence continues to be supported by its drive towards sustainable farming practices over more than 20 years.
“Sustainable farming is a key driver for the majority of dairy farmers, who are
increasingly adopting the latest farm system tools and options to support their goals and beliefs.”
For their part, Calm the Farm has provided a definition of regenerative agriculture, referring to it as a “system of farm management practices that works together to rebuild the soil and pasture health of farms. It is achieved through practices such as longer grazing rotations, reducing or eliminating the application of synthetic fertilisers and pesticides and planting a diverse range of grasses on pastures.”
The ‘open to interpretation’ nature of this does tend to support the concerns raised, but at the same time, if the science and data being provided by Calm the Farm to the investors in any given project meets their expectations, then the definition is perhaps not that important. What is most important in the funding model is evidence of positive environmental impact.
Beyond the specific appeal of the concept to investors, and to farmers looking for support to ‘do the right thing’, Calm the Farm also acknowledge there are wider economic benefits to be had, with supply chain opportunities from adopting climate and water-friendly techniques.
This essentially furthers Hoggard’s point, that there needs to be evidence of economic benefits to provoke interest in regen ag.
This has already been recognised by Beef & Lamb NZ, which in March announced it was undertaking a global study into regenerative agriculture, driven by its farmers wanting to understand how NZ could lead in this space. With the study, Beef & Lamb NZ has the goal of obtaining a global consumer perspective to understand what potential there is for NZ meat exports to extract more value.
It is also central to the forward-thinking Primary Sector Council, which in its vision backs NZ’s agriculture, food and fibres sector to be a world-leader in modern regenerative production systems.
But is regen ag the right barrow for our industry to be pushing?
Hoggard cautions that we need to be sure that the regen ag story matches the attributes at the top of premium consumers’ minds. His observations from travelling overseas is that it all seems to be about grass-fed. For example, US consumers automatically assume that if it is grass-fed, it is automatically good. With grass-fed you get a free pass and no one looks at anything else.
Arguably there are other avenues farmers could collectively invest more heavily in to obtain higher returns than regen ag, including hormone-free and further animal welfare initiatives.
For Manning, advancing the concept of sustainable intensification resonates more, which utilities new technology around nutrients. “We can be smarter with our nutrients by putting more into diagnostics accuracy in terms of locations and matching plant requirements.”
Toha founder Shaun Hendy acknowledges farmers’ motivations might be partly based on realising premium prices that are not available to farmers operating conventional farming systems, but that is not going to be the only factor.
“It won’t necessarily be everyone’s cup of tea. For the science to work best we need people to take different approaches with different motivations. We will learn the most with people doing different things. But certainly we think it will be important to push the environmental benefits that will be achieved and to tie that to product stories.”
Hendy adds that Beef & Lamb NZ have obviously recognised consumer sentiment exists among overseas consumers for product from certain farming systems. “But from a scientific point of view what we want to do is get at the science behind it. There is broad agreement that market opportunities exist but what we want to do is back it up with some hard science.”
Finally, back to the money, which is where all opportunities begin and end.
Hendy says Toha has started with the regen ag venture Calm the Farm but wants to see this model used in other ways. He’s tasked with building Toha Science to develop a protocol for the next series of ventures. What comes next will have to work with Toha Science because we want to stay as close to the science as possible. “We want Calm the Farm to become as widely utilised as possible, but we’re also focused on what comes next.”