Private sector promises on regenerative farming now need to be backed by cash if significant carbon savings and nature restoration at scale are to be realised. By David Burrows.
Big bucks. Patrick Holden has called on the private sector to match current government subsidies in order to properly finance the transition to regenerative farming. “It remains more profitable to extract natural and social capital from the planet and not pay the ‘true costs’ of the damage done … than it does to farm regeneratively,” explained the organic farmer and founder of the Sustainable Food Trust during July’s webinar, ‘Financing the sustainable food transition’, run by the Sustainable Food Conference (SFC). “I do think we have to find a lot of money [to make the transition],” Holden added.
Big gap. The funding gap between the corporate rhetoric and commercial reality of transitioning to regenerative farming systems is a major concern for producers, campaigners and conservationists alike. Global agri-food systems require annual investments of $1.1trn over the next five years to transition to more sustainable and resilient food production models. Current investment flows account for barely 5% of that, according to the World Economic Forum (WEF). Consultants at Deloitte recently calculated that only around 2% to 6% of total funding needs for a transition to regenerative agriculture practices in arable farming in Europe are currently being covered. “To safeguard agricultural supply chains, actors across the value chain and enablers of the system, such as financial services and governments, need to collaborate to de-risk the transition for farmers who are currently bearing more than their fair share,” Deloitte’s experts wrote in their ‘Closing the gap’ report.
Big moment. Food and drink corporates have made ambitious claims regarding the amount of land they want to be regenerating and the levels of ingredients they want to be sourcing from these more sustainable and resilient systems. Finding the cash is hard – especially during a cost of living crisis and with food prices pushing inflation higher – but struggling on with the status quo could prove harder still. “A transition from a lower-priced, higher quantity equilibrium to one with higher prices and lower quantities underscores the need for adaptive policies, such as subsidies or investments in sustainable alternatives, to mitigate economic vulnerabilities and ensure stability,” the Autonomy Institute warned in July.
Don’t look to Defra. Subsidy streams for sustainable farming are up in the air currently following the sudden closure of the Sustainable Farming Incentive earlier this year. The department responsible for food, farming and the environment has however stated that it does not currently intend to subsidise regenerative agriculture. A June UK parliamentary report noted Defra’s reasoning for this comes down to “a lack of evidence in the UK context that regenerative agriculture will support the provision of public goods”. The report explains: “Some researchers, NGOs and governments raise concerns that the available evidence on RA [regenerative agriculture] is inadequate to inform policy. Others suggest policies or regulations would slow the positive momentum that RA has gained as a farmer-led social and cultural movement.”
Banking on private funding. So, it’s up to the market to drive this. Which is risky (think how difficult it has been to scale organic food production, for example). The cost of doing nothing is eye-wateringly high – and this realisation is (slowly) ebbing through the food system. Banks are starting to tune in to such risks, according to Katrina Hayter, global head of sustainable land use and supply chain at HSBC. “We can all see the affect on yields that weather is having,” and the unpredictability is “causing pain for everyone in the system,” she explained during the SFC webinar, adding: “We know the answer is to move away from more extractive systems… and that [they are not] more profitable in the longer term.”
Fearsome forecasts. The European Commission has just projected €60bn in agricultural losses by 2025, rising to over €90bn by 2050, driven by climate change, input dependency and a failing food system. According to the European Alliance for Regenerative Agriculture (EARA), conventional approaches to agriculture with high chemical inputs actually put Europe at risk due to “ever more fragile yields, rising input quantities and costs”. EARA executive director Simon Krämer talked of consigning “The Green Revolution to the bin” as he recently presented some impressive research across dozens of regenerative farms – which are between 24% and 28% more productive than the average European farm. “[…] regenerating systems, whether rooted in agroecology, conservation agriculture, organic farming, syntropic agroforestry or other disciplines, are not only viable but already superior in most contexts,” EARA noted.
A money tree (with fruit)? In Greece, EARA farmer Sheila Darmos is producing olives, oranges, limes and lemons with 280% higher yields per hectare, using zero fertiliser or pesticides and 78% less fuel than national averages. This has not happened overnight, taking years of hard work, risks and investment, but results like this across dozens of farms will undoubtedly add momentum to the ‘regen ag’ movement.
The long and short of it. Such results could also help reassure investors and government purse holders. Lenders are cognisant of the fact that yields may fall in the short term for those transitioning to regenerative agriculture but they are (apparently) keen to back businesses that will be resilient in the medium and longer term. “I feel like we are on the cusp of quite a significant change in our relationship with banks and finance organisations,” said Owen Bethell, global public affairs lead, environment, at Nestlé, which has invested CHF1.2 billion since 2020 into regenerative approaches, kicking off hundreds of pilots and trials. The next stage is to scale this, and it is the world’s largest companies that have the power catalyse change. “There is still a tendency to value flexibility and agility when it comes to procurement. Profitability and security of investment will decline rather than increase [if we continue with this approach] and we are having honest conversations about that,” Bethwell told SFC’s webinar.
Let the finance flow. Many of the new financing models include leverage de-risking strategies ranging from tranching and loan guarantees to carbon credit generation, and deployed in various combinations. De-risking can occur in two ways, noted WEF: by directly lowering the risk exposure for capital providers, or by indirectly enhancing the business case for farmers, thereby improving their capacity to repay investors. Hayter admitted that this can be “incredibly complicated” to do in sprawling, complex agricultural supply chains, but if it can be done then “maybe finance can flow to places it wouldn’t have done at a reduced rate”.
Cash for carbon. HSBC’s Hayter sees plenty of potential in using carbon and nature markets to funnel finance towards farms. These markets will need to ensure integrity using data to reassure buyers and investors that credits are robust. As SFT’s Holden suggested, if he were paid to be a carbon steward (for sequestering carbon in his soils), a nature steward (for the crop biodiversity on his farm) and a social steward for education and employment opportunities provided, then maybe the price of his cheese would fall. Better food, from resilient, regenerative systems and at affordable prices is surely a sensible investment.
