In a previous post I argued why farmers, impact investors, consumers, regeneration enthusiasts should pay attention to the emerging group of fund managers active in the regenerative agriculture space.
Fund managers investing in people building soil — beyond their own farm gate
In these posts I will dive deeper into why appropriate scale is key and investment funds are one way to reach this.
Let’s take a closer look at scale in a few different layers of regenerative agriculture (plants/animals/trees — technology)
Plants/animals/trees level
Complex rotations are key to regenerative agriculture. David Montgomery eloquently summarises the basic starting conditions in Growing a Revolution:
- ditch the plow
- keep your soil always covered
- introduce complex rotations
David found that regenerative agriculture really gets off the ground only if farmers apply at least these three.
Many farmers struggle when they only apply two or one. See for example the recent issues with farmers applying no-till without complex rotations and lots of herbicides.
More information in this long read of National Geographic We don’t have enough Organic Farms, why not?
Luckily for us and the planet many farmers go way beyond these three basic principles and for instance start introducing perennials and integrating livestock.
Appropriate scale seems to help to make complex rotations easier.
Moving a herd of 5 or 25 or 500 cows to a fresh paddock twice a day requires almost the same time. Planting 1 row or 10 is not equal to 10 times the time it takes for 1 row. Buying seeds and any other inputs comes with discounts at scale, or sometimes the minimum quantities are so high that small scale farmers can’t get access to them. You get the idea:)
With larger herds of livestock or more nut trees, you can start genetic selection, to evolve your herd (or agroforestry system) into a more appropriate herd/tree gene pool for your specific local circumstances.
Funds who buy land, like Farmland LP or work with large land owners long term (Soil Capital) are able to plan and rotate over many more hectares and optimise better.
Appropriate scale translates into a very different size in terms of hectares in Southern Italy compared to for instance Eastern Australia. I’m not sure yet, if there is a golden rule for scale. Which makes it even more important to start following fund managers in this space, to see what works and what doesn’t.
Technology
Technology is very exciting and very expensive, especially when it breaks. If you can spread technology out over more hectares, it becomes less of a burden. Lighter, smaller tractors are great but still cost a lot of cash. Drones plus software help farmers but the good ones are expensive. Satellites images are becoming more accurate and available but you need to be able to read them and translate them into concrete actions.
Luckily people are working on cheaper options like Vida Cycle Tech.
Counter arguments and other thoughts
Let’s not pretend that scaling is the holy grail. We need to be very aware of the issues of scaling any system. Something should first work at the smallest possible scale, and should be scaled by tinkering. See Skin in the Game of Nassim Nicholas Taleb.
We should not underestimate the dimensions of complexity you add when scaling.
You can’t study 1 bee and think you can understand a beehive of 10.000 bees. A farm isn’t 1580h, a herd isn’t 80 cows, a silvo-pasture system isn’t 221 cows plus 4530 trees, a food forest isn’t simply x tree species put together.
Dynamics change very quickly when you scale up or down. We need to use that in our advantage.
Back to the investment funds: maybe there is an S curve at work here as well, with a natural limit in size?
Circumstances are very local and defined by the biome/ecosystem, so maybe there is a natural limit investment funds can reach before the economies of scale start working against it?
Probably at some point you get diminishing returns from growing your fund larger and larger.
Larger funds usually mean larger investment ticket sizes. Because costs of due diligence don’t grow proportionally, meaning the costs to make an investment of $50m are not 25x the cost of a $2m investment. Larger ticket sizes excludes many projects.
Potential solution: you build a new specialised fund with another approach or in a different biome, or a family of funds.
So the question is, what is the sweet spot for these investment vehicles?
Let me know what you think below!
P.S. Together we can identify the ones truly committed and able to rebuild soil at scale and keep them accountable, while a fair financial return comes back to the investor.
Have a look at the growing list of soil building funds and vehicles in the Google Sheet here and add your comments to help me create an up to date overview.
Thanks to Ethan Roland Soloviev for your input and proof reading this article!
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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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