Soil Health: The foundation of a renewable food system
Current Attention
Regenerative agriculture is “in” these days. It’s a conceptual cousin to renewable energy and seeks to produce more and better food and fiber tomorrow than we did yesterday. It operates in a way that the soil is left healthier when done than when started. Like a more efficient solar cell, healthy soil lets biological life thrive by enabling it to capture more sunshine. A small, but growing community of farmers following such practices have risen to the point where governments (e.g. here, here) and major brands (e.g. here) are paying attention.
The Problem
The emergence of farming is often equated with the dawn of civilization. But we didn’t realize the plow has been depleting nature’s primary capital ever since. For 10,000 years, we’ve been using up the soil in one place and then moving to another. We’ve compensated for losses with net gains enabled by fossil-fuel driven technology and chemical inputs, but these have only accelerated depletion of the underlying natural soil asset. We’re now down to our last Iowa.
A New Way
Today we understand how, plants, animals, soil, and sunshine can work together to regrow in decades the soil we destroyed over centuries. By minimizing disturbance, keeping soil covered, keeping living roots in the ground, increasing plant diversity, and integrating livestock differently, we can rapidly bring life back to dead soil. We know these principles work anywhere, and create multiple benefits ranging from restoring wildlife habitat, reducing flooding, and improving drought resiliency, to improving the nutritional quality of food, reinvigorating rural communities, and sequestering material carbon from the atmosphere.
The Missing Link: Scale
Although there is much science yet to be done in order to quantify such benefits, the immediate challenge is that regenerative practices remain dominated by small and local supply chains that lack the sufficient efficiency and scale to reach most consumers. Whereas the fragility of supply chains focused on efficiency and yield above all is now painfully visible, redefinition of an optimal balance, between efficiency and resiliency, in a more distributed and regenerative food system has yet to emerge.
Opportunity Domains
Opportunities for impact investors exist in the following domains:
Integrated Regenerative Production Systems
Permaculture, grazing, and cropping create opportunities for differentiated products in all elements of food and fiber. When associated with patient capital, new management systems that drive improvement in soil health, while producing differentiated products, will become increasingly economic at scale as nature pays more of the bills. Systems that can produce multiple products on a given acre will gain efficiencies not available in the industrial model.
Supply Chain Bottlenecks
More distributed and regional processing of meat, dairy, grain, and vegetables at an up to date, intermediate scale could represent a material opportunity for insightful investors in the near to mid-term. The shift in balance from ‘just in time’ efficiency to ‘just in case’ resiliency, and the desire for consumers to know where their food came from will lead to reengineered supply chains with shorter path lengths and more diverse branches on both the input and output sides.
New Marketing Business Models
More distributed supply chains create the opportunity for business models that tell a unique story, through novel channels, about bringing better products to distinct segments. Although trends will generally favor e-commerce businesses, new, distributed brick-and-mortar models (i.e. local butcher shops) may also represent an opportunity.
Smart models will position to aggregate diversified supply, while delivering differentiated products, in order to target consumers in ways that build runways to later mainstream markets. Opportunities exist to create fresh and compelling consumer brands.
3M Technology
As a subset of broader ag tech, applications in this domain will be primarily focused on 3M (measuring, monitoring and modeling) both practices and outcomes in ways that a) improve producer efficiency, b) create new producer revenue sources, or c) enable supply chain transparency. This area may fit venture capital class investors.
Accelerants
Inputs that try to replace nature are mostly moot in a regenerative model, but some interventional solutions that help nature heal faster may be valuable. Biological soil amendments that support organic function may have a place, but must be understood as different from their industrial relatives in that use is likely temporary, not perpetual.
Ecosystem Market Makers
As we leave behind the world of hidden and unpaid negative externalities, there may be multiple opportunities for market makers with visible and compensable benefits. These could include carbon sequestration, or water quantity and quality, but may also involve other positive externalities like wildlife habitat.
Although likely to receive much attention, investors should be cautious in the face of complexities and indirect consequences of the commodification of externalities. Some market opportunities may be temporary, but still helpful in accelerating the transition to a regenerative system.
Financial Services
Although the capital demands of a regenerative food and fiber system are generally modest, incumbent financing systems are strongly tied to many industrial practices. Whether debt, equity, or other original approaches (i.e. revenue sharing), nontraditional fintech business models for services in regenerative supply chains may represent an opportunity.
Stakeholders in the old system are unlikely to go quietly into the night, so investors should seek strategies, to avoid head-on conflict, of establishing and growing through the back or side doors. The generic consumer is also unlikely to quickly let go of ‘cheap at any cost’ products, so identification of smart beachhead niches is likely critical to any business.
Because it’s central to how both civilization and the planet work, the transition to regenerative agriculture is likely a long game, but one with very high impact.
