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Review: Financing for Regenerative Agriculture by the Rockefeller Foundation, June 2024

“Financing for Regenerative Agriculture” by the Rockefeller Foundation begins with a compelling foreword that sets the stage for the critical discussion about the future of agrifood systems. It emphasizes that the current model of food production is unsustainable, with negative externalities outstripping the global market value of agricultural production. This destruction manifests in climate change, water scarcity, biodiversity loss, diet-related diseases, and farmer distress, threatening the resilience of global supply chains. The foreword underscores the necessity for investors and agrifood corporations to adopt systemic approaches rather than piecemeal efforts to address these issues, highlighting the promising potential of regenerative agriculture.

The report primarily targets investors with significant capital resources and an interest in regenerative agriculture. It is a comprehensive guide that organizes existing knowledge, describes investment pathways, and provides illustrative examples of how capital can be deployed in this emerging sector. The authors emphasize that while interest in regenerative agriculture grows, the knowledge base remains fragmented. This report aims to fill that gap by consolidating information and offering insights from over 40 primary interviews with practitioners in the field.

Introduction

The introduction of the report captures a historic moment from the 28th UNFCCC Conference of the Parties, where for the first time, a day was dedicated to Food, Agriculture, and Water. This event signified a global recognition of the need for holistic food systems transformation, marked by significant commitments from world leaders and major food companies. The introduction sets the context for the burgeoning interest in regenerative agriculture, backed by substantial financial commitments aimed at promoting sustainability and resilience in food systems.

Content Overview

The report is a well-structured guide designed primarily for investors with large-scale capital, including development finance institutions, large family offices, asset managers, institutional investors, and philanthropies. It aims to organize fragmented knowledge on regenerative agriculture, describe pathways for investors, and provide illustrative examples of investment mechanisms.

The concept of regenerative agriculture is explained along a spectrum from “shallow” initiatives, which focus on reducing negative environmental impacts, to “deep” initiatives encompassing sociocultural and power dimensions alongside ecological outcomes. This nuanced approach acknowledges the varying degrees of commitment and implementation within regenerative practices, emphasizing that regeneration is a journey with multiple starting points.

Key Sections

1. The Bankability Gap

This section addresses the constraints and frictions that prevent the flow of capital to regenerative agriculture. It explores perceived barriers from the perspective of financiers and identifies characteristics of the enabling environment that hinder investment.

2. Market Maturity and Impact Leverage

An organizing framework is provided to help practitioners identify their role based on the market maturity of their jurisdictional focus. The maturity curve presented offers a pathway for regenerative agriculture to achieve widespread adoption.

3. Instruments and Structures for Regenerative Agriculture

This section illustrates several innovative financing instruments and structures gaining traction, providing practical ideas for practitioners aspiring to deploy capital into regenerative agriculture.

4. Additional Considerations for Financiers

The final section presents additional considerations for financiers, including regulatory changes and the scope of impact, to guide capital mobilization for regenerative agriculture further.

Conclusion

“Financing for Regenerative Agriculture” by the Rockefeller Foundation is a timely and insightful report that consolidates critical information and provides a strategic roadmap for investors interested in supporting regenerative agriculture. It addresses the urgent need for systemic change in agrifood systems and offers practical guidance on leveraging capital to foster ecological, financial, and socioeconomic benefits. The report’s thorough analysis and actionable recommendations make it an essential read for financiers committed to sustainable and resilient food production.

Our take-home

“We are not there yet.” It seems that the journey has begun but is holding pace due to lots of gaps and uncertainties.

Why is Regenerative Agriculture not booming? The bottleneck: Trust

There is a real problem with financing in regenerative agriculture: the money isn’t reaching the farmers who can make the necessary changes to fight climate change. It’s not because there isn’t enough money. In fact, global agricultural credit is more than enough to cover transition costs and has been growing rapidly, especially in emerging markets. The main issue is that financiers don’t have enough confidence that these investments will meet their risk and reward expectations. This “bankability gap” is caused by broad systemic barriers and the detailed challenges of implementing changes at the farm level. To solve this, financiers, policymakers, and other stakeholders need to understand these challenges better.

“Despite general recognition that regenerative approaches to food production have a critical role to play in climate change adaptation and resilience, financing for regenerative agriculture is often cited as a key adoption barrier.”

Why should financiers care about Regenerative Agriculture?

Financiers should seriously consider investing in regenerative agriculture for several reasons. Our top three:

Regenerative agriculture significantly enhances the financial resilience of farms. By building ecological resilience, these farms become better protected against extreme weather events, which can otherwise lead to substantial financial losses. This transition ensures a more stable and profitable long-term investment.

Regenerative agriculture reduces operational costs. It minimizes the need for costly inorganic inputs such as fertilizers and pesticides by improving soil health through natural processes. This reduction in operational costs directly translates into higher long-term profitability for producers.

Regenerative agriculture provides access to environmental markets, particularly carbon markets, which are more developed than others like biodiversity or water markets. Although agricultural participation is mainly in voluntary markets, there are substantial opportunities for financial returns through these environmental credits. Investing in regenerative practices can provide additional revenue streams and enhance overall investment value.

Why should we share the risk?

The findings from the report indicate that there is a significant financing gap in regenerative agriculture due to the innate income and liquidity insecurities faced by farmers. Traditional agricultural financing sources often do not accommodate the specific needs of regenerative practices, making it challenging for farmers to secure the necessary capital for transition. Despite a surge in climate commitments from food corporates and retailers, actual financial support for regenerative practices is lacking, with less than 10% of these companies allocating budgets for transition finance. Additionally, the diversity of farm-level practices and outcomes creates complexity for financiers, making it difficult to standardize guidelines and avoid accusations of greenwashing. Financial sector constraints, such as the narrow focus on yield and short-term time horizons, further impede the adoption of regenerative practices. Successful transition requires a combination of patient capital, technical assistance, and place-based guidance, especially for family and smallholder farms. Overall, there needs to be a coordinated effort among various stakeholders, including banks, insurers, philanthropies, and governments, to share the costs and risks associated with financing regenerative agriculture.

By fostering a non-zero-sum game mindset, we can create a regenerative world that benefit everyone involved.

– Marco de Boer

As mentioned above, all stakeholders in the supply chain play a vital role in realizing the transition. This does not only include the financial institutes such as banks, insurers, and governments, also landowners, producers, traders, processors, manufacturers, and retailers should take their part in the transition. It is important to connect and share the effort transitioning. 

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