Climate change, soil health, and rural communities: why it’s time to invest in regenerative agriculture 

In the millennia since humans first started cultivating crops and livestock, agriculture has provided us with food, shelter and livelihoods, and became one the world’s largest economic sectors. But along with this growth, food production has become a major driver of environmental concerns such as biodiversity loss, CO2 emissions, and water scarcity.

With global food demand set to increase 40% by 2050, the road ahead is a challenging one, but also one of many opportunities. In this article, the first of a series on the food and agriculture sector, its main players and key sustainable finance trends, I’m going to take a deep dive into regenerative agriculture practices and how to finance them.

Agrifood systems and future-proofing: the road ahead

Accounting for 26%of all global greenhouse gases emitted, lowering emissions has understandably been a focus of attention in the agricultural sector during recent years. But unlike other industries, which can easily substitute fossil fuels for renewable energy sources or decrease high supply chain emissions, the agricultural system is a complex and adaptive one that interconnects soil, weather, water, biodiversity, and social aspects. 

Could it be that, when it comes to agriculture, the climate tech sector is suffering from “carbon tunnel vision”, as Jan Konietzko of Cognizant termed it, neatly illustrating the complexity of sustainability transition and the key role that agriculture plays within it.

Regenerative agriculture: a (not so) new form of agriculture

In the past century, traditional agricultural practices emerged with good reasons and from good intentions. In order to sustain a growing global population, agricultural players explored the best approaches to enhance productivity, but this generally came at the expense of soil health. Industry developments included hydroponic culture in the Netherlands, advanced irrigation mechanisms pioneered in Israel, and the GMO revolution in the USA.

The objective was always the same: to increase efficiency and output. And it was achieved, for a while. But, as we’re now starting to realise, this “productivity at all costs” mindset has had a significantly negative impact on our environment, health, and social cohesion. However, since these negative externalities didn’t impact the price of the final product, they generally went unnoticed by everyone except farmers. 

For instance, the the United States estimates that about 30%of all land globally is already degraded and about 12 million hectares of productive land — roughly three times the size of the Netherlands — is degraded every year. Moreover, 70% of freshwater withdrawals from rivers and groundwater is used in food and agricultural products.  

But it’s not all doom and gloom: in recent years, regenerative agriculture has come to light as a solution to most of these problems. While the current narrative frames it as a new form of farming, it first came about several decades ago. Although the term “regenerative agriculture” was first used by the well-respected Rodale Institute in the 1980s, its practices existed long before this.

In essence, regenerative agriculture is a system of farming principles and practices which aim to regenerate and revitalise natural resources used in production. It consists of a series of land management practices designed to close the carbon cycle and build soil health. This in turn leads to improved ecosystem health, crop resiliency, and nutrient density, among other benefits. Regenerative practices include the use of diverse cover crops, no-till farming, multiple crop rotations, minimised use of herbicides, and avoidance of all types of pesticides, insecticides, and synthetic fertilisers.

Farms that implement these practices have exhibited increasingly healthier soil, increased biodiversity, and more resistant products. And this is not at the expense of the bottom line either: these practices often lead to increased profitability and resilience to climate shocks. Jeroen Klompe, a passionate 4th generation farmer at Klompe Landbouw, a regenerative farm in the Netherlands, showed me how they had increased potato yield production by 25% compared to traditional agriculture. 

Adopting regenerative agriculture at large-scale would significantly mitigate climate change while also providing farmers with more economic and social benefits. A recent study by the Rodale Institutefound that on a large scale, regenerative agriculture could capture up to 40% of the world’s anthropogenic carbon emissions within 30 years.

But regenerative agriculture is not exactly the walk in the park that it seems.

Four key challenges 

Although there’s no doubt that regenerative agriculture has great potential, there are still many challenges that need to be addressed before it can be adopted on a large scale.

1. No one size fits all

Although the set of practices is well understood, regenerative practices are highly tailored to local environments, making it a challenge to scale. Therefore, a key element to scaling regenerative agriculture is flexibility. Soil characteristics, type of farm and climate zones will lead to the use of different practices. As Stephanie Anderson puts it in her book, regenerative agriculture is a “one size fits none” model and how farmers will put this strategy in practice will differ according to their location, crops, goals and community needs. 

2. Clear and flexible standardisation

However, the fact that regenerative agriculture is highly tailored doesn’t mean there is no space for standardisation. There’s currently no clear definition or framework that can be applied at both a global and local level. Farmers and food companies need clarity on which measures they should apply to each crop.

The SAI Platform launched the Regenerative Agriculture Programme in 2023, aiming to be a “single, trusted and cost-effective way to apply regenerative agriculture principles worldwide, supporting farmers and protecting nature”.

Key to its success will be ensuring that this standard is more flexible and easier to apply than the organic certification. Although the EU organic regulation protocol started with 10 pages, the latest edition numbered 92 pages of articles and norms to be followed. Unsurprisingly, 23 years after the EU first released an organic norm, less than 4% of agricultural land in Europe is certified organic. Certification levels the playing field and builds trust with consumers but it is simply part of the journey, not the end goal. 

3. Lack of information and support

Few farmers have fully implemented regenerative agriculture practices and even fewer are in a position to advise on the best way to go about it. 

Technology can help farmers by providing them with data-driven insights into their crops, soils, and ecosystems. It can also connect them with other farmers and experts that can offer support and advice.

One company already supporting farmers making the transition is Soil Heroes, which carries out baseline physical soil measurement to help them understand the health of their soil. The platform can then monitor advancements in farming practices and reward farmers for improving soil health and achieving other environmental benefits. Rewards could include selling carbon insetting and offsetting or access to lower interest rates with banks.

Klim, a German based company, is building an ecosystem marketplace for regenerative agriculture where farmers can document their environmental and climate protection achievements and get paid for them. Recently, Klim raised €6.5 million to scale its platform internationally from top investors including Agfunder, Edaphon and  Green Generation Fund.

These two companies are following in the footsteps of pioneers Regrow, a measurement, reporting and verification (MRV) company that has analysed over 80 million hectares and is active in 45 countries.

This type of data will be critical to building awareness and trust with the final consumer. By providing an accepted, trustworthy basis for understanding what impact actions taken within the supply chain can have, these platforms play an important role.

4. Financial obstacles

Finally, there are also significant financial obstacles to implementing regenerative agriculture. 

Upfront costs can be high because farmers often need to make significant changes to the way they operate. This might include changes in equipment, seed varieties, and farming practices. In some cases, farmers may also need to rethink their entire business model. It’s not unusual for farmers to adapt their tractors and machines to the new methods, which comes at a high cost. 

Coupled with this, the relatively high cost of land and low profit margins in agriculture mean that potential returns from pure farmland investments tend to be modest. In the Netherlands, for example, a hectare of land costs approximately €70,000 (the highest in Europe), making it hard for farmers and investors to achieve high returns over the long term.

Lastly, farmers are often held responsible for the majority of the negative impact that the food system has on the environment, yet they do not make their decisions independently. Growers’ decisions and choices are influenced by many stakeholders, including food companies, retailers, consumers, politicians, and regulators.

As a result, it is also relatively common for farmers to opt to cut out the middleman and sell directly to consumers or focus on niche markets. While the direct-to-consumer (D2C) model can generate higher prices, it is more complex, requiring farmers to handle distribution and marketing costs. Additionally, avoiding doing business with large food players will limit regenerative products’ ability to reach the mass consumer market.