An Advance Market Commitment for Regenerative Agriculture
Intro
The sustainability of our agricultural system is as systemic as it gets when it comes to challenges. Most people reading this probably don’t need a detailed refresher on this, so here is a quick synopsis of how knee deep in manure we are.
In terms of the number of people affected, the answer is: everyone. We all eat, which means we are all directly impacted by the overall health of the system.
We don’t all eat well, however. The World Health Organization identified 2.3 billion people across the globe as experiencing some level of food insecurity in 2021.This isn’t a problem limited to developing countries: in the United States, data from the Department of Agriculture suggests that 19 million people live in so-called ‘food deserts’ — low-income, low-access food areas.
As climate impacts hit harder, our diets will take a hit too. Extreme weather events disrupt food production and have the potential to further decrease the nutritional value of important food crops globally.
This has knock-on effects on other areas. The healthcare costs of poor diets are estimated to be $ trillions globally, with costs of $50 billion a year in the US alone. And a lot of us rely on the agricultural sector for our livelihoods. The food and agriculture sector is comprised of more than 1 billion producers, transporters, distributors, and retailers worldwide.
The food, agriculture, and land use sector is also a major contributor to climate change, racking up a massive 24% of global anthropogenic greenhouse gas emissions. According to Project Drawdown, we need to reduce/sequester 226.5–312 GtCO₂ equivalent from agriculture over the next three decades in order to reach net zero by 2050.
The promise of regenerative agriculture
Regenerative agriculture is not a carbon mitigation superstar, it turns out. Most regenerative agriculture practices reduce emissions at modest rates. The potential of regenerative agriculture to reduce emissions and sequester carbon in soils lies in scale. This is because we have such a large number of farming operations worldwide, and such a massive proportion of the global land area is occupied by farming (38% of the global land surface, according to the FAO). Project Drawdown estimates regenerative annual cropping could scale to 219.16–320.45 million hectares by 2050, an increase which would result in a total reduction of 15.12–23.21 GtCO₂ equivalent from sequestration and reduced emissions.
And, frankly, it’s not all about carbon anyway.
Part of the beauty of regenerative agriculture is that it is pretty good bang for the buck. The costs of new tech development are relatively low in this space. Regenerative agriculture practices — no-till, cover cropping, crop rotation, green manure, organic production and the use of compost — are all relatively well-known and well-established in the farming world. Therefore the adoption cost of regenerative agriculture is lower compared to other carbon mitigation solutions where new, complex technologies have yet to be developed. Regenerative agriculture also improves farmer livelihoods over the long term because it reduces input costs, improves crop quality, and offers greater resilience to climate shocks. It also potentially opens up new revenue streams for farmers, such as soil carbon credits.
Regenerative agriculture doesn’t just recarbonise soils, it improves overall soil health. Industrial agriculture has depleted soils worldwide in a narrow pursuit of ever-increasing yields. This has led to a decline in the nutritional quality of many crops, making our food less healthy than it was 50 years ago. The food we eat today contains less protein, calcium, phosphorus, iron, riboflavin, and vitamin C. Research in this space is still in its infancy, but long-term Rodale Institute studies on vegetable systems, for example, show that organically grown corn has higher protein content than conventionally grown corn as well as higher concentrations of vitamin B6, which is critical to brain development, heart health, digestive enzyme functioning, mood regulation and immune system health. Given that climate change reduces the nutritional density of key crops, this trend is only set to continue. By improving soil health, regenerative farming practices make for more nutritious, more climate resilient crops.
And last but certainly not least, crop rotation and reduced pesticide usage improve on-farm biodiversity and water quality.
What’s the challenge with scaling regen ag?
If it’s such a no brainer, why are we not there yet?
For starters, shifting to regenerative agriculture requires a fundamental transformation of farming systems, which carries risks for farmers. Regenerative agriculture practices such as no till or cover cropping are typically excluded from the pricing and structuring of loans, rental arrangements and insurance contracts for farmers, for example, even though they carry long-term benefits in terms of soil health, water quality, emissions reductions and other environmental indicators of system health. Although there are innovative practices emerging in this space — such as Mad Agriculture’s Perennial Fund, which provides loans to farmers to support their transition to regenerative agriculture — farmers generally struggle to access transition funding.
Farmers also have no guarantee that there will be a market for regenerative product at the end of that transition. Unlike organic production, regenerative agriculture carries no consumer premium, has no certification scheme associated with it, and there is very little consumer recognition of, or demand for, regenerative agricultural products at the moment.
In order to commercialise regenerative agriculture at scale, we need to create a market for it which will de-risk the transition for growers, and support them through innovative financing mechanisms. If you want to understand more about just how meaningful this is to the farming community, listen to this episode of Koen Van Seijen’s excellent podcast, Investing in Regenerative Agriculture.
Making the market for regenerative agriculture
This is not fundamentally a technological challenge, therefore, but a market-making one. In line with that, the pathway to scale that is needed is the creation of a long-term, predictable, commercially viable market for regenerative agricultural products, which I believe can be achieved through an advance market commitment (AMC).
AMCs are not unprecedented. We did one in 2007, when five countries and the Gates Foundation pledged $1.5 billion to fund a pilot AMC targeting a pneumococcal conjugate vaccine (PCV). At the time, the World Health Organization estimated that pneumococcus killed more than 700,000 children under five in developing countries annually. By 2016, PCV had been distributed in 60 of the 73 eligible countries. Annual distribution exceeded 160 million doses, enough to immunize over 50 million children per year. By 2018, nearly half of the target child population in GAVI countries was covered.
More recently, we created one called Frontier, aimed at accelerating carbon removal. It was founded by Stripe, Alphabet, Shopify, Meta, and McKinsey, with a commitment to buy an initial US$1B+ of permanent carbon removal between 2022 and 2030.
AMCs are also not rocket science. The idea behind an AMC for regenerative agriculture is fairly straightforward: accelerate the uptake of regenerative agriculture by guaranteeing future demand for regenerative agricultural product. The goal of the AMC would be to send a strong signal to farmers that there is a growing market for regenerative agriculture product, therefore de-risking the transition. The AMC would recruit a pool of agricultural buyers into what is effectively a buyer’s club. The types of companies which would be relevant for this include both large-scale commodity buyers like Bunge and ADM, as well as corporations such as Pepsico and General Mills who buy both raw agricultural commodities as well as processed/refined agricultural ingredients. If the AMC was place-based, you could also bring public procurement spend into the mix. These buyers would commit to a specific annual spend, for a set time period. The agreement could potentially be focused on a small set of key agricultural commodities, such as corn, soy or wheat, in order to simplify the process and demonstrate the model.
Many of the large global food and agriculture businesses have by now set targets for the decarbonisation of their supply chains and the reduction of their ecological footprints. As they look for ways to fulfil those commitments, regenerative agriculture is emerging as a key strategy. Earlier this year, for example, PepsiCo formed agreements with several farmer-facing organisations to invest over $200M to transition 3 million Acres of U.S. farmland to regenerative agriculture by 2030. Many agribusinesses also already have offtake agreements with producers, some of which are focused on sourcing regenerative product. However, these types of initiatives tend to be 1-to-1 and obviously are not at the scale we need.
We need to channel more capital into the regenerative agriculture transition, that much is clear. But it’s not just about throwing more money at the problem. It will be critical to push the right buttons to catalyse transformation at scale. A long-term AMC for regenerative product would guarantee the market for farmers on a meaningful enough level that it could create a tipping point in the global transition to regenerative agriculture. Not least because many of the other challenges in regenerative agriculture become easier to crack through the creation of a long-term stable market: farmers with a good, steady cash flow will find it much easier to secure loans and get insured, for example; they will also be able to get off the treadmill of high agrochemical input usage, which will reduce their overall input costs.
In sustainable finance, we often have preconceptions about how impact investing is done. It might mean backing a start-up with a sustainable business model, for example, or project finance for renewable energy infrastructure. We need to start thinking of sustainable finance as a box with a greater diversity of tools in it, where solutions such as AMCs can be a powerful lever for change in certain contexts, particularly when combined with a range of other strategic interventions with the overarching aim of system transformation. It might be, as they say, an ‘idea whose time has come’.
