The investment case for ecological farming

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Author: Paul McMahon

Farmland investing today

Farmland has emerged as a new asset class for investors over the past decade because of higher food prices. Historical returns have been good. However, commodity prices have dropped and farmland values are plateauing in many regions. In addition, most investment has gone into high-input, industrialised farming systems that are exposed to hidden risks. In future, investors will need to be smarter and more environmentally-aware to capture the opportunities.

The risks of industrial  agriculture

The profitability and sustainability of industrial agriculture are exposed to five major risks, which are set to intensify in coming decades:

  1. Exposure to high and volatile input costs
  2. Degrading natural assets such as soils and water reserves
  3. Vulnerability to a changing climate, especially extreme weather events
  4. Negative environmental externalities that will be increasingly taxed or regulated
  5. Shifting consumer trends, as people demand clean, green, healthy and tasty food
  6. Ecological farming: an attractive alternative

There is an alternative way to manage land that can minimise these risks, while increasing profitability. Ecological farming seeks to build soil health, minimise external inputs, recycle nutrients and energy, embrace diversity of crops and animals, and produce high value food and commodities. It is not necessarily organic (although it often can be), it can be practised on a commercial scale, and it is firmly science-based.

We have identified a number of proven systems that have investment merit. They include:

  • Holistic planned grazing for cattle and sheep
  • No-till cropping with diverse cover crops
  • Agroforestry systems
  • Low input pasture-based dairy
  • Certified organic farming in certain countries

Seven reasons to go ecological

There are a number of reasons why these types of systems can deliver superior risk-adjusted returns:

  1. Comparable or better yields in most cases
  2. Lower operating costs because of less reliance on external inputs
  3. Enhanced natural capital, with the opportunity to increase asset values by regenerating
    degraded land
  4. Climatic resilience because healthy soils cope better with droughts and floods
  5. Positive environmental externalities and the chance to be paid for them, for example through carbon credits
  6. The ability to sell to higher value markets such as organic or grass-fed
  7. Higher profitability with less volatility
DOWNLOAD THE REPORT FROM SLM PARTNERS

Carbon Finance Possibilities for Agriculture, Forestry and Other Land Use Projects in a Smallholder Context

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Abstract

This booklet is intended to guide extension service advisors and institutions who work with small-scale farmers and foresters with an interest in Carbon Finance and Carbon Projects. Its aim is to support setting-up carbon projects which involve small-scale farmers. Their participation allows them to be involved in the development and implementation of the project, influence the design of the project to generate positive impacts for the farmers and increase their knowledge about carbon finance. The definition of a small-scale farmer differs between and within countries. In most cases it is a farmer who cultivates less than one hectare of land and has diverse sources of livelihood. The guide is structured into five sections: first, the background of climate change is explained (1); second, an introduction is given to how the carbon market works (2); this is followed by an explanation of carbon project development and the timeline and project size to take into account for planning (3); four, costs to be expected during the development of carbon projects are summarised, as well as benefits (4); finally, different funds and grants are presented (5). This booklet will need constant updating, as the political framework is changing very fast, causing changes in legislation, as well as actors, funds and regulations. In addition, the available data, research and knowledge for the development of carbon projects is constantly improving which will facilitate their future upgrowth.

Download the Food and Agriculture Organization of the United Nations Report

Family Farmers: Feeding the World, Caring for the Earth

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Family farming preserves traditional food products, while contributing to a balanced diet and safeguarding the world’s agro-biodiversity and the sustainable use of natural resources. Family farmers are the custodians of a finely adapted understanding of local ecologies and land capabilities. Through local knowledge, they sustain productivity on often marginal lands, through complex and innovative land management techniques. As a result of the intimate knowledge they have of their land and their ability to sustainably manage diverse landscapes, family farmers are able to improve many ecosystem services.

Photo credit: Flickr / CIAT

Family farming represents an opportunity to boost local economies, especially when combined with specific policies aimed at the social protection and well-being of communities.

Family farmers have strong economic links to the rural sector; they contribute strongly to employment, especially in developing countries where agriculture still employs the majority of the labour force. In addition, the incremental income generated by family farming is spent on housing, education, clothing etc. in the local non-farm economy.

Download the Report from the Food and Agriculture Organization of the United Nations