Investing in Farmland, Community & Ecosystem Transitions for Regeneration

“We abuse land because we regard it as a commodity belonging to us.

When we see land as a community to which we belong, we may begin to use it with love and respect.”

— Aldo Leopold A Sand County Almanac, 1949. 

The starting place, the source, of all that we eat, drink, and wear is our farmland, ecosystems and communities. It’s clear that these systems are in trouble. Real big trouble.

This article focuses on key investment areas that will transition our ecological and social communities into a place of renewal and regeneration.

We categorise farmland, community and ecosystem transitions across three domains:

• Transition Finance
• Place-based finance
• Farmland Investment

Transition Finance

A notable lock-in constraining the transition of our farming landscapes sits with the dominant extractive agri-financial models. Figures from the Reserve Bank of Australia in 2017 placed the level of debt across the nation’s agribusinesses at $69.5 billion, with 96% of that debt held by banks (Deloitte 2017).

2022 figures show that debt has increased to $90 billion (Australian Banking Association 2022). The structure of this agri-debt model makes it nigh impossible for farmers to shift out of industrial conventional operations: interest and repayment terms (predicated on the Value Return paradigm) drive a focus on ‘productivity at all costs’, regardless of season and state of landscape health.

The procurement of bank finance in turn requires a certain level of arable land on farm, pressuring more biodiversity loss and broader ecosystem degradation through land clearing and soil, pasture and paddock ‘improvement’.

In order to disrupt this key systemic lock-in, some innovative capital mechanisms are being developed that enable and incentivise, rather than constrain and disincentivise, transitions to sustainable or regenerative farming practices.

Some core elements of transition finance, which can vary in combinations depending on the model, include:

• Patient capital — recognising that transitioning to regenerative practices isn't an overnight or annual undertaking but a long-term journey, and so financial terms need to reflect the reality of that timeframe.
• Flexible capital — recognising that farming happens in an environment and climate beyond human control, and there will be good years and bad years, droughts, floods and pandemics — and repayment terms and interest rates are adapted to match the reality of this complexity and variance.
• Supportive finance that is relational, built on trust and an understanding of the knowledge gaps and strengths of the farmers undertaking the transition, hence working to co-design tailored mentoring/education and support services to help bridge that gap.
• Development of market demand and supply chain relationships/partnerships to support practice transition, but also de-risk the entire finance model, for both borrower and lender, by developing guaranteed markets.

“We put our skin-in-the-game to rehumanise finance, share risk, redistribute wealth, decentralise control and empower place based wisdom, with integrated technical assistance every step of the way.”

— MAD Capital Manifesto

The Role of Banks in Financing the Transition

Banks are the main provider of agricultural and business finance in Australia and so have a critical role to play in the transition. Some shifts in their lending practices and structures are starting to take place. Developments like the Commonwealth Bank's Green Loans program or the work of Rabobank to develop a range of financial products, including sustainability-linked loans to support food system transitions, all show the shift in mainstream financing structures that are possible.

And yet...

Our mainstream banks are still locked into the structural underpinnings of an extractive operating system:

• Concentration of wealth and power: The big four banks’ combined assets are roughly twice the size of Australia’s national income, and are, in fact, owned by a bigger four (Boyd, 2022).
• Profit first: Conventional banks make money out of debt, and with their shareholder structure are under constant pressure to increase profits and therefore push more borrowing (debt) from the agricultural sector.
• Values and risk assessments are focused on financial return — not on farmers, community and ecological health and wellbeing which in reality pose the biggest risk of all.

Banks are constrained by these systemic structures, but some transformational shifts are being undertaken. These changes show transformation is possible — through the evolution of ethical, socially responsible banks like Triodos Bank in Europe and the newly developed Walden Mutual, in the USA (refer to the case study below). This mutual bank’s structure ensures it is community rather than shareholder-owned and is therefore directly informed by community interests. Its offerings are sustainable farm and food focused.

What is the role for different forms of capital in this domain?

• Philanthropy and public catalytic funding have a critical role here in enabling the design, piloting and proving of innovative transition finance mechanisms and structures to a maturity level that then unlocks other forms of investment capital.
• Private investment needs to step in, with blue ocean thinking, to co-create the development of transition finance or ethical banking mechanisms, bringing not only start-up capital but also financial acumen and stakeholder relationships to the drawing board.

The key point we heard across many of our conversations was to ensure there is deep collaboration and listening in the development process. These new transformative capital mechanisms require co-creation with, not for, the farmers, businesses and communities they aim to support.

Place-based finance

‘Place is a powerful convening point for people and systems’ (Leadbeater, Smith and Winhall 2022), and hence for developing community based and led models of finance innovation.

What we’re talking about here are economic development models like Community Wealth Building, centred on community ownership and control of assets, and localised financial systems to democratise regional economies and connect them firmly back to the earth on which they are based. These localised finance initiatives are working to transition communities out of the increasing centralisation of power, ownership and profits that dominate our current food and farming status quo, and which have been draining wealth, opportunity and youth from our regions for decades.

Across our research we heard that, while this line of thinking and practice to decentralise finance is not new, it is being adapted and applied strategically, both internationally, and here in Australia, to spark systemic change in capital flows and outcomes. Organisations like Ethical Fields, the Next Economy and the Australia Centre for Rural Entrepreneurship are spearheading some fantastic initiatives around which momentum is growing across various communities and government agencies.

For these initiatives to work, they require integrated collaboration across investors, philanthropists, community stakeholders, all levels of government, institutions and private businesses to join the dots. But we also learnt that it is really hard to get this systems-shifting work of gathering and convening supported.

“A remarkable thing about this work is how readily the private sector, the financial sector, communities and governments are collaborating.

Convening, stepping back, and looking at questions together is critical to systems change and it's not yet being funded adequately.”

- Stephen Huddart, cited in Leadbeater, Smith and Winhall 2022.

What is the role for different forms of capital in this domain?

• Philanthropy and public catalytic funding have a critical role here in funding the learning, organising and collaborative work required for communities to step into designing and creating new economic models.
• Private investment also has a pivotal place in bringing skills, networks and finance to assist with developing local and regional financial systems and to invest in innovative regional businesses.

Farmland Investment — done right

Increasing investment interest and activity in acquiring Australia’s farmland as an asset class capable of delivering high investment returns, alongside competing demand for rural land, has played a role in escalating land prices across most parts of Australia (Rabobank 2019, RIRDC 2007).

This trend mirrors the broader global pattern of land inequality, driven by a complex mix of colonisation, corporatisation and financialisation of farmland. The largest 1% of farms operate across 70% of the world's farmland and ‘parts of the world’s farmland are now considered financial assets, with no known physical owner, subject to decisions making processes that may be external to the farm’ (International Land Coalition, 2020). Recent research by the International Land Coalition found that when we step back and take a holistic, systems lens, ‘land inequality is also central to many other forms of inequality related to wealth, power, gender, health, and environment’ (ibid.).

The increasing financialisation of land as an asset class in Australia and beyond precludes land access and custodianship for all but the super-wealthy or corporate-backed. This places valuable agricultural land out of reach of regenerative farming families and First Nations communities - the very cohort who have the specific regional, embedded knowledge needed to restore those landscapes, in combination with a deep multi-generational commitment to doing so.

New and aspiring regenerative farmers are also locked out of the picture. A recent national survey of this group found that access to land and capital comprise the two main barriers to entering the farming sector (Farmer Incubator, 2021).

“There is clear evidence that small-scale and family farmers and Indigenous peoples generally produce more net value per unit area than large enterprises, and their land use practices tend to support biodiversity and healthier soils, forests, and water supplies.

Women’s land rights and collective land rights are particularly important in this context.

Driven by the logic of heritage and stewardship rather than short-term profits, they have much to offer the global objectives of equitable and sustainable development, yet they are increasingly excluded while global trends favour land concentration.”

— International Land Coalition 2020

From our interviews across the sector, it appears that farmland investment funds are one of the main ways investors are engaging with regenerative systems at present. This includes investing in funds that buy up land and implement practice change to deliver natural capital benefits and ‘sustainable’ or ‘regenerative’ outcomes, with the ROI primarily provided through an increase in land and asset values at an exit point of sale.

There are a couple of points to make on this. Firstly, we are not making a blanket statement here that these farmland investment models are all bad. In fact, we can see they are playing a transitional role in moving us towards more transformative mechanisms. These types of funds are often the first exposure investors get to the agricultural sector and have served to build familiarity and interest in farmland transitions. Secondly, a lot of them are able to finance deep and broad data collection and evidence-building of the ecological and economic benefits of practice change at a farm level. This in turn is helping to build the legitimacy of regenerative farming practices.

But, at the same time, many of these models are reinforcing the power concentration and inequitable dynamics of our industrial systems. In short, they are operating in the 'Arrest Disorder' and ‘Do Good’ paradigms of Horizons 1 and 2 (for more information on this read The Reality of Australia's Investment Landscape and What Needs to Change). They are fixing problems, and fixing them well in some components of the system, but not fundamentally altering the structures that continue to maintain the status quo.

Do we want our future agricultural landscapes to be predominantly corporate-owned? With rural land prices set to continue to increase, we need some transformative interventions. Thankfully, some of this activity is already at play.

“If you have corporates that are prepared to shift to regenerative practices, that's a good thing. I encourage that.

But we need more than that.

Regeneration goes right through to the community level — it encompasses community, health, people.

It’s got to be more than just corporates buying up country and changing some practices.’”

— Terry McCosker Resource Consulting Services - Founding Director | Interview 2022 

The existing farmland investment model can be reconfigured with an eye on community impact and inter-generational succession. The work that Queensland Investment Corporation (QIC) is doing to design its Natural Capital Fund is an example of this. They’re putting careful consideration into finding, at the outset, farming partners who are prepared to take an equity stake in the investment. QIC is then structuring the fund exist to support those farmers' ability to take the land on through the first right of purchase and other mechanisms.

We need a whole new suite of farmland investment models which rethink value, power, equity and ownership - for if there is one clear message coming through from the wisdom of cultures who have managed land regeneratively for millennia, it is that land is sacred, a community to which we belong and not a commodity that can be owned.

What is the role for different forms of capital in this domain?

• There is a huge role for philanthropic, public and private capital to enable land access, equity and reparations through farmland trust/ agricultural commons mechanisms. These models recognise that multiple barriers to land access are faced by different sectors of society including new farmers, BIPOC communities and migrant farm workers, and so find ways to provide secure land access, tenure and ownership to enable intergenerational equity. (Refer to The Agrarian Trust case study below)
• Other stakeholders have looked at ways to finance land access for farmers priced out of the market through supportive, impact-linked loan funds. (Refer to the Iroquois Valley REIT case study below)
• Again there is a role for philanthropy and impact investment in helping to develop and pilot these models, and for investment to operationalise them in context.
• Others are working at the innovative edge of reconfiguring farmland investment models with a focus on divestment/transfer of ownership to farmers and communities, using new developments in carbon and natural capital markets, and the development of regenerative business models to provide the ROI, instead of the on- sale of land.

“The thing the big corporates do is they have helped people to feel more comfortable with ag.

But you can't have farmers as tenants to these big players in far off places and cities, and think that it has a resilient and long-term future for the farmer”

— Carolyn Suggate | ORICoop | Interview 2022

This article is taken from Regenerating Investment in Food and Farming: A Roadmap.