Impact Investing in Sustainable Agriculture​

For people interested in impact investing—that is investing in assets that can potentially generate an attractive return as well as positive social or environmental impact—sustainable agriculture provides intriguing opportunities. Social impact investing in organic and sustainable farms can help slow the damage caused by destructive factory farming methods, while providing consumers with healthy, natural food. It’s an expanding focus of our impact investing initiative, and we’d like to share why we think it’s important and how to get involved.

The Problem with Unsustainable Agriculture

Since the 1980s, agriculture in the U.S. has been dominated by large-scale factory farms, which seek to maximize production by employing large quantities of fertilizer, pesticide, antibiotics (for livestock) and water. Though this resource-intensive approach can increase yields, it has a cost—depleting soil nutrients, draining water reserves, polluting the environment, and increasing greenhouse gas emissions. Consider that:
  • One group of scientists estimated that up to one-third of agricultural land in the Upper Midwest had been stripped of fertile topsoil.1
  • A global survey found that 20% of the world’s wells were at risk of going dry because of groundwater depletion.2
  • Nutrient run-off from farmlands in the upper Mississippi region created an 8,776 square mile dead zone in the Gulf of Mexico, the largest ever measured.3
  • Factory farming—especially of beef and milk—is a major contributor to climate change, accounting for more than 16% of human-generated greenhouse gas emissions.4

Sustainable Farming Explained

One way to slow and even reverse the damage is through organic and regenerative farming. Typically, sustainable farms are local, small-scale, and family owned. They use fewer carbon-based inputs like petroleum-based fertilizers and little or no pesticides. Often, they have greater crop variety, and they use less water, on average, than factory farms. One 22-year-long study of the Rodale Farm in upstate New York found that organic farming produced the same yields of corn and soybeans as conventional farming, while using 30% less energy, less water, and no pesticides.5

Impact Investing can Maintain and Expand Sustainable Agriculture

Social impact investing focused on organic farming can jump start the transition to sustainable agriculture while potentially earning a market rate of return. It’s a dynamic sector of the food industry, where demand for organic products has been growing steadily—and received a substantial boost during the COVID-19 pandemic, when consumers focused more than ever on health and safety issues. In 2020, U.S. organic product sales soared by 12.4% to nearly $62 billion, more than double the growth rate in the previous year.6 The business is not only fast-growing but can be very lucrative, as consumers are willing to pay more for food and other items that they perceive as especially healthy. One analysis found that organic items are priced, on average, at a 70.7% premium to similar conventional products.7 Farming organically also increases the value of the land; one survey found that organic land for row crops rented for 25% more, on average, than conventional acreage.8

How to Become an Impact Investor in Sustainable Agriculture

One of the challenges of social impact investing in sustainable agriculture is finding ways to invest. Most organic farms are small, family-owned businesses that borrow from banks to finance their operations. However, investors can find impact investing initiatives in sustainable agriculture through private real estate funds. Some of the investment funds in sustainable agriculture that we have reviewed include those from Iroquois Valley Farms, Clear Frontier and Land Fund Partners. Like conventional agricultural and real estate investments, these funds entail a number of risks. The challenges of social impact investing in sustainable farming include exposure to operational (manager) risk, changes in commodity prices, weather events, crop failure, the use of leverage (debt), and the general level of real estate values. But they also offer return potential from operating income and appreciation. In particular, the conversion to sustainable and organic farming, alongside the application of technology and additional expertise, can raise the value of the property. These investments can also add meaningful and valuable diversification to a portfolio. And of course, there is the positive impact of converting more land to sustainable and regenerative farming, including less pollution, a lower carbon footprint, healthier food, and a stronger support system for local family-owned farming. Investors concerned about climate change and reliable access to healthy food can make a significant impact through investments in sustainable agriculture. For more information about investments in this sector, get in touch with our impact investing specialists today.

1 “New Evidence Shows Fertile Soil Gone From Midwestern Farms,” NPR, February 24, 2021.

2 “Global groundwater wells at risk of running dry,” Science, April 2021.

3 “Gulf of Mexico ‘Dead Zone’ is the Largest ever Measured,” National Oceanic and Atmospheric Administration (NOAA), August 2017.

4 “Emissions from Animal Agriculture—16.5% Is the New Minimum Figure,” Sustainability, June 2021.
5 “Organic farms produce same yields as conventional farms,” Cornell Chronicle, July 13, 2005.

6 “Organic food sales jump nearly 13% to record high in 2020,” Supermarket News, May 25, 2021

7 “Organic Food Is More Expensive, but Conventional Prices Are Catching Up,” Magnify Money, October 18, 2021.

8 “Organic certification linked to increased land value,” Agri-View, August 24, 2020.

About CCM.  Colorado Capital Management (“CCM”) is a Registered Investment Advisor and a Certified B Corp. We provide fee-only portfolio management, financial planning and impact investing services.  

 

Risk of Loss. The above material is not an offer to buy or sell securities. No investment process is free of risk—the types of investments referred to herein may lose some or all of their value. Past performance cannot be relied upon as being indicative of future results.


Reliability of Data. The information set forth herein has been obtained from sources which we believe to be reliable, but this data has not been independently verified and we cannot guarantee its accuracy. CCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the information provided.


Acknowledgements. CCM wishes to thank Steven Ellis and Jennifer Kelly for their contributions to this article.

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