Regenerative agriculture strategies and solutions are now in high demand as corporations are looking … [+]
As the effects of climate change are being felt across every sector, more heads are turning towards agriculture with leaders becoming increasingly aware of the impacts and risks it has for food systems and supply chains. Greater emphasis and investment in particular are being directed towards regenerative farming in order to transition to a more resilient supply chain and develop new innovative agriculture practices and funding solutions.
Recently, Dave Haynes, Managing Director at Pollination and former CEO of rePlant Capital, told me about how Pollination, a climate advisory and investment firm, has experienced a growth in demand for strategies and solutions in this space from its corporate clients. The company recently integrated the team from rePlant Capital to expand its expertise in regenerative agriculture.
Dave shared with me on how they are helping large consumer product companies propel the formation of creative solutions for transitioning the agricultural sector to regenerative practices across the US. He addressed the driving forces behind this investment as well as the challenges the industry faces at these formative stages to create a positive transformation across food and agriculture systems in the US.
Christopher Marquis: Can you explain the motivations behind the growth in demand you’re seeing from companies to address sustainable agriculture? Is there a growing trend among businesses to invest in sustainable agriculture? Why is this important for the agriculture industry and the broader society?
Dave Haynes, Managing Director at Pollination
Dave Haynes: Currently, two significant dynamics are driving the surge in demand. First, we have institutional finance and large banks, committing trillions towards climate action. Historically, they’ve invested primarily in renewable[DH1] energy, but now they’re looking at the agricultural market as a massive transition opportunity where they want to deploy capital. One of the main challenges, however, is figuring out how to do it. Financial institutions are finding it difficult due to the lack of historical data on regenerative practices, which makes them cautious about investing. It also makes it difficult to de-risk loans–it’s an additional risk that they’re not sure how to grapple with yet.
The second dynamic driving demand is from consumer products companies, especially in the food, beverage, and fiber sectors. They understand that this is where the market is going. In particular, they are realizing the need to reduce their carbon emissions, as around two thirds of their emissions are derived from their supply chains. [KH2] These companies have also publicly set ambitious goals, such as becoming carbon-neutral by 2030, which is right around the corner. This is driving them to look at their supply chains for solutions to reduce their carbon footprint, mapping out their plans, the landscape, and all the steps in between to accomplish their regenerative goals and piloting projects so that they can implement what was once only theory confined to Chief Sustainability Officers. They realize there is a lot of education and financing involved to make this transition, but what’s most essential is meeting the farmers where they are and working collaboratively with all stakeholders to facilitate and educate on this transition to sustainable practices.
Marquis: How will the team at Pollination contribute to addressing the challenges posed by climate change in the agriculture sector? Will you continue the work of rePlant focused on collaborating with farms and food companies to transition farmland from agrochemical practices to regenerative agriculture? Can you provide some specific cases/ examples of this work that’s forged positive outcomes?
Haynes: At Pollination, we’re working with some great notable corporates, financial institutions, NGOs, and other bodies to help with this planning and implementation. We’re continuing the work from rePlant by focusing on those consumer goods companies, specifically in the food and beverage space. That’s the fastest path towards implementation, particularly if they[DH3] have direct relationships with their producers.
Cultural barriers are a major challenging factor in implementing change at the ground level, so figuring out which producers have the greatest philosophical proclivity for this kind of a change is a task in itself. For instance, our work with a leading world food company which maintains relationships with 50,000+ producers globally has allowed us to introduce 5-year bee-friendly pollination practices to farmers in central California. These producers receive a premium for their expenses, with the largest expense actually being the bees themselves. And so, to the extent that regenerative practices prolong the life of bees, these practices will also move the company towards greater profitability. This company’s commitment to bee-friendly practices not only benefits the environment, but also allows them to win business by showcasing their B Certified sustainability efforts on product labels.
The core idea here is to create economically enticing solutions that benefit all parties around the table, including the companies and the producers. That’s what’s going to move the needle at scale quickly.
Marquis: What role you see private sector companies playing in driving global change towards more sustainable and climate-resilient agriculture practices? How about collaborations with governmental or regulatory bodies to promote policies that encourage and support sustainable agriculture on a broader scale?
Haynes: The private sector has a crucial role in driving global change toward more sustainable agriculture practices. Especially in terms of financing and de-risking the funding for these practices by large commercial banks. We’ve been working on creative financial solutions in the form of first loss capital and credit enhancement to sit alongside banks and help de-risk the max. Essentially, for any losses that were affiliated with adaptation of these practices, we would take the hit–the first loss of capital would take the hit and the commercial banks would have that buffer. That way, we can encourage banks to participate in funding regenerative practices.
As for government involvement, other countries are a little bit further ahead. In the United States, we’ve seen limited government participation in this type of transition. However, it’s still in its formative stages. The recent developments in California, in the form of the Climate Disclosure Bill, suggest that government policies can have a significant impact on these practices. I think any policy implemented, particularly in California where so much of our food is grown, is going to have profound effects moving forward.
Marquis: What challenges do you anticipate in the transition from agrochemical practices to regenerative agriculture, and how do address these challenges? In particular, transforming agriculture involves supporting farmers and communities. How does Pollination help its clients integrate that assistance into their plans as they adapt to sustainable farming practices? Are there any innovative investment approaches that Pollination plans to implement to help address these challenges?
Haynes: The transition from agrochemical practices to regenerative agriculture faces several challenges, particularly cultural barriers among farmers who have been historically focused on yield for decades. There is a philosophical transformation that needs to happen, and changing this mindset from yield to prioritize profitability will take time. It’s essential to empathize with farmers on this and to understand that for generations, yield is what they’ve been taught to focus on. We’re working with these larger entities to figure out where there’s traction and trying to figure out how to accelerate that traction within their supply chains. It’s important to keep in mind that we’re at the very formative stages of the nascent movement and with that comes the perception of a lot of risk. It will take providing financial solutions and education to steer this. It’s a matter of listening hard towards the people who are actually doing the work and working with them as partners for this transformation. Providing ways to lower the risk surrounding these new practices to make them more palatable for producers is essential and, as I mentioned before, we’ve started to put in place new investment approaches such as first loss capital or credit enhancement to de-risk loans for farmers.
Marquis: Looking ahead, what is your vision for the future of food and agriculture systems, considering the increasing challenges posed by climate change?
Haynes: Our vision for the future of food and agriculture systems is to utilize the existing system but transform it and augment it, rather than try to introduce a completely new one. This is the fastest path forward. We have an opportunity window to do this, and it should be done through an economically enticing model for all stakeholders, including consumers, producers, and companies in the supply chain.
Food and beverage companies are looking at implementation, but grappling with its complexity because of all the constituents required to pull it off. However, the US in particular is ripe for change and the large companies will likely be the ones to lead this. Smaller producers look to these companies to see what they are doing and often follow suit. There is a real trickle-down effect across the supply chain from farmer to farmer, and there’s no more powerful message from a fellow farmer or producer that ‘these are the changes that I’ve made, and these are the results that I’m seeing.’
Education–both for consumers and farmers–is the second vital aspect to make this transition successful. The task of educating the consumer should be borne by the consumer product companies themselves, while technical assistance providers are going to play a huge role in education for farmers and producers as well as the consumer product companies. Without this, we won’t see the transformation as quickly as possible.
As we’re still in the formative stages, there’s also ample opportunity for intense collaboration on this. It’s so early that it’s collaborative rather than competitive, with everybody taking different angles to try to figure this out and sharing what they’re learning. That’s very important and it’s a really hopeful side of the equation, but eventually that window will close.
Ultimately, we are aiming to create a financial structure whereby ‘the healthier the soil, the lower the interest rates’, encouraging sustainable practices at scale. It’s a bold vision, but we believe it’s achievable through incremental changes and collaboration across the industry.
