Shashi Raghunandan, CEO of Oaken, is a part-time problem solver, painter and writer and a full-time husband and dog lover.
For several generations now, farmland has been seen as a stable asset class. For some investors, this type of real estate is a way to diversify their portfolios away from the vagaries of the stock market. Farmers, on the other hand, see it as the foundation of their business. Still, other landowners might view it more sentimentally and as something of a family heirloom rather than the basis of a food-secure future.
Signaling a larger change in how we see farmland, McKinsey surveyed several agribusinesses, startups and investors with the question: “If your company were to invest in scaling a new business concept, which of these concepts would you be the most interested to see your company invest in?” The survey found that land preservation and conservation ranked number one, well beyond lab meats, plant proteins and even food waste.
So, what explains this sudden rise in interest in farmland preservation and how can those in the ever-evolving agrifood industry respond?
Drivers Of Interest In Farmland Preservation
I see farmland as coming back into vogue as the collective understanding of this asset’s importance rises. According to the Food and Agriculture Organization of the United Nations, “In 2020, the world’s total agricultural land was about 4.7 billion hectares, about one-third of the global land area.”
The same source shows that globally, agricultural land has reduced by 3% over the last two decades. Additionally, given the global rise in population, there has been a 20% reduction in agricultural land per capita. McKinsey estimates that by 2030, the world will need 70 to 80 million hectares more farmland to satisfy our needs for food, fuel and nature. That is approximately twice the size of Sweden. In the face of the need for increased farmland, and with the combined need for conservation, what can public and private sector actors do?
Insights For Agribusinesses
While there are a variety of actions that can be undertaken to preserve and conserve farmland, in my opinion, these three hold the key.
1. Scale up resilient agricultural practices through public-private partnerships.
Whether this be in the form of grants from the public sector or private sector incentives, without appropriate financing, change is impossible. A recent BCG study revealed that it would take the German economy more than $1.5 trillion through 2050 (around 1.2% to 1.8% of its annual GDP) to meet its climate goals. Even though this is not insignificant, I believe it is necessary.
In the U.S., a start has been made by the USDA, which, as part of the Inflation Reduction Act, created billions in grants to help farmers and ranchers invest in energy-efficient improvements. I think that regulation 45Z, which significantly increases the tax credits that corn producers could receive for sustainably grown corn, is a great start. Putting more money in the hands of the producer is likely to lead to better outcomes.
But I don’t think the public sector can bear this yoke alone. Private sector spending and investments can incentivize regenerative agriculture and support the adoption of technology to facilitate and implement these changes.
2. Reduce waste and improve the supply chain.
From higher-yielding crops, better means of production and reducing food waste, there is a lot that can be done to reduce the pressure on food production through farmland.
Take food waste as an example. In the U.S. alone, 40% of all the food that is produced goes uneaten. Simply reducing this by a few percentage points can reduce all the pressures on farmland food production.
Similarly, corn production per hectare in the U.S. is five times that in Nigeria. Technology transfers and investing in training and development at the last mile can help improve yields and reduce the burden on food production at the same time.
3. Improve investments in technology.
Farmland transactions and communication of practices often still rely on manual and cumbersome processes. In my conversations with leading businesses in the industry, they have often cited the need for landowners and institutional investors to know how the asset is performing, what the economic returns are and how it is being managed in a sustainable way.
Those who own, invest and operate on farmland need to treat this as a valuable asset that requires regular reporting. Investments in technology that drive yields or operational improvements are only one part of the plan. With a generational shift in the ownership of agricultural land, it is imperative that operators make sure that there are systems in place to engage with the new generation of landowners and make them feel as involved in their ownership of the land as their parents did.
Conclusion
Real change is often iterative; it is messy and requires prolonged periods of experimentation. Businesses need to set in motion a series of steps to implement these changes. It all begins with capital allocation, an increased appetite for risk and continuous experimentation.
My time in other industries has convinced me that we are at the cusp of that change in the agrifood industry. As the old adage goes, “We don’t inherit the earth from our ancestors, we borrow it from our children.” I believe we owe this investment and thoughtful action to future generations.
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