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How to Make Regenerative Farming More Profitable Than Conventional Farming

How to Make Regenerative Farming More Profitable Than Conventional Farming

July 23, 2020

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Most investors interested in adding agriculture to their portfolios understand the basic benefits of regenerative and sustainable farmland: It’s better for the environment, better for biodiversity, and better for humanity. But did you know it’s also more profitable when planned and implemented properly? A study conducted by The Center for Sustainability at Aquinas College found organic farming yields can be up to 10x more profitable than conventional row crop, commodity farming.

More than half of U.S. crop acreage grows the same two commodity crops: corn and soy. More than 90% of corn and soy grown in America is genetically modified to be heavily reliant on toxic pesticides such as glyphosate and dicamba. This is creating tens of millions of acres of resistant weed, which spins industrial farmers into a vicious cycle of spraying and expanding their monocrops to survive in a global commodity market. This is not to feed the world,” either, as less than 1% of the corn grown is destined for direct human consumption.

There is another path. Converting from conventional farming to sustainable agriculture can yield significantly greater returns and add value to farmland. It is a unique and involved investment process, but one that Farmland LP does at scale. This can be simplified to the following steps.

1. Convert Land to Organic

The U.S. demand for organic food continues to grow. The 2020 Organic Industry Surveyby the Organic Trade Association (OTA) found that organic food sales hit $50.1 billion in 2019, up 4.6% from 2018 and outpacing the general market growth rate of around 2% for total food sales during the same period. The OTA suggests that the coronavirus pandemic has further fueled the organic movement, writing:

“As shoppers search for healthy, clean food to feed their at-home families, organic food is proving to be the food of choice for home…

…Many solid-growth organic categories have seen demand exploding. Organic produce sales for one, after jumping by more than 50 percent in the early days of kitchen stocking, were up more than 20 percent in the spring of 2020.”

Even before the recent spike in demand, demand for a higher-priced organic product has consistently been met by a shortage in supply, allowing organic farmers to capture price premiums of 50–200%. An industrial acre of corn, for example, might generate $1,000 annually to the farmer. By contrast, an organic sweet corn acre could generate $3,000 of revenue to the farmer, and other crops such as organic tomatoes or squash could generate $5,000 or more per acre annually to the farmer.

The conversion from conventional to organic farmland is a three-year process, and the farm owner or investor will see limited revenue from acreage undergoing conversion to organic during this time. Once complete, however, the land is inherently more valuable as it can be used to grow organic crops with higher yields, increased demand, and price premiums, all driving higher returns.

2. Practice Crop Rotation

One of the main shortcomings of conventional farming is that farmers typically grow the same crop year after year, with low commodity prices, and a decline in soil health impacting yields and increasing chemical use and costs. Regenerative farming optimizes land use by replacing commodity crops with organic annual, perennial, and permanent crops that can improve soil health while meeting consumer demands. A few examples:

  • Annual crops: Green beans, sweet corn, and winter peas.
  • Perennial crops: Pasture, peppermint, and tall fescue.
  • Permanent crops: Blueberries, wine grapes, and hazelnuts.

All of these (and many others) can be grown organically for higher price points, and in crop rotations to enable lower input costs, increased soil health, and better resilience to market swings.

3. Invest in Infrastructure

With higher price points and better profits, large-scale organic farmers are able to afford the equipment and technology to simply be better farmers. For example, spending the upfront capital required to convert from flood irrigation to drip irrigation not only saves water every year, but also increases plant productivity, reduces weed growth, and lowers operating costs by watering the plant (not the in-between ground) with the right amounts of water at the right times. 

Investing in technology and equipment, business management systems, and bulk buying also helps to improve long-term farmland profitability. The ability to spread these capital commitments over a large acreage operation affords economies of scale not enjoyed by the smaller conventional farmers typically confined to one crop. 

4. Actively Manage the Farmland

Maximizing profitability requires active management. While small-scale regenerative agriculture can be profitable to an extent, profitability in agriculture generally correlates with scale. Our job at Farmland LP is to manage your land for you and maximize its value, productivity, and profitability—from acquisition through the life of the investment—all through the ethos of sustainability. We successfully manage more than 15,000 acres of sustainable, profitable farmland over the past decade, raising crops such as organic blueberries, organic corn and green beans, wine grapes and more. 

Considering sustainable farmland as an investment? Contact us to learn more.

Farmland LP