How catalytic capital can support sustainable agriculture
Report presents key opportunities to invest in soil health and agricultural resilience
Interest and attention are growing for investment in sustainable agriculture. From tech startups to major food companies, business leaders are recognizing the need to set sustainability targets and invest in practices that support agricultural resilience.
A new report by EDF and Climate and Forest Capital, Catalytic Capital and Agriculture: Opportunities to Invest in Healthy Soils, Resilient Farms and a Stable Climate [PDF], finds that there is a profound need and opportunity for catalytic capital to support and scale new climate-smart financial models for agriculture.
Catalytic capital is traditionally defined as the use of blended finance tools to improve projects’ risk-return profiles to match the requirements of market rate investors. This report emphasizes that catalytic capital should also involve funding to support research, policy and technical assistance alongside direct investments to maximize impact.
The report, which was supported by a USDA NRCS Conservation Innovation Grant, identifies barriers to investing in sustainable agriculture and presents opportunities for catalytic capital to address these barriers, as illustrated by five case studies.
Case studies
The case studies featured in the report include descriptions and analysis of financial mechanisms including transition finance, environmental markets and regional value chain development — and opportunities for catalytic capital to bring them to scale. They include:
- The Soil and Water Outcomes Fund by Quantified Ventures and the Iowa Soybean Association. The project is built on an investor-funded revolving loan structure that funds conservation practices on farms and is refilled through revenue generated by the sale of environmental outcomes (water quality, greenhouse gas mitigation) to beneficiaries such as municipalities, state and federal government entities, and supply chain companies.
- The Perennial Fund by Mad Agriculture. The fund offers three-year operating loans to farmers transitioning to organic production, with market off-take support and repayment over eight to 10 years through a 10 to 50% revenue share.
- Regional Restore Programs by Zero Foodprint. This model seeks to establish city- and county-wide initiatives for restaurants to add 1% surcharges to restaurant bills to be aggregated into grantmaking funds to spur local carbon farming projects.
- Agrarian Commons by Agrarian Trust. The trust uses program-related investments to acquire farmland from retiring farmers and places it under the control of a local non-profit entity, Agrarian Commons, which is designed to convey long-term affordable multi-farmer tenure in support of sustainable agricultural management.
- FarmStart by Farm Credit Council. The Farm Credit East FarmStart program supports young and beginning farmers to build equity and improve access to operating loans. Investors for FarmStart LLP purchase equity in farms, which helps young and beginning farmers access operating loans, and the farmer buys back the equity after five years. The model could be translated to regenerative agricultural practices.
Key insights
The report case studies illustrate how catalytic capital has the unique ability to develop and scale new financial models for sustainable agriculture, with a few key insights for funders and investors.
- Understand and target existing barriers. Investors should aspire to deploy catalytic capital to permanently dismantle existing barriers to sustainable agriculture. This can be done not only by demonstrating new business and financing models within existing policy and regulatory environments, but also by changing the enabling environment itself. This could involve, for example, filling information gaps with research and then working to reshape relevant policies and regulations accordingly.
- Identify the path to scale from the outset. Paths to scale will vary by solution, but the report recommends investors seek to gain a clear picture on the path to scale for the intended investments early on, and take steps to involve the key partners and experts throughout the project that will be needed to ultimately succeed at scale.
- Collect and share data to close information gaps. Because information gaps continue to limit private investments in sustainable agriculture, investors should seek to use catalytic capital to build data gathering and dissemination processes into project investments. This can be achieved by partnering with land grant universities, non-profit organizations or agricultural technology companies.
Deploying catalytic capital to tackle barriers to investment and innovation in sustainable agriculture is critical to achieving a resilient food system.
The findings of this report can inform a more strategic and effective use of catalytic capital to build agricultural resilience in the U.S. and beyond.