Three ways to approach investing in sustainable agriculture

Tuesday, 05 January 2016

Tagged under: eur2015 impact agriculture esg

Guest Blog Post by Magnus Berg Johansen about Workshop C2 at TBLI CONFERENCE EUROPE 2015 on investing in sustainable agriculture. The panelists included Tanja Havemann: Director & Founder Clarmondial GmbH, Peter van der Werf: Engagement Specialist at Robeco Institutional Asset Management, Arnold Lau: Senior Vice President at Iroquois Valley Farms LLC, and Martin Poulsen: Partner at The Moringa Partnership.
Views and opinions are that of the writer and are not the official views of TBLI CONFERENCE.

What is the best way of investing in sustainable agriculture? Is it possible to merge profits and organic farming? Can one by adding certain components to the business model increase output? These were some of the questions that were raised during the session that tried to TBLI EUR15 Workshop C2 1showcase how one could approach sustainable agriculture.

The session started off with Tanja Havement stressing the importance of agriculture when it comes to the CO2-challenge, employment in emerging markets and for gender equality.

Arnold Lau from Iroquois, a fund focused on incentivizing mid-size farmers in the US to grow organically,  then took the floor as the first presenter. He started of stressing the fact that only 1 prosent of the farming done in the US currently is done organically.

The market is very much a nice, but the demand is growing strongly due to consumer  interest. As the cost is higher, the market share remains low and this thus hold back any economics of scale.

Lau said that many find organic farming a fad and that it is too risky. But at the same time he is excited with the fact that the management of 70 percent of US farms will shift generations during the next 10 years.

What is more, one of the main hurdles to rapid expansion in this area is because organic farming does not pay off immidiately but when done continuously for many years it is the most productive approach – mainly because the land becomes richer year after year. Eg. the moisture is better remined in the ground.

Is investing in Montsanto sustainable?
Peter van der Werf, a representative from an institutional investor, then presented another business model to approach ESG in agriculture.
He presented various companies his fund had invested in an how they addressed ESG issues with the companies to make them improve on this dimension.
The presentation created quite a lot of discussion as the fund was an investee in the heavily critizised Montsanto. The questions was whether to divest when a company does not live up to sufficient standards, or to engage and promote change.
Van der Werf argued for the latter and confirmed that they had remained as shareholders in companies that had breached several parameters, so as to rather help the companies move in a more sustainable direction.
It is better to be there and try to change them, compared to not take action and thus not contribute to any effect, he said.

One person in the audience could not understand how the fund could even pitch the ownership of stocks in Montsanto, as his clients would never even touch in the company with a stick. He moreover did not it was possible for engagement to change a company based on an unsustainable model.
Van der Werf then commented that he understood the critical viewpoints but emphasised that they have had consistent positive discussions with the company since they entered in 2011, and that Montsanto have understood the need to change and are therefore considering the cooperation with this fund as a supporter to make a transition.   

The last speaker then presented a third model of how one can approach investing in sustainable agriculture. By combining trees and crops it is possible to generate a model that is good both for the environment and the financials.
Their model, which is almost fully about plantation in bare lands, can generate returns of 10-12 percent while supporting small holders with operational and financial advisory which can lead to more diversification of revenue, how to improve core products and capacity building.
The fund itself has a 12 year frame when investing and normally leaves investments with a classic exit strategy.

Apart from Montsanto
The session, which mainly focused around the topic of investing in Montsanto and comparable companies in addition to the presentations, did however also shortly touched on the question: How can we scale?

The moderator underlined the emotional context to this topic and was maybe hoping for some clear insights.

Arnold Lau underlined from his perspective that going towards organic farming will in the long term be more beneficial because it is more resilient to shocks that can come out of conventional farming.
Organic farming wont suffer the losses that short term agriculture (aka. conventional) will, he said in his finishing remark.

Peter van der Werf on his side said his way moving forward would be to continue focusing on the engagement model and promote change within various ESG-parameters by utilizing the power as a shareholder.

Martin Poulsen expressed on his side that their team is currently micro-focused and want to focus on how they can continue growing their projects and further develop the model. By focusing inwards, one may contribute to one model that can be further scaled

comments powered by Disqus