Is Regenerative Agriculture Profitable? Sarah Day Levesque Breaks Down the Perceived Financial Barriers
April 4th, 2022
Regen Rev 2022, the virtual conference about topics around regenerative agriculture, made its sophomoric return in early February of this year. Over 1,000 attendees tuned in to hear from farmers, advocates, agronomists, and scientists at the forefront of the regenerative movement. Sarah Day Levesque, one of the keynote speakers and the event’s MC, made a brilliant addition to this lineup given the intersection of her work.
Sarah was in the conventional agribusiness world for a decade before joining the ranks at Acres USA. During that time, she noticed a surge in agricultural investment (venture capital, private equity, institutional investing) that appeared to exclude regenerative ag.
Shortly after this realization, Sarah founded Regenerative Food Systems Investment to “address the tremendous need and opportunity to bring more capital to not just regenerative farming, but to build a system around regenerative farmers so that the transition to a new food system can be truly lasting,” as she stated during the event.
Sarah’s Regen Rev presentation, Dollars & Sense of Regenerative Agriculture, swiped at some of the largest misconceptions about regenerative practices, dismantling the perceived financial barriers that come with transitioning away from the conventional approach. We share the highlights from her talk below:
The lower yields myth
Sarah: So, what is the deal with yields? Like many things in agriculture, the answer to whether yield decreases with regenerative farm practices depends in large part on crops and local conditions, and sometimes in how long you've been practicing them. There is an increasing body of research seeking to understand the connection between yields and regenerative practices.
The Rodale Institute, which has been running side by side field studies for the last 30 years comparing organic and conventional agriculture. Their research has shown that after the one-to-two-year transition period, where yields do tend to decline, there is no difference between conventional and regenerative farming in terms of yields. And even more what they show is that in stressful conditions, particularly during droughts, the organic fields performed better because they are more resilient. This is because the soil contains more biomass and therefore can absorb more water.
Skyrocketing input costs
Sarah: Farmers are operating on thin margins and low commodity prices, combined with rising input costs led to a stagnation or decline in overall farm profitability in 2019. Rising input prices in particular continue to impact profitability in 2021 and show no sign of letting up.
A December DTN report on fertilizer costs shows many types of fertilizers are now at record price levels, which is likely going to have a big impact on corn break even levels. Several phosphate and potash fertilizer products have increased by 15 to 20% since late September, while the cost of anhydrous ammonia, urea, and other nitrogen fertilizer products have increased by approximately 50%.
Revisiting the 2018 Lundgren and LaCanne study, we can compare the revenue and costs of conventional and regenerative production systems. This chart shows that in comparison, the heights of the bars represent average gross profits across 40 fields on 20 Farms. Profit was calculated using direct costs and revenues for each field and excludes any overhead and direct expenses. Regenerative cornfields implemented three or more practices, such as planting multi-species cover crops, eliminating pesticides, abandoning tillage, or integrating livestock; conventional cornfields use fewer than two of these practices.
What they found, and what you see in this chart, is that regenerative systems had 70% higher profit than conventional cornfields. Specific to input costs, you can see that the corn seed costs, irrigation costs, and fertilizer costs went down significantly.
So, the study concluded there are two keys to success for this approach to farming. First, by promoting soil biology, organic matter, and biodiversity on their farms regenerative farmers require fewer costly inputs, like insecticides and fertilizers, and manage the pest populations more effectively. Second, soil organic matter was a more important driver of proximate farm profitability than yields were, in part because the regenerative farms marketed their products differently or had diversified income streams from a single field.
Unlocking New Markets
Sarah: Consumers are increasingly seeking to understand where their food comes from and how it was produced. They want their food to also reflect their values. And today, that means good for people and the planet. The folks at Planet Forward explain that 55% of all growth and CPG came from sustainably marketed products from 2015 to 2019 and that consumers will pay a 39% premium for sustainably marketed products compared to conventionally marketed counterparts.
This chart, which probably looks familiar to many, explains the financial risk of transition well. While beginning the process of changing farming techniques, initial yields will be lower, leading to less market marketable produce and less profit, but a Bain and Nature United study suggests that it will be four years until a farmer would break even and make the same amount they would have before transitioning. However, other studies have said the breakeven could be achieved in two to three years. The key here, however, is that after breakeven, the farmer is better positioned to reach higher profits than if the farm had not made the transition.