April 12, 2024
Brent McGowanManaging Director, Global Head of Agricultural Operations
Weiyi Zhang, Ph.D.,Associate Director, Agricultural Economics
Hannah BarkanManager, Impact Investing & Natural Climate Solutions
Feeding a growing population in a world of increasingly scarce natural resources will require sustainable solutions, which is where regenerative agriculture could play a critical role. For investors, building and sustainably managing a globally diversified portfolio of agricultural assets can generate competitive risk-adjusted returns while providing socioeconomic and environmental benefits to the rural communities in which the properties are located and the wider global markets the farmlands serve.
What is regenerative agriculture? Our definition of regenerative agriculture centers on soil health, defined as a farmland management framework by which the goals of soil health and productivity guide management decisions and in turn lead to optimized farm production, biodiversity, and sequestering atmospheric carbon into soil. This holistic approach to agriculture aims to optimize financial returns, foster continuous improvement in land management, and preserve natural resources.
Regenerative agriculture isn’t new to us Long before the term regenerative agriculture became a popular investment theme, we at Manulife Investment Management, with three-plus decades of experience investing in natural capital, have incorporated regenerative practices in the management of agricultural assets.
Today, we employ regenerative practices on 100 percent of the properties we manage. Furthermore, three-quarters of these properties employ four or more distinct regenerative practices. Examples of regenerative practices that are currently in use across managed properties include low-till and no-till practices, which focus on reduced soil disturbance; diverse planted cover crops that help reduce soil erosion and prevent runoff; and using multiple crops in rotation that encourage soil ecosystem restoration, among many others.
Soil health is at the center of regenerative agriculture While the positive effects of regenerative practices are manifold, the fundamental pillar of regenerative agriculture is the improvement of soil quality. By accumulating more soil organic matter and enhancing microbial activity, regenerative practices contribute to healthier soils, enhance water infiltration capacity and water retention in soils, and help mitigate the impacts of droughts and floods while promoting more resilient agricultural systems.
With the focus on soil health, regenerative agriculture offers significant potential for carbon sequestration. Practices such as cover cropping, no-till farming, and the use of biochar increase soil carbon storage capabilities, providing the potential to mitigate climate change by removing carbon dioxide from the atmosphere and storing it in the soil. Similarly, these practices also help to improve soil structure and expand ground cover, making regenerative farming practices effective in reducing soil erosion rates, preserving valuable topsoil, and preventing sediment runoff into waterways.
~ Case study: creating a 360° loop for reusing agricultural waste Working with universities and agronomists, our agricultural asset management team in Grandview, Washington, is experimenting with reincorporating agricultural debris back into the soil ecosystem. On a 16-acre apple orchard, old apple trees were removed to prepare for new development, leaving behind large amounts of wood debris. The crew divided the parcel into six different trial plots to assess the effectiveness of different approaches used to treat the wood debris. This included the use of biochar—a porous carbon substance made from burning wood in the absence of oxygen and which acts as a soil nutrient stabilizer—and treating the chipped wood with manure from a nearby dairy farm.
Where possible, we’re working to use feedstocks from our own orchards, and nearby forest properties were used to generate biochar, creating a 360° loop in the use of materials and reducing the cost of transporting biochar. We believe that these trials will demonstrate the additional carbon benefits of leaving most of the removed biomass in the orchard instead of burning the removed debris, which would release carbon into the atmosphere. This adds organic matter to the soil while helping neighboring farmers dispose of agricultural waste.
Regenerative practices enhance biodiversity Regenerative agriculture also supports biodiversity by creating habitat diversity and promoting ecological balance. Common practices such as growing native and diverse plants provide essential habitats for a wide range of plant and wildlife species. These practices create diverse land covers that not only improve soil resilience, but also provide varied habitats for wildlife.
Many regenerative practices incorporate natural areas such as riparian zones and native grasslands into their landscapes, provide wildlife corridors that allow species to move freely, and maintain diversity within wildlife populations. These habitats provide food, shelter, and breeding sites for beneficial organisms such as pollinators, natural predators, and soil microbes, contributing to overall biodiversity on the farm.
Furthermore, regenerative practices focusing on pest management prioritize natural pest control mechanisms and use a combination of cultural, biological, and mechanical control methods. This can help reduce reliance on chemical pesticides while promoting the growth of beneficial organisms that help manage pest populations naturally.
~ Case study: building a system of regenerative practices on row crop properties On an irrigated corn/soybean farm in north central Nebraska, one of our tenants is taking a regenerative approach to managing his farm and reducing the reliance on purchased fertilizers. This tenant uses hog manure from a neighboring farm and applies the animal waste to supplement the nutrient needs of soil. Through the use of both soil and aqueous wastes to supplement the soil with nitrogen, phosphorous, and potassium, this tenant has created a symbiotic system in which crop production and animal protein production benefit each other, lowering the usage of synthetic fertilizers while mitigating carbon emissions at the same time.
Lower growing costs are a result of regenerative practices While the practices mentioned above focus on biodiversity and soil health, they also translate into reducing the use of inputs and growing costs for farmers. Healthy soils are naturally fertile and contain high levels of organic matter. By enhancing soil structure, nutrient cycling, and microbial activity, regenerative agriculture optimizes nutrient availability to plants, reducing the need for external inputs, which naturally reduces the amount spent on synthetic fertilizers.
With the goal of improving soil health, regenerative practices such as cover cropping and mulching help to suppress weed growth and enhance soil moisture, reducing the need for irrigation and synthetic herbicides. Regenerative pest management practices through pest population monitoring, enhancing habitat diversity for natural enemies, and implementing preventive measures can help to minimize the need for chemical pesticides and reduce input costs while maintaining effective pest control. Additionally, some practices, such as low-till and no-till farming, can help reduce the reliance on machinery, not only saving on rising costs such as fuel and energy, but also lowering the financial burden of maintenance and machine operating costs.
~ Case study: pilot soil carbon projects across regions Working with various partners, we’ve enrolled several properties under management in a pilot soil carbon project in Alabama, Arkansas, Texas, and Tennessee. This pilot program can help support farmers generate high-quality soil carbon and greenhouse gas credits on over 2,300 acres of farmland by incorporating regenerative practices such as nutrient management, reduced tillage, and cover crops, and help to offset up-front costs associated with sustainable farming practice implementation. Through participating in the project, farmers who are new to carbon markets also receive the additional benefits of the knowledge and experience of working with private voluntary ecosystem marketplace.
Good stewardship is good business Positive ecological and environmental impacts, together with limiting input use and lowering costs, enhance returns for farmers and investors, demonstrating that good stewardship is good business. Regenerative practices offer opportunities for farmers to enhance their financial returns over the long term. By improving soil health and fertility, regenerative agricultural practices can lead to increased crop yields and reduced dependency on costly inputs such as synthetic fertilizers and pesticides with potential additional income streams, including additional carbon credit payments. Additionally, regenerative approaches encourage farmers to adopt adaptive management strategies, continuously improving their land management practices based on ecological feedback. This adaptive approach enables farmers to optimize resource utilization and maximize productivity sustainably, enhancing the potential for positive financial returns.
Reduced input and growing costs associated with select regenerative agricultural practices
Average costs on select production cost categories based on sampled soybean and corn fields ($/acre)
Source: USDA Agricultural Resource Management Survey Phase 2, February 25, 2022.
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