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As the need for sustainable food systems intensifies, regenerative agriculture emerges as a promising solution. Ethan Soloviev (left), chief innovation officer at HowGood, explores the financial challenges and long-term economic benefits of transitioning to regenerative practices,. Here, he highlights how businesses, governments and farmers can collaborate to close the funding gap and build a resilient, eco-friendly food future.

Agrifood systems contribute over a third of global emissions, driving an urgent need to shift the agricultural status quo and find methods to reduce greenhouse gas emissions. Farmers and investors alike are increasingly drawn to regenerative agriculture for its potential to deliver environmental and economic benefits.

The shift from conventional farming to regen ag offers a promising path toward more sustainable – and indeed regenerative – food systems: while conventional farming is yield-focused and reliant on chemical inputs, regen ag takes a holistic approach, focusing on restoring natural processes to create more resilient farming systems.

However, out of 900 million arable acres in the US, only a tiny fraction is currently being farmed regeneratively. And out of the $300 billion to $350 billion that is needed to support a global transition at scale, only $3.6 billion has been invested. Despite its benefits, transitioning farms from conventional to regenerative poses a significant financial challenge.

While the thought of farms becoming more sustainable is ideal, the transition comes with a price tag that burdens farmers and potentially trickles down to consumers, raising questions about how best to support this transformative shift.

Long-term economic benefits of regenerative practices

Regenerative practices can have long-term economic benefits, such as reducing chemical input costs and enhancing farm resilience. While the per-hectare cost of regen-ag may initially be higher than traditional farming, estimated at $355.05 per hectare, transitioning to regenerative farming increases the estimated net profit to $530.39 per hectare per year.

This reduction in external inputs, including the decline in the reliance on costly synthetic fertilisers and pesticides, leads to lower operational costs and ultimately boosts profitability over time. Not only does this mean supporting healthier soils and ecosystems, but also building a more resilient and profitable supply chain for the future. Established companies like McCain and Danone invest heavily in regenerative methods, demonstrating a growing corporate commitment to sustainable agriculture.

According to Project Drawdown, regenerative practices could significantly reduce greenhouse gas emissions from agriculture, supporting long-term environmental and economic sustainability. When adopted, farmers gain an economic advantage by reducing climate-related risks and ensuring stable yields, which is vital for maintaining food security and strengthening agricultural economies globally.

Improved soil health, increased biodiversity and enhanced resilience to extreme weather all contribute to the economic stability of farms. Healthier soils, for instance, increase water infiltration and retention, reducing the risk of crop loss during droughts or heavy rains.

Unpacking upfront costs and financial burdens of regen-ag

For farmers, initial transitioning investments can strain already tight margins, especially when the benefits might take six to ten years to materialise. Regenerative practices often entail considerable upfront costs, including expenses for soil amendments, new equipment, latest technology and planning for diversified crop rotations.

These initial expenses can affect the entire food system by pushing up operational costs, which may trickle down to consumers. While government funding and private investments can help offset these costs, a substantial funding gap persists, emphasising the need for robust financial support systems. Nevertheless, action is imperative, as the need to transition the global food system towards sustainability is urgent.

To meet climate goals, particularly in the food and beverage industry, investments must be scaled to around $300 billion to $350 billion annually by 2030. The financial burdens could be mitigated by a blended finance stack that includes a mix of grants, debt and equity, designed specifically for each landscape. Instead of placing the financial burden solely on farmers or consumers, there is a call for shared investment across the supply system. That means companies with higher profit margins, such as those in consumer packaged goods (CPGs), contribute more substantially to the costs of the transition.

Sharing the financial load among all stakeholders will drive a sustainable shift to regenerative practices, ensuring a more resilient food system overall. Successfully implementing this approach while meeting corporate sustainability goals requires companies to innovate not only in products, but in financing – examining breakthrough financial models and the role transparency plays in consumer trust and brand loyalty.

Closing the funding gap and encouraging investment in regen-ag

Government investments, such as the most recent USDA funding allocation of $5.7 billion for climate-smart practices including regenerative farming, are a step forward, but only scratch the surface.

It is estimated that closing the funding gap to transition global food systems to regenerative practices would require an annual investment of $250 billion-$430 billion over the next decade. This gap poses a challenge for individual farmers who often lack the resources for initial investments, underscoring the need for scalable and diverse funding sources.

Addressing this funding gap requires greater involvement from the private sector and philanthropic organisations. One possible solution is to incentivise investments through mechanisms such as tax credits, carbon market incentives and insurance benefits – all of which could make regenerative transitions more accessible by sharing the cost burden among various stakeholders.

While transitioning to regenerative agriculture requires substantial upfront investment, the long-term economic, environmental and social benefits make it a worthwhile challenge. Sustainable practices not only reduce reliance on costly chemical inputs, but also build resilience against climate impacts, protect food security and strengthen farming communities.

Achieving an environmentally responsible, resilient agricultural system will require collaboration across sectors – public, private and philanthropic. Engaging private investors (including family offices, asset managers, institutional investors and food corporations) will mobilise ten times the amount of current private capital invested in regenerative agriculture, increasing from $11 billion to $110 billion annually.

Supporting farmers through shared investment mechanisms and financial innovations can ease the transition and distribute the burden more equitably. By working together to close the funding gap, stakeholders can foster a regenerative food system that benefits farmers, consumers and the planet.