An investor in sustainable ag.
That differs from conventional farmland investing, a hot alternative vehicle among institutional investors like Harvard University and TIAA-CREF.
"Midwest farmland is a bubble, and it's debt-driven," says Craig Wichner, managing partner of San Francisco-based Farmland LP, a private equity firm that converts farmland to organic. "The requirements for ethanol have driven up the cost of farmland and of food, and more land is being taken out of other productive uses and being converted to corn land.
"Food is correlated with oil, and if you are investing in farmland, you don't want that correlation," he says. "A great alternative is sustainable ag."
As an investment, sustainable ag is burgeoning. "The conversation is about scale and affordability-feeding everybody equitably," says Gray Harris, director of sustainable agriculture at Coastal Enterprises Inc., a community development finance institution, or CDFI, in Wiscasset, Maine. The National Healthy Food Finance Initiative, for example, incorporates many issues (obesity, access to healthy food, financing, etc.) and involves three different departments: Treasury, Agriculture and Health and Human Services.
The talk across the country is about building a new food distribution system comprising a network of regional food systems linked by "appropriate" trade-something the Sacramento, Calif.-based Food Commons is developing a pilot project for in Los Angeles. Investors are finding new ways to earn returns by building and enhancing soil, and various loan and equity funds offer opportunities to match investors and farmers, convert land to organic, engineer affordable land for farmers, and provide farmers with production and operating capital.
A Vulnerable Food System
According to Richard Heinberg, senior fellow at the Post Carbon Institute, agriculture accounts for 16% of the U.S. annual energy budget-more than any other industry. "We use natural gas to make fertilizer," he has said, "and oil to fuel farm machinery and power irrigation pumps, as a feedstock for pesticides and herbicides, in the maintenance of animal operations, in crop storage and drying, and for transportation of farm inputs and outputs." The net result is an industrial agriculture system astounding in its inefficiency-an average of 10 calories of fossil fuel inputs to produce one calorie of food. And he says the use of GMOs to grow crops with less water, etc., also relies heavily on fossil fuels.
"While [local food] is trendy, we may as well take advantage of that," Harris says. "But really, there's nothing trendy about this. It's about feeding ourselves."
The New Economics of Farming
This real-world approach is the underlying principle of sustainable ag.
The idea: Rather than growing acres of fuel-fed mono-crops (even "organic" mono-crops), these labor-intensive farms are diversified-and local.
There are several methods. Biodynamic farming-often called "beyond organic"-is a closed-loop system where everything on the farm stays there. Animals produce the fertilizer. There are no chemicals. And harvest cycles are attuned to the moon. Bio-intensive farming, which combines biodynamic practices with the French intensive method developed in Paris centuries ago, maximizes yields from minimal spaces while restoring the land. Permaculture yields remarkable abundance by incorporating a design method that mimics nature. Ultimately, it requires less work than traditional farming.
Because of innovations like these, there has been a cultural awakening with respect to the quality of our food and its impact on our health. This, in turn, has catalyzed an interest by investors in supporting farms and soil. Although different models are emerging, they all recognize one salient fact: Many farmers cannot afford to buy land. This article focuses on innovative ways to make farmland affordable for farmers, and future stories will cover other sustainable ag topics.
One tool that can help is a conservation easement. According to Peter Stein, managing director of Lyme Timber Co., in Hanover, N.H., there has been a sea change in the use of easements, the legal removal of a right of use. Conservation easements generally protect wildlife habitat, open spaces, recreational land, etc., by eliminating development rights. Until the l990s, most conservation easements were "forever wild," meaning all economic use of the land was strictly prohibited. Until then, most easements were bequests donated by families for tax deductions, and were fairly small.
Today, it's not uncommon to create some sort of agricultural conservation easement that allows private landowners to keep the land working. Although there are still gifts and bequests, buyers often include land trusts or state or federal governments.
When Emma Ford's husband died after the couple ran a 100-acre dairy farm for 45 years near Seattle, she did not want the property to be developed. She contacted the Seattle-based PCC Farmland Trust, whose mission is to save organic farmland forever. The trust found three farmers to split the property, and with state and county funding, purchased an agricultural conservation easement for about $1.2 million-roughly half the unrestricted market value. This cut the price of the property in half, so the three farmers could buy it at agricultural value.
"Even with the easement, the mortgage payments are more expensive than a lease," says Melissa Campbell, conservation director at the PCC Farmland Trust. "But they [can] invest in infrastructure. And that's what we know to be true of farmers: They want to own their land."
According to Jim Oldham, executive director of Equity Trust Inc., a nonprofit based in Turners Falls, Mass., that runs a loan fund and helps communities gain ownership interests in land, they often have not said what must be done with the land-only what cannot be done. The result: Estate owners who like the open space often buy the land but don't farm it.
"If we want to have food, we need working farms to produce it," he says, pointing out that the purchase of estates has forced farmers farther away from areas where they can sell their food, thus adding food miles. "If you want local food, we need working farms in all our communities."
Equity Trust helps communities and farmers to jointly craft easements that include affirmative farming requirements: farming on the land, a farmer growing food and making a business out of it, and preservation of the farm infrastructure, including housing for the farmer, etc. They may require the land to be farmed organically and most of the food grown for local consumption. And they clarify that the next farmer has the right to purchase the land at agricultural value.
If a farmer makes additions to the farmland like orchards, Oldham says, the value of the land goes up-but in terms of the land's ability to earn. "The increased value [that a farmer] puts into the land is measurable," he says, "and can be defined in such a way that when [she] sells that land, that benefit can accrue to [her]."
"Farmers expect they will get something for the 30 years of work [they put into] building the soil etc.," he says.
In a different approach that allows shared interest between a community and a farmer, Equity Trust has adopted an affordable housing model (the Community Land Trust) to farmland. This model allows farmers to earn returns on improvements they make on the land when they sell the property.
"It's [been] a brilliant way to provide affordable housing with strong community control, unlike the more government-sponsored projects or developer-led projects," Oldham says.
In this approach, the farmer purchases a share in the property, usually the farmhouse and other infrastructure, for its agricultural value, while simultaneously signing a long-term ground lease for the use of the land. The community, through the trust, owns the land. And the farmer runs the farm, can feel and act like an owner-and has the rights of an owner.
A few years ago, Equity Trust helped a farming couple sell the Caretaker Farm in Williamstown, Mass., which they had converted from a dairy farm to a vegetable CSA. It was a much-loved part of the community, and the new farmer could not afford the $1 million-plus market price.
The state purchased a conservation easement for $250,000. The town contributed $50,000 in community preservation, and local people contributed $200,000. Although the farm was sold for under $700,000, the sellers retained ownership of the second house on the property with a ground lease. The new farmers paid $177,000 for a share of the farm. They have a 99-year ground lease, and the public share of the land is owned by a local land trust.
In these ways, communities can treat local farmers as the community assets they are at a time when it pays to preserve local foodsheds.
Ellie Winninghoff's work about impact investing is linked at her blog, DoGoodCapitalist.com. She can be reached at: [email protected].