SLM Partners, an asset manager with projects in Australia and Chile, has followed up on the Paris climate change conference by arguing the financial case for low-impact ecological farming.
In its latest white paper, the manager says that methods such as no-till cropping and holistic planned grazing make soil more resilient to drought and lower costs for farmers.
Ecologically responsible farming is mainly framed in terms of risk, with the paper highlighting increasing consumer demand for ecologically sound products, as well as the desirability of drought and flood resistance in pastoral, farmland and timberland assets.
It argues that when the soil is not tilled or chemical fertilisers are avoided, the land releases less carbon dioxide and fewer chemical run-offs, as well as holding natural nutrients and a healthy structure for longer.
In making a case for agriculture as an asset class uncorrelated with equity and bond markets, SLM’s paper also returns to topic of food prices. It points out a link between oil prices and the produce resulting from intensive farming practices, arguing that ecological farming is more distant from volatile markets.
“If you look at biofuels even, there is a link there,” SLM Partner Paul McMahon told Agri Investor.
“Fuel prices have gone down, and that means costs have gone down, but also the price of biofuels has gone down, another area playing into grain prices.”
The need for fuel in machinery, as well as use of non-organic, nitrogen fertilisers, also ties some of the costs of intensive farming to these markets.
The paper also points out that agriculture attracted a “splurge” of investment as a new asset class because of global rising food prices, and the fact that most investors find agriculture an attractive long term and uncorrelated investment.
McMahon told Agri Investor: “If there are several extreme weather events at once, then a huge spike in pricing is what will happen.
“There will be a lot of investors who are very happy about that, unless of course they are invested in one of those badly-affected regions, or are in the USA, where subsidised crop insurance will mean farmers do get paid anyway.”
“But the best thing you can do with your money and land is to make them more resistant in the first place … and that will also maintain the underlying value of your land.”
Correction: this article originally read “methods such as no-till cropping and holistic planned grazing make soil more resilient to drought and lower margins.”
It has bee corrected to read: “methods such as no-till cropping and holistic planned grazing make soil more resilient to drought and lower costs for farmers.”