On Tuesday of this week I attended an investor presentation by a very interesting new company that was offering equity investments to allow successful and sophisticated family farming operations to acquire additional land to scale up their operations as necessary to survive and thrive in the world of Big Agriculture. I was interested in the concept for two reasons. First, the company was offering units in a Fund that might make for a good diversification strategy for my personal portfolio. But perhaps more importantly the program concept sounded like one that might well have some application to the area of succession finance, an aspect of the finance market for which TAO has immediate ambitions.
At the pre-presentation reception, I met a very earnest and thoughtful fellow who also had an interest in investing in the Fund. He too had a second motivation for his interest in the program, but one that was indisputably more altruistic than mine. He was an advocate of all things Green, and structured his professional and investment activities accordingly. It was his believe that this opportunity would not only yield superior risk adjusted returns but would also further the cause of Green agriculture by expanding the application of the environmental stewardship that he believed to be characteristic of family farms. His thesis, in simple terms, was that the continual growth in the application of toxins upon our food crops in the form of pesticides and herbicides was not a consequence of any real productivity benefits in the form of increased yields, but rather the conspiratorial complicity of corporate farm operations and multinational chemical companies to eschew more effective organic alternatives. Being a reflexive contrarian and in a bit of an impish mood, I impudently suggested that, on the basis of my admittedly limited but not scant reading on the topic, the apparent ability of family farms to incorporate more organic techniques had less to do with corporate callousness to the health of the world’s population and more to do with the realities of maximizing yield and minimizing cost in the context of ever larger farming operations.
His exasperated smile made clear that he would be very interested in seeing just how far up my neck my tie could be tightened, but the increasingly tense conversation was cut short by the presentation. Part of the show included a presentation from the head of a family farm that had utilized funding from the Fund to increase his acreage four fold to over 12,000 acres, with a corresponding increase in yields, enhanced capital investment, lowering of costs and a myriad of other benefits. And, they proudly noted, a transformation that was achieved without losing sight of the necessity of addressing sustainability. My new friend beamed.
Then came the inevitable question regarding the extent of organic farming in the operation. The farmer was again proud to detail their commitment to “rotational organics”, a cornerstone of their sustainability commitment. Rotational organics is a strategy that sadly reflects a pedestrian commitment to profitability rather than a messianic devotion to a Green manifesto. You see, produce that is certified organic can sell at prices that are twice as profitable as equivalent volumes of its non-organic counterparts. However, after four or five years without the benefit of modern herbicides, the dry Alberta soil is inevitably riven with weeds that reduce yields by as much as 60%. The answer is a seven year rotation – two seasons of conventional farming to beat back the weeds, three seasons of continued farming without new application of pesticides or herbicides as are required before a field can be certified eligible to produce organic produce, then two years of certifiable organic production until the returning weeds force the cycle to start again. Continual organic production, it seems is only possible in small scale operations in which hand weeding and extensive irrigation are possible, but scale does not permit the cost of such an approach to enlarged acreages, and particularly not in the relatively arid soil of Alberta.
As you can see, this crop strategy does not incorporate a philosophical commitment to organics. It is a strategy that adopts the nakedly capitalistic objective of maximizing crop value and productivity. Yet the application of price signals to the business model through the development of consumer preferences for organic produce has resulted in a profit maximizing strategy that contemplates the application of pesticides and herbicides in only two of every seven growing seasons. Whether or not this Western consumer preference is based on fad or fact, it is an excellent reminder of the power of consumers to effect change. It seems that Adam Smith’s invisible hand has a green thumb.
