Paul McMahon, a co-founder and managing partner of asset manager SLM Partners, discusses why there has been higher investor interest in regenerative agriculture and forestry recently and why it has potential to grow.

With investors increasingly looking for investments which have a positive environmental impact and a robust return, Paul McMahon at SLM Partners argues that regenerative agriculture has real potential.

It has the potential to deliver environmental and social impacts that are important to the long-term sustainability of food systems: improving soil health, addressing climate change, enhancing biodiversity, improving water quality, growing higher quality and more nutritious food, McMahon said. SLM Partners is a global asset manager with $550 million in assets under management. It manages funds and separate accounts focusing on regenerative agriculture and forestry practices in the US, Australia and Europe.

According to an online definition, the term "regenerative agriculture" is a conservation and rehabilitation approach to food and farming systems. It focuses on topsoil regeneration, increasing biodiversity, improving the water cycle, enhancing ecosystem services, supporting biosequestration, increasing resilience to climate change, and strengthening the health and vitality of farm soil.

“It can also be more profitable and deliver superior risk-adjusted financial returns to farmers and investors – typically an internal rate of return (IRR) that is 1 to 3 per cent higher than conventional farmland investing,” he added. “This is the Regenerative Edge,” he told this news service in an exclusive interview recently.

The Regenerative Edge is driven by higher yields, lower costs, higher prices, the opportunity to tap into payments for ecosystem services, and/or better risk mitigation. Regenerative agriculture also mitigates a number of social, environmental and economic risks and provides resilience to climate change and natural capital loss.

“Forestry and regenerative agriculture have the capability to not only reduce greenhouse gas emissions but to store carbon so they can play a very important part in meeting climate targets. They are also a great inflation hedge,” McMahon continued. 

The firm, which manages funds in Australia, America and Europe, focuses on regenerative agriculture and forestry practices, only investing in farming and forestry systems that have a positive environmental impact. 

This news service regularly covers agriculture, forestry, food production and related businesses when surging food prices have made food a hot investment topic. See examples of coverage here, here and here.

The sector is already creating news. In total, such agriculture was worth $10.3 billion last year and slated to reach almost $32 billion by 20231 - a compound annual growth rate of 15.37 per cent from 2024-31 (source: Insight ACE Analytic). Developments have included how Switzerland's Nestle in 2023 started a wheat farms project as part of the supply chain for its DiGiorno pizza brand; General Mills in June 2022 worked with Regrow Agriculture to monitor agriculture practices and their environmental effects across 175 million acres of farmland in North America, Latin America and Europe. In 2023, PepsiCo worked with Walmart to invest $120 million aimed at supporting US and Canadian farmers to improve soil health and water quality.

Australia
McMahon highlighted how new opportunities are opening up for soil carbon credits. In 2023, SLM Partners established a joint venture with an Australian farm operator and natural capital project developer, Impact Ag Partners, a player in soil carbon credits in Australia. Through this joint venture, it is investing in cropping and livestock properties with the goal of applying regenerative agriculture and establishing carbon projects on all properties. The firm believes that carbon can add 1 to 2 per cent to an Australian farmland investment IRR in the right context and with the right management. 

US
SLM Partners also manages separate accounts in the US, focused on scaling up organic and regenerative farming systems. Investments support the production of grains, forages, and speciality crops through organic sources of crop nutrition, multi-year crop rotations, and cover crops. The firm’s strategy is to acquire conventional cropland and partner with local farmers to convert this land to organic production. 

McMahon said that consumer demand for organic food is growing strongly, and organic food sales are now 6 per cent of total food sales in the US. There are strong price premiums for many organic crops and sustainably grown foods. Yet, American farmers have been slow to transition to more sustainable production methods. The firm consequently identifies skilled organic farmers who want to expand, work with them to find suitable land, acquire this land and make it available to the farmers through long-term, flexible leases. “We have invested quite a lot in the mid-West recently,” he added. 

Labelling
McMahon said that organic agriculture, where labelling already exists, is a sub-set of regenerative agriculture. “Not all types of regenerative agriculture, however, are classified as organic and there have been some attempts to introduce certification for regenerative agriculture but there is some labelling fatigue. We’re cautious about this,” he said.

Europe
SLM Partners also manages funds for institutional investors and family offices wanting exposure to high-impact opportunities across European forestry and agriculture.

In 2018, the firm launched its first European strategy focused on Irish forestry, anchored by the European Investment Bank via its Natural Capital Financing Facility. This fund supports the transition to continuous cover forestry, a more sustainable form of forest management that delivers numerous environmental benefits. As of June 2023, the fund had acquired over 80 properties across Ireland. Over 66 per cent of the forestland was being managed under continuous cover forestry.

In 2021, SLM Partners launched its second European strategy to invest in permanent crops across the Iberian peninsula. It has partnered with local operators who have expertise in nut trees and olives. The firm works with them to develop new orchards or reinvigorate existing ones. Across all assets, it is implementing regenerative orchard management practices to reach its impact objectives across climate, water and biodiversity.

“There is strong demand for nuts in Europe, especially organic, and there are opportunities for Spain and Portugal to boost production,” McMahon said. “There are also increasing moves to promote green agriculture and organic in the Common Agricultural Policy (CAP).” He sees a lot of potential for growth in regenerative agriculture. He is also looking at investment opportunities in the UK, but notes that land prices are high and returns compressed as a result.