Is Agribusiness a 'stranded asset' class?


Is it time for investors to dump Monsanto, Syngenta and Bayer?

The UNFCC has launched its '4 per 1000' initiative based on data from the French National Institute for Agronomic Research that shows that just by increasing overall the carbon-rich organic matter of soil by 0.4% per annum we could completely and totally offset all our annual GHG greenhouse gas emissions.  The farming methods that can take carbon out of the atmosphere and lock it in the soil include big reductions of nitrate fertilisers and fungicides.  Just doing that will make a difference as they represent a 15% contribution to annual GHG emissions.  The rest comes from 'agroecological' practices, mostly pioneered by organic and biodynamic farmers, that are now tested, refined and proven to be competitive in yield with industrial methods of farming.  They do not deliver high revenue streams to agribusiness companies and they also do not externalise all sorts of other costs onto society.  These biggest cost is greenhouse gas emissions as that's the planetary existential threat.  But the personal and social costs are pretty costly, too: pesticide residues in food, soil erosion, dust storms, water pollution, flooding, biodiversity loss, toxic algal blooms and an archaic subsidy system that has the hard-working poor subsidising rich landowners in the name of 'cheap food.'.  But forget about that, just concentrating on the carbon dioxide equivalent emissions from farming is enough.  There are plenty of untested technological solutions like mirrors in space or the delusion of Carbon Capture and Storage (CCS) that you can pump carbon dioxide into old oil wells and somehow convince yourself and everyone else that it will stay there.   The beauty of what I should like to call Soil Carbon Capture and Storage (SCCS) is that with soil carbon, what goes in the ground stays in the ground.   All it needs is the right price signals.  If carbon has a value then the farmer who reduces emissions and increases sequestration will be rewarded. When carbon has a value it will be traded and there is no need for complicated and inequitable government farm subsidy policies that punish environmentally responsible behaviour.  SCCS farmers will sell their carbon right alongside their corn and beans.

Ideally a SCCS farmer would receive three carbon-related payments per annum,  as well, of course as their normal income and profit from growing wheat or carrots or alfalfa or eggs or whatever .  There would be a capital payment and an interest payment and an avoided emissions payment.  Here's how it could work:

  1. Capital Payment:  This is a payment to a farmer for the net annual increase of carbon in the soil.   Rodale's research has shown that an organic farm can sequester 2.5 tonnes CO2 per hectare per year.  There are 1.5 billion hectares of farmland and 3.5 billion hectares of pasture.  For farmland alone, 1.5 billion ha. times 2.5 tonnes is 3.75 billion tonnes of CO2 per annum.  Conversely, a farm that continues to reduce its soil carbon annually would have to pay for that reduction.
  2. Soil Interest Payment - This would be an 'interest'  payment of the market price of carbon based on the amount of carbon that is already in the soil, the 'deposit' so to speak.
  3. Avoided emissions payment - emissions include fossil fuels and the emissions involved in the manufacture and application of fertilisers, pesticides and agricultural equipment.

How does it work in practice?   Let's say a farmer has 100 hectares of land.   The carbon price is $50 per tonne CO2.  There are already 60 tonnes of CO2 as soil organic matter per hectare.  The farmer adds 2.5 tonnes in one year.  What is the annual carbon payout?

Capital Payment: 100 hectares x 2.5 tonnes x $50 =   $ 12,500

Interest Payment: 100 hectares x 60 x 0.5%            =   $    3,000

Avoided emissions payment:  1 tonne $50  x 100     = $    5,000

So the farmer can sell carbon credits to gain an additional $20,500 of revenue on 100 hectares

What about the  industrial farmer?

Capital Payment: 1 tonne p.a. soil CO2 decrease, $50 x 100   =   - $5,000

Interest Payment: 100 hectares x 60 x 0.5%            =                        $ 3,000

Emissions Payment:   .5 tonne CO2/ha =                                         -$ 2,500

(a fee for nitrous oxide, methane and carbon dioxide emissions from the soil due to the use of nitrate fertiliser and pesticides and fungicides)

Total carbon cost of farming as usual:                                          $4,500

Total 'spread' between SCCS farmer and industrial farmer 100 hectares:

$20,500 + $ 4,500  =  $25,000

If yields are equal and input costs are comparable then this is a significant edge in competitiveness in favour of the agroecological or organic farmer.

That's $250 per hectare.  About what a farmer gets nowadays by way of government subsidy but, instead of it coming from the taxpayer and the farmer acting as a conduit that channels it to agribusiness the payment is funded by the carbon markets and most of the money stays in the farmer's pocket.

Michael Pollan's made a lovely video that tells the story of soil carbon.  And Deborah Garcia's film 'Symphony of the Soil' is certainly worth watching to get a full understanding of the real underfoot magic of our existence.

And the Financial Times published my letter on December 18th 2015 that was a warning to investors not to get caught in a meltdown of agribusiness shares similar to what's been happening with fossil fuel company shares - the writing is on the wall for businesses that generate high greenhouse gas emissions - there's no hiding place any more.  The Paris talks have tipped the balance.