How natural capital in agriculture is impacting profit and farmland health

Greenwood highlighted the growing recognition that the health of our environment and the strength of the economy are deeply connected and that the success of our farms, supply chains and communities all depend on how well we manage, invest in, and nurture nature.

It was noted that success will come from close collaboration across the sector and through the contributions of innovative producers, forward-thinking investors, and strong research, science, and policy capabilities.

The panel brought together representatives from these crucial areas, including Sam Beaton from Cobram Estate, Kristina Hermanson from Nuveen Natural Capital, Michelle Gortan, of Macdoch Foundation, and Nick Blong from the Australian Government’s Department of Agriculture, Fisheries and Forestry.

Harnessing Australia’s natural advantages

Having just returned from the United Nations climate summit in Brazil, COP 30, Blong said there was “a lot of interest around [Australia’s] deregulation agenda over many decades that has now put us in a position where really Australian farmers are one of the more advanced producers who produce low emissions food and fibre”.

He said many sustainable agriculture priorities in other countries are “things that Australian farmers have been doing for decades…like zero tillage cropping systems and really good focus on herd management and pasture systems”.

He pointed out that farming operations are “very efficient businesses, because they have to be, and also they've had to adapt to the impacts of climate change. For Australia, they are our most climate exposed sector.”

Despite accelerating biosecurity threats, natural disasters and pest and disease incursion, Blong said farmers are “incredibly entrepreneurial”.

Hermanson, Managing Director of APAC and Africa for Nuveen Natural Capital, one of the leading global farmland managers, said one of the investment attractions of farmland and timberland is the “diversity of strategies,” noting the “huge opportunities for innovation and further development and knowledge sharing globally in the sector”.

Setting workable policy to drive progress

Discussing the Department’s recent release of its Agricultural and Land Sector Plan, Blong said, “Agriculture accounts for about 18% of Australia’s [greenhouse gas] emissions,” adding that the Department is “working with the sector and also across the agrifood supply chain, including banks and multinationals and food processors to get the settings right so the sector is well placed over time to reduce those emissions”.¹

“…Some of the things we are prioritising, which might sound simple but are actually quite challenging in many respects, are things like tools so that farmers can actually measure the baseline emissions on-farm.”

According to Blong, “another pillar of the ag plan is around R&D and really doubling down on the R&D task”. 

“There's no sort of technology out there that, click your fingers, allows producers to significantly reduce those emissions. It's going to be stacked technologies over time and incremental improvements,” Blong added.

The benefits of natural capital innovation 

An example of a large-scale producer capturing these benefits is Cobram Estate. Its Joint CEO, Beaton, told Momentum attendees that “we are fortunate to say that we are now one of the world’s largest vertically integrated olive oil businesses. Our business in Australia is still our largest part and being vertically integrated we own 7,000 hectares of planted olive groves or around 2.6 million trees”. 

“Sustainable use of natural assets has been in our DNA since the company was founded,” Beaton added.

Responding to Greenwood’s question about initiatives to leverage natural capital to build climate resilience and to ensure the long-term profitability and productivity, Beaton said, “When we think about climate, you're really trying to protect yourself against the extreme”.

“Olive trees don't like frost, so we are very careful in our site selection. We also invested a lot of money in frost fans so we can utilise more of our land. When you think about extreme heat, we are fortunate that olive trees actually a very drought-resistant tree and it uses a lot less water than a lot of the other crops such as nut crops.”

“As a business though, we've developed a proprietary growing system called Oliv.IQ ², and that was developed by my joint CEO Leandro [Ravetti] from 20 years of research and testing and experience.

“The outcome of that is that we are producing around 60% more olive oil than the top 6% of producers globally. And on top of that, we are using 30% less inputs per litre of olive oil generated. So clearly that has a great environmental impact….from our perspective, an economic perspective, you're producing more oil and it costs you less.”

Boosting the utility of natural capital 

The link between natural capital and economic benefits was further highlighted by the Macdoch Foundation’s Gortan. She said that “revealing, quantifying and making natural capital really decision-useful” is a key focus for the philanthropic foundation.

Gortan points to the Farming for the Future (FFTF) program and flagship research, designed to analyse the “most granular measurements of natural capital in farm operations to identify those that are most decision-useful and helpful”.

Along with the increased profit per hectare (on average more than $20 per hectare ), the FFTF research found that farms with more substantial natural capital achieved higher productivity, especially in areas with lower land capability.

Overall, the research suggests that improving natural capital across the sector could deliver a 2.5% productivity gain, generating an estimated $3 billion in annual benefits to farmers, while also doubling the habitat for 70% of bird species and more than 800 native plants.

Gortan also noted that “we’ve recently invested in the Capitals Coalition…a coalition of organisations all around the world that works on integrating all of the capital. So, financial capital, social capital, community capital, and natural capital to help people who work in business make sense of all this stuff.

“How do I start to make this useful in my business and moving it from the sustainability team into the risk team, into the finance team, into the legal team and actually bring all of the pieces together.”

Valuing natural capital is not without its challenges, with Hermanson saying natural capital accounting requires a deep skill set. She noted that it integrates “not only the financial pieces that we know the food, fibre, the land-based valuation but the value to society”.

Hermanson said, “We appreciate metrics and standards, that we all provide input into, to keep improving. But then I guess you look at assets and an underwriting perspective. There may be a few of you in the room that have had to make assumptions on what the carbon price will be in 20, 30 years. It's not an easy task”, Hermanson said. 

“We're relying on stability in policy, we're relying on high integrity amongst the players in markets, but of course we have confidence that we will get there.”

The panel concluded that Australia is well placed to contribute to natural capital growth and that while there will be challenges ahead, there is also significant opportunity to create long term value.