Having Your Sustainable Cake and Eating It Too

Long-term investment in organic agriculture will provide above-market returns, environmental impact, and—in the developing world—enormous social impact.

A recent study from Iowa State University concluded that over a 13-year period, yields for organic corn, soybean, and oats were equivalent to or slightly higher than those achieved in non-organic systems. The paper reported similar results over a 12-year period for alfalfa and an eight-year period for winter wheat.

These conclusions will come as no surprise to those acquainted with the Rodale Center’s Farming Systems Trial, the United States’ longest running side-by-side comparison of organic and conventional agricultural systems, which has been publishing its results since 1981 and  reported this year that corn and soybean yields are equivalent in both systems (after the three-year conversion period). Indeed, organic yields are significantly higher in drought years when compared both to conventional seeds and to seeds that have been genetically altered for drought resistance.

The 2011 Iowa State study also analyzed what these yields mean for on-farm income. It concluded that on average over the period of the study an organic farmer was receiving $200 more per acre than his conventional counterpart. With time, this divide is likely to widen, as the costs of synthetic inputs increase and as weeds and pests develop greater resistance.

So why aren’t more people shifting to organic agricultural systems? Although the amount of certified organic farmland worldwide has increased steadily over the past decade, at 37 million hectares it represents only 0.9 percent of the total. One reason for this slow increase is that organic agriculture tends to be more labor intensive. In the developing world, this is a positive factor, since organic farming creates employment in the rural communities where work is most needed and acts as a brake on urban migration. This point is stressed in a report by Olivier de Schutter, the UN Special Rapporteur on the Right to Food, which calls for the massive adoption of agro-ecological techniques as the best means to address hunger and poverty in the developing world. In the developed world, however, there is reluctance to do something oneself if a pot of synthetic chemicals can do it for you. 

Organic farming is also knowledge intensive, and while a properly functioning agro-ecological system will generate superior returns and inbuilt resilience, a poorly managed conversion can harm a farm’s productivity. If farmers don’t have access to the appropriate knowledge, then it is simpler to stick with industrial agricultural techniques—plant a genetically modified crop, apply synthetic fertilizer, and spray it with a store-bought chemical—even if this condemns the farmer to sub-optimum returns and leaves her exposed to rising input prices. 

At the recent Secretary of State’s Impact Economy Forum, which brought together leaders from the corporate, government, and NGO sectors to discuss sustainable development, it occurred to me that there is another factor holding back the transition to organic agriculture: differing conceptions of sustainability. For environmentalists, sustainability is a fairly easy concept to define: Don’t jeopardize the future on behalf of the present. What I realized in Washington is that many corporations, particularly food corporations, think about sustainability differently. 

Today there is so much pressure on the global food supply that the vast majority—in fact, I would say all—of the big food companies are having a hard time filling orders. Thanks to changing weather patterns, they barely have enough coffee, cocoa, and peanuts as it is and oilseeds such as soy, canola, and rapeseed are all trading at or near the all-time highs they touched in 2008. For a food company, sustainability first means corporate sustainability. And since these companies cannot afford to see any dip in yields—even if that dip is temporary and, over time, will create a cheaper and more resilient source of raw materials—they are prevented from taking actions that would be both better for the environment and better for business.

My aim is not to finger point or corporate bash. Quite the opposite: I think programs such as Mars’ Sustainable Cocoa Initiative are commendable and a fine example of what can be done in the field of stakeholder collaboration. But we need to be clear about what Mars’ use of  “sustainable” means. It is not as sustainable as the planet would like it to be. And it is probably not even as sustainable as people at Mars and its collaborators would like it to be, if they didn’t have their hands tied by short-term problems.   

As I say, I am not interested in finger pointing and wouldn’t expect a cat to bark like a dog. A corporation will and should protect its and its shareholders’ interests. What I do want to say is that there is a clear opportunity here for investors who are not constrained by supply chain issues and who are willing to tie up their capital for a certain number of years to make very good money. 

For those with a long-term investment horizon, investing in organic agriculture will provide above-market returns, demonstrable environmental impact, and—in the case of the developing world—enormous social impact, too. There is often a tradeoff among the three bottom lines of impact investing—financial, social, and environmental—but in the case of organic agriculture, a sector that is materially undersupplied and that has seen demand grow year after year, even during the financial crisis, you really can have your cake and eat it too.

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  • BY Joseph Porterfield

    ON May 22, 2012 09:18 AM

    This article highlights the benefit of patient investing.  Purchases at the supermarket show a clear trend toward greater appetite for organic food among consumers, the financial benefits of producing food in this manner are in equal evidence and the benefit that has on natural resources long already clear.  However, impediments exist that are slowing progress and market change.  Yet, these hurdles will fall and/or be overcome and reward those who take the step now.  Indeed, with so much evidence already in place, investing in organic food production is hardly acting ‘ahead of the curve’ in the sense that a bet on technology requires.  More a case of standing on the only pier at which the arriving ship can dock.

  • Kostas Nikolopoulos's avatar

    BY Kostas Nikolopoulos

    ON May 23, 2012 01:03 AM

    A very well thought through article on organic agriculture. It is certainly an investment backing very strong global Macroeconomic data and one of the few with a triple bottom line effect.
    One may add that it is one of the very few asset classes where developing economies could still create the premium products and gain a leading “country of origin effect” to their own economies.

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