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JIMMY MOYAHA: We are taking a look at the world of regenerative agriculture, following on from the Nampo Harvest Day festival that took place a little earlier in the year.
We’re going to be taking a look at some of the outcomes of that Harvest Day, but also some of the interesting developments that are happening in the world of agriculture.
I’m joined on the line by the head of sales for agriculture at Nedbank Commercial Banking, Daneel Rossouw, to take a look at this and see if we can make sense of it. Daneel, lovely having you on the show, as always. Thanks so much for taking the time.
What is regenerative agriculture? It sounds fairly simple, but what is that as a concept?
DANEEL ROSSOUW: Yeah, thanks, Jimmy. It’s always interesting to discuss these topics. I think to kick off, what was once seen as a sustainable conversation is now very fast becoming a commercial necessity. I think I can elaborate on that a bit later.
But yeah, over the last number of years we’ve seen a dramatic increase in climate volatility, either from droughts or floods, in the processing, the soil degradation and biodiversity loss. With that, also the rising input costs, especially with all the wars and geopolitics that we currently have in the world.
But that created a new operating environment in which the long-term productivity and profitability of our farmers depend a lot on rebuilding and improving. That’s where regenerative agriculture comes in. That rebuilding and improving of our natural systems that underpin our farming.
So we’re actually talking about a significant shift in the way that we think about agriculture and our practices.
In short, regenerative agriculture is not just thinking about doing less harm, but building farming systems that are more productive, more resilient, more efficient, and ultimately, in our space, very important, more bankable as well.
But in practice, what we’re talking about is looking at minimum soil disturbance, looking at permanent soil cover, looking at crop diversity and crop rotation, especially in the grain industries, and then maintaining the living roots in soil. That’s critically important. You want a healthier soil over a bigger portion of your soil.
Then, if possible, integrating livestock strategically into farming systems, looking at manure and so forth. Also, the carbon portion of that.
But yeah, it is all about minimum soil disturbance, soil cover, and ultimately how much water you can keep within the soil.
JIMMY MOYAHA: Daneel, if we think about this regenerative agriculture from a long-term perspective, is this sustainability something that farmers can elect to have if they want to, almost as a nice-to-have? Or is it something that almost becomes fundamental towards competitive advantage, towards improving efficiencies in the agricultural space?
DANEEL ROSSOUW: Yeah, I think you’ve actually mentioned quite a few issues around regenerative agriculture. But just from a pure economic perspective, it is clear that our existing farming practices will not be sustainable anymore over the long term.
The reason I say that is we see the increasing pressure on margins, and it’s been happening for how many years, not just in the grain environment, but basically in all sectors, and it’s not something that’s going to go away.
So we need to increase production on a sustainable basis with lower input costs, especially then taking into account market demand and consumer demand going forward and the pressure on natural resources.
It can also be seen – important for us as well as a bank – it can also be seen as risk mitigation and insurance against climate change.
But then also the availability of data and new technology plays a big role, I believe, to make better and informed decisions. So that can also be seen as a driver then for regenerative practices.
But just one or two points, I think, to elaborate on this.
If you talk about healthy soil, it improves the resilience of farms to extreme weather events that I’ve just mentioned, especially in dryland grain production areas, and then also supporting a wide range of microorganisms, with insects and fungi, which in turn enhance our plant health and ecosystem function and, in the process, also increasing water retention.
There’s also a cost benefit to that because of lower energy costs.
If you just look at your implements and how many times you need to go over a specific portion of your land with conventional farming, you can halve it with regenerative practices, so that lowers energy costs, as well as reducing the need for chemical inputs, or a lot less.
So there’s a definite cost benefit to that as well. But then also that increased consumer awareness of the environmental impact of conventional farming methods.
Obviously, it is also driven by the corporate environment, a lot more critical on ESG [environmental, social and governance] reporting specifically going forward. So there is a definite push and pull in terms of regenerative practices.
JIMMY MOYAHA: Daneel, before I let you go, I want to take a look at the corporate environment that you mentioned, particularly from a financing perspective.
From a Nedbank perspective, how is this informing how your financial structures are, how you’re approaching this as a bank that needs to support the agricultural landscape? How are you repositioning so that you are adaptive to the changes that are happening?
DANEEL ROSSOUW: Yeah, definitely. The question is, can we do it as business as usual? So if you look at the conventional agricultural funding, as we always did, we often prioritise the immediate output and then also the short-term profitability.
So we like to fund farmers that are profitable and within an existing type of farming framework. But if you look at regenerative agriculture – the funding thereof, with a lot more emphasis then on the upfront costs.
So it does cost money if you look at the transition towards regenerative practices, and then also those temporary dips that you can experience in terms of yield through this transition process.
Then obviously, I believe the need for patient capital to support the transition to these practices.
But we know the extent and the need for upfront investment. We understand it. That needs to be structured over a longer period. That’s one of the key points.
Then also acknowledging, I believe, the long-term value being created over time. So you need to take a long-term view on what we are funding and in the rewarding the ecosystem benefits.
But remember it’s accrued over time. So we need to take that into account, talking around the soil health and biodiversity. So you’ll see the reward later and we need to fund accordingly, rather than focusing solely on short-term financial returns.
So when we look at the financial modelling, we take into account the long-term nature and benefit of the transition, but then also ensuring in the process that we put minimum pressure on working capital, so the liquidity part of your business.
What we try to do is [offer] very flexible solutions that work for a specific farmer, but with a correct financial or debt structure to make it easy to fund over a period of time without putting any pressure on your cash flow.
So it’s a bit different than what we normally do in terms of conventional funding.
JIMMY MOYAHA: Having to think about agriculture differently is what needs to be done if we are to see the agricultural landscape adapt to the current environment that it is confronted with. We will see how regenerative agriculture takes over and allows our agricultural sector to improve itself.
We’ll leave the conversation on that note. Head of sales for agriculture at Nedbank Commercial Banking, Daneel Rossouw, joining us to take a look at regenerative agriculture.
Brought to you by Nedbank Agriculture.
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