Agro Ecological - The Investment Advantages of Organic Agriculture (May 2010)

Agro-Ecological
Investment Management
RESILIENCE, SUSTAINABILITY AND

PERFORMANCE
THE INVESTMENT ADVANTAGES OF ORGANIC AGRICULTURE

MAY 2010
www.agro-ecological.com
TABLE OF CONTENTS
EXECUTIVE SUMMARY
INTRODUCTION
Top-down vs. bottom-up?

Synopsis
5
5
BOTTOM-UP
Holistic vs. reductionist farming.

External inputs
The soil
Ecosystem services
Barriers to entry - the organic investment advantage
Bottom-up summary
TOP-DOWN
6
7
9
12
16
17
18
The global farm and food picture

Ecological / organic agriculture
Organic agriculture - the global success story
Top-down summary
18
19
20
25
SYNTHESIS
26
REFERENCES
27
EXECUTIVE SUMMARY
Introduction
There is growing interest in agriculture and farmland as an asset class.
This report analyses, from an investment perspective, the features of ecological /organic agriculture
that make it an attractive option for those considering investment in agriculture/farmland and
particularly for those investors with an SRI/ESG understanding.
Bottom Up
Holistic
Organic agriculture uses a whole system approach which creates a system that is environmentally
sustainable, low cost and has low exposure to rising costs, with potential for superior productive
performance (income).
External Inputs
The organic/ecological approach minimises the use of external inputs such as fertilisers, fossil fuels
and biocides which reduces the exposure to the increasing insecurity of these inputs arising from
regulation, market demands and their increasing scarcity/cost as supplies pass their peaks and
decline.
The Soil
Organic/ecological agriculture maximises soil health, particularly organic matter levels. This creates
multiple benefits including carbon sequestration, decreased nutrient loss, biodiversity, better water
holding capacity and drainage and healthier crops and livestock. These strengths translate into a
more stable and resilient production system, significantly positive implications for enhanced income
generation(long term) and outperformance in capital appreciation.
Ecosystem Services
Ecological agriculture uses and generates positive ecosystem service outcomes, which creates a more
robust self supporting farming system, decreased farm production costs (and exposure to rising
costs) and potential income from ecosystem service markets, e.g. carbon and biodiversity.
Barriers to Entry
Organic agriculture has multiple entry barriers, including technical knowledge and expertise as well
as social and regulatory hurdles such as detailed auditing and multi-year conversion periods.
Top Down
Global farm and food picture
Population
The worlds population continues to not only expand and demand more food, but also better
quality food.
Constrained farmland
The land base to meet this demand is increasingly limited by the poor quality of prospective
new farmland, the need for such land to provide vital ecosystem services, and the loss of
existing farmland to urban growth and land degradation.
Future of investment is in agriculture
The appeal of agriculture and farmland investment is due to the straightforward analysis that
food will be in increasing demand from a larger and more affluent world population yet with
increasingly limited availability. This creates a demand and supply imbalance in favour of those
producing food and investing in farming.
Future of agriculture is ecological
The existing industrial agricultural model is coming under a multitude of increasing pressures,
including growing input costs with reduced availability, diminishing performance, the threat and
reality of climate change and increasing legal restrictions and market demands.
It is in this environment that ecological agriculture is so advantaged.
Ecological/Organic Agriculture
Ecological agriculture addresses these issues without the problems associated with industrial
agriculture.
Organic agriculture has the attributes to turn its ecological advantages into investment advantages
and thereby investment outperformance. These attributes include:
internationally agreed principles and rules with thorough third party auditing, meaning that
it has a high level of integrity, trust and globally accepted standards which facilitate trade;
globally recognised agricultural system, including among sovereign governments and
intergovernmental organisations such as the FAO, with corresponding strength in terms of
credibility and legal status; and
a clearly defined, high-value, market differentiation, which translates into growing market
size and better returns.
Organic Agriculture - the global success story

Exceeding market expectations
Organic agriculture fulfils or exceeds consumer expectations. Its authenticity, robust standards
and environmental rigour make it a clear leader in terms of market alignment.
Booming organic marketplace
The market demand results generated by organic agriculture over the last three decades speak
for themselves, with consistently strong growth in global markets.
Non event of global financial crisis
The global financial crisis only slightly decreased the expansion of organic demand, rather than
reversing it, with some organic food sectors, e.g., wholefoods, growing at a faster rate than precrisis and some consumer sectors, e.g., high net worth families purchasing more organic food
not less due to ethical concerns.
Premium market prices
Even with the continued strong growth of organic agriculture over recent decades, premium
prices have been maintained, indicating the stable, robust and long term nature of the organic
agricultural marketplace.
Synthesis
This dual-perspective analysis demonstrates the need to understand agriculture from both the
bottom-up and top-down. Without such a holistic approach it is impossible to make truly informed
decisions about investment in agriculture.
Farmland investment has to be long term due to the character of the enterprise. Even in the short
term, the unsustainability of industrial agriculture is now apparent and it faces increasing
restrictions, both natural and political/regulatory on its future growth/expansion.
From an investment perspective organic agriculture has the attributes of a definably unique, secure
and attractive investment proposition. It is firmly established, tested over many decades and globally
recognised at the government and intergovernmental level. As a business sector it has demonstrated
clear and ongoing success on the ground (farm level), a track record of exceptional market demand
growth and is based upon the robust, scientific and genuinely sustainable management of that most
secure and tangible of assets - land.
This depth of understanding in the agricultural thematic environment reveals organic agriculture as a
definably sustainable, resilient, and profitable sector.
In fact from an investment perspective organic agriculture is overwhelmingly advantaged.
INTRODUCTION
There is growing interest in agriculture and
farmland as an asset class.
This report analyses, from an investment
perspective, the features of ecological/organic
agriculture that make it an attractive option
for those considering investment in
agriculture/farmland and particularly for those
investors with an SRI/ESG understanding.
Top-down vs. bottom-up?

Within ecology, trophic webs, commonly
called food webs/chains, are analysed both
from bottom-up and top-down perspectives
to gain a better understanding of how they
function. For example, the bottom of
practically all trophic webs on earth are plants,
as only they can turn sunlight into food via
photosynthesis. At the top of trophic webs are
apex predators, such as lions which are
indirect consumers of the food made by
plants. Looking at trophic webs from both
perspectives gives a much more complete
view of their processes, limits and interactions
than just one or other viewpoint.
The same is equally true for investing in
farming/agriculture. Just taking a top-down
perspective, e.g. how well a product is selling
in the marketplace, does not give the full
picture. Without understanding the bottomup perspective, e.g. the physics and ecology of
agriculture, it is impossible to make sound
judgements about the merits of different

agriculture/farmland investment options,
especially over the longer term.
Synopsis
This report first investigates ecological
agriculture from a bottom-up standpoint,
highlighting some of its key advantages. It then
takes a top-down view before pulling these
perspectives together to demonstrate the
overwhelming investment case for ecological
agriculture.
Within this document we will refer to two
contrasting
forms
of
agriculture,
ecological/organic agriculture and industrial
agriculture. Ecological/organic agriculture
views agriculture to be part of ecology and
therefore to function correctly agriculture
needs to work with, not against, ecology.
Industrial agriculture is the technical name for
the current mainstream form of agriculture
practiced in the developed world. It is called
industrial agriculture as it has been modelled
on the assembly line manufacturing systems of
the industrial revolution. In contrast to
ecological agriculture, industrial agriculture
believes it is to a large extent separate from
nature and characteristically seeks to
dominate ecology.
The terms agriculture and farming are used
synonymously.
BOTTOM-UP
Holistic vs. reductionist farming.
Ecological agriculture is a systems based/
holistic approach to farming [59]. The terms
holistic and system have become buzzwords.
They originated however, from rigorous
academic disciplines that describe how
complex structures work, e.g. general systems
theory [112]. An example is the concept of
holons created by Arthur Koestler [56, 57],
which is something that is simultaneously a
whole and a part. This is an illuminating
concept within agriculture as it neatly
encompasses the concept that the many parts
of a farm need to be treated both as things in
their own right, e.g. a crop, yet they are also
parts of the bigger farm system, e.g., part of
the soil ecosystem, but at the same time are
also composed of holons themselves, e.g. the
individual plants that make up a crop, and in
turn the constituent parts of the plant such as
leaves, cells, chloroplasts, all the way down to
the chemical elements which make up their
physical structure and even beyond into the
weird world of quantum mechanics [36].
Ecological farmers understand this complex
interdependence and therefore appreciate
that trying to manage one part of the farm
system in isolation from the other parts will
fail. For example, pests1 are managed by a
wide range of integrated tools such as
rotations and encouraging natural enemies by
providing flowers for pollen and nectar. In
comparison
industrial
agriculture
is
philosophically reductionist [59], i.e. it views
different farm components as discrete entities.
Continuing the pest example, industrial
agriculture mostly uses biocides/pesticides
(chemicals designed to kill living things), to kill
pests when their populations exceed desired
levels. However, little thought is given as to
why the pest populations grew so large in the
first place and if there are ways to prevent
them doing so in future rather than simply
continuing to spray biocides.
1
Pest is used in its broad meaning and includes not

only insects but also diseases, weeds, parasites etc.
This difference also illustrates a fundamental

problem with the reductionist approach of
industrial agriculture. If the biocide works,
then that is well and good, but if it stops killing
the pest because the pest has become
resistant or the biocide is withdrawn from use
due to evidence of harmful non-target effects,
then there is a problem. As the previously
effective solution no longer works, the pest
has free reign. In comparison, with the holistic
approach, management of the pest is not
reliant on one or a small group of biocides, but
is part of the system as a whole with many
factors managing the pest population. If one
or more of these fails to work, then other
parts of the system will continue to manage
the pest.
This whole-system approach is not just
restricted to pest management; it extends to
all aspects of the farm system, for example,
manure. In industrial agriculture, especially in
concentrated animal feeding operations
(CAFOs), manure is considered a waste
product that has to be disposed of, often at
considerable financial expense and/or
environmental pollution. In ecological
agriculture, manure is a valuable resource; it
contains the full suite of plant nutrients
(fertilisers) along with a lot of carbon, a
critical component of soil organic matter. It is
therefore carefully collected and used to
fertilise the fields to improve crop
performance and soil health. This recycling of
nutrients is also how natural systems work,
and is in direct contrast to industrial
agriculture that takes a linear view, applying
brought-in fertilisers to feed the current crop
and then exporting the resulting products off
the farm and treating by-products as waste.
So, while terms such as holistic and system
may be trendy, they are in fact scientifically
rigorous and highly practical concepts which
underpin ecological agriculture and provide it
one of its great strengths. By not relying on
single points of control, such as biocides,
ecological agriculture has a greater repertoire
of mechanisms for managing the farm system,
thus making it more stable and secure, both in
the short and longer term. This translates into

greater financial return and stability in the
short term because costly wastes are turned
into valuable inputs, pests have multiple
control points rather than a few biocides, and
diversity means that where one section is
under-performing, e.g. due to weather, other
parts compensate because they perform
better under such conditions. In addition a
systems-based approach creates an integrated
farming system better adapted and more
resilient to climate change impacts with
corresponding
benefits
for
financial
performance.
However, there are other looming issues, e.g.

peak-phosphorus' [34], that are only just
leaving the scientific sphere and entering
public and political awareness. If an input is
finite, and its peak is in the present or not too
distant future (a few decades) then as supplies
dwindle and prices increase in response, any
system that minimises its use of, or is not
dependent upon those inputs will increasingly
find itself in a far stronger and more financially
viable position than those that do.
Ecological agriculture aims to minimise the use
of external inputs and maximise selfsufficiency. This means that manures and crop
by-products (e.g. straw) which are commonly
regarded as waste in industrial agriculture,
are retained and reused. Manure is used to
feed the soil and crop by-products are used as
livestock feed and bedding or they may also be
returned to the soil as fertiliser. These, and
other internal re-use approaches, minimise
the need for external fertiliser and stock food.
Farms that have well developed holistic

infrastructures, e.g. established shelter belts
and fodder trees on hot dry slopes, can
achieve higher stocking levels (production)
and therefore higher returns which supports
higher asset values and better overall
investment returns.
External inputs
Biocides and nitrogen fertilisers are made

from and with fossil fuels (mostly oil and gas),
while other fertilisers are directly mined from
the ground, i.e. they are fossil nutrients. These
inputs are not however infinite in supply. The
issue of peak-oil [49] is now both well
established and widely accepted [33, 102].
Ammonia
Crude oil
800
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0
US$ / barrel
600
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100
2008
2005
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1987
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1981
1978
1975
1972
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US$ / ton
Nitrogen, which is the most important plant

nutrient/fertiliser, is an especially clear point
of difference between organic and industrial
agriculture. Organic farms make their own
nitrogen fertiliser for themselves, from the
atmosphere, using biological nitrogen fixation.
Industrial farms predominantly buy in nitrogen
in mineral forms. As nitrogen fertilisers are
made from and with fossil fuels (chiefly
natural gas) [103] their price is strongly
correlated to the price of oil. Figure 1, [1].
In minimising its reliance on external inputs

such as biocides and fertiliser, organic
agriculture creates one of its most significant
strengths and advantages.
Figure 1. Historical price of nitrogen fertiliser (ammonia) and crude oil [18, 48].
Ecological farmers use the whole farm system

to combat pests, eliminating the reliance on
purchased biocides (as discussed above)
which, like nitrogen fertilisers, are also mostly
made from fossil fuels. This further
emphasises
the
advantage
ecological
agriculture has in terms of exposure to rising
fossil fuel prices.
Direct and indirect energy use is significantly
lower in ecological/organic agriculture than
industrial agriculture. No-till systems are often
held up as being more energy efficient due to
their reduced reliance on tillage
[22].
However, results from a long-term field
experiment in the USA, one of the strongholds
of no-till, demonstrates that total energy use
in tilled organic maize production is lower than
no-till and organic no-till is lower still.
Figure 2, [61, 86].
250
Gallons of diesel/acre
200
150
100
50
232
199
122
78
Tillage
No-till
Tillage
No-till
0
Non-organic treaments
Organic treaments
Figure 2. Energy used in different maize (corn)

production systems [61, 86].
There is now a considerable, and growing,

body of scientific evidence showing that
ecological/organic agriculture has superior
direct and especially indirect energy use,
particularly from non-renewable energy
sources than industrial agriculture. These
come from comparisons of individual farms up
to whole-country level, from real-world data,
long-term trials and models e.g. [3, 20, 25, 30,
31, 55, 68, 88, 100].
Problems with input dependence are not just
limited to lower level inputs such as energy,
pesticides and fertilisers, it also applies to

higher level inputs, e.g. stock food.
CAFOs are systems in which large numbers of
animals are confined and fed grain which is
purchased from grain farmers, who often farm
some considerable distance from the CAFO. In
comparison ecological farms raise their stock
on pasture produced on the farm, using
nitrogen fixing plants such as clover, which the
stock harvest for themselves. When grain and
transport prices are low, assisted by subsidies
to grain farmers and cheap nitrogen fertiliser
and fuel, then CAFO systems are financially
viable. However, it does not take a large
increase in grain prices, e.g. due to reduced
subsidies, higher nitrogen and oil prices, or
alternative crop markets such as human food
or biofuel production, to make CAFOs
uneconomic. This was clearly seen in the
fertiliser and grain price spike in 2008 when
many European CAFOs simply shut their
doors.
Pasture based organic livestock production,
which uses biologically fixed nitrogen is not at
risk from changes in the price of grain or
nitrogen fertiliser as the inputs it requires are
chiefly sunlight, rain and land (often land that
cannot be used for crop production due to its
slope and soil quality). Other benefits of the
ecological approach are that the animals
manure is a valuable fertiliser created and
used in-situ, boosting pasture growth as
opposed to a waste in the CAFO system which
costs money to dispose of.
The examples above illustrate that ecological
agriculture is far less dependent on external
inputs due to its maximisation of recycling of
farm by-products and managing the farm
system as a whole. This makes ecological
agriculture much less exposed to external
input costs and availability [5]. As most of
industrial agricultures inputs are made with or
from fossil fuels, they are heavily exposed to
the risk of increasing fossil fuel prices.
Therefore ecological agriculture will gain an
increasing competitive advantage as input
costs go up and availability goes down. This
suggests there will be a step change in
demand for product from ecological/organic
agricultural systems, as prices become
increasingly competitive. These factors,

combined with the entry barriers to organic
farming (see Barriers to entry - the organic
investment advantage page 16) means that
established organic farms will be more
attractive to purchasers for their stability,
sustainability and superior profitability which
will generate a price premium for organically
managed assets.
The soil
Unfortunately, soil to most people is just dirt
and something of a turn-off, as Professor
David Montgomery found out when he had to
change the title of his recent book Dirt: The
erosion of civilizations to exclude the soil
word [76]. However, Prof. Montgomery is only
one in a very long line of scientists and
philosophers, all the way back to Plato, who
have pointed out that soil is the foundation of
civilisation. Like the abused terms holistic
and whole-system, the concept that our
civilisation is based on the soil has become
clichd in some circles. Unfortunately the
reality is that it is no clich, and despite the
huge advances wrought by science and
technology over the last two and a half
centuries, humanity today is more, not less,
dependent than any previous civilisation on
good soil management as most of us no longer
have the option of hunting or gathering for
our food: agriculture is our only option [66,
87].
For organic agriculture managing the soil, i.e.
soil husbandry is of prime importance. Indeed,
the care, protection and good husbandry of
soil, particularly ensuring the soil is high in
organic matter, is the core issue upon which
the organic movement was founded [47].
is needed to do this without degrading

the environment, endangering human
and animal health, or decreasing
biological diversity. This paradigm
envisages an ecosystem approach for
farming - an approach that emphasizes
the interaction of plant productivity
with the productivity and well-being of
all living organisms and with the quality
of the environment. Organic farming
will have a role to play in the new era of
soil quality management [27] page
913.
Let us consider a few aspects of ecological and
organic farming that will play a role in this
new era of soil quality management.
Nitrogen
The issue of the plant nutrient/fertiliser
nitrogen has already been discussed in the
section External inputs, in terms of it being an
external input facing increasing prices and
decreasing supply. The nitrogen problem is,
however, much larger than just supply
concerns, it is the major sleeper-issue of
industrial agriculture [39, 105, 106, 110].
Organic agriculture completely eschews
synthetic nitrogen fertilisers. Instead it uses
biological nitrogen fixation, mostly produced
by growing crops such as legumes Plate 1, that
host microbes that fix atmospheric nitrogen
into plant available forms. Synthetic nitrogen,
in comparison, is increasingly proving to be
something of an own goal.
Science is now unambiguously clear that the

approach of industrial agriculture towards the
soil has to stop and that organic agriculture is
part of the solution. To quote the final
conclusions of the 14th edition of the treatise
The nature and properties of soils
A major challenge facing humankind is
the production of more food and fibre
in the next 40 to 50 years than has been
produced since the dawn of agriculture
some 10,000 years ago. A new paradigm
Plate 1. White Clover - a legume.
It was a widely promulgated idea during the

introduction of synthetic nitrogen fertilisers
that they would lead to an increase in soil
organic matter, due to the increased crop
growth and thus return more crop residues to
the soil. However, if this were true, it would be
expected that after more than half a century
of widespread, and often intense, use of
synthetic nitrogen fertilisers that cropping
soils would be brimming with organic matter.
The plain fact is that they are not, indeed
conversely, cropping soils globally show a
consistent decrease in organic matter with
increased nitrogen fertilisation. It is now
understood that nitrogen fertilisers do not just
increase plant growth, they also increase the
growth of soil microbes. These then eat
through soil organic matter faster than it is
replaced by the extra crop growth [53, 78].
The reasons this situation is an own goal is
because only a small proportion of fertiliser is
directly taken up by crops, instead the
majority of the nitrogen passes through soil
microbes before being served up to the plants
[53, 78]. Soil microbes need soil organic
matter to do this as they cant live on nitrogen
fertiliser alone. This means that as soil organic
matter decreases due to the use of nitrogen
fertilisers, the efficacy with which the
microbes can serve-up the nitrogen to the
plants also decreases, i.e. as soil organic
matter diminishes less of the applied fertiliser
gets taken up by plants. This is what has been
found over the past 40 years in real world
farming; the efficiency of nitrogen fertilizer
has decreased by 66% globally [92, 108].
Synthetic nitrogen fertilisers are therefore selfdefeating, the more you use, the more you
have to use to get the same result until the
soil system collapses.
The biological fixation of nitrogen used by
ecological agriculture does not suffer from this
problem because as soon as the nitrogen is
fixed inside the plants it is combined with
carbon and other nutrients to build the plants
tissues. Only when the plant dies, do the soil
microbes get to feed on the nitrogen and
because it is packaged up with other nutrients
there is no additional organic matter loss.
The financial implications for this are quite

clear: biologically fixed nitrogen has a zero
purchase price and its production enhances
soil organic matter which improves soil
productivity, which improves the stability and
yield of crops, which means increased and
more stable crop gross margins (income).
Soil organic matter is not something you can
increase over-night, it takes years to build up
good levels. As the comprehension among the
farming community of the importance of good
soil organic matter levels continues to
increase, farms with well managed soils and
high organic matter will increasingly command
premium prices.
Soil organic matter, the great leveller
Organic matter is what makes a soil a soil,
without it, it is just rock dust. It is also one of
those rare things where the maxim too much
of a good thing barely applies. The more
organic matter a soil has, generally the better
it performs. In comparison too much synthetic
fertiliser will kill both soil and plant alike. Soil
organic matter also has some seemingly
paradoxical properties where it can negate
both extremes of a particular condition, e.g.
water-logging and drought. It is also chiefly
organic matter that makes a soil a quality soil:
without sufficient levels of organic matter a
soil will cease to function and be increasingly
lost to erosion [27, 76].
Unarguably, good husbandry of soil, and
particularly organic matter, is critical for
successful farming. As noted above the
maintenance of good soil organic matter is the
foundation of organic agriculture and a key
component of all truly sustainable agriculture
[4, 47]. Not only is it a key aim, it is also
unambiguous that organic farming achieves
higher levels of organic matter, with many
examples, particularly those from long term
trials being unequivocal [38, 60, 69, 70, 86].
The practical agricultural, and therefore,
investment benefits that good soil husbandry
brings are many and substantial; for example
in coping with and responding to climate
change.
10
Climate change
Climate change is the most significant problem
facing humanity [8, 29, 107] and agriculture
has a critical role to play in its mitigation as it
is directly and indirectly responsible for a
significant proportion of global warming. At
the same time it also needs to adapt to a
changing climate as it will have to acclimatise
to new weather patterns [35].
Organic agriculture is recognised as having a
key role in both mitigating and adapting to
climate change [45, 52, 68, 77, 79]. One
practical example of how this can be achieved
comes from the Rodale Institute in the USA,
where a comparison of organic and
conventional cropping systems in a long term
experiment, found that organic farming
increased soil carbon (soil organic matter) by
15 to 28% for legume and manure systems
compared with industrial methods. In another
compost comparison experiment, organic
techniques increased soil carbon by
3,456 kg/ha/yr compared with a 230 kg loss
for the industrial system Figure 3, [61]. Based
on this result, if the 65 million hectares of corn
and soybean grown in the United States were
switched to organic farming, a quarter of a
billion tons of carbon dioxide could be
sequestered [61]. This result was also achieved
with lower energy costs in the organic system
as shown in Figure 2.
4,000
Kilograms soil carbon / ha / year
3,500
3,456
3,000
2,500
2,000
1,500
1,000
500
0
-500
-230
Organic
Industrial
Figure 3. Average, annual, soil carbon change

(addition or loss) of an organic/compost vs. mineral
fertiliser experiment over ten years [61].
Climate change legislation is increasingly likely

to financially and otherwise penalise
businesses that have negative climate impacts
and financially reward those that have positive
effects. Ecological agriculture with its reduced
negative effects and increased positive effects
is set to have a growing financial advantage
under such conditions.
Agro-Ecological Investment Management has
produced a paper on climate change and
agriculture: Climate Change and Investment in
Ecological Agriculture: Outperformance and
Opportunity available from the AgroEcological website.
www.agro-ecological.com/investment-research/
Water: droughts to deluges

The paradoxical effect of increased soil organic
matter improving both water retention and
drainage is not only scientifically fascinating,
but it also has productivity benefits which lead
to increased farm profitability. Higher soil
organic matter levels reduces soil compaction
and density and improves structure which in
turn means they drain more effectively [32].
This means they are less likely to become
anaerobic, a condition which has multiple
negative effects not only on the soil itself, but
also on crop growth, nutrient loss and climate
change. For example, when soils are anaerobic
they produce methane and nitrous oxide,
which are powerful greenhouse gases, and
nitrates which leach from soil. Nitrous oxide
and nitrates also represent a potentially
significant loss of soil nitrogen [27] with both
environmental and direct financial downsides
in reduced crop yields.
Higher organic matter soils also hold more
water as well as draining excess water more
effectively, so they need less irrigation and are
less prone to erosion [23, 27, 29]. A clear
example of both the water holding and
drainage effects of organic management and
increased organic matter is demonstrated by
the results of a trial where in drought years
maize/corn yields under organic management
were significantly higher than the industrial
(conventional) agricultural system based on
mineral fertilisers (Figure 4) and yielded the
same in non-drought years [64].
11
In 1999 the drought was broken by hurricane

derived torrential rain. The organic soils
captured twice the amount of water than the
conventional treatment which lost the
difference in surface run-off with resultant soil
erosion [7].
160%
140%
120%
128%
134%
100%
100%
80%
60%
40%
20%
than industrial agricultural soils under all

water situations, both rain-fed and irrigated.
Better soil performance, translates into better
crop and livestock performance which means
higher on farm returns.
The soil: conclusions
These few examples, give a flavour for how
critically important good soil husbandry is for
farm sustainability, productivity and hence
profitability, both in the short and long term.
Productive and profitable farms translate into
top farmland values at sale thus maximising
return on investment. So, although, on first
consideration, the soil may not seem to have
anything to do with successful investment,
there is a clear and unbroken chain starting in
the soil that continues through farm
management all the way to successful
agricultural investment.
0%
Manure
Legume
Organic treaments
Mineral
fertiliser
Figure 4. Relative maize yields in three cropping

systems, (two organic, one industrial), in five years
of water deficit between 1988-1998 [7].
So, whether the weather brings droughts or

deluges; or both; or the status quo,
ecologically managed soils will perform better
Ecosystem services
Ecosystem services are the benefits people
obtain from ecosystems and include
provisioning services such as food, water,
timber, and fibre; regulating services that
affect climate, floods, disease, wastes, and
water quality; cultural services that provide
recreational, aesthetic, and spiritual benefits;
and supporting services such as soil formation,
photosynthesis, and nutrient cycling [74].
dependent on ecosystem services. The 2005

Millennium Ecosystem Assessment [74]
marked a turning point in humanitys
collective understanding of its total
dependence on the services provided by the
natural world. It also clearly showed
agriculture to be one of the primary direct
causes of ecosystem loss yet at the same time
being totally dependent on them.
Humanity, both poor and wealthy, while

buffered against environmental changes by
culture and technology, is fundamentally
Agriculture is both a consumer and a producer

of ecosystem services Diagram 1,[95].
12
Diagram 1. Linkages between ecosystem services and agriculture (adapted from [95]).
What does this mean for agricultural

production and investment? If an agricultural
system does not actively protect ecosystem
services then its future is unsustainable
because they provide irreplaceable functions
without which farming and wider society
cannot prosper. The practical ramifications of
this are both top-down and bottom-up. Topdown in that legislation and markets are
increasingly requiring agriculture to reduce its
negative impacts on ecosystem services [109];
bottom-up in that by enhancing ecosystem
services, farming is more profitable in both the

short and long-term.
Even though organic agriculture predates the
emergence of ecosystem service science and
philosophy (e.g. [63, 82, 111]) by several
decades, it is founded on the same
fundamental concepts, i.e. working with, not
against, ecosystems. The very name ecological
agriculture clearly pins its colours to the mast
of ecosystem services. In comparison
industrial agriculture is a significant cause of
ecosystem service decline [74].
13
$1,600
$1,400
$1,516
to the viticulturalist for hundreds of dollars. In

comparison, managing leafrollers with
buckwheat is not a proprietary product, i.e. it
is a freely available idea.
0.50
0.45
Proportion of leafroller larvae

parasitised by D. tasmanica
Direct benefits of ecosystem services to farms

A principle tool by which ecological agriculture
enhances and benefits from ecosystem
services is to promote biodiversity, both of the
farmed species, i.e. crops and livestock, nonfarmed species and areas such as hedges. The
value of the ecosystem services this creates is
often considerable. In one experiment, the
economic value of ecosystem services on realworld organic farms was shown to be 56%
higher compared with non-organic farms
Figure 5, [96].
0.40
0.44
0.35
0.30
0.25
0.20
0.15
0.10
0.08
0.05
$1,200
0.00
Buckwheat
$1,000
Figure 6. The proportion of leafroller larvae

parasitised by D. tasmanica in areas of vineyard
planted with and without buckwheat [51].
$800
$600
$670
$400
$200
$0
Organic
Control
Non-organic
Figure 5. The economic value (US$) of ecosystem

services on organic and non-organic farms [96].
Once a viticulturalist understands the concept

they can use it indefinitely for the price of a
few kilos of buckwheat seed worth a few tens
of dollars. Thus the grower saves money
thereby increasing their profits plus they have
more control over their production system due
to deeper knowledge of the pest and its
natural enemies.
This benefit was achieved just from the

overall management of organic farms. At the
other end of the spectrum are highly
interventionist techniques. One example of
this is the use of the beneficial plant
buckwheat Plate 2, to reduce the leafroller
pest in vineyards by up to 29% with the result
that leafroller populations were below
economic treatment thresholds Figure 6, [51].
This represents a considerable direct financial
saving to the grower. It is also a good example
of the transferring of agricultural expertise
away from input suppliers to farmers. Without
the buckwheat the viticulturalist would have
had to spray with a biocide to control the
leafroller. The technical expertise in this
system resides chiefly with the chemical
company that created the biocide. The
company recoups their investment though
patents and selling the product year-on-year
Plate 2. Buckwheat flower.
The benefits of the buckwheat system do not

stop there. The leafroller biocide is at constant
risk of failure due to evolved resistance [89]
and/or withdrawal of the biocide due to more
14
stringent legislative safety requirements, e.g.

the European Unions REACH program [16].
Neither of these apply to the use of
buckwheat as the leafrollers parasitoids
(predators) are in evolutionary competition
with the pest so it is highly unlikely it will
develop resistance, and there are no harmful
effects from growing buckwheat so legal
prohibition is highly improbable. The
ecological buckwheat system is therefore far
more sustainable than the chemical biocide
system.
The above two examples are just the tip of the
iceberg in terms of the value of ecosystem
services to farming. There is now considerable
and continually increasing, scientific evidence
of the substantial value of ecosystem services
to agriculture and that organic/ecological
agriculture is the clear leader in boosting such
services [95].
The above examples demonstrate the financial
benefits of using ecosystem services instead of
purchased inputs, e.g. several hundred dollars
per hectare per year. At the same time the
ecosystem
approach
is
measurably
sustainable, while the industrial biocide
approach is unsustainable.
Ecological agricultures lower ecosystem
impacts
Not only does ecological agriculture financially
benefit from the ecosystem services it
enhances, it also performs better on the flip
side of having less impacts on the ecosystem
services that wider society relies on, such as
clean water and air and global temperature
regulation [91].
Governments are increasingly legislating
against agricultural activities that reduce
ecosystem services [35, 74, 93]. Such
legislative curbs on the negative effects of
agriculture on ecosystem services are
therefore a significant risk for industrial
agriculture as it is industrial farming
techniques that are in a large part responsible
for the problems in the first place. In
comparison, ecological agriculture has lower
negative impacts and more positive benefits
for ecosystem services meaning that it is not
only at lower risk from legislative changes but

that it will increasingly benefit from them.
For example, in the EU the Nitrates Directive
aims to protect water quality across Europe by
preventing nitrogen from agricultural sources
polluting ground and surface waters by
limiting the nitrogen applied to farmland [17].
However, the use of nitrogen fixing crops and
pasture species are not restricted by the EU
Nitrates Directive, so while there are limits on
the amount of synthetic nitrogen that can be
applied, there is none on biologically fixed
nitrogen, giving ecological agriculture the
advantage.
Another example is the synthetic biocides
used by industrial agriculture, which when
they persist and escape into the wider
environment can cause a wide range of
unwanted effects [90]. One example of the
political response to this is the EU wide review
of all synthetic chemicals [16] with the result
that many are being banned, withdrawn by
the manufacturer, or their conditions of use
effectively prevents them being used, e.g. the
period of time between application and when
the crop can be sold (the harvest interval) is
longer than the time the crop takes to grow
[16]. Organic agriculture eschews the use of
synthetic biocides so their loss is of no
consequence, while their prohibition is
proving to be a serious headache for industrial
agriculture [10].
In the United States the Presidents Cancer
Panel has recently called for systematic and
wide ranging reduction of agrichemicals
putting further pressure on the use of such
inputs [62].
Organic/ecological agriculture builds soil
organic matter, which is the method by which
carbon is stored in soil. This in turn is a critical
mechanism to mitigate climate change (as
discussed above). Soil carbon sequestration is
one example of potential ecosystem markets.
Other future ecosystem markets include water
quality and biodiversity. Carbon trading
markets are already in existence, and interest
in other ecosystem markets is growing rapidly
e.g. see www.ecosystemmarketplace.com
[15].
15
Ecological farmers are favourably poised to

benefit as both wider society and individual
businesses start to pay ecologically sound
farmers for the ecosystem services that they
have hitherto provided at no cost [109].
From an investment perspective focusing on
farming systems with positive ecosystem
service outcomes and avoiding those that fail
to take advantage of ecosystem services,
and/or harm ecosystem services essential for
wider society will be vital to maximise both
income and asset values. Ecological agriculture
is measurably superior in this respect.
Barriers to entry - the organic investment

advantage
Agriculture is utterly unlike any other business.
Farming is a technical enterprise, more
complex than any production line. It spans a
wide range of scientific disciplines such as soil
science, plant and animal biology and ecology,
engineering,
marketing,
and
even
meteorology. Managing farms and agricultural
investments
requires
both
extensive
knowledge and experience, neither of which
can be gained by reading a few books or even
taking a degree. It is a profession, requiring
both formal qualifications and extensive realworld experience.
This is even more so the case with organic

agriculture. The reductionist approach of
industrial agriculture with its increased
reliance on outside expertise makes it simpler
to farm. The holistic approach of organic
management demands greater skills and
knowledge. This represents a barrier to entry,
as obtaining this additional knowledge and
skill is not achieved easily. There is also a social
barrier for many existing farmers to covert to
organic agriculture, plus the detailed auditing
requirements and the two to three year
conversion period create further impediments
to entry. If the knowledge and expertise are
available, then these barriers enhance
investment potential as it is more difficult for
others to enter, thereby dramatically reducing
the bandwagon effect where new entrants
flood the market, or worse less scrupulous
people try to enter. This moderating effect
shows itself in the continued outstripping of
supply by demand and persistent price
premiums, despite organic agriculture
expanding dramatically for over three
decades. These conditions are text-book
examples of a highly profitable and stable
business sector that is ideal for generating
superior returns on investment.
16
Bottom-up Summary
Ecological agriculture generates a stable,
future adapted and profitable investment
because it:
Uses a whole system approach.
This creates a system that is environmentally
sustainable, low cost and has low exposure
to rising costs with potential for superior
productive
performance
(income)
supporting higher asset values.
Uses biologically fixed nitrogen.
This avoids the multiple ills of synthetic
nitrogen such as:
1. high energy use;
2. destruction of soil organic matter;
3. environmental pollution;
4. escalating climate change; and
5. lower quality crops and livestock.
Avoiding the above ills in turn avoids their
consequences:
1. exposure to increasing cost;
2. reduced yield, negative impacts on
asset value, and increased exposure to
extreme climate impacts such as
drought and flood etc;
3. damage to the asset and its productive
capacity, reputational risk and cost;
4. reduced yield, higher costs, damage to
the asset and its productive capacity;
and
5. reduced income.
Maximises soil health, particularly organic
matter levels
This creates multiple benefits including
carbon sequestration, decreased nutrient
loss, biodiversity, better water holding
capacity and drainage and healthier crops
and livestock.
Minimises the use of external inputs

such as fertilisers, fossil fuels and
biocides.
By minimising the use of such inputs
organic agriculture reduces its
exposure to evolved resistance in
the case of pesticides and to the
increasing insecurity of these inputs
arising from regulatory and market
demands.
In addition organic agriculture, by
minimising the use of these inputs,
reduces its exposure to cost
increases and their negative impact
on farm profitability.
Uses and generates positive ecosystem
service outcomes.
This creates a double-dividend of
decreased farm production costs
(and exposure to rising costs) and
potential payments from ecosystem
service markets.
Has multiple entry barriers.
Including technical knowledge and
expertise as well as social and
regulatory hurdles such as detailed
auditing and multi-year conversion
periods.
This minimises the bandwagon
affect,
the
easy
entry
of
uncommitted
and
unethical
businesses into the sector and the
development
of
un-balanced
markets.
_________________________________
Making a long-term investment into a farming
system with higher costs and an uncertain
future could not be described as prudent. The
organic option avoids such limitations.
The
strengths
of
ecological/organic
management outlined above translate into a
more stable and resilient production system
with significantly positive implications for long
term income generation and capital
appreciation
17
TOP-DOWN
A top-down analysis of agriculture needs to be
holistic, i.e. looking at the whole picture, just
as ecological agriculture is itself a holistic
agricultural system. A lot of business analysis
starts with market demand, and economic
commentators often talk about what the
market is doing or where the market is
going. However, markets are not the origin of
demand, nor are they entities with minds of
their own; rather they are mechanisms for
more fundamental components to interact.
Understanding these components and the
factors influencing them, particularly over the
longer term, is critical to successful
investment.
The global farm and food picture

For the first time in the earths history, one
species - humans have populated the entire
planet. Prior to the industrial revolution, when
people exceeded the locally available land,
they simply moved to new areas. This is no
longer an option as humanity has now
explored the earths entire surface and set up
home everywhere that is habitable.
A growing global population
The global population now stands just under
seven billion with nine billion forecast by 2040
[19]. Agriculture is now the dominant means
of feeding people (as opposed to wild harvest)
[117]. In rapidly developing and industrialising
areas such China and India, incomes are
increasing which is resulting in increased
demand for food and more expensive forms of
food, e.g. a shift from rice to milk and meat
[12].
Increasingly constrained farmland
However, agricultural land is in increasingly
short supply. The global land area that is
suitable for agriculture is 31.8 million km2 [2].
However, some 21% of this land has been so
severely degraded as to destroy its productive
ability [26]. The increasing world population
also requires space to live and with few
uninhabited areas to expand into, urban areas

(cities) are mostly expanding onto adjacent
land. Unfortunately, many urban areas are
located on the most productive farmland as it
was this attribute that initially attracted large
numbers of people to the location in the first
place, therefore it is mostly the best farmland
that is being lost. However, those areas which
farming could potentially expand onto are
often poor quality, e.g. too steep, rocky, poor
soil, too little/much rain etc., and they are
often areas of natural vegetation, which even
if they are not very appealing from a human
perspective, e.g. scrub, they are often utterly
critical ecosystem service providers such as
greenhouse gas sinks, so converting them to
farmland is exceptionally hazardous in the
long term.
At the same time there are some original
agricultural products that are making a return,
a key one being (bio)fuel crops, many of which
are also food crops, e.g. maize and oil seed
rape, and/or they need to be grown on good,
rather than marginal land, to be viable, e.g.
miscanthus. Biofuels are therefore putting
even more pressure on food production
meaning that food prices are likely to climb
higher still.
The future of investment is in agriculture
The growing world population therefore needs
more, and increasingly can pay, for higher
quality food, just as the availability of
farmland to meet this demand is being
increasingly squeezed [12].
The appeal of agriculture and farmland
investment is due to the straightforward
analysis that food will be in increasing demand
from a larger and more affluent world
population yet with increasingly limited
availability. This creates a demand and supply
imbalance in favour of those producing food
and investing in farming.
18
The result being that the agriculture sector is

set to be a leading industry of focus and
opportunity for investors as suggested by two
of the worlds leading investors, Jim Rogers
and George Soros:
Agriculture is going to be one of the
greatest industries in the next 20 years,
30 years, and Im convinced that
farmland is going to be one of the best
investments of our time.
The future of agriculture is ecological
It is the considered opinion of Agro-Ecological
however that most farmland investment
decisions are made on half, not the full picture
of agriculture.
In the past the answer to the above issues has
been to increase the amount of food produced
per area of land, mostly by applying industrial
agricultural techniques. However, as outlined
in the first part of this report, farming is not a
factory, its output cannot be increased
indefinitely. There are limits, from physical to
ecological, as to how much food and other
agricultural products can be produced from
the land, particularly without damaging its
capital resources, such as soil, and support
systems, such as ecosystem services, that are
essential for agriculture to function.
The current dominant agricultural system
(industrial agriculture) has exceeded the
ability of these natural resources and systems
to be sustained, which means it simply cannot
continue its past trajectory and will have to
reverse in many areas instead of intensifying
further as many suggest [13].
The existing industrial agricultural model is
coming under a multitude of increasing
pressures, including growing input costs with
reduced availability, diminishing performance,
the threat and reality of climate change and
increasing legal restrictions and market
demands.
This is the third pressure point on agriculture
after a growing (and wealthier) population and
constrained farmland. As the International
Assessment of Agricultural Science and
Technology for Development put it Business

as usual is no longer an option [73].
The unsustainability of mainstream/industrial
agriculture is the half of the picture that is
missing from most agricultural investment
decisions.
Failing to understand the bottom-up limits of
agriculture means that it is impossible to make
informed decisions about top-down farming
strategy. Knowledge is power [21].
It is in this environment that ecological
agriculture, as outlined in the first part of this
report, is so overwhelmingly advantaged.
Ecological/Organic agriculture
Organic agriculture has the attributes to turn
its ecological advantages into investment
advantages
and
thereby
investment
outperformance. These attributes include:
a strong historical legacy over nearly a
century;
a single transparent and democratic
international peak body in the form of The
International Federation of Organic
Agricultural Movements (IFOAM) so it
speaks with a single clear voice;
internationally agreed principles and rules
with thorough third party auditing,
meaning that it has a high level of
integrity, trust and globally accepted
standards which facilitate trade;
a globally recognised agricultural system,
including among sovereign governments
and intergovernmental organisations such
as the FAO, so there are no issues about its
legal or other credibility;
a focus on the effects of its produce on the
final consumer, which gives organic
products the highest possible level of
marketplace integrity and credibility; and
clearly defined, high-value, market
differentiation, which translates into
growing market size and better returns.
Organic agriculture is also an entirely
appropriate option for ethical/SRI/ESG
investors seeking to participate in agriculture.
19
Consumers in the developed world such as

North America, Europe and Japan and
increasingly in developing countries such as
China and India are asking more and more
questions about their food and other farm
products, for example:
Organic agriculture - the global success

story
The size of organic agriculture is now
substantial: globally there was 35 million
hectares of organic farmland managed by 1.4
million producers (farmers and growers) in
2008. The majority of the land is in Oceania
(12.1 m ha), Europe (8.2 m ha) and Latin
America (8.1 m ha), with the highest number
of producers in India (340,000), Uganda
(180,000) and Mexico (130,000) with more
than a third of producers in Africa [116]. This
clearly demonstrates the truly international
stature of organic agriculture, i.e. it is not just
restricted to affluent countries. At the same
time, 35 million hectares is just 0.81% of
global agricultural land [14] which represents
a huge growth opportunity. Organic farming
has not been sluggish in its growth
performance, with organic farmland tripling
since 1999 Figure 7, [114].
Where was it grown, i.e. what is its

provenance?
Were any biocides (pesticides) used in its
production, i.e., is it safe to eat?
Has it undergone harmful processing, i.e.
is this real food or is it some kind of food
like product?
Is it free of transgenic material, i.e.
genetically engineered / modified
organisms (GMOs)?
What is its nutritional value, i.e. will it help
keep me healthy and fit?
What are the environmental effects of the
farming, production and distribution
systems, i.e. is it causing ecological
damage?
Does it treat livestock humanely?
Is it ethical? [9, 28, 42, 99, 118]
The organic market has been performing

extraordinarily well and remains strong,
expanding (rapidly) and undersupplied in a
number of key enterprises/products.
Organic agriculture clearly answers these kinds

of questions in the affirmative because they
are the same issues that are built into the core
of organic farming [50].
Exceeding market expectations

Organic agriculture can be described as surfing
the marketing zeitgeist of the 21st century.
40
35.0
31.8
2005
32.1
31.5
2004
30.5
30.7
17.3
28.9
27.0
4.1
2006
2007
2008
5.6
10
14.8
15
19.7
19.8
21.0
20
25.5
22.5
25
11.0
Million hectares
30
29.7
29.7
35
0
1999
2000
2001
2002
Agricultural land
2003
Aquaculture, forest, wild collection & bee keeping
Figure 7. Increase in organic agricultural land area and further certified land [114].
20
Organic agriculture has banned all synthetic

biocides, which coupled with rigorous auditing
systems mean that organic food has the lowest
risk of containing biocides/pesticides [90].
The effect of processing on food quality is a
foundation concern of organic agriculture [58,
72], and organic standards and principles are
clear that the minimal amount of processing
and only natural ingredients should be used in
organic food. Organic agriculture has clear and
strong links with the Slow Food movement
on this and related issues [85].
Organic agriculture has completely banned the
use of transgenic organisms and their
derivatives.
The maxim of organic farming is healthy soil,
healthy
food,
healthy
people.
It
unambiguously illustrates that the primary
concern of organic agriculture is the impact of
how food is produced and processed on the
health of those eating it. The scientific
evidence of the improved health benefits of
organic food are now well established [24, 40,
44].
Care for the environment is a fundamental
issue for organic agriculture and its
environmental benefits now have a
considerable body of supporting scientific
evidence, from local to global effects [6, 37,
69, 98, 101].
The humane treatment of livestock is a key
principle of organic agriculture, enforced by
standards and auditing [50].
Put simply, organic agriculture fulfils or

exceeds
consumer
expectations.
Its
authenticity,
robust
standards
and
environmental rigour make it a clear leader in
terms of market alignment. The results in
terms of demand growth and price premiums
speak for themselves.
The booming organic marketplace
Global sales of organic food and drink were
US$ 50.9 billion in 2008 an amount that has
doubled in just five years (US$ 25 billion in
2003) Figure 8, [94].
60
50
50.9
40
US$ (billions)
Provenance is a key issue in organic

agriculture. Every individual certified organic
product can be traced back to the farmer(s)
that produced it. Organic farming is the origin
of direct food distribution systems such as box
schemes and CSA (community supported
agriculture) and it is a natural fit for ongoing
approaches to link farmers and consumers
such as farmers markets.
33.2
30
23.0
20
10
15.2
0
1999
2002
2005
2008
Figure 8. The global market for organic food and

drink 1999 to 2008 [94].
The sales of fruit and vegetables account for

36% of the global organic food market,
followed by prepared food and others 19.90%,
with the fast growing dairy category in third
place with 16.80% Figure 9.
% Share by Value
6%
10%
36%
11%
Fruit & Vegetables

Prepared Food and Others
Dairy
Beverages
Organic agriculture is the only agricultural

system that has explicitly and democratically
determined its ethical principles. These are the
principles of Health Ecology Fairness and Care
[50].
Bread and Grains

17%
Meat, Fish and Poultry
20%
Figure 9.
Global
Organic
Food
Market
Segmentation I: % Share, by Value, 2008 [11].
21
The highest market growth is occurring in

North America. The USA has seen organic
foods jump from 0.8% to 3.5% of total market
share from 1997 to 2008 with sales growing
from US$ 3.5 to US$ 22.9 billion in the same
period Figure 10, [43, 94] .
22,900
25,000
4,286
3,594
Australia and New Zealand continue to be

organic export powerhouses due to their small
domestic markets compared with the large
size of their agricultural land base Figure 11,
[71, 120].
16,718
13,831
11,902
8,625
7,360
5,000
6,100
10,000
10,381
15,000
5,039
US$ millions
20,000
market opportunities. At the same time

consumers have been rocked by the high
incidence of recent health scares, such as
melamine in milk in China, cola drinks in India
and tofu in Indonesia [113]. This makes the
affluent Asian consumers wary of products
from other countries in the region which is
increasing demand for products from
countries viewed as safe producers such as
New Zealand [71].
140
Figure 10. USA organic food sales from 1998 to

2008 [43].
Even though organic farming is the fastest

growing segment of U.S. agriculture for over a
decade, production is still lagging behind
demand which is being met by imports from a
range of countries [41]. In Canada, sales data
has not been collected for as long or as
systematically as the USA but recent surveys
put the value of the market between Canadian
$2 to 3 billion, and the market shows
considerable growth potential [46, 67].
Europe has the largest organic food industry in
the world (US$ 26 billion) and the organic
market remains the fastest growing food
sector within Europe with considerable
potential to widen still further [97]. The fastest
expansion of organic demand and production
is now moving eastwards to Central and
Eastern Europe [94]. In many areas,
particularly in the north, demand still outstrips
supply for products including vegetables, fruit,
salads and dairy, so imports are required to fill
the gaps [97].
Million New Zealand dollars
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
130
120
100
80
70
60
40
20
32
0
1997
2002
2007
Figure 11. New Zealand organic export market

from 1997 to 2007 [42].
Having said this, the domestic markets in both

Australia and New Zealand also continue to
grow strongly for the same consumer driven
reasons they are elsewhere [42, 119].
New Zealand export markets/sectors are
dominated by fresh fruit and vegetables which
are in turn dominated by apples and kiwifruit.
However, dairy in particular has shown very
strong growth in the last few years increasing
from 6% to 16% of exports and $6,986,126 to
$27,845,204 in value from 2007 to 2009 which
is almost a 400% increase [G. Middleton,
OANZ, pers. comm. 2010]. This is mostly due
to the entry of Fonterra, the 13,000 member
dairy farmer co-operative which is New
Zealands largest multinational company, with
revenue exceeding NZ$16 billion and that is
In Asia the largest markets for organic foods

are in Japan, South Korea, Taiwan, Singapore
and Hong Kong, which are the more affluent
countries in the region [94]. However, these
countries have very low domestic organic
production so they represent significant
22
responsible for approximately 40% of the

world's dairy exports. Fonterra have a very
significant and ongoing organic supply
shortfall. Currently there are approximately
100 organic dairy farms (including inconversion) but Fonterra require three times
that number to meet existing demand, while
that demand is growing at 17% per year
[R. Managh, Fonterra, pers. comm. 2010].
The non-event of the global financial crisis
The global financial crisis of 2008, has proved
to be a minor blip for organic agriculture
rather than any kind of failure [54, 65, 75, 94].
The picture is complicated, as would be
expected, because the financial crisis had
widely varying impacts on different regions
and countries. In addition there are
considerable variations in food and organic
markets among regions/countries. The overall
trend however was not a decrease in organic
food sales but a minor reduction in the rate of
increase, e.g. double digit growth dropped to
high single digit growth. At the same time the
tail-off in organic foods was less than nonorganic foods. It is clear therefore, that
consumers were not abandoning organic for
non-organic food [97]. This outcome was not
consistent among the different food sectors.
For example, high priced convenience items,
such as ready meals, saw a larger reduction,
while staples such as fresh fruit and vegetables
and key niches such as baby food even saw
sales increase faster [43, 115]. A similar
picture emerged in retailing with the highest
end retailers with a larger proportion of luxury
goods noticing a fall-off in growth rates, while
others at the value end of the spectrum, such
as farm shops and box schemes saw an
increase in the rate of growth. At the same
time higher income earners purchased more
organic produce in the crisis, even if their
incomes decreased, as this market sector
became increasingly sensitive to ethical issues
[104].
These patterns indicate that while organic
food is seen as a quality product it is not
viewed as a luxury by most organic consumers,
i.e. consumers understand that organic food
may cost more, not because it is trendy or that
it is a means to display their affluence, but
because of its intrinsic properties such as

healthier, safer and better for the
environment. Therefore even at the height of
the financial downturn, people continued to
purchase organic food, even if they traded
down, e.g. from ready meals to fresh
ingredients to cook at home.
There is also the axiomatic precept that food is
a non-discretionary purchase, i.e. after air and
water humans have to eat to live. This can
appear to be forgotten on occasions by some
financial analysts and politicians2. While air to
breathe is free, there is only a limited amount
by which people can reduce the quantity of
food they purchase (without radical selfsufficiency lifestyle changes few can achieve).
So unlike practically any other business,
agriculture has as guaranteed a market as it is
possible to have. The results of organic food
sales through the financial crisis strongly show
that while people had the option of changing
from organic to cheaper industrial food, most
continued to buy organic, and some even
increased their organic purchases. Actions
speak louder than words.
Premium market prices.
Even though organic agriculture has seen
dramatic increases in market size this has not
been at the expense of price premiums. For
example, recent surveys of Australian
consumers found a willingness to pay an
organic price premium of 17% [84] while in
California consumers said they would pay up
to 39% for organic produce [81]. In a parallel
with the increased consumption of organic
products by higher income earners during the
financial crisis, those with higher educations
are also willing to pay more for organic food.
For example, in a 2007 survey those with
secondary education would pay 13% more
while those with a tertiary education would
pay 19% more [83].
In the USA a decades worth of data for a
broad basket of products shows organic price
premiums have been approximately 50% to
300% Figure 12.
2
For example the late New Zealand Prime Minister,

David Lange, who in 1988 infamously described
farming as a sunset industry.
23
350%
Organic price premium
300%
250%
200%
150%
100%
50%
Apples
Carrots
Eggs
Poultry
Broccoli
Wholesale
Mesclun Mix
Retail
Strawberries
Spinach
Salad Mix
Rice
Eggs
Milk
0%
Figure 12. USA organic price premiums (maximum, mean, minimum) over the same non-organic product
between 1999-2008 (not all products recorded in all years, data compiled from [80]).
In New Zealand organic producers are

achieving premiums of 39% for apples, 35% for
kiwifruit with similar production costs to nonorganic [H. Atkinson, OANZ, pers. comm.
2010].
Fonterra
offer
suppliers
a
NZ$1.05 / kg milk solids (kgms) premium over
the non-organic price for fully certified organic
and NZ$0.45/kgms for in-conversion milk. The
current conventional milk price forecast is
NZ$6.10/kgms for the 2009/10 season, which
is itself up on the seasons opening forecast of

$4.10 [R. Managh, Fonterra, pers. comm.
2010]. In addition Fonterra are guaranteeing
the premium for organic milk for three years
in-conversion and then another three years
once fully certified organic, i.e. a six year
contract. This is a remarkably clear cut
endorsement of the organic market, especially
coming from a company that represents 40%
of the world's total dairy exports.
24
Top-down Summary
As with the microscopic world of the soil, the
long term, global scale, top-down picture for
organic agriculture is one of clear and
demonstrated advantage.
The worlds population continues not only
to expand and demand more food, but
also better quality food.
The land base to meet this demand is
increasingly limited by the poor quality of
prospective new farmland, the need for
such land to provide vital ecosystem
services, and the loss of existing farmland
to urban growth and land degradation.
The appeal of agriculture and farmland
investment is due to the straightforward
analysis that food will be in increasing
demand from a larger and more affluent
world population yet with increasingly
limited availability. This creates a demand
and supply imbalance in favour of those
producing food and investing in farming.
The current dominant agricultural system
(industrial agriculture) has exceeded the
ability of natural resources and systems to
be sustained, which means it simply
cannot continue its past trajectory and will
have to reverse in many areas instead of
intensifying further as many suggest [13].
This produces a nexus of increasing
demand with a narrowing supply base and
curtailment of existing technological
approaches creating long term price
increases for agricultural products.
Ecological agriculture addresses these
issues without the problems associated
with industrial agriculture.
Organic agriculture operates according to
Internationally agreed principles and rules
with thorough third party auditing,

meaning that it has a high level of
integrity, trust and globally accepted
standards which facilitate trade.
Organic products offer clearly defined,
high-value, market differentiation, which
translates into growing market size and
better returns.
Organic agriculture fulfils or exceeds
consumer expectations. Its authenticity,
robust standards and environmental
rigour make it a clear leader in terms of
market alignment.
The market demand results generated by
organic agriculture over the last three
decades speak for themselves, with
consistently strong growth in global
markets, (often in double digits).
The global financial crisis only slightly
decreased the expansion of organic
demand, rather than reversing it, with
some organic food sectors, e.g.
wholefoods, growing at a faster rate than
pre-crisis and some consumer sectors, e.g.
high net worth families purchasing more
organic food not less due to ethical
concerns.
Even with the continued strong growth of
organic agriculture over recent decades,
premium prices have been maintained,
indicating the stable, robust and long term
nature of the organic agricultural
marketplace.
25
SYNTHESIS
This dual-perspective analysis demonstrates
the need to understand agriculture from both
the bottom-up and top-down. Without such a
holistic approach it is impossible to make truly
informed decisions about investment in
agriculture.
Despite over a century of attempts, farming is
not a factory and it cannot be treated as such
because doing so damages the natural
systems/ecosystem services (e.g. biodiversity)
that are essential for productive agriculture
and the wider prosperity of human civilisation.
Farmland investment has to be long term due
to the character of the enterprise. Even in the
short term, the unsustainability of industrial
agriculture is now apparent and it faces
increasing restrictions, both natural and
political/regulatory
on
its
future
growth/expansion. Ecological agriculture
however is increasingly advantaged by the
prevailing and developing environment.
Ecological/organic agriculture works with
natural systems such as the soil and
biogeochemical cycles rather than against
them, whilst being as efficient and selfcontained as possible. By working with
natures systems it is adapted to be more
resilient, secure and well performed in the
face of issues such as climate change,
increasing environmental legislation and
growing consumer ethical awareness. It is also
well positioned to be able to take advantage of
new potential income streams generated by
ecosystem
trading.
service
markets,
e.g.
carbon
The world is moving into uncharted territory,

or rather lack of territory, as every last
habitable area of the planet is lived on.
Despite the lack of new land, the global
population is set to increase 50% by 2040 as
well as increasing in affluence, which means
that demand for food will both increase in
quantity and quality. A growing population is
also leading to a decrease in farmland
availability, the opposite of what is required.
From an investment perspective organic
agriculture has the attributes of a definably
unique, secure and attractive investment
proposition. It is firmly established, tested
over many decades and globally recognised at
the government and intergovernmental level.
As a business sector it has demonstrated clear
and ongoing success on the ground (farm
level), a track record of exceptional market
demand growth and is based upon the robust,
scientific
and
genuinely
sustainable
management of that most secure and tangible
of assets - land.
This depth of understanding in the agricultural
thematic environment reveals organic
agriculture as a definably sustainable, resilient,
and profitable (lower cost, higher income)
sector.
In fact from an investment perspective organic
agriculture is overwhelmingly advantaged.
26
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Agro Ecological - The Investment Advantages of Organic Agriculture (May 2010)

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RESILIENCE, SUSTAINABILITY AND

THE INVESTMENT ADVANTAGES OF ORGANIC AGRICULTURE

Top-down vs. bottom-up?

Holistic vs. reductionist farming.

The global farm and food picture

Organic Agriculture - the global success story

Top-down vs. bottom-up?

judgements about the merits of different

Pest is used in its broad meaning and includes not

This difference also illustrates a fundamental

the short and longer term. This translates into

However, there are other looming issues, e.g.

Farms that have well developed holistic

Biocides and nitrogen fertilisers are made

Nitrogen, which is the most important plant

In minimising its reliance on external inputs

Ecological farmers use the whole farm system

Figure 2. Energy used in different maize (corn)

There is now a considerable, and growing,

pesticides and fertilisers, it also applies to

increasingly competitive. These factors,

is needed to do this without degrading

Science is now unambiguously clear that the

Plate 1. White Clover - a legume.

It was a widely promulgated idea during the

The financial implications for this are quite

Kilograms soil carbon / ha / year

Figure 3. Average, annual, soil carbon change

Climate change legislation is increasingly likely

Water: droughts to deluges

In 1999 the drought was broken by hurricane

than industrial agricultural soils under all

Figure 4. Relative maize yields in three cropping

So, whether the weather brings droughts or

dependent on ecosystem services. The 2005

Humanity, both poor and wealthy, while

Agriculture is both a consumer and a producer

What does this mean for agricultural

services, farming is more profitable in both the

to the viticulturalist for hundreds of dollars. In

Proportion of leafroller larvae

Direct benefits of ecosystem services to farms

Figure 6. The proportion of leafroller larvae

Figure 5. The economic value (US$) of ecosystem

Once a viticulturalist understands the concept

This benefit was achieved just from the

Plate 2. Buckwheat flower.

The benefits of the buckwheat system do not

stringent legislative safety requirements, e.g.

only at lower risk from legislative changes but

Ecological farmers are favourably poised to

Barriers to entry - the organic investment

This is even more so the case with organic

Minimises the use of external inputs

The global farm and food picture

uninhabited areas to expand into, urban areas

The result being that the agriculture sector is

Technology for Development put it Business

Consumers in the developed world such as

Organic agriculture - the global success

Where was it grown, i.e. what is its

The organic market has been performing

Organic agriculture clearly answers these kinds