Never has there been so much coverage on the topic of regenerative agriculture. For those involved in agribusiness it appears to be everywhere these days. The recent release of the Netflix documentary Kiss the Ground will only heighten the buzz. How does Kilter Rural apply its expertise to this subject? I’ll provide a recent example of a farmland renewal outcome where an underutilised farm was transformed environmentally and economically.

Firstly, a bit about where we operate. Australia’s Murray-Darling Basin covers more than one hundred million hectares, larger than France and Germany combined. It generates more than $20bn in gross production annually, 40% of which comes from irrigated enterprises, yet irrigation only accounts for 1.5% of the land area. It’s easy to see where the value lies.

The world holds more than enough existing agricultural land to meet the demand of a growing population for food and fibre without further clearing our precious remaining forest ecosystems. Agriculture uses 60-70% of the world’s available fresh water, optimising and protecting our existing land and water resources is essential.

Until the establishment of the Australian water market (recognised as the most sophisticated of its type globally), there were instances of water wastage and consequent environmental damage. Simply, the lack of economic value applied to water prior to this point resulted in profligate application. That is certainly changing today.

The water market frameworks, legislation and ability to trade within a $25bn market has resulted in water migrating to its highest value use. Less profitable industries that previously relied on an abundance of cheap water are finding it more difficult to compete. These industries are moving away to other Australian geographies, where production costs and climate types are more suited.

This structural shift in the value and use of water is driving new opportunities to:

  • change land use to one that optimises the value of water without compromising the underlying land and ecosystem function
  • restore the landscape balance between intensive agricultural production and ecosystem protection
  • restore lost biodiversity and sequester carbon at a scale that meaningfully contributes to the climate challenge before us

We simply must find more efficient systems of drawing down scaled volumes of atmospheric carbon if we’re to cap global warming at 2 degrees C. The technology exists; it’s not Carbon Capture and Storage (CCS). It’s the process of photosynthesis. It is naturally delivered through plant and woody vegetation that builds soil organic carbon which, in turn boosts agricultural productivity.

 Typically, the farms in Kilter’s target region have less than 5% remnant native vegetation. It was historically cleared to maximise the agricultural footprint. As a result, there is little opportunity for birds, bats or insects to provide vital pollination services, or pest insect predation or to manage groundwater tables or to sequester carbon.

As the green revolution began post WW2 and farmers worldwide rapidly adopted synthetic fertilisers and industrial pesticides, they witnessed immediate short term productivity responses. Today, as annual crop productivity growth has flatlined to less than one per cent p.a. globally, some are seeking answers outside the conventional toolbox. Farmers are learning that soil microbiology is central to building crop resistance to pests and disease. We’ve known for some time that excessive tillage (ploughing) is the enemy of soil organic matter preservation. Building and retaining soil organic carbon is fundamental to supporting soil health. It develops soil structure, which assists resistance to erosive weather and dramatically increases soil moisture retention, a highly valued trait within Australia’s variable climate.

“Forests are a fundamental component of our planets recovery.” 

David Attenborough, A life on Our Planet, 2020

A proven approach to tackling the challenges of atmospheric carbon drawdown and biodiversity restoration is through the committed reforestation of areas previously cleared. We simply must balance intensive agricultural production with scaled ecosystem regeneration if the underlying farmland assets are themselves to remain sustainable long term. Kilter Rural’s approach is to strategically reforest farmland regions taking a whole of landscape view. It’s beyond tree lanes and ‘shelter belts’ on the boundary fence. It’s about providing a diverse and scaled habitat for the birds, mammals, insects and reptiles that all contribute to the healthy ecosystem function of Australia’s unique landscapes. 

Figure 1: A traditionally flood irrigated dairy farm in northern Victoria. Purchased in December 2018. Generating $0 – $200/ha in gross margin.

Figure 2: The same property 14 months later in February 2019. Kilter Rural invested in the installation of highly efficient Sub-Surface Drip Irrigation (SSDI) to grow high value field grown tomatoes on contract. Gross Margins achieved of $3,000/ha with land valuation uplift of 20%.

Figure 3: Restoring the balancing between scaled reforestation with intensive agriculture production.

Kilter Rural has been applying itself to farming landscape regeneration since 2006, managing capital on behalf of an Australian institution for the explicit purpose of balancing intensive irrigated agricultural production with scaled biodiversity and woodland regeneration.

Currently, Kilter Rural is raising capital to expand its 15-year track record and provide opportunities for institutional and wholesale investors to participate in this exemplar format of agricultural investment. 2020 has been a year like no other, with challenges we’ve never faced, yet the climate challenge continues to grow before us.

With an established management team, existing high value offtake markets and an increasing shift towards responsible investment, Kilter Rural is encouraged by the growing trend of capital allocation towards more purposeful environmental outcomes.

We welcome the opportunity to speak to value-aligned investors seeking to gain exposure to farmland and water assets for uncorrelated returns that deliver meaningful environmental and social outcomes. For more information, please visit the Kilter Rural website.

Article by:

Angus Ingram
Manager Investments and Partnerships

A dedicated agribusiness professional with a broad range of experience and skills in agricultural production enterprises and the finance sector, Angus joined Kilter Rural in 2018.