TAKE-AWAYS
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SEC regs around investing, now geared to large-scale public market projects, should be revised to include community-level, small-scale investing.
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Investors need to be better educated about the unique risk/return tradeoffs of farmland as an asset class.
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Farmland investors can help small farmers on the road toward farm ownership if deals are structured with the interests of both parties in mind.
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To succeed, small-scale farming requires holistic management and collaboration across small farms.
TALKING WITH Kevin Egolf of
Local Farms Fund
Contributor: Kevin Irby
Kevin Egolf is an impact investing professional focusing his efforts on socially responsible farmland investing. His passion for sustainable agriculture and extensive finance background naturally led him into the growing impact investing field and towards agriculture.
First through Iroquois Valley Farms, a leader in triple-bottom-line impact farmland investing, and now as co-founder and manager of Local Farms Fund, an early-stage-farmer land-access venture in the New York Foodshed, Kevin is helping investors achieve financial returns while providing social and environmental benefits alongside their investment gains. At the same time the Fund is enabling early-stage farmers to lease land that they will ultimately own. Local Farms Fund is opening the doors of private investments to all investors, including non-accredited, following the principles of Slow Money.
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What do you consider to be the greatest challenges constraining the further growth of the Regional Regenerative Food System?
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KEVIN EGOLF:
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The biggest challenge right now is the fact that the true cost of food is not being paid for by the consumer. For example, you go to the grocery store and you buy $1.99/lb ground beef. At that price it has costs related to environmental cleanup, healthcare, and other externalities that the consumer is not paying for. However, when you go to someone who is growing pastured grass-fed beef under humane, holistic management, and doing so in a regenerative fashion, that ground beef is going to cost $8.99/lb. While some of that price differential is related to scale and inefficiency, the majority is externalities and other factors not recognized in the price of the $1.99/lb beef. If those costs were brought into the cost of food it would shift peoples’ buying behavior.
There are also regulatory hurdles that are substantial. The entire system is geared towards large-scale agriculture that can afford to absorb the costs of regulation, while the emerging regenerative food system is smaller and encumbered by the same regulation. Another is the carrying capacity of land, and its appropriate use. Given every region’s unique setting, processing and distribution will need to be designed to meet the system’s carrying capacity.
In a regional system, it is not feasible to be a diversified farm operation and still be competitive in the larger market. However, at a smaller, local level, diversification is feasible. A regional farming system could be feasible if there were strong holistic management of each small farming enterprise, and/or collaboration with nearby partners.
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What are the principal issues that impede your own work as a collaborator in the Regional Regenerative Food System?
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KEVIN EGOLF:​
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Regulations around investing with securities are set up to work in favor of large institutional investments, and not well set up for community-level investments. While understanding the reasons behind it is to protect smaller investors, it creates substantial hurdles around raising capital for community-level investments except for giving small amounts of money to nonprofits. However, there is a whole realm of opportunities to fund projects that will make a community-level impact.
An ingrained reality in the finance system is the perception that all that matters when you invest money is to make more money. That excludes the idea that return could include environmental and social returns.
It also reflects a view of the marketplace that everything can be converted to numbers and that anything that is unitized is equivalent. That is definitely not the case for these farm investment marketplaces. It is not like you can you have a field of carrots and say what it is worth—someone give me the money—because there are way too many variables that would affect that value calculation.
Specifically related to farmland finance, agricultural land as an asset class is not well understood by the broader investor base. Broadly speaking, investors don’t realize that they’re investing in a non-correlated, non-volatile asset where the returns are lower but less volatile. As a result, they often push back on a projected return that isn’t correlating to their benchmark for “market” in their higher volatility asset classes.
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What (learning, distribution, information, infrastructure, etc.) networks are the most vital to your work and what networks would you like to see built or made more robust?
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KEVIN EGOLF:​
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Particularly in the Hudson Valley, preservation and conservation is extremely vital to farmland affordability. On top of that conversation, the expansion of farmland affordability provisions within those conservation efforts is essential to the long-term viability of agriculture. This would need to be alongside a reasonable level of development in parallel to conservation. Columbia County is an example of a municipality trying to address this parallel requirement, trying to both preserve land but also provide the land accessibility for existing and incoming agricultural practitioners. These efforts need to take into consideration the cost and expected usage of agricultural land.
In general, all the great organizations that are supporting and scaling-up impact investing need to be made more robust and better connected. As someone who promotes an impact investment option, it is essential for me to be able to point to examples of it more broadly. Growing an investor network with a triple-bottom-line focus and an awareness of that network are essential to my ability to raise and deploy money. Now, for example, we find people often confuse “SRI light” funds or ESG Funds with true impact investment; the industry needs to identify and educate that these are distinctly different vehicles.
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What data that is not currently publicly available to you would be most helpful to your work?
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KEVIN EGOLF:​
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For the farmers that I work with, it could be a better understanding of the regional system and its opportunities in order to better evaluate and make decisions. Otherwise, that is a difficult question to answer given I don’t know what I don’t know!
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Do you currently track data (or does your network) that would be useful, if aggregated with other data in a shared database, to help grow the Regenerative Food Movement in the Hudson Valley?
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KEVIN EGOLF:​
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Information around alternative capital sources would be beneficial given the intricacies around SEC regulation and related matters. People have a hard time knowing what they can and can’t do. Generally more conventional legal advice is either too costly or conservative, yet there are ways to use these regulations appropriately that can help farmers make decisions on raising alternative types of capital, whether that’s more traditional or less traditional structures.
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What are the partnership models that work best for farmland investors/farmlandowners and farmers?
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KEVIN EGOLF:​
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There are two investment models I have seen that work very well for farmers. One is you have a landowner willing to make the capital improvements—paying for fencing, irrigation or a storage shed. If the landowner is willing to put up some capital to support a farm operation they will attract a lot of capable farmers. The other option is to give the farmer long-term security with a lot of flexibility. They are then willing to put up the capital to put the fences in, to put up the small barn, to put in irrigation. How long the lease needs to be to provide that security depends on the type of farming operation and the capital needed. There may be some early testing of waters in the relationship but with the expectation that if the relationship works the owner will provide that long-term security.
The Local Farms Fund typically gives the farmer a 20-year lease with an option to buy at a specified price in 5 years.