Fractal’s theory of change

Raising the floor by harnessing private sector to drive rapid, scaled change in agriculture

The context that Fractal is operating in

First, regenerative agriculture has massive potential [1].  If you’re considering regenerative agriculture as an impact investing thesis, you may know something about the fact that regenerative management can build soil carbon in working lands that results in both mitigation AND adaptation - to use the fancy jargon. The fact that soil carbon helps reduce atmospheric concentrations of CO2 and helps farmers be more prepared for the extreme weather [2] that the already baked in warming will throw at us is one of those unique win-wins [3]. 

There are no silver bullets

But there are challenges, especially that we’re in a time where there are no silver bullets. If there were, we wouldn't be staring down such huge, hard problems. The challenges that face regenerative ag are both technical and at the system level. Technical challenges are in the form of modeling and measurement, new inputs and technologies that still need lots of development. At the system level, there are structural barriers to adopting some of the most immediately available changes: in the form of cost and risk of adopting new practices.

Scale: regenerative ag’s greatest strength but also its greatest challenge

And finally - when we think about the climate potential of regenerative agriculture, it’s important to emphasize the spatial scale. In the US alone, we have 250 million acres of working lands (if we just consider land planted in row crops as a first approximation). If you’re looking to invest in climate interventions that can deliver, say, 100 million metric tons of carbon sequestration - US row cropland has that potential. But the scale of this potential solution is both regenerative agriculture’s greatest strength and its greatest weakness.

Direct land management is one possible solution - i.e. just buy the land and make the management changes. But even setting aside the very material social concerns about large scale corporate land acquisition as a strategy, there are also some basic challenges - like the fact that farmland comes for sale slowly. In Illinois - which sees some of the highest turnover, you get an estimate around 1% annually. The pathway to regenerative ag adoption is not through direct ownership and control - instead it’s by building systems that support and incentivize the folks who own and manage this land: principally farmers and ranchers.

We are fundamentally out of time

And look, change has to happen NOW. It actually needed to have happened years ago. But every. single. year is a year lost. And it certainly needs to happen in the next 3-5 years to avoid the worst climate change scenarios that are looking increasingly likely [3].

We need to raise the floor on this system

So here's how I’m thinking about the challenge of enabling regenerative ag - and why I helped co-found Fractal after working directly to build one of the largest soil carbon programs at Corteva. The framework I think about, per my earlier point about no silver bullets and extreme urgency, is that you take a portfolio approach to impact. We need to be thinking about both pushing up the ceiling while also raising the floor.

Pushing up the ceiling solutions to me are ones that fully and completely transform the way we grow and eat food in this country, and consequently the way we manage working lands. 

There are some truly incredible companies taking this approach. In the technological and inputs role you have folks like Sound Agriculture , Yardstick, and Edacious, PBC - and in the financial world you have MadAg, Iroquois Valley Farmland REIT for example. These folks are ones that are providing new transformative tools and approaches to provide truly novel ways to incentivize increasing soil health through a combination of tools and transformed food systems. You should fund them.

But I think we also need solutions to address the huge amount of land that needs to transition much faster than 2030. Solutions here are ones that raise the floor in that they need to be able to scale, rapidly moving all row crop acres along the adoption spectrum no matter where they start, and to have a path that does not ultimately need "impact" focused folks to fund. Because, sadly, there is a significant gap between the supply of impact-focused capital and the demand to achieve our climate goals.

Fractal’s approach build a solution built to harnesses commercial capital to drive impact

Fractal is an investment platform that brings private capital alongside farmers to invest in their farm businesses. We solve a big capital gap for farmers, and by doing so also give investors exposure to US farmland as an asset class. To do this we value both climate risk and soil health in terms of land valuation and in cost of capital - offering valuations that account for soil health and a reduced cost of capital proportional to the depth and breadth of a farmer’s regenerative practices. As such, farmers with high quality soils are likely to see higher land valuations and a cheaper cost of capital and we provide a financial incentive for all farmers to broaden and deepen their regenerative practices.

We think this is a massively scalable way to start tearing down the financial barriers by building an approach that can harness the interest private capital has in US farmland at scale, while aligning financial incentives for growers to adopt soil health practices. And we do this all while keeping farmers in control of their land and their businesses. All of which deliver the adaptation and improved cash flows that make investing in soil a good business investment, even ignoring the climate benefits.  

The potential of regenerative agriculture in combating climate change is big, but not without challenges. We think Fractal has developed an approach to support and incentivize those managing the land that is commensurate with the scope of U.S. row crop farmland and the need for rapid, large-scale change. By offering a new equity financing solution for farmers, we're incentivizing investments in soil by harnessing the engine of private capital demand for farmland investment. 

If you share our focus on urgent and scaled impact and are excited to explore the possibilities within regenerative agriculture, let me know. And if you’re a farmer or an investor - let us know what you think. emma@fractal.ag.

1. Estimates vary but recent estimates for US cropland peg it at close to 160 million tons carbon sequestered (Sekera et al. 2023).

2. Analysis of USDA crop insurance data shows history of regenerative agriculture practices affects probability of filing a claim in a year of extreme precipitation

3. https://iopscience.iop.org/article/10.1088/1748-9326/ac6ff6/pdf