Integrated Value for Farmers
Integrated Value for Farmers
In order to convince investors to put money in Spain, Commonland would need to begin with monetizing the tangible as well as the intangible values of landscape restoration in the Altiplano. The best way to approach this is to recognize integrated value (the total sum of financial, social and environmental capitals), include it in the cash flows, and adjust it by risks in time.
What would it mean for farmers financially if they converted to sustainable and regenerative agricultural practices?
The Commonland team has made some initial calculations of cash flows at the farmer’s level (see Spreadsheet), basing their assumptions on an average farm that follows the La Almendrehesa regenerative agricultural concept and delivers produce to the Almendrehesa trading company.
The typical farm has 50 hectares of land, 70% of which is used for farming and the rest is forest. The operating period is 30 years with the first 5 years as the initial investment period. In this initial period, the farmer would invest in regenerative farming (both land and trees) but would not see any return until the 6th year.
His/her investments in the first five years would include:
- Trees (almonds): €1,000/ha in Year 0, and another 50% (€500 per ha) in Year 1.
- Other (e.g. land maintenance): €1,000/ha in Year 0, then linearly declining in the next four years (Year 1: 75%; Year 2: 50%; Year 3: 25%).
- From Year 4 onwards, the land would only need labour.
Although investments are concentrated in the first five years, the farmer could anticipate reinvestments down the line because almond trees only live 20-25 years.
Reinvestments would include:
- Trees (almonds): Year 20 at 75% of the Year 0 investment.
- Other: Year 20 at 50% of the Year 0 investment; Year 21 at 50% of the Year 1 investment.
After the first five years of investment period, the farmer could expect gradually increased income from various sources:
- Selling crop: In the first year of harvest (Year 5), the farmer could expect an income of €1000/ha. From Year 6 and onwards he/she could expect an income growth at 4% per annual (depending on weather).
- Markup through Almendrehesa: The assumption is that farmers could sell their organic regenerative almond produce at a premium of 10% higher price than regular organic produce.
- Ecosystem-services (PES: “paying for ecosystem services”): The farmer could receive additional payment of €100/ha/year from selling land access to tour operators (€40/ha/year) and watershed services to municipalities and other governmental organizations (€60/ha/year).
- CO2 certificates: The farmer could capture on average 2 tonne CO2/ha/year on his/her land and issue CO2 certificates for €25 a piece.
During the land restoration period (Year 0-4), the farmer would not generate any income. To offset this, a €25,000 loan would be needed. The investments are funded through additional amounts (see Spreadsheet) and could be structured as below:
- Interest rate: 4% per annum
- Amortisation period: 25 years
- Years 0-5: The farmer would neither pay interest nor amortize the loan.
- Years 6-30: He/she would pay interest on loan outstanding, and linearly amortize the loan.
The farmer would also need reserve 50% of the first year’s total investment as a working capital buffer, packed at an ESCROW account. If needed, the working capital buffer could be used to fill in any financing gaps (due to unpredictable weather and other events) and the remaining working capital could be used to fund the last amortization of the loan (Year 30).
Click here to download the Spreadsheet.