We have noticed increased interest at the paddock level in organic management systems at the same time as we are experiencing a wave of active interest from an investment perspective.
In this note we explore some of the implications of these developments.
Appetite for Organic
- As investor demand for genuine and measurable HSI (high sustainability investments) increases, so too does interest in an organic approach at the paddock level; driven no doubt by the significantly large difference between the organic and conventional market price for milk ($9.20/KgMS vs $4.75/KgMS).
- Demand for other organic protein (lamb and beef) remains strong out of NZ with encouraging signs for further development in these sectors. The advancement of these sectors is extremely supportive for the dairy sector as well as there is a strong overlap between them.
- From an investment and operational perspective the previous pursuit of an intensive input reliant strategy on farm, creates limitations to the successful application of an organic approach within an inevitably constrained investment period/fund life. Biological processes are not necessarily respecters of human imposed deadlines.
- One of the biggest mistakes investors make is to see animals grazing outside and think that is organic or ‘close to’. As New Zealand’s polluted waterways attest this is most certainly not the case.
- Given that organic conversion is a three year process and that biological ‘turnaround’ as mentioned above can take years, it is important to understand whether the shift to organic will be achieved sufficiently well and within the required time frame to deliver the targeted financial performance. In simple terms, the more intensive a system has been the longer it will take and the more problematic the process will be.
- If you are setting out to convert to organic part way through a finite investment vehicle’s life, it may already be too late to make any positive impact on the existing underperformance.
- Organic conversion takes time (and not just the certification period) and is challenging.
- Lack of knowledge and experience can be costly in terms of time and performance.
- Measurement of climate change/ecological performance clearly illustrates the differences between ‘grazing outside’ and measurably sustainable (eco-literate) management, although these are not often factors on the investment ‘tick list’. A genuine focus on HSI demands it.
- Without the required expertise avoidable mistakes are likely to be made in the conversion process which can delay the ability, not so much to achieve certification, but to achieving an optimal state of performance.
- Knowledge of pastoral farming does not equate to knowledge of organic pastoral farming. With the right attitude and approach, however, a sound pastoral understanding provides a good basis that, when combined with the input of specific organic management expertise, facilitates the delivery of a successful outcome.
- An excellent conventional operator will have the ability to succeed in organic management but without specific knowledge input he/she will take longer than they otherwise would and that is potentially negative for the return profile.