What is holding back capital flows in regenerative agriculture?

A few weeks ago, we explored the need for capital orchestration to drive the transition to regenerative agriculture in the Midwest. During the first co-creative session, our Design Council identified the key challenges to both capital orchestration in the system, as well as increasing capital flows into regenerative agriculture overall. Here’s a bit of a summary of what we surfaced together.

As a reminder, we are in the second stage of our Regenerative agriculture in the Midwest prototype. We’re collaborating with a group of 20 leading investors, funders and farming organizations to design an innovative financial platform to align and deploy multiple capital types to build a sustainable and profitable future for the sector. We’re blogging about the co-creation process here as we go and you can see a list of previous blogs at the end.

The great capital mismatch

At the highest level, there is what might be termed a ‘mismatch’ between system financing needs and existing capital pools. There are effectively three categories to this capital mismatch: the quantum, the capital type and the timeframe.

1. There isn’t enough money. Most of the lenders operating in this space are telling us that they have more demand on the farmer side than they can currently meet, for example. They are constantly under-resourced, and — due to the nascent nature of regen ag as an asset class — continually ‘fishing from the same pool’ of family office and foundation funding. The cheque sizes are still relatively small ($1–5 million), and so these asset managers are left constantly ‘pounding the pavement’, without ever raising enough money to fulfil demand.
2. Funding and investment structures are often misaligned with what’s needed. We tend to build what can be financed, rather than what’s necessary. The obvious example is ag tech, which is seen by commercial investors as the easy place to put money, even if often this doesn’t align with the most urgent financing needs in the system. This creates an overconcentration of capital in certain spaces, and a situation where we have a multiplicity of carbon credit marketplaces and precision agriculture companies, yet many farmers are struggling to get loans that can support them to transition to regenerative practices. Even philanthropic funders can be tightly tied to specific strategies and don’t always have the capacity and flexibility to stretch to where the greatest need is at that moment in time. What regenerative agriculture needs to grow and scale is truly flexible capital, which there is a shortage of in the market at the moment.
3. There is a profound misalignment between investors’ liquidity preferences and the time horizon of regenerative agriculture. Investing in the transition to regenerative farming practices is an inherently long-term proposition. Unlike short-cycle returns based on an 8-month harvest (or less), regenerative agriculture is about multi-year soil regeneration. The real benefits don’t show up until year 4 or beyond, and it’s difficult to exit early. In the words of one stakeholder: “We have a tendency to finance projects, but we need to build systems. It’s hard to diligence systems.”

To drill down a bit deeper, why this mismatch?

Regenerative agriculture is poorly understood as an asset class

Part of the reason it is hard to tap into certain capital pools is the lack of investor understanding of regen ag as an asset class. Regenerative agriculture is simply not as standardized as some other asset classes, such as renewables projects for instance. So investors naturally find it harder to fit it into their portfolios.

Additionally, the main sources of finance for Midwestern farmers are Farm Credit cooperatives and banks, and here there is a nascent understanding of sustainability and regenerative agriculture. To unlock capital from these institutions, targeted education and compelling case studies of successful regenerative agriculture financing are essential.

Data gaps

There are two types of data gaps which are particularly relevant here.

1. Capital flows. There is currently no platform which tracks financing flows or financing needs in regenerative agriculture — making it really challenging to undertake a comprehensive gap analysis around where capital is most needed.
2. Financial resilience and profitability. We still don’t have a clear, systematic understanding of how specific practices — like no-till, cover cropping, or rotational grazing — affect outcomes like yield stability, input costs, or climate risk exposure. While pockets of this data exist, it’s fragmented and siloed — making it difficult for investors, lenders, and operators to build confidence or model risk-adjusted returns. Without that evidence base, capital allocators remain hesitant about regen ag, and adoption is slow.

Lack of market for regenerative products

Some say that without demand-side solutions progressing, we can work on supply-side solutions until the cows come home (see what I did there?!) without really ever taking this to scale. The vast majority of consumers aren’t interested in paying even more at the grocery store. And many cannot afford premium products. There are those who disagree with the market-driven argument for regenerative agriculture, and point to different models which don’t focus as much on supply-side solutions. But that’s for another blog!

Why isn’t the existing capital better orchestrated?

Operational complexity

Well, for starters, orchestration is perceived as costly, complex and time intensive. It’s not that coordination of capital hasn’t been tried, but no one has yet cracked a model for this which comes with operational simplicity and broad buy-in. What orchestration does currently exist, typically boils down to informal networking and word-of-mouth alignment. Formalised collective action is still very nascent in the field.

Compounding the problem is the inherently competitive nature of the investment industry. Investors are often incentivized to protect proprietary deal flow, differentiate their thesis, and secure outsized returns — dynamics that make collaboration harder. Even when missions overlap, investors may hesitate to share data, co-design blended vehicles, or align underwriting approaches.

Herding cats

As with every co-creative piece of work, there is the challenge of coordinating diverse and competing interests. In particular, there is still a lack of alignment on what ‘scale’ and ‘impact’ mean in regen ag. Is it about scaling up regenerative practices within the existing parameters of Midwest farming? Or is it about an entirely different farming system — one which is more diverse, and more focused on establishing regional foodsheds and connecting farmers directly to consumers? This is just one polarity which pops up often in debates.

Power and legitimacy

Orchestrated by who, and on whose behalf, is a question often heard in regen circles. The challenge for capital orchestration is therefore also to operate in an inclusive, equitable and participatory way, overcoming scarcity mindsets and cultural barriers in this space. So that it is not perceived as just ‘another initiative competing for scarce funding dollars’ or — from the standpoint of funders — ‘just another initiative in a crowded landscape’, which runs the risk of being confusing and distracting.

The 800-pound gorilla in the room

And, of course, all the solutions we create need to be designed in the context of the US federal farm safety network and the billions of dollars that go towards derisking conventional agriculture. If we cannot change federal programs to benefit regenerative operations, then we need to think about how we can use private solutions for things like data gathering, credit enhancement, transition loans and insurance.

This work is perceived as risky. And rightly so: it is risky! It is also about jumping into the unknown, because the concept of capital orchestration is relatively novel and unexplored, so there will be capability and knowledge gaps. But it is also deeply needed and potentially transformative. As Einstein said, “We cannot solve our problems with the same thinking we used when we created them.” In the next blog, we will share the emerging thinking that could address some of these challenges.

If you want to learn more about systemic investing, take a look at our Hallmarks of Systemic Investing paper here.

Read our previous blogs about this prototype:
Capital orchestration for regenerative agriculture
Transition mapping: a strategic blueprint for capital allocators?
Systemic Challenge: Farmers’ Trap