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April 22, 2020

New Industry Formation in the Ancient Agricultural Industry

Farmland owners are increasingly thinking critically about the development of “sustainable” practices and effective structures to record, measure, and provide transparency to farming operations. To date, despite persistent global efforts, there has been little coordination and cooperation between agricultural reporting standards. Until now, no uniform metric system existed to enable farmland sustainability comparisons, across region, crop, or farm size. Sustainability reporting platforms take time to create, broadcast and integrate into an industry. Agriculture, and farmland specifically, is no exception.

In Accounting, we have the Generally Accepted Accounting Principles (GAAP). In Appraisals, we have Uniform Standards of Professional Appraiser (USPAP). In “Sustainability”, we have Sustainable Development Goals (SDGs). In Forestry and Timberland investing, we have the Sustainable Forestry Initiative (SFI). Each standard took time to develop, evolve and assimilate into its industry. The developmental process of the SFA standards is particularly poignant to the agricultural industry.

The SFI is the worlds’ largest forest certification standard. Though created in 1994, it was officially recognized in 2005 by the Programme for the Endorsement of Forest Certification, the largest forest certification system in the world.  The SFI Forest Management Standard covers values such as the protection of biodiversity, sustainable harvest levels, protection of water quality, and prompt regeneration. The metrics and framework is continually refined via updated SFI Standards every five years. Changes occur through an open review process inviting collaborative participation. The reoccurring update process incorporates the latest information and responds in real time to emerging issues. The newest set of SFI Standards were released in 2015 and have been extended through 2022. All SFI certifications require independent, third-party audits which are performed by internationally accredited certification bodies. The audit process involves application review, data verification and site visits. Since inception, the SFA standards have truly revolutionized the timber industry.

A new collaborative organization, Leading Harvest, is striving to push the agricultural industry into the standardized sustainability frontier once and for all. Leading Harvest has produced a standard reporting framework to quantify the sustainable nature of farmland assets. Metrics include soil health, water quality, irrigation efficiencies/conservation, energy use, waste management, and local community well-being. This effort is headed down the right path. However, widespread adoption and standardization is the next step. Data verification and audits will then follow.

When SFI was created, an entire business ecosystem arose to support the sustainability framework. Clearly, each industry’s growth is not precisely repeatable, however what transpired in the expansive industry formation of the SFI framework may serve as a model for sustainable agriculture’s framework development.

We support the new Leading Harvest sustainable agriculture standards. We project supporting industries will emerge as the demand for data collection, reporting, accounting, and third-party auditing increases. The acceptance and widespread use of the new standard will no doubt stimulate new companies, professional designations, and consulting firms to materialize raw data and reports.

In closing, as Walter Isaacson described in his biography on Steve Jobs, Steve and Apple’s invention of iTunes and the iPhone not only created new physical products, but simultaneously created multiple billion-dollar industries to support such products. These industries include app design and coding, tech support, music streaming platforms, and video/media creators. It may be a stretch to liken the development of a Sustainable Agriculture Management framework to Steve Jobs and Apple inventions. However, the historical narrative of inventions and industry formation provides context to new opportunities as industries are formed.

Here, at Root Agricultural Advisory, we are preparing to play a small role in the new industry formation.

Root Agricultural Advisory
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