Financing Coal farming reduces agricultural emissions, but would it be an investment product? S-bank believes it is

In Finland agriculture is going through an exceptionally bad year, but S-Bank believes the sector can be made an attractive investment destination. The bank will set up a new fund to invest in fields under coal cultivation.

Regenerative cultivation or coal cultivation refers to cultivation techniques that strengthen soil carbon sequestration. These include, for example, a diversified crop rotation, the cultivation of deep-rooted plants and scarce tillage. The country also aims to keep the green cover most of the time.

The method is attracting growing interest among farmers, and S-Bank is now trying to package an investment product that is also of interest to the market.

The fund operates in such a way that the fund and the farmer set up a joint venture to buy the field, which is further leased to the farmer under a long-term contract of 10 to 15 years. The rent is tied to the income of the field, which means that less is paid in a bad year, more in the good. The farmer has the right to redeem the field.

The purpose of the model is to facilitate the transition to coal farming, as the harvest may suffer in the first years of the transition. Similarly, later on, the method should increase the yields.

Specifically the fund invests in coal cultivation because the bank believes that it will generate higher returns in the future than from conventional agriculture.

Not only can the method increase the yield, a better price can also be expected from the crop.

Fund portfolio manager Jussi Nykänen says some food companies are already paying extra for raw material produced using carbon crops. This will help companies reduce their emissions, while allowing them to market their products to consumers in a climate-friendly manner. The trend is expected to strengthen.

In addition, S-Bank expects a market for carbon sequestration within five years. A farmer who strengthens soil carbon sequestration could then sell carbon units to businesses and consumers who want to offset their own emissions. However, Nykänen says that the fund does not rely on the emergence of a carbon market.

This is the first arable fund in Finland and the Nordic countries. Nykänen says that a model for the fund has been applied for in the United States. There are similar funds in Europe.

The fund’s basic theme can be compared to, for example, a land or forest fund. Its income consists of the production and increase in value of the field. There are also differences.

“The difference with a forest fund, for example, is that the field needs a farmer. Above all, we invest in the farmer, ”says Nykänen.

Alternatives Investment properties such as forests, plots and real estate have grown in popularity in recent years. When government and corporate loans are largely loss-making, investors look for low-risk items alongside equity investments from which even some return can be expected.

Nykänen says that the fund’s expected annual return after expenses is 4–7 percent.

S-Bank’s goal is to increase the fund to a few tens of millions of euros. As a rule of thumb, Nykänen says that one hundred hectares of arable land costs about one million euros. This would allow the fund to own some thousands of acres of arable land. There are about 2.3 million hectares of arable land in Finland.