Regenerative agriculture is a production model focused on restoring soil health, sequestering carbon, increasing biodiversity, and conserving water resources.
Unlike the traditional agricultural model, the regenerative approach strengthens the resilience of crops in the face of climate change, seeking to maintain high levels of productivity.
In a scenario where agriculture accounts for approximately 271 Tbp of greenhouse gas (GHG) emissions in Brazil, promoting sustainable management is essential to achieving decarbonization goals and protecting ecosystems.
Differences between regenerative and conventional agriculture
The main difference lies in how the production system is managed. The conventional model tends to rely more on synthetic fertilizers, chemical pesticides, and practices focused on maintaining productivity. Regenerative agriculture, on the other hand, seeks to restore the soil's natural functions and strengthen the balance of the production system.
In practice, this involves measures such as permanent ground cover, crop rotation and intercropping, less tilling, the use of bio-inputs, and a gradual reduction in dependence on synthetic fertilizers and pesticides. In more advanced stages, integrated production systems and continuous monitoring of soil health can also be incorporated.
Benefits of regenerative agriculture
Regenerative agriculture seeks to reconcile productivity with environmental recovery. By improving soil health and the functioning of the productive ecosystem, these practices can generate environmental and economic benefits over time.
Among the main benefits are improved soil fertility and structure, greater water infiltration and retention, increased biodiversity, carbon sequestration, and greater resilience to climate events. The transition can also contribute to greater production stability and a gradual reduction in costs associated with the use of inputs.
The challenge of financing the transition to regenerative agriculture.
Despite the benefits, the transition to regenerative agriculture requires changes in management, technical assistance, and investments, the results of which may take time to appear. This period generates risks that traditional credit instruments are not always able to absorb.
Among the main challenges are the possibility of temporary fluctuations in productivity, the requirement for guarantees to access credit, the perception of greater risk by financial institutions, and the lack of specialized technical assistance. Furthermore, producers who adopt regenerative practices do not always receive a higher price for their products, reducing the financial incentive to bear the costs of the transition.
Case Studies: BDMG, CPI, and Sitawi: How to expand access to financing in the agricultural sector.
To overcome these barriers in Minas Gerais, BDMG developed, within the scope of FiCS Lab, the Regenerative Agriculture Fund, with technical support from CPI, Sitawi Finanças do Bem, GAAS and WayCarbon.
Sitawi contributed to the modeling and financial structuring of the instrument, developing mechanisms applicable to the reality of rural credit.
The key difference was integrating risk reduction mechanisms for cooperatives and producers into a single structure, while also considering the characteristics of the territory. The BDMG Regenerative Agriculture Fund was designed with three interconnected mechanisms, linked to the bank's credit lines:
- Credit guarantee fund: It reduces the risk assumed by cooperatives and allows for greater access to financing with less dependence on physical collateral.
- Technical support: Monitoring and training to support the implementation of regenerative practices and reduce technical risks during the transition.
- Production support fund: Non-refundable and conditional financial support to cover any losses associated with the transition.
The role of Sitawi Finanças do Bem
Sitawi was directly involved in the financial structuring of the Regenerative Agriculture Fund, including the design of the guarantee fund and complementary mechanisms, financial modeling and investment thesis, drafting of regulations, support for the investor pitch, and the development of a vulnerability framework in biodiversity, water, climate, and communities.
Pathways to financing the sustainable transition
The BDMG case demonstrates that expanding regenerative agriculture requires more than just providing credit. It is necessary to combine adequate financing, risk mitigation mechanisms, and technical assistance to create conditions that allow producers to successfully make the transition.
Do you want to understand how to structure financial solutions to make socio-environmental projects viable in your institution? Talk to Sitawi.
