Doing More With Less: Sustainability & Stewardship in Agriculture

Doing More With Less Sustainability And Stewardship In Agriculture APRIL 2022

W

ith farmland—perhaps more than any other asset class— there is no “green-washing” required: economic incentives are truly aligned with sustainability,

allowing investors to achieve their sustainability goals without sacrificing returns.

Ceres Partners has been a leading investor in US row crop farmland since 2008, and today owns and manages over 150,000 acres across 11 states. Ceres is a long-term investor with a 20-, 30-, or even 50year time horizon. Our continued success—and that of our farmer-partners—demands our joint good stewardship of the natural resource which is our land.

In other words, economic incentives closely align with long-term success for investors and farmers.

At Ceres, we advocate a holistic view of sustainability in agriculture that balances the need to provide food for a population forecast to reach 9.7 billion in the next 30 years with using fewer resources, protecting the environment, and supporting local communities.

As stewards of a renewable resource, we focus on five key sustainability principals. Our commitment to these five principals is evidenced by our longstanding practices and policies and measured by key performance indicators.

1. Producing More with Fewer Resources.

2. Conserving Scarce Water Resources 3. Expanding Renewables and Conserving Energy 4. Maintaining & Enhancing Soil Health 5. Supporting Family Farms and Local Communities We believe that U.S. rowcrop farmland is the core asset in any farmland portfolio, and that other investments should be evaluated on their incremental return vs. incremental risk. Ceres’ focus on the U.S. and overweight to the Midwest gives investors access to the “Park Avenue” of global farmland: highly productive soils; recharging water resources; guaranteed title to land; sophisticated farmers with the latest technology; and unsurpassed road, rail, and river transportation infrastructure.

There is no “greenwashing” required: economic incentives are truly aligned with sustainability

CERES PARTNERS BY THE NUMBERS

2008

Ceres Partners is Founded

35,000 Acres optioned for solar development (24% of total)

$1.1 Billion

Assets Under Management

13

Wind Turbines generating 39 MW of capacity

80% / 20%

Farms Utilizing Precision Agriculture

95% / 5%

Electric / Diesel Split for Irrigation Systems

33% / 67%

Irrigated / Dryland Split

Commodity / Specialty Split

92%

150,000

Acres Under Management

11

State Geographic Distributions WI 4.8% NY 3.0%

100%

Acreage with Robust Unrestricted Water Resources

MI 29.4% OH 5.8% IN 31.4% IL 10.0% KY 5.0% TN 1.0% GA 4.6% AR 4.0% LA 1.0%

2

PRODUCING MORE WITH FEWER RESOURCES

N

o discussion of sustainability in agriculture can ignore the paramount requirement to economically provide food for a global population. The UN Food and Agriculture Organization (FAO) projects that the global population will grow almost 25% from 7.8 billion to 9.7 billion in the next 30 years. But it is not simply a case of feeding more mouths. The population is growing in the developing world – primarily sub-Saharan Africa and Southeast Asia where

diets remain almost entirely cereal-based, so agriculture needs to feed more people with better quality

Population Growth By Region (2020—2050) 7.8 Billion ➞ 9.7 Billion =250 Million

Latin America / Carribean

2020

2050

Southeast Asia

Near East / North Africa

East Asia / Pacific (excluding China)

Southeast Asia SubSaharan Africa Rest of World

Source: UN FAO 2050 Data Portal

diets, including more animal protein. But it takes more than 1 pound of feed to make a pound of meat, from 1.2 pounds of feed per pound of meat for farmed salmon, to 8.7 pounds of feed per pound of beef. The result according to FAO is a 60% increase in demand for agricultural output from 2010-2050.

Feed to 1lb of Meat Conversion Feed (lbs) 9 8

Beef 8.7

5

Pork 5.9

2 1

water; less fossil fuel; less fertilizer; less chemicals. Over the past 30 years, arable land has increased by less than 1% and sustainability are closely aligned, and farmers have been improving factor productivity for decades – in other words, producing more with less.

4 3

demand with fewer and fewer resources: less land; less

according to the FAO. Fortunately, economic incentives

7 6

Yet going forward, agriculture must meet this ever-growing

Chicken 1.9 Salmon 1.2

Source: National Marine Fisheries

At Ceres, we typically make any yieldenhancing improvements (e.g., irrigation, drainage) within the first year we own a farm (often before the next planting) and lease that farm to top local family farmers who have the sophistication and the technology to optimize yields with minimum inputs.

Today, leading farmers, including over 80% of Ceres’ tenants, utilize a suite of tools collectively known as Precision Agriculture to maximize yields while minimizing inputs World Yield of Key Crops (Metric Tons Per Hectare) 6 5 4 3 2 1 1972

1979

1986

1993 Corn

Wheat

2000

2007

2014

2021

Soybean

Source: USDA

(e.g., seed, fertilizer, chemicals). Farmers can target fertilizer only along the row of seeds, so they are not wasting nutrients on the space between the rows where the plants’ root systems can’t efficiently absorb them and where the leftover nutrients can end up as runoff. Farmers can also vary the seeding density and the application of fertilizer across a field to reflect variations in soil, as well as target use of herbicides, fungicides and pesticides to problem areas of fields to minimize usage. These hi-tech tools enable farmers to minimize inputs while optimizing yield.

Over the past 30 years, arable land has increased by less than 1% according to the FAO.

CONSERVING SCARCE WATER RESOURCES

I

t should be no surprise that arid areas in

Whether directly or indirectly priced, farmers have

the Southwest, California, the Plains and

huge incentives to reduce water use and to allocate

Pacific Northwest have become major

water to those crops with the highest return.

farming centers. Farming in arid climates with irrigation is easier than in humid

States Where Ceres Invests

climates because there is less pest, weed and

WI 4.8%

disease pressure on the plants. But irrigating

NY 3.0%

deserts comes at a cost. In the U.S., the massive

MI 29.4%

Ogalala Aquifer which runs from Kansas through

OH 5.8%

large parts of Nebraska, Oklahoma, and Texas has

IN 31.4%

been depleted by a combination of farming and

IL 10.0%

population growth. And in California, wells are now

KY 5.0%

over 1,000 feet deep and the water they provide

TN 1.0%

is often laden with salt and minerals. Investors

GA 4.6%

must recognize that land with depleting water

AR 4.0%

resources is ultimately a depreciating asset where

LA 1.0%

land with recharging water resources becomes an appreciating asset.

As long-term investors, Ceres has always valued

Here again, economics and sustainability align.

water resources over water rights. We believe

Water has not yet been explicitly priced in the U.S.

it is only a matter of time before water gets

as it has in other countries such as Australia, but

priced (directly or indirectly), or simply becomes

Ceres and many observers believe it is inevitable

unavailable for agriculture as water gets allocated

in parts of the country with scarce water resources

to populations centers. It may take 5-, 10-, 20-

(e.g., California, Pacific Northwest, Great Plains).

or even 30-years, but we do not want to own arid ground when the water becomes prohibitively

¢5.149

California Crop Revenue (cents) Per Net Gallon of Irrigation Water

expensive or runs out. Arid farmland without irrigation has little-to-zero value. Consequently, rather than investing in areas with depleting resources and ill-defined, unpriced, and contested water rights, Ceres has invested in regions with

Vegetables & Horticulture

Source: UC Davis Center for Watershed Scienes

robust and recharging water resources. 100% of our farms have robust water resources with no restrictions on water availability.

For 80% of Ceres’ acreage, irrigation is

Fruits & Nuts Rowcrops

¢0.734

supplemental: farmers typically rely on natural

¢0.146

rainfall but can irrigate when/if needed. 81% of Ceres’ acreage is in IL, IN, MI, OH, and WI – the

In the meantime, water is priced indirectly via the price of land with perceived water rights / access.

five states atop the Central Lowland Province (CLP) Aquifer. The aquifers underling California and the High Plains are being depleted, and

Land with depleting water resources is ultimately a depreciating asset, where land with recharging water resource becomes an appreciating asset

agriculture accounts for over 90% of withdrawals.

distributed annual rainfall of 36-44 inches per year

In contrast, according to a recent whitepaper from

provides abundant recharge.” And for the 10% of our

Suez Advanced Solutions “irrigation accounts for

acreage where irrigation is required (ground in AR,

only 22% of withdrawals [from CLP] … Steady, well

TN, LA, GA), we sit atop renewing water resources.

MAINTAINING & ENHANCING SOIL

A

griculture cannot achieve its paramount goal of feeding the world without maintaining and enhancing the soils in which we grow crops and adopting practices which sustain

the fertility of the ground, rather than “mining” the soil for nutrients then moving on. Here again, economics are aligned with sustainability.

Agronomic practices vary by region, but cover cropping, no- or limited-tillage, and crop rotations all have a role to play. With rising crop prices and land values – land is the sole limited factor of production – farmers and landowners have a strong incentive to protect the value of their asset by maintaining and enhancing fertility.

Most responsible institutional farmland owners in the U.S. are supporting and certifying their acreage to the Leading Harvest Sustainable Farmland Management Standard. The Leading Harvest

Our farmerpartners view Ceres’ ground as their own… they are our partners in stewardship

Standard was developed by a working group comprised of Ceres along with other farmland investors, the Conservation Fund, and other stakeholders. Leading Harvest provides investors, customers, stakeholders, and the public assurance that farmland is being managed sustainably.

At Ceres we go further than just meeting the Leading Harvest standard. One of the keys of our strategy is forging long-term partnerships with our tenants so that our interests in stewardship are aligned. Many farmland managers believe they can get the best

tenants look at Ceres as a long-term partner, and

return through a series of one-year competitively

fully expect to be farming the ground they rent

bid leases. However, farmers on short term leases

from us for many, many years. Consequently, our

with no expectation of long-term tenancy are

farmer-partners view Ceres’ ground similar to

not stewards of the land. Their incentives are to

their own. They work in the off-season to maintain

mine the soil, rather than to invest in enhancing

drainage and clear brush, and they invest in applying

productivity. Ceres’ typical lease is three- to

lime to correct/maintain pH levels, the benefits of

five-years, and our farmer-partner relationships

which last for multiple crop years. In short, they are

typically last much longer. Furthermore, our

our partners in stewardship.

LEADING HARVEST SUSTAINABLE FARMLAND MANAGEMENT STANDARD

Ceres Partners was a

The Leading Harvest Standard

proud member of the

includes Objectives which

Sustainable Agriculture

cover a broad range of issues

Working Group (SAWG)

from climate change and

which brought together

biodiversity to the resilience

diverse stakeholders including farmers,

of Ceres croplands and the health of the

conservationists, landowners, and

communities in which Ceres farms.

investors to develop a single standard for sustainable farmland management.

In 2020, the SAWG launched Leading Harvest, an independent non-profit established under the auspices of The Conservation Fund, to promote sustainability practices in agriculture.

Leading Harvest is governed by a Board of Directors with equal representation from the Social, Environmental, and Economic spheres, and is supported by participating farmland managers and owners.

The Leading Harvest Standard can be applied across diverse crops and geographic regions because it is outcomesbased, empowering farmers to adopt agricultural best management practices specific to their crops and their regions. It replaces a complex web of sustainability platforms designed around a single crop and/or region, and each with different data tools, metrics, and scorecards. This patchwork approach has been a barrier to participation.

Summary of Objectives: 1. Sustainable Agricultural Management to practice sustainable agricultural stewardship to improve crop production and ensure long-term agricultural sustainability.

2. Soil Health and Conservation to maintain or enhance soil health to optimize crop yield and protect long-term soil productivity on agricultural lands.

3. Water Resources to protect water resources and manage water for efficient agricultural productivity 4. Crop Protection to achieve crop protection goals while protecting people and the environment 5. Energy Use, Air Quality, and Climate Change to conserve energy used by agricultural operations and minimize adverse impacts to the atmosphere and the global climate 6. Waste and Material Management to manage food waste, agricultural chemicals, and other materials from agricultural operations to minimize their adverse impacts on people and the environment.

SUPPORTING FAMILY FARMS AND LOCAL COMMUNITIES

A

griculture must be a good neighbor and

Farmland in the Midwest has been averaging over

ensure that the local communities and

$10,000 per acre at auction recently. That means

farmers are economically sustainable.

that a minimally efficient family farming operation

This is particularly true in parts of the

needs to farm $25 to $30 million of ground. Very

developing world where agriculture

few farmers own all their ground, and those that

is big-business, and the rights of small holders and

do typically acquired their ground generations ago.

native communities are threatened. Responsible

More typically family operations own 500 to 1,000

farmland investors operating in these remote areas

acres and lease the rest.

of the developing world understand this. Investors in South American farming understand that if you’re farming at the end of a very, very long road, then you provide shelter, food, education, and healthcare.

Ceres is an attractive partner for our family farming tenants because we actively acquire ground for them to farm, and we invest in improvements (e.g., irrigation, drainage, grain storage) that increase

In the U.S. the situation is different – crop farms

the productivity of the land. In other words, Ceres

are typically family operations, not big-business,

provides the balance sheet to help them expand

and the best way to support farming communities

their acreage, and we do so with a long-term

is to help family farms remain economically

partnership model, rather than the short-term

sustainable. Ceres works with over 125 tenant-

transactional approach of most farmland owners

partners, and we classify 97% of those as family farms. Partnering with Ceres allows those family farms to gain scale via rented ground that they could never hope to achieve with their own balance sheets.

The history of farming is one of everincreasing minimum efficient scale. In the period after the Civil War, the Midwest was broken up into 160-acre “Quarters” (160 acres is ¼ of a square mile), because that is what “one-man and one-mule” could effectively farm. Today, a minimally efficient corn and soybean farm is 2,500-3,000 acres (wheat, a less valuable crop requires even more acreage), and many families farm 5,000-10,000 acres. A 2,500-3,000 acre farm would be “two brothers and a hired man.” 1,000 acres of corn and soybeans, which sounds like a lot to most people, is a “side-gig” – more than a hobby but not sufficient to sustain a family.

1,000 acres of corn and soybeans is a “side-gig” – more than a hobby but not sufficient to sustain a family.

PROMOTING RENEWABLES AND CONSERVING ENERGY Agriculture is not only a user of fossil fuels, but also

turbines on our farms with a combined capacity of 39

a major component of the solutions for renewables.

MW. As more and more states mandate higher and

Limiting greenhouse gas emissions by reducing use of fossil fuels is a key consideration. While Ceres does not control farming operations, we do own the center-pivot irrigation systems and water drainage pumps on our farms. Ceres has had a longstanding practice of converting diesel powered center-pivot irrigation systems, wells, and pumps on farms we buy to cleaner electric power. We also typically install electric-powered systems when we are adding

higher renewables requirements for their electricity supply, developers are looking for suitable acreage.

Meeting these mandates will require a massive buildout. A 125 MW utility-scale solar farm (enough to power over 100,000 homes) in the Midwest will require approximately 1,000 acres of land. Ceres has been actively working to promote solar development for nearly five years and today over 34,000 acres (24% of our portfolio) are optioned to solar developers.

irrigation to a dry-ground farm or pumps to farms in

Supporting sustainable solar development is good

need of drainage. Today over 95% of the nearly 500

for our investors. Option payments alone contribute

irrigation systems we own are electric-powered.

significant revenues, and as farms are developed,

At Ceres we are also actively engaging with utilityscale wind and solar developers to help them bring their projects to fruition. We currently have 13 wind

we expect to realize significant appreciation – solar rents and purchase option values are approximately 2.5-3.0 times farm rents and values.

WALKING THE WALK

KPI’s

PRACTICE & POLICY

It is one thing to talk-the-talk and espouse principals of sustainability. It is another thing to walk-the-walk.

At Ceres we have always been long-term stewards of the farmland we manage, and we have longstanding policies to support the 5 principals of sustainability. Moreover, we have performance indicators to measure our progress.

Produce More with Less Resources

Conserve Scarce Water Resources

Expand Renewables & Conserve Energy

Maintain & Enhance Soil Health

Support Family Farms & Local Communities

Partner with farmers who have technology to optimize inputs

Invest in regions with renewing resources

Convert irrigation systems to electric

Evaluate local water resources and regulations of new acquisitions

Actively seek solar projects across our portfolio

Ceres is long-term steward of farmland and a founding member of Leading Harvest

Enable family’s to farm more acres than they can own, thereby bringing additional family members into operation

Ensure efficient water usage practices are implemented

Confirm wells meet all regulations 92% of farms utilize precision agriculture / variable rate fertilizer

100% irrigated acres on robust unrestricted water resource

>80% of irrigation systems utilize remote targeted irrigation systems

80% of irrigated acres supplemental (irrigation not necessary for yearly crop production) 100% of wells meet all regulations

Participate in wind development projects

>95% of irrigation systems on electricity 24% of portfolio optioned for solar development 13 wind turbines with combined 39 MW capacity

Require soil tests to confirm key nutrient levels are maintained Certification to Leading Harvest Sustainable Farmland Management Standard 50% of farms utilize no-till or limited-till 100% of leases require soil testing

Welcome open dialog with all stakeholders >125 family farmer-partners with longstanding relationships 100% of properties listed publicly on website to promote transparency for community stakeholders

Main Office 18 Shipyard Drive Suite 2B Hingham, MA 02043

806 Howard Street Suite 200 South Bend, IN 46617

154 West Superior Street Chicago, IL 60654

(855) AG CERES (855) 242–3737

This material is not an offer to sell, or a solicitation of any offer to buy, interests in the Fund. Offers are made solely to institutional investors and high net worth accredited investors and only by means of the Fund’s latest Private Placement Memorandum.

The information and opinions presented in this material have been prepared by the Manager and/or obtained by the Manager from sources which the Manager believes to be reliable; however, neither the Fund, the Manager nor Ceres Securities guarantees the accuracy, adequacy, or completeness of such information.