249 Kevin Morse - Flour, flavour and nutrients, how a back to the future mill changes everything for wheat farmers

A conversation with Kevin Morse, cofounder and CEO of Cairnspring Mills, about the fascinating world of grain, wheat and the little secret of flour, building a new Back to the Future mill, and much more. 

Why regional agriculture processing is crucial for healthy soil, healthy people and healthy local communities. Not hyper local because that is fragile. At Cairnspring Mills, they are now hitting a ceiling and will scale up.
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Transcript

Speaker 1: 0:01

Why regional agriculture processing is crucial for healthy soil, healthy people, healthy local communities, not hyper-local, because that would make it more fragile. Learn more about the fascinating world of grain wheat and flour and we'll learn more about the little secret of flour. You can buy amazing flour, pay the farmers much more for their practices to the region, but it might change the price of your croissant with 50 cents. This is the dirty little secret. Flour is so cheap in the final product that you can do amazing things without moving the final price point. A lot and a good bakery doesn't have any problem selling that croissants which is much tastier, took, full of nutrients and supports a whole local value web for 50 cents extra. Of course there are challenges. Hitting a price point to make it accessible is not easy, but the demand for this higher quality flour has been growing at least 40% year over year. This is in and after pandemic. Now this company is hitting a ceiling and they're raising money to build a new back-to-the-future mill where they combine all the knowledge of the past eight years to significantly scale up, to work with bigger off-dakers and hitting an even more interesting and accessible price point.

Speaker 1: 1:10

Enjoy. What are the connections between healthy farming practices, healthy soil, healthy produce, healthy gut and healthy people. Welcome to a special series where we go deep into the relationship between regenerative agriculture, practices that build soil, health and the nutritional quality of the food we end up eating. We unpack the current state of science, the role of investments, businesses, nonprofits, entrepreneurs and more. We're very happy with the support of the Grandham Foundation for the protection of the environment for this series. The Grandham Foundation is a private foundation with a mission to protect and conserve the natural environment. Find out more on grandhamfoundationorg or in the links below. Welcome to another episode today with Kevin Morse, the co-founder and CEO of Kurt Springmeals. Welcome, kevin. Thank you, conn.

Speaker 2: 2:18

Thank you for having me.

Speaker 1: 2:21

I think it's the first time we have a miller that's a term on the podcast. Maybe some people have that, but never with their principle role or with their hat on in this case. What brought you to the world of milling, to the flower, to the world of soil, because I'm imagining, I'd say, with your qualities there were a lot of other career paths open. What brought you to literally working on revolutionizing the industry of bread, the industry of wheat, the industry of flour in the US?

Speaker 2: 2:55

I wish I had a simple answer for you. We probably need more than an hour and a half to give you all the details.

Speaker 1: 3:02

We can make this a multiple part series. It hasn't been a straight line, conn, I think almost every single guest that comes on says something like that it's been not a straight path. It makes a lot of sense. I don't think anything is a straight path. Regular listeners will recognize that phrase, so we're usually onto a very interesting conversation, so please go ahead.

Speaker 2: 3:29

Well, good, I'll try to hit some of the highlights along the way. I think the first starts with my family. As we discussed earlier, I spent my childhood mostly being raised by the Italian side of my family, growing up in that really tight-knit community. There were mostly first and second generation immigrants from southern Italy and Sicily. It was there that I was. The reverence for local food, the importance of being able to raise your own food and really appreciate quality, nutritious food, was something that we discussed and immersed ourselves in every day. I loved it. I just loved being in that community around my grandparents and cousins. My grandparents were all farmers when they first got to this country and then had gradually become entrepreneurs and did other things. My childhood was spent in my grandfather's six-mile grocery store with a deli and butcher shop in the back. I've got photos I can share with you where I was seven years old with a straw hat and an apron on making cube steaks and sausage. I don't think that's allowed anymore, but I just loved it, and so that made an indelible imprint on me in terms of who I was, what I loved, and then, unfortunately, I also got to experience. I was born in the early 60s, so I got to experience what it was like to be part of a community and part of a system where there were still small farms and local farms. And then, as I grew up, director Secretary Butts came into office in the US and transformed our agricultural policy from one of small farms, mostly family-owned, to get big or get out and plant fence road or fence road those are his two famous quotes and really implemented policies that changed agriculture here and, I think, around the world forever. And so fast forward to becoming a young man fresh out of college with a business degree.

Speaker 2: 5:49

I knew I wanted to be an entrepreneur, but I also just loved having my hands in the soil and my boots on the ground and I loved food, culture and system. So I went on a journey really trying to find my place in that system, everything from just exploring the last wild places in the world as a naturalist and fishing guide in Alaska. But when I came back home from that and decided I needed to grow up, I ended up working in rural economic development. I really had this sense of from what was going on and seeing the impoverishment and how our food policies really wrecked our natural resource communities. I wanted to help rebuild natural resource communities and bring back that sense of community culture and, frankly, safety that I felt as a kid being involved in that closed system, and so I worked as an executive in economic development on projects that tried to bring resources back for everything from recycling to wetland mitigation and sustainable jobs and reinventing our farm economies and seafood economies.

Speaker 2: 7:26

I worked as an executive director of a brand new council of governments on the eastern shore of Maryland this is where Dan Miller and I kind of have some connections and wrote their first comprehensive economic development strategy, which is required by the government for you to have in place so you can get federal funds for economic development projects, and saw the need there for access to capital. A lot of this is going to sound familiar to you. Saw the need there. The farmers there are stuck in the commodity system, mostly being trapped by the chicken mafia on the eastern shore corn and soy with no outlet or value added opportunity. So we created an entrepreneurship center and a loan fund and we made value added agriculture a priority for the region and it was there I really became familiar with the government programs that could help, as well as the barriers to trying to change the system, because I think what we're all talking about here is system change, and that is a big, big, heavy lift. And so it was a wonderful education, not only in different types of farming, the economies of scale, the horrific nature of what our commodity food system does to the people on the ground. They're not only where the farmers trapped in the system and really struggling, but I saw a seafood industry that had you know it was amazing for the first, you know, 100 years from, you know, early 1900s to 2000s, and then plummeted because of over harvesting and disease. And when that happened, I saw what happened to these communities that, frankly, were at the mercy of the big processors and when they used everything up and left.

Speaker 2: 9:21

These are communities that are an hour and a half from Washington DC, you know, a few hours from New York City, some of the wealthiest centers of our country, and we had 30% of the population living at the poverty level. We had median wage income for families there at like 19 to $20,000 a year. It was heartbreaking, honestly to see, and also motivating. I was like this is not right, this has to change, and so I just continued on that journey. The Pacific Northwest is really my home.

Speaker 2: 9:59

So, after four years on the Eastern Shore, I thought I'd take a different approach and I went to work for the Nature Conservancy here in Washington and what a wonderful organization that is. I really was attracted to them because of their focus on community and including community in solutions at scale, and I was hired to be their working lands program director, with my job being to find ways to align conservation, salmon restoration, water quality improvement with food production and farming. And one more wonderful, hard, valuable lesson where I got to see how the farmers were being impacted not only by the economics they were stuck in but the pressures they were seeing from another community of people in the environmental community. And again, what a wonderful education. We worked with farmers to find ways to restore salmon habitat while making their farms more viable by improving flood protection, by improving drainage, and we ended up creating these multi-million dollar restoration projects that moved dykes and levees and drainage systems and restored salmon habitat and improved water quality.

Speaker 2: 11:29

And so I got a sense there of wow, what's the power of bringing these diverse interests together towards mutually beneficial goals was fascinating and rewarding, and so that those projects and those programs ended up being used as examples that were turned into state and then some federal policy. That on the state level, I think they funded more than $100 million worth of projects here. So again, trying to get at scale. State and federal funds were then focused on what we called multiple benefit projects that improved the viability of farmland and farming and restored critical habitat for salmon. So I'm going to stop there with some of the description of my work. But my mom always said I was a slow learner. So at the age of 50, I stepped back and was thinking wow, what do I want to do next? This was after it.

Speaker 1: 12:30

Yeah, because you could have stayed there in those kind of roles I mean, there's so much work to be done on that level and those roles in the US, but for sure in your region as well Like it would have been. I'm not saying comfortable, but I'm also not saying easy, but relatively straightforward to continue that path and not necessarily start what you started.

Speaker 2: 12:55

It would have been, and the Nature Conservancy would have been a wonderful place to stay. I don't know. You can ask Dan, I have a hard time sitting in my chair and just doing the same thing over and over. And I also saw this need as I got to age 50. And at the age 50, start thinking about what you're going to do the rest of your life and the impacts you want to have and things you want to do for this world. And I had the aha moment really then of wow, all of these things I care about viable farming, healthy food, food systems, community, healthy natural systems so much of all of the issues I was trying to fix was being driven by the industrial food system, and so I thought, wow, okay, I'm 50, maybe I have 50 years left.

Speaker 2: 13:52

I really want to create a model that can work here in the Skagit Valley, that could provide inspiration and an example of how you can actually transform a food system so that it's sustainable, so that it's scalable, so it has impacts that are meaningful both from an agronomic and economic scale. And when we talked earlier, it's like what do I believe in? What I believe from all of my experiences by rebuilding regenerative regional food systems. That's the best thing we can do here and anyplace else in the world to make our communities more prosperous, healthy and resilient. So I was all set. I'd been farming also for the past 12 years while I was at the Nature Conservancy and it was kind of there. There was great lessons in terms of the economics and hard work of farming. What were you farming? Wood crops. I actually started the first humanely raised pasture pork business in the state.

Speaker 2: 15:00

Yeah, and so I had been integrating our pasture pork rotations into one of my friends' farms who's a diverse crop producer, dave Hedlin, and he was a great mentor and teacher. But again, it was a great window into really understanding the work, the economics, the challenges of farming and I thought, wow, this could benefit the farms all throughout the Skagit Valley and throughout the country by animal integration, which really was talked about. I don't know this was 20 some years ago how it worked the soil, how it added microbes and helped increase the biology in the soil, how it worked the soil and required less tillage or manipulation when it came time to plant. We were Dave was growing a barley and peas that we were then rotating pigs through or harvesting and feeding them later. Was it Dave?

Speaker 1: 15:57

asking you hey, can you run some pigs here? Or was it you coming up with the pig idea and then approaching Dave? Or how did that? Because starting something like that on the side is quite a thing. It's not like, okay, I'm doing a small no-dig market garden or a small no-dig garden for myself and then, if something goes wrong, okay, I don't have tomatoes, that's not such a bad. I mean, it's an issue if you come from an Italian family, but still, this is like living beings you have to really take care of them otherwise. And so how did that come about?

Speaker 2: 16:30

Oh yeah, well, part of it was I. Just I always, you know, I grew up back to my grandfather's Italian butcher shop and the love for local meats and everything we made with pork. So part of it was my own personal interest, but part of it is my fascination of trying to do something different that really benefited the farm community here, the Skagit Valley. It might help for people to understand. We are a very special regenerative farming system that's been in place for 120 years, before regenerative was even a word. We have 80 crops of commercial significance here. The farmers voluntarily rotate their crops potatoes, peas, brassicas, livestock. They don't farm their own ground every year. They trade ground and lease ground with each other, and so integration and crop rotations is part of our farming culture and system. And so I was like, wow, we really could use some more animal integration when I started really diving deep into the system. And it could benefit all of our farmers if they can incorporate pork or cows into their systems, which some of them were doing with replacement heifers for dairies. And so, yeah, I was working at the Nature Conservancy 50 hours a week and I was getting up early in the morning and checking the animals, feeding the animals, checking the fence, going to work, coming back at night and starting over again. Do it there. So wonderful education.

Speaker 2: 17:59

And so when I started thinking about the food system, I came out of the saying yeah, I'm going to help start a regenerative, sustainable meat company that adds value to these farms through all the soil improvement, other things we've discussed and then scale that and open source it and share it across the country. And there is a wealthy gentleman here who was making investments and value added processing and he said I want you to help me build this company. I want to help you build your dream. Quit my job, started the feasibility, actually started looking at some farms to invest in and partner with. And then what I learned about some very wealthy people is they could be a little mercurial. Three months down the road he said you know, I've got so much going on. I don't think I want to start a meat company right now. I was like I just quit my job, I just closed my farm. You know what am I going to do?

Speaker 2: 19:01

And this wonderful man, steve Bren, who is managing this individual's wealth, said you know, we've been talking to the Port of Skagit and to Dr Jones and his team at the Washington State University Bread Lab and Patagonia was involved. Yvonne Chenard had been up and it's like we're talking about a mill in the Skagit Valley that interests you. And I said, yeah, I mean, I know most of those people except for the Patagonia folks. I've worked with them, knew all the farmers. I immersed myself in what was going on with grains and what was going on with flour in this world, and flour is one of these. I wouldn't say it's a dark secret but, like most people have no idea what a mill looks like, where the grain comes from, or any sense the fact that grains and flour can be like wine grapes there's actually a huge variety that have tremendous spectrum of flavors and aromas and colors. And then, from the economics standpoint, I was blown away. There's five companies that control 85% of the milling capacity.

Speaker 1: 20:11

It's almost as worse, or worse than the animal protein industry. Yeah.

Speaker 2: 20:16

Yeah, it's very similar in those respects.

Speaker 1: 20:22

And.

Speaker 2: 20:22

I also learned about the supply chain and flour and it's like you know, it's global and those companies have grain traders all over the world buying the cheapest grain possible everywhere, from China to Canada to North Dakota and Kansas, to Kazakhstan, Russian, Ukraine, and it's polluted, frankly. I mean in this country we do have environmental regulations and others not so much and I looked into the health impacts of modern flour.

Speaker 2: 20:51

I looked into what's in modern flour in terms of the chemical pollutants and again another aha moment. I was like, wow, this is not only a really important industry here, because we've been rotating grains through our crops since the early 1900s, mostly at a loss. Dave Hedlin always says we grow wheat mostly for fun, sometimes for profit, and they've been losing money on their cereal grain rotations so that they Did.

Speaker 1: 21:22

You see the possibility Did you see? Because, yeah, and looking at the dark side of wheat and flour and all the issues with it, it's very easy to get very depressed. But like, did you see? Like, okay, a local mill could actually flip that conversation or flip the potential opportunities instead of just last damage. Or was it another step, or did it take more time?

Speaker 2: 21:47

No, that was the aha moment for me. I was like, wow, if you look at it from a business opportunity and a system change opportunity, flour was ripe for transformation, just like craft beer, chocolate, coffee, all of those commodities, all those commodities that had transformed and at least somewhat captured a large market share by creating a healthier, traceable, regenerative product. And so I was like there's a huge opportunity here, not just in the Skagit Valley but beyond, and I was like this is it? If we can create a new regional milling system that works here and then can create everything from sourcing to the internal systems, to the markets, there's application not only throughout this country but worldwide. So that's when I was all in.

Speaker 1: 22:45

When was that?

Speaker 2: 22:53

That was April of 2015.

Speaker 1: 23:31

So we're coming up to eight years, yeah, yeah. We are just past eight years, yeah, and where do you start that? Because it sounds like funding might be there, but then some of the relationships are there. But I'm imagining the market side of things, for good flower grown well is not an easy feat to start. Maybe the Patagonian was interested, like where do you even begin when you say, okay, moline?

Speaker 2: 23:56

Yeah, well, this is the wonderful thing about the opportunity here and the timing in this community I refer to this business. The foundation of this business is community and it's really been like an old fashioned barn raising. If there's people around that remember that where somebody needed a barn, everybody would come chip in and help that person or the community build it. And we had all the things in place here. We had the port of Skagit that had made a public decision to invest in value added agriculture because agriculture was such an important part of our economy. So they were like we're in, we're going to help invest in the infrastructure. We had the Washington State University bread lab. Dr Jones and Steve Lyon had come over from the commodity system in Eastern Washington and they had were blown away and discovered about what's going on here with grains. We weren't even on the wheat production here in the Skagit Valley.

Speaker 1: 24:53

And the bread lab is extremely important in the world of flour and bread and grains. That's not to be unrecognizable. Some people might have read, I think, to pick part of the third plate of then barber and some other places I've seen it. That's not bad to have that in your backyard, basically.

Speaker 2: 25:11

Fatwares are really lucky and so they're really the thought leaders. They had the farmers who were already growing these different varietals of wheat that they were trying to bring in that matched our maritime climate, that had better baking and flavor qualities. The Big Mills they source grain based on protein, not flavor, not always baking quality, because they can always add enzymes and all the other crap that they throw in modern flour now to make it bake better, and so all of the pieces were somewhat in place. Tom and Sue Huntin from Camus Country Mill had started a small mill of their farm and came up and were consulting and showing how it might be done. So the farmers were growing the grain, the port was stepping up and then restructuring. The bread lab was already developing and releasing these varieties. Patagonia had shown up and said Gavanshanard had made a visit and said I love the Skagit Valley. This is amazing, and it made a verbal offer to support if they could find an entrepreneur for the mill.

Speaker 1: 26:17

And so I had up just a tie.

Speaker 1: 26:20

Has the mill technology changed as well, going from because I think it's come through a curve of extreme scale as in bigger, better economic scale, adding all the enzyme and other crap they're adding et cetera, et cetera, like enormous factories, but as we've seen, I think maybe first in coffee, but like you've got smaller grinders, smaller roasters. You got this technology to slowly get a bit more affordable, a bit smaller, because of course if you have to put half a billion to build a mill, that doesn't make any sense in your region. Has that been? Did it become also accessible for still industrial scale but smaller scale stuff for you? Like if you said, okay, we're going to build a mill, were there blueprints or were there examples of the size you were imagining? I mean not the one very small like home milling I've seen some of those but the one I think I can actually run a profitable factory and a profitable mill. And has that changed at all the last decades or has that not yet? In that you stitch it together yeah, that's a great question.

Speaker 2: 27:23

The short answer is no. There wasn't equipment and access to equipment that could function at the capacity and regional scale we were thinking about. So a little background on flour. I think it's important for the listeners to know transformation has been crazy over the past 100 years. We had 24,000 mills in this country 100 years ago. Now we have 166. So we have got incredible consolidation and concentration and centralization of our flour production and those mills can make up to 6 million pounds of flour a day. That's massive.

Speaker 2: 28:02

If you ever go see an industrial flour mill, it's city blocks along with silos. It's 10, 15 stories high and they are just cranking out rail car loads of flour every day, 24-7. So there really wasn't equipment and machinery that I could find in this country. So guess where we had to go? Right in your backyard. Yeah, I did my own journey through Italy A few years before this and saw some of the small mills that were working at a regional scale. And then we ended up going to Denmark where there was a company producing smaller, regionally scaled systems that Tom Huntin, who is a co-founder of this mill, was already working with, and so we looked at mills in Denmark and Norway using this equipment and came back inspired and took their designs and modified it with their team to produce a modern stone mill system that would produce enough at scale at that time and what we thought would cash flow the mill and make it profitable. And so part of the journey has been reinventing or finding the equipment to do this scale.

Speaker 2: 29:21

We knew what we said to our investors in our community is like we've got a lot to figure out, from the business model to the internal systems, to the grain storage, traceability and supply chain management, because no one was really doing this. And so that's where the innovation, the exploration and, frankly, a lot of hard work and hard lessons went into this company. We had to figure it all out. There weren't any blueprints for us to follow, other than some of the inspiration from the past.

Speaker 2: 29:53

One of the business criteria was we had to operate at a scale, not only to have the meaningful impact we wanted in the community, but also for the economic return and to supply. Our work with the bakers was really like we have to be able to be dependable, can't be like a boutique mill that might have flour one week and not the next and sell flour for $16 a pound, you still have to be somewhere close to what we can make in terms of the economics work, and so we wanted to scale it big enough for all to meet all that criteria but not get overly huge where we're just another mass producer. We're actually originally called watershed mills because we had this vision of a mill big enough to serve a watershed and name the mills. We had a trademark conflict and didn't have money and lawyers to fight it, but that just give you a sense of the scale we were thinking about.

Speaker 2: 30:50

And so now, right now, this mill is right around breakeven and we're also bumping up our capacity and we'll make 6 million pounds of flour this year, running two shifts a day, five days a week. That's as much as the one big mill. And so we've learned Very different flour.

Speaker 1: 31:10

I think In terms of quality we get to the quality piece, but it would be offended if you call it the same product, I think.

Speaker 2: 31:20

Well, and that's it. So what we did is bring back I use a movie and analogies a lot, so this is like a back to the future mill. So we have very modern equipment that's computer controlled for the most part. We still set the stones by hand and listen to the stones as we're operating them, but we've incorporated a modern roller mill that then leads to stone mills, and so we make a European style bread flour, so that it's a flour that most people are used to, but it's stone milled. And the way we stone mill it, we intentionally mill the brand and the germ, which is where all the nutrients, flavor and color live into the end product instead of sifting it out, and that's what big mills do. And so we were first to market with a system and a flour of this type in the country, and we didn't have any sales and marketing budget when we started.

Speaker 1: 32:21

Yeah, I was going to say because I can imagine the technology, the processing the farmers were sort of already in place and we'll talk about it later what it means for them now to sell a crop, not at a loss, but usually at a good price, to something local compared to how it was before. But what was the market like? Or how did you approach that piece? Because six million pounds a year is still a lot of flour, it's not as much as the big guys, but they have a market to play with. So how do you sell? This is not like a small hobby mill. How do you sell that much? Or how do you approach selling that much quality flour to a market that might not be used to it?

Speaker 2: 32:59

Yeah, that's a great question, because I'll go back to the old fashioned margarine Also.

Speaker 1: 33:04

There, you didn't have any blueprints.

Speaker 2: 33:06

I think no blueprints. So we built this mill and we had this great network of bakers, farmers, bread lab and others watching us. We had great investors Patagonia and a number of impact investors here. We still had hardly any money. I literally worked for six months for nothing. We raised a small convertible note round for like $90,000 to get it started, to put gas in the truck and make a few trips.

Speaker 2: 33:35

But when we prior, as we were designing and building the mill, we had already made contact with people like the bread farmer just down the road who are my neighbors, and they were helping us understand the market and the types of flour to make. They're already starting to test some of the grains that we milled on a small mill to get it in their hands. Chad Robertson was coming up while the mill was in construction, the founder of Tarteen and helping me understand what he was looking for. In his prints I was Pianco Mel Darbyshire from Grand Central Bakery in Seattle, george De Pascuali from the Central Bakery, leslie Mackey from Macrina Bakery all here in Seattle. We're circulating through the mill and educating us, but we are also educating them on the different type of flour we can make. And so when we opened the doors and started milling in May, june of 2017. They were already waiting to receive the flour and I was literally driving it to them, either in the back of my truck or you know, putting it on a small truck and partial pallets and sending them down to Seattle or just down the road.

Speaker 2: 34:40

And what really you know? All I can say is that they got their hands in the flour, they put their hands in the dough, they baked bread with it and they had people taste it. And it was revelation. People were like we didn't know bread could taste so different. We didn't know it could taste so good. We didn't know it could smell so good. The colors, the aromas we're getting are unlike anything we have ever had.

Speaker 2: 35:05

And so for three years we were going a 40 plus percent a year, with zero marketing budget other than my old, 60 year old hands on a keyboard posting pictures on Instagram.

Speaker 2: 35:19

I can't even say trying to be cool, but just like to show their story. And so we grew by word of mouth, beyond our expectations. And you know, people thought we were nuts and probably still do get into this commodity system because they're like flour and teabag with us, like can't do anything there. And last year we grew 56%. This year in Q1, we were trying to throttle back just because through the pandemic we were also discovered and we've just pushed our team to the limits here in terms of what we can handle physically and mentally. But we continue to grow beyond our projections and expectations and now we're at the point where this mill is pushing to capacity and we wanna take all the lessons we've learned from supply chain management, internal systems, markets, distribution and create the next generation mill that can really operate at the scale and in economics that can be replicated around the country and around the world.

Speaker 1: 36:30

So, wow, I think we kind of went on a crazy journey there, really the quality and flavor focus is fascinating, and apparently for a price point, at a price point that makes sense for your customers and makes sense for you, I mean. So you were almost a break-even, so it's definitely not deeply loss-making. And then for the farmer piece, how has been the development there? What kind of practices, what do you have? Minimum standards to work with farmers Do you have? Like how close? I mean, you keep saying it's a community, so I'm imaging very close, but how close are you to the farmers? And what do you see that game between quality of the flour you want and the grain you want in, and how does that affect or how, where does the quality come from in terms of farming practices? Is that like, how has been the farming side of things here?

Speaker 2: 37:20

I don't want to say that's the easy part, but again, we've been regenerative. Before regenerative was a term. We're already doing animal integration here. We're already doing crop rotations, we are doing cover crops and so the way the farm, we have over 5% organic matter in our soils here. You go down in the Central Valley it's like less than half percent. So what the farmers have been doing here is really a quite a sustainable system. There's always room for improvement. So we have some of the most productive soils in the world here.

Speaker 2: 37:52

So for us it was just a matter of defining our specs on the grain we needed and setting the price. And you know, we have organic farmers and this is one of the controversial things we can talk about and we have what we call so they follow the standard organic, national organic standards, right which everybody is bought into and supports. And then we have what we call our regenerative conventional farmers who are doing crop rotations, who are doing animal integration, who are doing on-farm composting, doing cover crops, who are growing fava beans for nitrogen and plowing them in the soil. As in cover crop, you're always looking at ways bottom line to improve soil health. Right, it was all about breaking disease cycle. Do you treat them differently?

Speaker 1: 38:41

Like in terms of pricing, et cetera. Do you treat them differently? And second question do you see a difference in quality?

Speaker 2: 38:49

Yes. So we have high quality standards, so they have to meet them and we also pay the farmers a premium. The cost of production here in the valley is very expensive compared to some of our larger commodity production areas. You know, our land rent here goes here from $400 to $700 in acres. Now because of the price the potato and tulip growers are willing to pay for the brass grip growers, and so we got together and put together what's called enterprise budgets in the early days to really understand and this is where the farmers helped us what a farmer would need to break even and make money on the crop, because our founding principle is it has to work for the soil, it has to work for the farmer, and a lot of that comes down to economics.

Speaker 2: 39:32

And so for our regenerative conventional, they have to be using regenerative practices. We don't allow glyphosate as a harvest date, we don't allow neonic insecticides and most of our farmers are already farming like that and so they are all friends, family and neighbors to start out. And any new farmers we've brought in are usually referrals in people we've met through our existing network and so that's our supply chain and they are producing grain that is at a quality and consistency. But there's a myth that small mills can't be as high quality or consistent as big mills, and we've dispelled that myth and called bullshit why would it be Because you're not able to mix and blend, or why?

Speaker 1: 40:23

would when would that myth come from?

Speaker 2: 40:25

Some of that, some of that, but it's also because we have some small boutique millers around the country that have bigger challenges with consistency and quality and don't operate at the scale, and so somehow they got translated into this can't be done, and what we've shown is, with the right scale, the right supply chain, the right milling system and again, this is a back to the future milling system We've got the ancient craft of stone milling blended with modern computer technology and other equipment Convance, dust protection, explosion protection, all those things and we've invested in simple things like high tech grain and flour analyzers that the big mills use. That can. We can take samples every half hour hour of our flour and make sure we're hitting our protein and our mineral and ash specs, our moisture specs and everything else, and so it can absolutely be done at this scale. And that's one of the things we had to prove to the baking community and we've done that. And so the farmers get paid more. They get paid above commodities so that they make money. Our staff gets paid living wage jobs, and then that value has to get carried all the way through.

Speaker 2: 41:33

This is where, again, this is a system. We could do everything we're doing here, going with regenerative farming, non-commodity grains, specialty milling, taking care of our people. But if the baker can't sell that loaf of bread to the consumer and close the loop, then we don't have a business. And so they've been paying almost 50% more. We've been charging on a commercial level, sometimes double what the commodity prices are for flour, and that might sound like a lot and that's been one of the barriers in scaling, but it's kind of going away now. It's like oh my gosh, it's my cogs, you're going to double my cogs. I can't do this. I love your flour, but I can't bring it in my system. And then when you actually do the math, like flour in terms of the cost.

Speaker 1: 42:21

He's not a big piece of the cost yeah, it's like 8%.

Speaker 2: 42:24

Everything else is direct overhead and variable costs. And so, for example, if you look at a croissant and you do the math all the way down to a single croissant, it's going to cost maybe a dime more per croissant. And you say, if you have a better tasting croissant, better smelling croissant and you have a story and the consumer knows you're getting safe, clean grains that are specialty milled and they're supporting farmers, can you sell that croissant for 50 cents more? And they're like oh yeah, I guess we can. And so that's been part of the journey is changing the economic mindset.

Speaker 1: 42:57

That's why I think grain is fascinating and I'm very happy you're working on grain, not on animal protein, because I think on animal protein it's much more difficult because the difference is so much more and in many products or restaurant plates et cetera, it's a significant piece of the cost. Because it's such a significant cost, normally In grain we're going to do probably a pasta episode at some point but in grain, even if you pay double to the farmers in a pasta dish or in a bread, it does change, but not so much because it's not such a big piece of the cost structure which makes it such. And it's such a big crop, obviously, but also a crop with so many hectares, you're touching so many acres through grain that it's a very interesting entry point. And on the farming side, do you see a quality difference with the ones that are, let's say, obsessively focused on soil or is it very difficult to say compared to the ones that are hitting your very high standards, but let's say just hitting them?

Speaker 2: 45:13

Yeah, that's an interesting question, Colin, and I'd say yes, maybe. Again, it's hard to differentiate because most of the farmers have always I'm working with have always been obsessed with soil health. That's how they've survived here in the Skagit Valley. What I can say is, when I look at those grains, compared to others in terms of nutrient density and flavor that we see in other places around the country, our grains are far superior. We might not always be as high in protein here because of our maritime climate, but I can solve that too by sourcing. So I think it's important to talk about sourcing grain.

Speaker 2: 45:54

Everybody's like oh, so you're hyper-local, you source everything local. Well, we do source the majority local, but if we're not buying commodity grains and we're totally relying on farms that are within 15 miles of the mill and it rains here in the Skagit Valley in August when our wheat is ripening we could lose the entire crop to sprouting and have nothing to mill for a year. So we source here, but we also source a couple three hours away in eastern Washington with other regenerative farmers just to manage risk. Also, quality and protein, because even though the bakers love us, we still got to provide them a consistent high quality product. So what we've learned is a hyper-hyper-local supply chain is very risky and it doesn't give you flexibility in terms of managing quality. By regionalizing that, which we always wanted to do, that solves the issue, and so we are seeing higher quality grains from our growers who are implementing regenerative practices, more flavorful grains and, in Skagit Valley, because of our soils, more nutrient dense grains.

Speaker 1: 47:05

And when you say nutrient density in flour and grain, what do you specifically look for? What do you measure for? But what are the things you look out for when you test?

Speaker 2: 47:16

Well the things again. I haven't had a lot of money for testing, but I've been able to benefit from what the bread lab and the others have done. Here in the valley we grow grains that seem to be consistently higher in things like iron and some of the micronutrients and minerals that the grains can contain. People don't know how nutritious grains can be Everything from folate to vitamin B6, of course, all the fiber that's in the brand but there's been preliminary research done and I'd have to go back because I'm also getting old and have CRS disease going. That's called Can't Remember Shit. There's some other studies that have been done that I can reference you later on the nutrient density and the grains here. Please do.

Speaker 1: 48:09

Yeah, because I think it's a no. Sorry. Let me ask a question instead of making a statement. Do you feel the bit of the bubble and not the bubble, the hype and the talk around nutrient density that I think has been now coming up the last few years, especially last year and a half with what your food ate, of David Montgomery and Pikli and then some other publications that came out and other research? Are you excited about that piece? You keep saying nutrient density and quality, which obviously is the main driver. Do you think nutrient density and the connection to soil health could be an additional driver for operations like yourself? Like the health aspect to this?

Speaker 2: 48:52

I think it's absolutely essential to it and I'm excited about the fact that more and more people are looking at the connection Because, again, our major what we believed in when we started regenerative farming makes our community more healthy literally prosperous and resilient literally both. So we wanna grow more healthy, clean food and get them into our community and into the world, and so the work that David and others are doing to draw that connection and prove it is very helpful. I don't have the resources to do the testing and it's incredibly expensive to send flower off to labs and get the vitamin analysis and everything. We're still pretty scrappy here. So I guess the bottom line of the answer is yes. And then we wanna continue to better understand and prove where we're getting, hopefully getting a LFPP grant through USDA that Dan helped us with to continue to do research and look at impacts of our regenerative farming practices on the soil and on our end products. So that's a high priority for us.

Speaker 1: 50:12

And do you see, like with your baker customers and friends, that that quality beyond the flavor, let's say quality in terms of nutrition, could be something they're interested in? Are they asking what's in this flower different than, or is it really okay, I want a much better tasting and smelling croissant, even though it's probably, or that is probably, very much connected to what's actually in the flower? Obviously, like, is there an interest from your customers? Because if they don't care and they're not gonna explain it or share it somehow with their end customers, yeah, we can have this amazing research, but is it gonna go very far? Do you see an?

Speaker 1: 51:10

interest in here from the bakers.

Speaker 2: 51:13

It's evolving some yes, some no, to be honest. So Scott and Renee at the bread farm are asking and talking about that. Chad Robertson, every time we talk or I see him say he wants to provide his customers with more flavorful, healthy breads. Others are still really focused on just the quality and the flavor differentiation. What makes me excited about this movement is the markets demanding that, and markets can change systems, and so already we're in development of plans for a new mill. They could have significantly more capacity with our same process, and some of the companies talking to us big offtake agreements are asking like not only do we want better quality flour in the story, but we wanna make sure we can say we're delivering more nutritious food to our customers as well. So the market is growing, but it's still in its nascent stages.

Speaker 1: 52:22

Fascinating, yeah, and switching gears a bit to do a few we're gonna say final questions, but they usually lead to more. What would be after working in this, like, let's say, relocalizing, re-regionalizing, processing and you must talk to investors now as well, because you're on a fundraising path for the new mill and the operations what is would be your main message, of course, without giving investment advice, but your own message to people I don't manage in your own money or other people's money about this opportunity but also the risk. What would be your main takeaway or giveaway for them to remember? If there's one thing they remember from this conversation, what would it be?

Speaker 2: 53:04

That's a great question and I've thought a little bit about that.

Speaker 2: 53:08

I think we have a number of investors that we've talked to over time and I guess a couple of things for them to be aware of is that regenerative farming is place-based I've talked to there's a lot of hype out there.

Speaker 2: 53:25

I think, as you touched on, there's very inspirational films that show the potential of regenerative farming, but regenerative farming looks different just about every place you go. So I think one is just setting the expectations and being clear. One is there's a tremendous opportunity from an investment standpoint to invest in the infrastructure, the middle infrastructure needed to bring regenerative farming to market. But one they have to be clear that not everybody's farm is gonna look like Gabe Brown's farm right From Kiss the Ground. Two, this is a patient business model and they have expectations of a 10x return in three years is not what we're talking about, but we are talking about, I think, a really healthy return over a five to seven year period, from what we can see as we're modeling out the new mill, and that it can be replicated and that there's also I think one of your other questions was what would I do if I had a billion dollar fund?

Speaker 1: 54:39

We have the we take away my questions, but please, please go.

Speaker 2: 54:43

Well, it's kind of wrapped together here.

Speaker 1: 54:45

I know that's why it's always the follow-up that. What would you do, Kevin?

Speaker 2: 54:49

It's one big burrito. So we have the infrastructure in this country to scale and really provide secure, meaningful investments for people. And I guess I have to say we're not a venture-ready investment and frankly I've stayed away from venture investments because we don't want them controlling the board, maximizing profit at the stake of our values and principles and then selling it for some multiple down the road to one of the big corporations. So but we have this infrastructure and this comes from the economic development days. You know we have. We had the. Was it the Development Corporation Act of 1979 that gave economic development entities the ability to, you know, sell tax-exempt industrial revenue bonds or even non-tax-exempt bonds and raise money for infrastructure.

Speaker 2: 55:39

There are ways, just like the public-private partnership here at the port, which we haven't really touched on they bought all the equipment and leased it back to us, so we didn't have to raise $2 million for our startup. So there are ways for to pool private capital with public financing mechanisms to build this infrastructure and almost guarantee a really good, consistent, modest return for investors. So I think part of its eye is why it opened what's really needed, what's the timeline, what is really regenerative in that place, and to have a very clear understanding of what the profitable business is. I still like the idea of you know a business running and operating the mill and the infrastructure, because we are forced to look at efficiencies and costs and to make it work and return for our investors. But there's a tremendous. I think I could take a billion dollars and double it. I think I could take a billion dollars and work on public-private partnerships to unlock the rest, the ports can buy infrastructure back.

Speaker 2: 56:54

So if investors wanted to come in and build the infrastructure and sell it back, they could sell it back at a profit and then the port can turn around and lease that back to the company. There are so many ways, and Dan Miller really understands this, and that's why I hope to build another three to five mills before I retire, with him and others, and to have a meaningful introduction.

Speaker 2: 57:19

Yeah, yeah, and to have meaningful impact in communities around the country, around the world, by bringing a more patient, reasonable approach to investing in this infrastructure. It's feasible right now and I think one of my personal points of view that also really informs this approach is I think regional food processing infrastructure is critical infrastructure, and I use that term because critical infrastructure is our job as a council of government to provide essential services to our communities Water, sewer, roads, everything we need to really have the foundation of our economy and our community and to keep businesses there. And you're saying production is part of that.

Speaker 2: 58:14

Oh, hell, yes, I mean, look at the pandemic when everybody realized how vulnerable we are to global supply chains, I think. And so there are ways here, and I'll give you an unfortunate example by actually having that infrastructure and public ownership like we have here. No matter what I do with this business, this mill will be here and if I fail at it, someone else can come in and take it over and give another try. We have a grainery just down the road that we've been contracting all of our grain storage, cleaning and delivery services. Unfortunately, that company didn't make it and instead of them selling off all those assets, it's infrastructure the port owns, and so we're talking to the port now about assuming at least and keeping that grainery active, not only for our business but for the other farmers.

Speaker 2: 59:00

So I think part of the future of regenerative farming is investment at scale in this middle infrastructure with public-private partnerships.

Speaker 2: 59:10

I mean I'll send you a link later on a little video or one of our investors produced on our operations during the pandemic.

Speaker 2: 59:40

We had 400 cars around the block every Friday picking up 50-pound bags of flour, and we kept our community. We are sending out 120, 140,000 pounds a month to the community that needed food and the mill run the stuff we sift off at the end of our process and put in a big bin out back. The feed companies couldn't get commodity and mill run out of Portland and so they are showing up here twice a week entering our brand silo. We are feeding just about every dairy cow, pig, goat and chicken in the three-counting region. So I think if we're going to make our communities more resilient, like we talked about here and around the world, this is critical infrastructure. Sorry, I'm going to get off my soapbox, but I'm so excited about the potential and I can't believe that the investment community really hasn't figured this out. But there's a way to weave together what's already here with really smart, patient capital to do this at scale with huge impacts.

Speaker 1: 1:00:41

And do you see farmers as co-owners of that in the future?

Speaker 2: 1:00:46

I do, and part of our new model will be to actually give farmers a percentage, like warrants or a percentage of equity in the mill. So not only are we paying them a higher price, but they're also benefiting from their participation in the system.

Speaker 1: 1:01:03

Because then you really lock it into, let's say, to look, of course, many, I think, mills for sure you as well started this co-ops by farmers together and then grew out of that and then we know where that ended. I'm not saying let's all start a co-op, but definitely how do you have skin in the game and how do you make sure the lines are very short and when you need something you can rely on that, which we've seen, of course, with the flower opportunities and issues during the pandemic, which everybody started baking and then everything was empty in three seconds. And a question I would like to ask at the end if you had a magic wand and you could change one thing overnight, what would that be? So, one thing only, but it could be anything, could be better taste, could be consciousness, could be end of cave operation, anything you possibly imagine what would that be?

Speaker 2: 1:02:02

You sent me that question and I have like 15 answers.

Speaker 1: 1:02:05

I do prep people for this I do prep people for this.

Speaker 2: 1:02:08

It's not that I just started, yeah, yeah, and I really appreciate that. I've been one of the ones that I have been running through my head and I have like 50 different answers.

Speaker 1: 1:02:18

That's the one that comes up now.

Speaker 2: 1:02:20

The first one was like an environmentally safe alternative to glyphosate, but I think that's a simple one. These are. We're talking about systems and systems scale impact. And back to another movie analogy. Remember I grew up, I watched Men in Black with my kids and they had the flashy thing. Instead of making people forget, I would like to have wave that magic wand or click that flash thingy and it would be about consciousness. You touched, you stole my thunder.

Speaker 1: 1:02:56

It would be that we had insight.

Speaker 2: 1:03:00

We had insight and understanding into all of the effects that modern industrial agriculture has had on our health, on our communities, on our resilience, and so that it could become a global priority and initiative to transform our systems to be more regenerative, because it does like, if I was just to say, environmentally friendly alternative to glyphosate. That just fixes one thing. I think, when we're talking about systems, it's a systemic issue that really acquires a global consciousness, that includes markets, that includes innovation, that includes technology, and I think that that would be what I would do, is I would create that global awareness and understanding that motivates people to change these systems at scale, both here and around the world.

Speaker 1: 1:03:56

I cannot imagine a better way to end this conversation. I want to thank you so much. We literally scratched the surface, but would love to check in over time as the new mill comes online. Of course, good luck with the fundraising off that and then, which might be the most difficult piece, but probably building it is going to be a lot of other challenges, because it sounds good on paper and then it always looks different. So I want to thank you so much for what you do and for taking the time to share here with us the journey of flower and the journey of regent, of growing flower and taste and flavor.

Speaker 2: 1:04:31

Thank you, cohen, and again, thank you for what you're doing. Again, this is part of the global awareness and consciousness that we just discussed. So, again, this is really important. We can do everything we're doing here and other small mills can do what they're doing, but without people really listening, understanding and then taking this information to make change takes a village. So thank you for having me on and look forward to a follow up conversation, because I think we have another couple of hours of material to go through Absolutely.

Speaker 1: 1:05:05

Thank you so much, Kevin. Have a great day.

Speaker 2: 1:05:07

Okay, okay, bye now.

Speaker 1: 1:05:14

Thank you so much for listening all the way to the end. For the show notes and links we discussed in this episode, check out our website. Check out our website at regenteregraculturecom. If you liked this episode, why not share it with a friend or give us a rating on Apple Podcasts? That really helps. Thanks again and see you next time.