283 Brett Hundley - From Tyson Foods equity analyst to financing millions of trees

A conversation with Brett Hundley, President of Agroforestry Partners (AP), a fund that invests in agroforestry projects on farmland with the strategy of providing uncorrelated and attractive nature-based investment opportunities for investors. 

We talked about moving away from an agricultural system that relies on annuals to a system that relies more on perennial trees. If trees are the answer to whatever the question is, how do we get millions of more trees into the ground?

How do we finance them, and how do we make the key stakeholders, the farmers- that need to give agroforestry operators access to their land for 20 40 or maybe a 100 years- comfortable with these farming systems? How do we get comfortable with writing these checks the other essential stakeholder investors that need to pore hundreds of millions into an industry and a system they are not really used to, with long time horizons (chestnuts, for instance, take 7 to 9 years before they bare fruit but could produce for at least 50 or even hundreds of years)?
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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

https://foodhub.nl/en/opleidingen/your-path-forward-in-regenerative-food-and-agriculture/

Transcript

Speaker 1: 0:19

We all know that perennialization I don't know if that's a word, I just made it up of agriculture simply meaning moving away from an ag system relying on annuals plants that you plant and harvest in the same season to a system which relies on perennial trees, for example, but also vegetables like asparages and others, is fundamental. This simply from an energy efficiency perspective, let alone from a health perspective. Multi-year roots have a lot more time to absorb fundamental nutrients. So if trees are the answer, whatever, the question was, how do we get millions more of trees in the ground? How do we finance them? And how do we make the key stakeholders farmers that need to give agroforestry operators access to their land for 20, 40 or maybe 100 years comfortable with these farming systems? And how do we get the other essential stakeholder Investors that need to pour hundreds of millions into an industry and a system that they're not really used to long-time horizons? Chestnuts, for instance, take 7 to 10 years before they bear fruits, but they could produce for at least 50 or even hundreds of years. How do we get them comfortable with writing these checks? Join me today in a deep dive where the answer is always trees and the question is how we finance them.

Speaker 1: 1:37

This is the investing in regenerative agriculture and fruit podcast investing as if the planet mattered, where we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems, while making an appropriate and fair return. Why my focus on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land and our sea, grow our food, what we eat, where and consume, and it's time that we as investors big and small and consumers, start paying much more attention to the dirt slash, soil underneath our feet. To make it easy for fans to support our work, we launched our membership community and so many of you have joined us as a member. Thank you. If our work created value for you and if you have the means and only if you have the means consider joining us. Find out more on comroadcom slash investing in Regen Ag. That is, comroadcom slash investing in Regen Ag or find the link below.

Speaker 1: 2:49

Welcome to another episode Today with the president of Agroforestry Partners. They invest in Agroforestry projects on farmland with the strategy of providing uncorrelated and attractive nature-based investment opportunities for investors. Welcome, brett. Thank you, koon. Nice to be here, and this introduction came to propagate Friends of the show. I just checked before we started recording. I think we interviewed them in 2019 or maybe even before it's time for an update, so let's also make that happen. But they introduced us and I'm always interested to go deeper into the funding model, or the finance model and the investment model around Agroforestry.

Speaker 1: 3:26

I think most people would agree and if you don't go and look at the literature that the perennialization of agriculture is imminent and fundamental. But the question always comes how do you finance all those trees and all the time? It's almost like a time-traveling method you're trying to do, which is, of course, what investing is and finance is at the end. So I'm very happy to double-click on that and go deeper into that today. So welcome Brett. Thank you so much. And to start with a personal question, we always like to ask how did you end up focusing most of your awake hours on soil and, in this case, root systems of mighty trees above it?

Speaker 2: 4:05

Yes, so I've spent most of my career in equity research, working for investment banks as an analyst. Very good, yes, a little different. I was on the dark side for a long time. I was an equity analyst that was responsible for analyzing the food and agribusiness industries in both North America and the EMEA region, and so I got to know food and agriculture across the entire value chain, whether it was meat protein companies or packaged food companies or grain traders and ingredient companies. It was a great career.

Speaker 2: 4:52

I spent 15 years doing that, but in 2017, I was really drawn towards climate change as one of the bigger problems in our time and really got into sustainability. So I went back to school, got a degree in natural resources to build on top of the food and agribusiness experience that I had within industry, and then did some corporate sustainability advisory work for a couple of years, before I was called up by one of my old equity research clients, telling me that he was engaged in this new entity called Agroforestry Partners and needed someone to run the day-to-day operations of the fund. And the more that I learned about Agroforestry Partners and what its people were doing, it was a no-brainer for me, and so I joined in June last year of 2023, and it's been really exciting since.

Speaker 1: 5:57

And was in your 15 years. On your words, the dark side did sustainability and some kind of long-term perspective. Did it start to like emission reporting? Did that start to slowly move into the space? Was it any part of your analytics or not at all?

Speaker 2: 6:18

You know what. I'm so glad you asked that. People asked me that from time to time and when I was in equity research from the early 2000s up until 2020, esg and sustainability were not a big part of what I was doing as an analyst At that time. The buy side long-only investors, mutual funds and then hedge funds they largely cared about financials and the strategic nature of the company and the sense of what was it doing from an operations standpoint, and there was very little talk of ESG and sustainability at that time. I know that's changed since I've left the industry, but for me there was kind of this seminal moment in 2016, which really got me interested in sustainability and climate change.

Speaker 2: 7:20

I was on a marketing trip with the CEO and the CFO of Tyson Foods, which is, of course, a very large meat protein company globally, and we were riding around in one of the black cabs of London. We were stuck in terrible traffic going to our next appointment and we were talking about the state of the meat protein sector and I'll never forget the CEO, this absolutely amazing man, donnie Smith. He told me he was talking about the struggles that he goes through and the importance of feeding a global population. It was very important to him and at the time the meat sector was also really struggling with some animal welfare issues and some undercover people that were highlighting these terrible animal welfare issues within meat protein companies and you could tell that he really took that personally. It was really upsetting to him and he really struggled.

Speaker 1: 8:29

Because he didn't know, or is he upsetting because they were uncovered?

Speaker 2: 8:33

I'm setting because he didn't know. He was really upset that those things were happening within his company and that they didn't have the controls in place to protect those animals, whether it was chickens, cattle or pigs and you could tell that it really bothered him and it was something that he wanted to try and fix. And at the same time, he was struggling with the other side of how to produce enough meat protein to feed the world. And it really just got me thinking about, as we said before, I was so used to analyzing these companies from a financial or an operation standpoint and it just hit me all of a sudden wow, sustainability is something that we need to be factoring into our analysis, holding companies accountable for their impact on the world and incorporating that into analysis, and that's when I really started to go down that road.

Speaker 1: 9:32

Yeah, and I can. I mean it's surprising from one side, but at the same time those companies are so big, of course they don't control everything unless they're fully vertically integrated and they are really operating at a different level. Let's say, but at that size you're going to find things and you're not going to be happy about it probably. And also when you're visiting as a CEO some kind of slaughter facility somewhere or production facility, of course it's going to be the cleanest, the best run. It seems amazing and but yeah, you have to probably spend a few weeks there to understand what really happens and or go undercover yourself to actually understand and very few do it.

Speaker 1: 10:13

A discussion, that interview be out.

Speaker 1: 10:16

Actually it is just went out now.

Speaker 1: 10:18

Depends when you listen to this with header Terry of Good Sam and she said, yeah, every CEO of any food company needs to spend time on the farms or the production places and needs to touch the compost etc.

Speaker 1: 10:29

Just to understand. It will really fundamentally change the boardroom decisions if you spend time on the ground and not just the shiny example that they want you to see, but the actual production, because it's very ugly in many cases and absolutely there's a need to produce for a price that is affordable and all of the world pieces, but there's also a need to do it in a proper, proper way, and most of it is just the ugly side of food, and ag is very ugly and absolutely not not pretty to see, and if you're in a cab in London and you go from one conference to the other, one meeting together, you're most of the time you're just not going to see it unless you really, really, really really try and yeah, that's most people don't. So there was a fascinating experience and then you came on board June last year. How much did you know about Agra Firstry and how steep has been the learning curve?

Speaker 2: 11:17

I'm laughing because it has been a steep learning curve. I was a bit naive to think that I would just step into the role. I knew that I had 15 plus years of studying the food and agriculture space and I said, oh, I know food, I know Ag. Then you realize quickly, when you're responsible for soil and trees and explaining the symbiotic nature of those to other stakeholders, that you don't know as much as you think you do. So I've spent a lot of time over the past six plus months really getting getting into soil and agronomy. I've been really, really fortunate to have some amazing partners that are a part of Agra Forestry Partners, namely Propagate, which is an incredible agronomy and farm services company that is focused on Agra Forestry. They have some amazing people as part of their organization and they've really helped me to get up to speed quickly on agronomy, soil and the incredible power of trees and our root structures to improve our soils and improve our food systems.

Speaker 1: 12:43

And from a problem we can ask, propagate as well. But what made sense for them to set up this separate entity, participate in that? What was the reasoning behind sort of placing it out partly outside their core structure?

Speaker 2: 12:59

Yep, so I give credit to Propagate all the time for this. I think that they were very, very smart to set up Agra Forestry Partners as a separate funding vehicle, and the reason is, when you think about regenerative agriculture and agroforestry specifically, these are actions and processes that we're putting in place on the land and in many instances, they take a long lead time to play out. It takes a long time to regenerate land, regenerate soils and improve the surrounding environment, and a lot of the new technologies and approaches that are coming to market are doing so in the form of startup companies, and Propagate is one of those. They're a startup and when you think about how startup companies traditionally raise their money in the venture capital world, vc investors traditionally don't have long lead times. They get excited as any of us when it comes to new technologies that can change the world or change the specific industry, but they don't have a long time horizon to realize a return.

Speaker 2: 14:30

So I think Propagate went to market. They were able to raise some money from the VC space and I think they realized along the way okay, as we go forward and realize profitability and realize scale and grow our own company, we're going to need to look beyond VC's and we're going to need to consider a larger set of funding opportunities. And I think, as they started to think internally about how to scale and grow agroforestry in the US market first and foremost, which is where they're based, I think they started to think through different funding options and they started to talk to some of our other partners, namely Cargill and a firm called Walnut Level Capital, and together the three of those entities created agroforestry partners to be able to fundraise from all different corners of the capital markets and bring a larger pool of money together, such that all of them could implement agroforestry at a greater pace and on a quicker timeframe relative to what they would have been able to do solely through the VC markets, if that makes sense.

Speaker 1: 15:54

Yeah, look, how do you make trees eventually bankable, like, how do you get it out of the startup space? Of course we'll deliver the support and growing I mean there's a lot of hands on space there but how do you raise tens, if not hundreds, of millions, probably billions at some point? You're not going to do that through a startup. In many cases You're going to do that through a fund vehicles or specific vehicles, because the large institutional investors, the large family offices, will just never pour that into a or shoot it pour that into a startup. And so what is that current? What would? As your, you say, I'm responsible for daily activities. What does agroforestry partners currently does? Do? We're talking beginning of beginning of 2024, like, what are the main focus areas? How do you get a lot of trees in the ground?

Speaker 2: 16:44

Sure, sure, yeah. So right now we are in fundraising mode. We are actually about to sign off on our first institutional LP investor and we're really excited about that. They bring a great name to our fund and a great network and we're really excited for what their presence will be able to do for our fund insofar as bringing in additional investors. Alongside that fundraising work, we are talking with as many farmers as we can in the eastern part of the United States. That's our key focus area and as funds come in the door, we're taking those funds and we're doing two things. Number one we're paying out leases to farmers.

Speaker 2: 17:37

Agroforestry partners is a little bit different. We operate on a land lease model as opposed to a land purchase model. We believe that leasing land is a much more efficient form of capital relative to purchasing land. It allows us to take more of the funds that come in the door and apply them to getting trees in the ground as opposed to buying land. And then, number two, our land lease model allows for farmers and landowners to participate in this work and hold on to their land and realize the incremental value that will be derived from doing this work, instead of buying their land and incorporating it into a bank or a corporation. So we take that very seriously.

Speaker 2: 18:28

We want farmers and landowners to be along for the ride.

Speaker 2: 18:31

We want them to participate in the value creation from this work, and so we operate a land lease model and because of that we take some of that capital that comes into our fund and we pay out leases each year at the start of each year to our farmer and landowner partners for access to their land.

Speaker 2: 18:51

And then, of course, we take the remaining funds and we buy trees and we stick them in the ground. So at this point we're a couple years old. We've planted over 60,000 trees on roughly 800 acres of land in northern Kentucky and southern Ohio in the eastern United States, and this spring we're really excited we're going to be planting over 1,000 additional acres in that same hub and that northern Kentucky hub and so, going into the northern hemisphere of summer this year we will be managing about roughly 2,000 acres of chestnut trees here in the US on traditional corn and soy land that's been pretty beat up from just a corn-soy rotation over many decades and we're running a alley cropping operation on most of that land where we have rows of chestnut trees and in between those chestnut trees. We're running hay as a second crop for our farmer partners to be able to realize income in addition to the lease payments that we make.

Speaker 1: 20:12

Yeah, thank you for making that visual, like the corn-soy rotation and then going to these alley crop systems. That sounds like quite a departure from, let's say, before you started working with the farmers, how easy is it for them, like, how easy is the sell to them, let's say the tree part? Obviously they'll go first read the chestnuts, but also the hay, instead of doing what is the decision of the hay compared to doing corn and soy in between the tree crops?

Speaker 2: 20:46

Yeah, you know it's really interesting. When I joined Agroforestry Partners, I remember having conversations with our team members at Propagate, walnut, level, capital, etc. About this concern that farmers were going to be the bottleneck for our fund, that we wouldn't find enough farmers, or when we were talking to farmers that wouldn't want to do this type of work. That couldn't be further from the truth, at least in our experience. Farmers are not the bottleneck. They want to do this work. They're interested in it. They care very much about their land. Our biggest bottleneck has been fundraising.

Speaker 1: 21:30

So you could weigh way beyond the 2000 this year, if, of course, if you had seedlings and all of that, if you have the infrastructure. But if you had the money to lease more land, there would be more farmers. Or there are more farmers available to change quite drastically still from chestnuts and hay or from a rotation corn soy to chestnuts and hay, you say, yeah, we could easily go way beyond the 2000 acres.

Speaker 2: 21:56

If we had a hundred million dollars tomorrow we could put it all to work. Our goal, like I said, we'll have about 2000 acres under management coming out of this spring. Our goal is to realize 10,000 acres of converted agroforestry land for this particular fund and we would be able to do all of that tomorrow, or at least set all of that up tomorrow, if we had the funds in place. And to go back to your previous question about the corn soy transition over to a hay chestnut alley cropping approach Apart from the fact that it looks much prettier, obviously, but that's the aesthetic, yeah exactly.

Speaker 2: 22:43

No, it's been really interesting in talking to our main farmer partner in northern Kentucky. He's been an incredible partner and just speaking with him on a day-to-day basis or in person on the farm tours that we do periodically, he's very aware of what's been happening to his soil in recent decades as he monocrops corn and soy on thousands of acres of land. And when our partner Cargill approached him and set us up together to talk, he was not only interested in the income-generating opportunities that could occur from this work, but he was very much interested in the nature-based returns that could accrue from this as well. And when you add it all up together, when you consider the annual lease payments that we make to him plus, which are basically for under the tree lines.

Speaker 1: 23:55

It's the piece of land or it's for the full farm, or how does that work?

Speaker 2: 24:01

Yeah, so sometimes we will lease entire fields or farms and then sometimes we will lease a portion of a field or a farm so that the farmer can keep a certain amount of land in traditional row crops. It really depends.

Speaker 1: 24:17

Sorry, coming back to you, I interrupted you where you added all up. What's that? I'm sorry. I interrupted your train of thought when you added all up for a farmer.

Speaker 2: 24:27

Yeah, yeah. So when you added all up for a farmer, it's really interesting. Consider that farmers here in the US traditional row crop farmers over corn and soy. After land costs, they might make anywhere from 50 to $300 an acre profit farming corn and soy. Here in the US we pay our farmers a very competitive lease rate. We pay our farmers about $200 to $300 an acre for access to their land and then, like I said, right now, in the hay chestnut alley crop projects that we're implementing, our farmers also get to run hay in the alleyways of our chestnut trees and in the money that they can make from hay right now, combined with the lease payments that we make to them, many times it's more advantageous for them to join our chestnut hay projects relative to the corn and bean farming that they were doing, and they don't have to deal with the US government as much when it comes to crop insurance.

Speaker 2: 25:43

They're rehabilitating their land and the process. There are many financial and nature-related benefits for them to do this and join us and on top of all of that, they get to keep control of their land, which is really important to them. We really feel like we bring a win-win-win to the marketplace, a win for the farmers, a win for investors and a win for the environment and climate. And the last thing I'll just add is hay, in my opinion, is going to become a very important crop going forward. When you consider the nutrition benefits that accrue to livestock from eating grass relative to grain, and then also consider some of the climactic impacts on just grasslands around the world, hay, in my opinion, is going to become a very, very important crop in coming decades and I think that our farmer partners are realizing that the value that they can get from running hay in between our alicrop systems.

Speaker 1: 26:50

I'm going to double-click on that in a second. But one step back, I'm also imagining your leases. As we're talking, trees are long-term. It's not that you change your mind. Let's move the chest, not somewhere else, because that's not going to happen. So there is a sense of security there. Of course, they can also not change their mind overnight and say I actually don't like trees on my land. So there's a long-termism there. And of course the soil in around and closer to the tree lanes are going to be fundamentally different in a couple of years compared to actually in the year two, probably already. So that long-termism, I think, is going to be interesting as well. And then the hay piece like are farmers starting to run animals in between as well? Coming back to the Tyson discussion before, like are they leaving it as grass and not harvesting it as hay and going into a silver pasture system? Do you see things like that happening?

Speaker 2: 27:45

It's such a great point to step back real quick and just address the lease point. It's a great point. We set up an initial 20-year lease with our farmer landowner partners and then we have the ability after 20 years both parties to renew for another 20 years after that. So we can repeat that process four times, going forward for a total of 100 years, if the farmer, the landowner, wants to be involved that long. But we work on 20-year lease increments.

Speaker 2: 28:22

And as for your point on silver pasture and the ability to commingle animals, trees and grass or crops together, that is our North Star. When you look at the research, the research is clear that when you add trees to crop systems, you get a number of benefits to soils, water quality, biodiversity and the broader environment. And then, on top of that, when you add animals to trees and crops together, those benefits are amplified, and so it is our goal to create another fund that will be focused on silver pasture. For this first fund, we are solely focused on alleycropping. That's right, keep it simple. And there are some to your point. There are some real complexities that come just from an operational standpoint, a farm management standpoint of integrating animals crops and trees together.

Speaker 2: 29:32

But there's also regulatory complexities that come from that right Harvesting to chase nuts.

Speaker 1: 29:37

Yeah, I know that's right.

Speaker 2: 29:38

Yeah, so, yeah, there are a number of challenges, but it's funny, when I go to conferences, I always think ahead of time that I'm going to be talking about alleycropping the whole time, and the vast majority of time the conversations that I'm involved in are actually based around silver pasture. There's a real demand and interest from a lot of stakeholders out there on implementing silver pasture projects and we share in that excitement. It's something that we want to pursue longer term.

Speaker 1: 30:13

And I think there are a lot of dimensions there. One you can do and I'm going to ask how the tree lanes look and how diverse they are, and of course it might depend actually on the farmer as well. But there's a lot to say for integrating trees as a tree, hay, as a good friend of the show like to call it, integrating the leaves at the right time of the year at the right time of the tree, et cetera, et cetera, into the diet of animals, and then you get a whole other level of health benefits and a whole other level of actually benefits for the tree as well. Of course, very complex to manage. There are people that are doing amazingly, but how to scale? That is going to be a challenge for the fund number two, but super interesting from a carbon perspective, water perspective, animal welfare perspective, quality perspective, et cetera, et cetera.

Speaker 1: 31:02

And probably, if you do it well, your trees grow faster as well. But so how do a tree rain like? How do we? You already visualized it a bit, but going from a corn soil rotation, I think we can sort of understand how that looks like if we close our eyes. But how do you? Does your average farm, your average acre or 10s of acres look like if we had to visualize that with the chestnuts. But what grows in between? How do you does it feel, smell and look like if you are there at the right time of year, of course?

Speaker 2: 31:33

Yes for sure. So we fully admit, in the spirit of simplicity, our initial approach to these projects is to plant fairly concentrated plots of chestnut trees. So we plant chestnut trees on a 20 foot by 20 foot grid on our fields, which is fairly concentrated. There isn't a ton of room in the alleyways to say grow a corn crop right, so we almost default into a hay crop. But we're doing that for simplicity purposes as well, as we know early on here that we have to get the financial return profile right In order to expand agroforestry specifically and regenerative agriculture more broadly. The return profile has to be there for risk capital that is coming into the market and offering up capital upfront to initiate and expand these practices. And if you do not get a financial return back to those initial investors, you really run the risk of taking two steps back after a foot forward in trying to implement these regenerative agriculture practices. So we knew that we had to get the financial return profile right. We knew that we had to de-risk our first fund as much as possible and because of that we plant on a fairly concentrated grid. The good thing about that is what we're doing to that old corn and bean land is we're quickly rehabilitating it because of the number of trees that are going in the ground on a per acre basis. And it's really cool you talked about what does it smell like, what does it feel like, what does it sound like? Anyone listening to this? I encourage you to please reach out to me.

Speaker 2: 33:45

We do a lot of tours on our pilot farm in northern Kentucky. It's a very easy place to get to. Cincinnati Airport is right there. You can fly in direct from London, you can fly in direct from a lot of places in the US, and the tour that we do is really, really interesting.

Speaker 2: 34:07

We start by looking at a field of corn or soybeans and you go and you visit and you really don't hear much. You walk the field and while you might see crops in the ground or you might see a bear field that's being prepared for the following spring, you don't hear much. It's silent, it's calm, it's there, isn't much going on. And then from there we take our participants to a field that we've prepped with some biodiversity planting, so some tree or plant species that are native to that local area, and we're getting the ground ready for our chestnut plantings. And there's a little bit more life. You can hear some crickets and some birds here and there. And then from there we move on to a third field which has our trees on it, one and two year old trees. There's grass hay in between and it is loud. It's incredible. I mean you walk on to that third field.

Speaker 1: 35:19

Have you made videos about it or like comparison? It would be great for like shorts on Instagram et cetera, just to, because I remember it's a soundscape. I'm going to blank on the name, but there was a or there is a vision. No, an audio artist, sorry, that captured forest and original audio in nature areas and then also could show, even though you couldn't see it was in a jungle area. You couldn't see the difference, but some have been had been selectively logged.

Speaker 1: 35:47

You could hear the difference and he made a visual. So on a huge wall around you there were all the different lines of the leopard, of all the birds, et cetera, and you could see physically like the difference when the logging company came in, which was very sustainable, which was selectively logging, but the, let's say, the sound had changed and that actually diminished quite a bit. So they made the sound. I'll put a link in the in the show notes and description below, because I don't remember the name and I think it's like the great nature orchestra or something like that, but I will find it. Anyway, have you thought about how to bring it to the people that cannot, even though it's easy to visit but still it's far for many to to bring that to people, just to show, or let people listen to the difference?

Speaker 2: 36:26

You know. I'm glad you asked that because we have and we need to do more of it, and we actually we're soon going to release our first impact report for the 2023 year, and we talk about MRV, right Monitoring, reporting and verification. Which is what a lot of investors and and other stakeholders want to see from from impact funds like ours is what impact are we having? How are we measuring it? And we've talked about the different ways that we can measure and report on biodiversity and that that auditory piece is going to be one of them, and I'll add to you know, if you go to our our page on LinkedIn agroforestry partners.

Speaker 2: 37:13

One of the very first videos that we posted was right after I joined last year in June. It was my first farm visit. We got to that third farm, like I mentioned, and my jaw just dropped. I could not believe how loud it was. I was actually having a hard time hearing another member of our team speak from a few yards away and I just I took my phone out and I just scanned the landscape for about 15 to 20 seconds and took a video and it's it's so loud and we were all kind of just giggling. I mean, it just brings this like this raw happiness out of you, but it shows very clearly the nature and biodiversity benefits that can come from just putting native species and trees in the ground on traditional farmland. It's really cool.

Speaker 1: 38:07

Yeah, I'll definitely put the link below and I found the one. It's a great animal orchestra of Bernie Krause. See it live if you can. I think it's traveling, don't exactly know where. If you have the ability to do that, I mean, definitely listen to this one as well and do interact, because it makes it, you know, makes it so much more visual and real if you hear it. And then how long, just like practicalities in terms of 40 investors in a fund like this, I don't know, just not too well. I know they're the. We've talked to the propagate guys before and it's the tree that solves everything. Obviously, google that if you don't know why. But how long does it take before chess not start to be, let's say, relevant and interesting from a revenue perspective? And how does that fit into, let's say, traditional or less traditional financing structures?

Speaker 2: 39:01

Yeah, I'll echo what you just said. And until I joined agroforestry partners, I really only knew chestnuts from what we would do every Christmas time in our family, which has put them in the oven and Hit them, pull them out and feel them and eat them. They're, they're, they're incredibly tasty, but once a year I would interact with them and that was about it. I didn't know much about the trees or the or the crop itself more broadly. Just nuts solve a ton of problems From a nature standpoint and from an economic standpoint. Just not. Trees have incredible economics behind them Between what you're able to purchase them for and then how you're ultimately able to monetize them. So, just not.

Speaker 2: 39:52

Trees themselves Will not begin bearing a commercial harvest until about year seven, eight or nine. So there is a fairly long lead time from the point of setting the tree in the ground and Realizing a commercial harvest where you can sell that product into the marketplace. Now, that being said, they have a fairly low cost profile. You can buy the tree, set it in the ground, make sure that it survives its first, you know, two to three years and there's there's very little maintenance. That comes alongside the tree thereafter and then your your biggest problem from from then on, once it starts yielding produce, is how to how to pick that produce up off the ground.

Speaker 2: 40:46

Chestnuts fall to the ground. You pick them up and bring them to market, but that's kind of your brick. Your biggest problem at that point is how do we harvest this nut type and then where do we put it into the marketplace? There's there's good demand internationally. I say internationally, outside of the United States. There's there's good demand in places like the UK, the Middle East Asia, in the US itself. It's a really small market today and we're having to think creatively. We're excited about thinking creatively of how to expand the market here. We think there are a number of other proxies out there pistachios or one that come to mind of nut segments that have really increased demand over time and shown that you can really expand the market. So we're really excited about that aspect of it.

Speaker 1: 41:39

And then, how long does an average chestnut tree that say yield, like how you're thinking, in a hundred, a hundred year horizon? So I'm imagining a tree gets there as well, like what's the or what? When do you replace? Or is it one of those that once it goes, it just keeps on going? I know there are chestnuts in Sicily, in Italy, that I think it's a multiple one. I'm, top of my head, two thousand year old, probably older. And but how? How are you modeling that even? Or what's your? What's your? What your targeting?

Speaker 2: 42:09

Your spot on. I was just about to name the same tree that's been around for thousands of years and is still producing chestnuts, which is so incredible Chestnut trees on average that you know you'll you'll definitely get decades worth of production. We usually hedge by, say, you know, over 50 years, five zero years, but.

Speaker 1: 42:33

But the hope is that these trees will be able to produce for for over a hundred years and Then are there ways, like you say seven, eight, nine years, like, are there ways you're looking at how to speed that up, like if you can take one or two years off In terms of how to plan what to plan it with, how to prepare, like, are there Ways to to bring that forward, because that's gonna change your model quite a bit?

Speaker 2: 43:02

It's a really good question. We we think about that, but it's not a huge priority for us. But when we talk to our investors, it's just to get them in. So let's yeah, that's right many.

Speaker 1: 43:16

Yeah.

Speaker 2: 43:16

Yeah Well, and we, we, we tell them at the same time we say look, this is a long-term investment for you. We're not trying to Cut any corners or we're not trying to quote, unquote, hack anything that could potentially mess with your investment. We all know that this is a long-term investment. Let's do it right so that these trees produce for years and years, and years and keep a very solid return in place for you for decades, or the ability to sell your share To someone else that wants to participate in that future income stream. But I will say this our folks at propagate Take this very seriously.

Speaker 2: 43:55

When, when we convert a corn or a bean field, it would be very rare that we would go straight into Corn or soybean stubble without prepping the land. So, traditionally, what propagating, as partners, will do Is they'll, they'll come in, um, they'll. They'll clear the land. They'll deep rip it if it needs to to be deep ripped, um, they'll put certain soil amendments in place. They'll, they'll sow grass coverage in place across the field and all of that gets done. You know, six, 12, 18 months ahead of time, of the trees even going in the ground, so that we're giving these trees a chance. Remember they're, they're going into soils that are Void of of many microorganisms, that many times the land is pretty beat up, and so we want to make sure that we're prepping the land in the right way, giving these trees a real fighting chance and, and we know that, long term, if we prep that ground in the right way, um, our trees should be healthier than not, and they should hopefully produce earlier and more.

Speaker 2: 45:06

Relative to not doing that, a funny example is this past fall, we did a farm tour With some investors and we were going by a field that had, uh, some some one to two year old trees on it and, uh, we were talking about something.

Speaker 2: 45:24

It didn't matter, I can't remember at the time, but we were walking by this one two-year-old tree and it had, uh, three or four chestnut burrs on it and, and for those of you that don't know chestnuts all that, well, uh, a burr Grows on on the the tree and usually contains about two to three chestnuts inside, uh of itself. And uh, you know, there were two, three, four burrs on this two-year-old tree and we were like, wow, you know, kind of making the joke of, look, our trees are already yielding, and that was just a really exciting moment for us to to see that we're hopefully doing this the right way. Our, our young trees are in good shape and uh, and we're giving them the best chances of success going forward and Do investors bring up the point of changing climate and climate weirdness, I think, is the the the right term.

Speaker 1: 46:15

We've been living through the last couple of years, or probably longer as well. Like, is that a um a concern for them? Like, how are these trees that are going to be there 50 plus years gonna handle or deal with, um with with not the same that we modeled for, let's say, or not the same climate or type of weather?

Speaker 2: 46:33

Absolutely, and, and this is a really important point I when, when we have been having conversations with investors, one of their primary concerns is the changing climate in in the decades ahead and and how More volatile weather as a result of that might impact their investment. One of the the the main avenues that we've taken to addressing that risk at a at a broad level is to geographically diversify our, our projects. So this first hub in kentucky, we will plant probably a total of around 3000 acres of our Intended 10,000 acre goal, and then we will move on to a different geographic hub, uh and try and replicate that plant another 3000 acres or so, 2500 acres, and we'll continue to do that in different geographic hubs in order to reduce risk. Um, the other side of that coin is when we've gone and talked to farmers themselves. They, they have those same concerns, uh, and so we've done a couple different things. We've gone out and talked to uh Existing chestnut growers here in the us, some of the more prominent Existing chestnut growers.

Speaker 2: 48:05

We've we've listened to them about what impacts their Trees and production on a year-to-year basis. A lot of them complain of, you know, early year frost or late year frost. They complain of deer. Deer are a big problem that can take 20 to 30 of your crop if you're not careful. Each year, uh chestnut growers also complain of Dicamba drift.

Speaker 2: 48:32

Dicamba, of course, is a chemical that a lot of traditional row crop Farmers use to suppress pests and weeds on their fields, and uh that can drift into Uh chestnut orchards and hurt the trees and hurt their production. Uh, so we've we've listened to a lot of this commentary, and and one of the other things that we're doing to protect uh investors from climactic changes and and other pests is uh we're we're in the process of working with the usda on setting up a? Uh a chestnut tree and crop insurance product that can protect our farmers and protect our investors, because right now, while the while the united states does have many different crop insurance products in place, chestnuts are not currently covered by federal crop insurance, and so we want to make sure that we get a product in place for our Investors and and our other stakeholders to make sure that their investment is protected and in these investor trips and and talking to investors, which you do all the time, like what are the biggest education pieces?

Speaker 1: 49:41

let's say for them, like, where do you see I'm not saying the big missing links, but where, because I'm imagining it's a lot of education as well, just to make them understand. Maybe they come from the timber space and they come from the agriculture space, and then they meet somewhere in the middle and it's just weird or different than what they expected or what they're used to. Like, what are the biggest education hubs you have to Go through, let's say, to get somebody to the, to the finish line?

Speaker 2: 50:08

It's uh, it's so true, uh, I could remember, uh, one investor trip in particular. This, this very, very smart individual um that uh was was working for a corporation that is trying to offset its global footprint and so, uh, they're making investments in nature to try and do that. And so he was brought on by the firm, uh, to try and make some of those nature-based investments globally. And he has a forestry background and, again, this, this, this individual is extremely intelligent, very, very smart Um. But when we were walking around the farm, he said bread, I just don't know what I'm looking at right now. I I don't. I don't really know chestnuts, right, I don't know chestnut trees, I don't really know alley cropping and and how trees interact with uh, hey, or anything else going on. I don't understand the economics of everything. I don't understand how to analyze my risk and and we spent a long time going through the due diligence process with him, um, and I just remember him talking about what, what a challenge it was For him to analyze this, even though he had the, the forestry background, um, and and we you know that that same situation gets replicated time and time again.

Speaker 2: 51:32

Uh, so what we've done is we've realized that um, offering, or how to put this. We we've realized that offering a fund that overcomes the financial and the technical hurdles to agroforestry adoption and regenerative agriculture adoption Is not enough. We've realized that there's a third hurdle hurdle, a cultural hurdle, where we really need to educate, um, the investment community. We need to educate the farming community community, um, and we need to educate society writ large on regenerative agriculture and and why it's needed. So, if you go to our website, you'll see that we have a lot of research papers in place.

Speaker 2: 52:23

Uh, I spend a fair amount of my time, um, composing and producing those, those research papers to to put in front of investors, to put in front of other stakeholders, to help them analyze what we're doing and make an informed decision, um, and then, uh, the other side of that is is just Walking investors through specifically what we're doing in our projects and why they might differ to what they read in the news.

Speaker 2: 52:53

Right, uh, what I'll, what I'll, what I'll kind of end on in this specific response is Consider the really difficult year that the carbon markets went through last year, the voluntary carbon markets, and if you were to read about any project associated with, uh, selling carbon offsets right, yeah, trees, you would probably have a bad taste in your mouth. We come into that conversation, um, very, very wary or critical, and what we've tried to do is is Showcase why our projects are different, why they are Reliable, um, and and we've tried to to give full visibility and transparency Into what we're doing, where we're not trying to hide anything, um, and we encourage investors to. You know, if you have a normal three month through diligence cycle and you want to go to six months, that's fine. We just want to make sure that you're comfortable with what you're investing in and that you fully understand what our project entails and and so how important is the Payments for ecosystem services in your model?

Speaker 1: 53:57

uh, like the carbon piece and maybe others. But how? How fundamental? Or is it a nice icing on the cake, or is it a fundamental piece of what makes it interesting?

Speaker 2: 54:05

Yeah, you know, I would characterize it more as icing on the cake. I don't want to minimize its importance. When we talk to investors, it's extremely clear that almost every single investor that we care about or, excuse me, every single investor that we talk to cares about the carbon sequestration piece of our projects they care about the soil, or either yes, yes both.

Speaker 2: 54:40

They care about biomass sequestration and soil sequestration. They care about the biodiversity piece. Almost every investor wants there to be a biodiversity element to our projects, which there is. And then they care about offtake. They care about who's going to buy your chestnuts. What are they going to pay? Those are usually the conversations that we're having with investors, and from a carbon standpoint it's small. It's less than 5% of our projected return for investors, but it still matters from a quality standpoint.

Speaker 1: 55:21

And so switching to some questions we always like to ask, switching, I mean, it's not a massive switch, actually there's not a huge leap here, but let's say we're still an investor education piece. So we're doing this in front of, let's say, a live audience. I love to use it as an example. The regular listeners will be tired about me saying let's do this in a theater in New York or in some kind of financial center and the room is full of financial types either investing their own money or responsible for our pension funds, etc. Of course they're excited about Agroforestry. After this evening we're on stage. But we also know you forget most things after an evening. It's not that things stick, and we want them to remember one thing, one seed that we plant the next day when they go to work, when they go into their family office, when they go back to their desk. Let's say, if there's one thing you want them to remember of that of the evening, what would that be?

Speaker 2: 56:18

And this relates specifically to Agroforestry investment.

Speaker 1: 56:21

I mean in general, if they had a great time, yes, but I would say specifically of the conversation we had on stage about Agroforestry investments. What would be the seed you want to plant in there in their mind?

Speaker 2: 56:32

You know, I think for us it's a number of things, but if I had to pick one thing, it's the true power of trees. Our propagate people like to talk in terms of how trees are the answer, they say.

Speaker 1: 56:54

What was the question? Trees are the answer, whatever, the question is trees?

Speaker 2: 56:58

are the answer no, and I mean they come at it from a focal point of you know a lot of the guys at Propagate. They started their company because they cared a lot about healthy food and nutrition. A number of key personnel surrounding the fund really care about nutrition as it relates to their own individual health concerns and they're driven by a core desire to create more nutrient dense, healthy foods for society. And when you a statistic that we like to talk about internally a lot is, you know that the average mineral content of vegetables in the United States has fallen anywhere from 5% to 40%, depending on the crop, relative to 1950. So people today are not getting the same nutrition from their food relative to their parents and their grandparents. And if you take a look at why this is happening, it's because our soils themselves are depleted of nutrients and they're thus not able to fortify our food at the same levels anymore. You know our farming practices are producing more food, but that food is becoming lower quality, and so we always say you know what fixes this?

Speaker 2: 58:19

And the answer is trees. You know trees and their root structures have such a wide range of benefits for our soils the food that's grown in our soils or that relies on our soils, water quality, biodiversity, I mean the list goes on and on and on, and in the process, when you plant those trees, they offer a wide range of income benefits for farmers and their communities as well. So you know, we coach people a lot when they invest in regenerative agriculture to bring a narrow focus right. There's so much to do across agriculture at large and you can honestly lead yourself into analysis, paralysis when you try and, you know, evaluate everything. But we really always come back to trees by saying if you want to have a truly wide impact and make a little bit of money along the way, plant some trees.

Speaker 1: 59:24

Yeah, we've had somebody, I think it was a title of the interview. Even Philippe Pacini on Centropagago Forestry went in doubt. Plant more trees. That was the answer to almost every question and I think it still holds true today. And so, flipping the conversation, what if you would be? I mean you already gave the 100 million answer.

Speaker 1: 59:46

Like if I had 100 million, we could put it to work tomorrow or today in agroforestry. What if we opted up a bit and go to a 10x fund like that? What if you were in charge of a billion dollar investment fund tomorrow? Could be extremely long term, like we don't, but it has to be invested how would you not looking for dollar amounts, I'm thinking, I'm more asking how would you prioritize? What? Would you focus on the seedling side, on some mechanization, on least structures or technology, like what would be your main bucket you would invest in if you had to put that to work? Could be outside agroforestry as well. Actually, if you have a completely different angle, if you would be tackling food and agriculture let's keep it in food and agroforestry what would you be tackling if you had a billion dollars to put to?

Speaker 2: 1:00:35

Yeah, good question. I'm going to sound like a broken record here because I'm the tree guy, but if I had a billion, dollars.

Speaker 1: 1:00:43

would have been amazing if he said seaweed no there would be yeah.

Speaker 2: 1:00:48

If I had a billion dollars, I'd probably plant about 300 million trees on farms next to crops and animals. But your question is actually an important one because we're getting those questions now.

Speaker 1: 1:01:03

When I started seven years ago, I was predicting the large, significant investors getting into the space and start. I will ask these questions at some point. So let's get prepared for mechanisms and infrastructure. I would call it and technology I'm seeing financial structures, like yourself, as a technology. I think the definition of tech is way too narrow. So how do we absorb that interest when it comes in those resources? And I think a billion is a lot, but not a lot at the same time, sorry to interrupt.

Speaker 2: 1:01:31

So it's an important question.

Speaker 1: 1:01:32

I think, because it's coming and we need to and it's there already and we need to get ready to chop it in pieces and make big money small and put it to work in the soil.

Speaker 2: 1:01:43

No, it's such a great point because, when you consider some of the estimates that are out there from consultancies and other market watchers on the amount of money that it's going to take to transition to regenerative agriculture globally, it's in the hundreds of billions of dollars, right. So a billion dollars comparatively is not that much, which is crazy to say. So if you have a billion dollars. We firmly believe, within our fund and across our partner set, that we should be planting trees next to crops and animals. Like I said, it offers the most bang for your buck. But I will say this I'll go further by saying two things. I kind of jokingly said that I would plant 300 million trees. I would color that further by saying that I would plant those trees in mature, developed markets as opposed to emerging markets, and that might not be a very popular thing to say, but I think we're getting it a bit wrong by trying to force regenerative practices into emerging markets where they might not make sense. I mean, consider the United States, consider certain countries within the EU Canada, brazil, argentina. These are like true bread baskets of the world. These countries produce a large majority of the food that the world depends on, and we already know that there's a ton of food waste that happens downstream and that's a completely separate podcast for you, but I think that we need to be hitting these food production centers hard and making them more regenerative in place to try and address some of the negative externalities that come from food production in those key places.

Speaker 2: 1:03:58

And then the second thing I'll add is I think many of us are focused on the upstream parts of the market. When we think Regen Ag, we think upstream, we think we have to get this done on farm and it's on farm, on farm, on farm, and that's all we think about. And I think the smart investor is going to start to think downstream. The smart investor is going to start to think offtake, because while most of us are concentrated upstream and doing what we can to transition fields and farms, we can't forget that we're going to need to deliver those products downstream to the consumer right, and there needs to be supply chains set up to do that. Consumers need to understand their choices. Education needs to take place at each step of the value chain. There's a ton of work that needs to take place off farm as well and, at least in my experience, there aren't many people talking about that at this point.

Speaker 1: 1:05:15

And is that why you mentioned Cargo a few times, why they're looking into that? Because I'm imagining they've been working with the same farmers on their soil corn rotation and so they seem to be getting behind chestnuts very clearly. Otherwise, what is their role apart from introducing you to the farmer? Are they buying the hay, are they buying the chestnuts, or just interested in financing it? What's their interest in this strategy?

Speaker 2: 1:05:44

Yeah, this is a great discussion topic. So, specific to Agroforestry Partners in Cargill Cargill is solely focused for the time being on connecting Agroforestry Partners with farmers. They're economically incentivized in the fund to do just that. Down the road I think there will be potential for Cargill to be a separate partner in the sense of offtake or whatever it is, and they can choose whether that's for them specifically or for another market participant relative to the role that they play in the marketplace as one of the big grain traders around the world. But the reason I like your question so much and this goes back to my days on the dark side once again as an equity research analyst, as I was leaving equity research, a lot of the food and ag companies that I had relationships with and continue to have relationships with they were talking at that time and they're still very much talking today about taking a backwards view into their value chain, into their supply chain, and vertically integrating.

Speaker 2: 1:07:14

From the sense of a backwards integration, I think you mentioned it closer to the top of this call, which was companies are having to increasingly look back through their supply chains I think we were talking about it in terms of Tyson Foods and make sure that they're shoring up all parts of their value chain because of the risk that occurs to them from that standpoint, and increasingly we're seeing food and ag companies look back through their supply chains and either vertically integrate themselves or work with their supply chain partners to become more sustainable.

Speaker 2: 1:07:56

I mean, this is critical for them, for companies to do this work. So I know Cargill and many other food and ag companies are increasingly looking back throughout their supply chains and working with partners to implement these more sustainable practices, and I think that's going to be a key piece of the industry going forward. I think those companies are going to spend more and more money, make more and more investment in regenerative agriculture, and that's a very good thing, because just taking 1% of sales for the food and ag industry and plowing that into regenerative agriculture would have a meaningful impact.

Speaker 1: 1:08:43

And what's holding it back in, apart from the funding you said from the investment side? Is there certain technologies you would love to have? Are there? I mean, the farmers seem to be ready, or at least you have more farmers that want to work with you than you currently can do the acreage. I'm not saying we're not going to hit a ceiling anytime soon, etc. Etc. But for now at least that seems to be covered. What is high on your list, like harvesting equipment or better markets, local markets in the US? Would that really change a big thing? Or are there foreign markets interesting enough, even though we transport, etc, some costs might be added. What is holding you back, beyond the things we already discussed?

Speaker 2: 1:09:27

So my answer will be mostly specific to chestnuts, and I apologize for that, but that's the world, it's the tree.

Speaker 1: 1:09:35

like the answer is the tree, and then, within the trees, it's always the chestnut.

Speaker 2: 1:09:39

That's right. We are narrowly focused on chestnuts, right now.

Speaker 2: 1:09:46

I'll say you touched on most of it. The equipment is key. We and our farming partners have realized that there isn't a great solution set when it comes to equipment for alley cropping in the United States today. The Europeans are a little bit further along than us and I know we've made some trips to Europe to learn from what Europeans are doing and how they've modified farming equipment to operate in more narrow ranges or tighter spaces. When it comes to agroforestry specifically, our farm partner in Kentucky is very engaged and, to his credit, he's been manipulating his own equipment in a really interesting way to be able to give us more efficiencies and more optimized management schedules for our projects. But we need new equipment for this type of farming, to be sure.

Speaker 2: 1:10:52

And then the other thing that I think you touched on was we're realizing that when we bring regenerative products to market, we're probably going to need to charge a premium for them. We fully believe that consumers will pay a premium for those products, but we need a supply chain, we need a delivery mechanism to bring them to market. If you consider chestnuts specifically, we don't want to mix our regenerative chestnuts with regular chestnuts in the value chain. We don't want to mix our regenerative chestnuts with commodity grain in the distribution channel. So we need to set up partnerships, coalitions, delivery mechanisms to get those products to market so that the consumer can make informed choices.

Speaker 2: 1:11:46

And the last thing I'll add that touches on your question more broadly, outside of chestnuts is regulation and policymaking. We need governments to step in, either at the local, state or federal level, in creative ways to make sure that farmers are incentivized to make these changes and that consumers are protected from bad actors that might come in and try and greenwash in certain ways or try and combangle products. One of the key things there is farmers today. If they take their land out of traditional row crops and put it into regenerative crops, like chestnuts, for instance, or anything else, they can lose some really important support payments and systems that they're used to relying on. And it's a problem in that once they make the change, traditionally, at least here in the US they lose those support payments and systems forever. It's very hard to get them back. So we think that politicians here in the US need to pay attention to this and need to incentivize farmers to make the change and protect them along the way.

Speaker 1: 1:13:19

And it could be one of those, but it could be something completely different. As a final question if you had a magic wand and you could change one thing overnight, what would that be in the full food and agriculture space? I mean, we've heard a lot of different things All animals outside. We've heard stop with any chemical inputs, we've heard policy changes, we've heard better flavor, people tasting, but I mean it's really dream big and wide. What would that be if you change one thing overnight?

Speaker 2: 1:13:53

Something that I care a lot about, as I've learned about soils and agronomy and the importance of soils is, I would take my magic wand and I'd wave it at the ground and I would return a full suite of microorganisms to the soils. I think we can fix this problem of losing bacteria and fungi in the soil, but it's going to take a coordinated approach and it's going to take time. But to me, the loss of microorganisms in our soils is probably one of the most important issues of our day. One of the most unsustainable things that we could be doing in life is feeding ourselves less and less nutritious food. We're kind of inadvertently killing ourselves, so to speak, over time due to our current farming practices and our declining quality of soils. And I know it's a really hard concept to grasp because of the fact that we're producing larger and larger quantities of food each year. But the food itself has hidden consequences. So if I could change that dynamic overnight, I think that would be my number one priority.

Speaker 1: 1:15:10

Thank you so much. I think that's the first time somebody mentioned specifically flipping the switch, let's say in terms of biology effects in soil overnight, which would lead to an amazing set of consequences, obviously. So I want to be conscious of your time as well. Thank you so much for this deep dive into finance, trees, chestnuts and let's all remember the answer is always a tree. Usually a tree is a chestnut. So thank you so much for the work you do, for leaving the dark side and bringing that experience and that knowledge into, let's say, the regenerative side of things, whatever that might be. So thank you for the work you do and thank you for coming on here and sharing about it.

Speaker 2: 1:15:51

Thank you, Kirin. It was my pleasure to be here and my pleasure to be in front of you and all your listeners. Thank you.

Speaker 1: 1:16:05

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 investing in regenerative agriculturecom. Forward slash posts. 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.