83 Fabio Sakamoto, growing large scale Brazilian regenerative organic agriculture

A conversation with Fabio Sakamoto, co-founder of Rizoma Agro, about bringing down the costs of producing regenerative organic grains and pulses and how to scale this to impact more acres.
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How do we scale regenerative organic grain production to the point where it is cheaper than conventional extractive agriculture? After 15 years working in management consulting and private equity, Brazilian entrepreneur Fabio Sakamoto decided to join his partner Pedro Paulo Diniz on a mission to revert the climate crisis by scaling regenerative organic agriculture.

More about this episode on: https://investinginregenerativeagriculture.com/2020/06/30/fabio-sakamoto.
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Transcript

SPEAKER_00 0:00

How do we scale regenerative organic grain production in Brazil to the point where it's cheaper than conventional extractive ag? And why does it seem we've reached the tipping point both on the markets, the investors and, very importantly, the farmers? Welcome to another episode of investing in regenerative agriculture, investing as if the planet mattered. Podcast show where I 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, grow our food and what we eat. And it's time that we as In March last year, we launched our membership community to make it easy for fans to support our work. And so many of you have joined as a member. We've launched different types of benefits, exclusive content, Q&A webinars with former guests, ask me anything sessions, plus so much more to come in the future. For more information on the different tiers, benefits and how to become a member, check gumroad.com slash investing region. an egg or find the link below thank you Welcome to another episode, today with Fabio Sakamoto, co-founder of Rizoma Agro, whose mission is to accelerate the transition to regenerative organic agriculture by creating the world's most efficient supply network. Welcome, Fabio. Thanks, Coen. Nice to be here. To start, as always, with a personal question, because I'm very curious about this. What brought you to soil and regenerative agriculture? What was your journey to Brazil, in this case, and the region ag

SPEAKER_01 1:45

movement? Well, I am Brazilian, Japanese-Brazilian. But you didn't know what it was. I've lived here all my life with brief stints abroad, but regenerative agriculture is the biggest solution I found for the climate crisis. So it was by design. Six years ago, I took a sabbatical to study ecology and systems thinking, and I was looking for a way to engage with this huge problem. I think the problem of our generation. I previously had a successful career in management consulting and private equity, but I was looking for transition. I had already done public policy work and development work in Africa, but I found that I preferred business. So I was looking for a project, you know, and that's when I met my business partner, Pedro Diniz, with whom I eventually founded Rizoma Agro.

SPEAKER_00 2:36

And were you already interested in ag and soil at that time, or was it really meeting Pedro that got you on the journey of looking at soil and looking at soil way differently? You probably, you maybe has ever looked, or was it already in the master of ecology that you did? Was there pieces on agriculture? Where did the soil part start? Yeah, I think there

SPEAKER_01 2:55

were books and there were the Gabe Browns and the Ben Barbers and the David Montgomery's and all those books, which really inspired. And then I think when I took the sabbatical and went to the UK and had one year to really look at ecology and deep ecology and Arnie Ness and all these guys and connected more on a personal level, not just like intellectual, this is a problem, but really decided to make a shift in my life. And so when I came back and And Brazil being a big agricultural producer, this is what I decided I wanted to focus on. And it was natural for me to meet Pedro because Pedro had a very successful organic company, which he started 12 years ago. It was a place where everyone in Brazil who's kind of looking for this sort of transition passes by, either doing courses or working at the farm. And I met Pedro kind of more in a social context. And then I started making all these questions, which for me were very obvious because I was as an investor, I was used to making all these questions. And after all, he said, you know, these are very good questions and I don't have the answers. Do you want to come and help me figure them out? And I'm like, well, but you've been doing this for like 10 years. How do you not know this? We're like, no, we've been, we're doing a lot of experiments, but I think we could really use somebody with kind of a structured mindset to come and help us look at it. So that's how the journey started. What was an example, like an example of one

SPEAKER_00 4:16

of those questions? What did you ask?

SPEAKER_01 4:18

All these, you know, financial questions and I about the payback and investment and how does it compare to conventional and how do you finance it? And then how do you scale it? Because a lot of it was very artisanal systems, a lot of research being done at the farm. And of course, people that love farming and love the land or love research, they do the research per se, but often there's this view, this plan missing. All right, once I get the answer, what is this answer for? And where do I take it from there? And this is where I kind of, yeah, this is my contribution to the project.

SPEAKER_00 4:49

And the farm, Can you describe it very briefly? Because we've discussed it actually in a previous interview with Paola and Walter, but just to give a bit of background, like when you found Pedro and basically it led to starting Rizoma, what did you find or what did you visit? Because you said it's a hub for people that passes through in Rio de Janeiro and Brazil.

SPEAKER_01 5:06

Yeah. Fazenda Tocca is a 2,400 acre hectare farm in the state of Sao Paulo. It belongs to Pedro's family since three generations already. And it became this hub for experimentation because when Pedro decided to move to the farm with his family, with his kids, and really changed his life. He looked at what everyone here, I think, realized. He looked at how agriculture was being done, and he said, this doesn't make any sense. But at the same time, there was a lack of innovation. There was this kind of agriculture by substitution, but not anything really new. So he had to get a team together and start research. And if you know Paul Hawkins' book, Project Drawdown, and you open the page on multistrata agroforestry, that's our focus. It's the kind of innovation that we have to do. That's the photo, right? grain production. And the idea was like a full circle. So we were producing the grains for the chickens. Fazenda da Toca is Brazil's biggest organic eggs producer. And then the chickens generate the manure, which go out and fertilize the fields. And you have this nice little mixture. There was a dairy operation because you also had the grazing component and the rotation. So it was really, really interesting. So it was a decade of experimentation. But when, as often, a lot of these projects are fueled by a dream. And then after a while, you say, OK, now let's get a little bit pragmatic because we need to return some of the capital that we've put here. And they found a nice way to profitability with the organic eggs. But there was a question of what are we going to do with all this agricultural research, this treasure trove that was there? And at the same time, I mean, we're talking about 2016, 15, 16. We really saw an inflection point in some of the organic markets. Pedro, having been there for a decade, he said, you know, Many of the ideas I had 10 years ago were not viable, but suddenly things are looking up.

SPEAKER_00 7:24

Because basically demand was growing at the time. It's still growing, actually, but it was growing double digit for many, many, many markets. And there was, or there is in many cases, a shortage of ingredients and the shortage of organic certified real stuff.

SPEAKER_01 7:38

Yeah. And at the best, I mean, every organic farmer will relate to this. We produce products that we couldn't sell. Like who was going to buy them? And you're dealing with agricultural products. It's fresh. You can't store it very long. And the supply chain supply chain just wasn't there, you know, the value chain and things started to change. And that's when we decided to say, hey, okay, how can we, we created a nice project. There was a lot of research here. How can we really use this knowledge to influence and change the system? So that's when we, and I've been a management consultant before. I worked with Bain and company for many years, for seven years. So we did like a project just as I would have done for any of my Bain clients. So let's do a strategic plan, like seven months long. travel all over the world, visit farms in Brazil and abroad, visit clients, talk about prices, talk about quality issues, get workshops and bring in the agronomists, the conventional and the organic, and let's figure out a way how to produce this and where the opportunities are. So we are now focusing on scaling organic grains and pulses and also the fruit production. We also study coffee, cacao. I mean, there's huge opportunities everywhere, but you've got to focus on something. And this is where we are now.

SPEAKER_00 8:48

And so what is... We're now June 2020. What is Rizoma Agro at the moment? Because you're focusing on grain, you said, on pulses and citrus. You're doing it yourself. You're partnering with farmers. What's the model that you came up with in our building at the moment?

SPEAKER_01 9:04

Yeah, so when we created the company, we decided we leased 1,200 hectares for R&D. This is Brazilian-sized R&D.

SPEAKER_00 9:13

I know some people in Italy and the Netherlands will get a heart attack now. That's

SPEAKER_01 9:16

a

SPEAKER_00 9:17

small-sized farm. But

SPEAKER_01 9:18

it's also an attempt to... accelerate the process of getting lots of experiments within one cropping season so that we can really advance. I think this was our key metric during the first three years. How much are we learning? How close are we to conventional yields and cost of production? So we leased this 1,200 hectares and we started producing and we got better at producing. We got hammered in the first year. It got better in the second year. It's great now in the third year. We closed the productivity gap. We're producing the same amount of organic soy as our neighbors. And we also did all commercial development.

SPEAKER_00 9:51

Which means non-organic soil, just the conventional extractive soil. You're reaching the same height. And did you have any tough years? Because what I've heard, and obviously I'm not a farmer, that especially in tough years of drought, et cetera, the regenerative ones seem to hold up much better than the conventional ones. Have you had experience yet there or it's been okay years so far?

SPEAKER_01 10:10

Yeah, the years were, we had a tough year and it was also tough for the conventional neighbors. But I think because we're doing all these things at the same time and there was so much to improve in technology, I didn't even experience this effect. For me, the biggest effects were getting the basics right, like timing of operations and seeds and what you do, when you do it, how you do it, getting the team better, but also technology. So bringing in scouting apps so that we can identify pests before they become a problem. A lot of biological research. This is machinery, of course. So RTK, precision machinery, camera-guided cultivators, all these different things, they make a huge difference. difference. And this is how we were able to close this gap. And

SPEAKER_00 10:53

the cost part, because you mentioned

SPEAKER_01 10:54

both. Yeah. And the cost part, we are today, as of today, we're depending on the crop, still 20 to 30% more expensive on a per hectare basis. But we have a plan to reduce this, for example, in soy to 18 within the next two years with more use of biologicals. And I think eventually we will get this to the same price of conventional. But the good news is, I think, from what we see in consumer research, when you get within this range, that's when consumers change their behavior.

SPEAKER_00 11:20

Yeah, because 18% is not shocking. And you have the big advantage that you're getting better. Like you're on such a steep learning curve where the conventional guys and girls have been on and are actually declining in many cases because they're extractive. And I mean, you're in unknown territory in many cases and are just... And my

SPEAKER_01 11:38

soil is getting better.

SPEAKER_00 11:39

I mean, you're leasing it, so it's not yours, but yeah, this soil is getting better.

SPEAKER_01 12:16

Yeah, it is leased land, but it's a 14-year lease, so we'll have it for a long time. But it would happen, as you see in the Rodeo system trial, you know, the soil is really getting better. And when my neighbors have tough years, probably we might have an average over a long time because we will perform better.

SPEAKER_00 12:32

And then, okay, so you're leasing the big but still small piece of land, you get to the third year now and actually showing very interesting results in terms of production and yield. So what's next?

SPEAKER_01 12:43

So we, during this three years, we also had to, of course, sell this grain and talk to the multinational companies and local companies behind this and establishing, and we even did some exports to test it, you know, if we can get the quality right, if there's no contamination issues and it worked great, we exported to Europe and the US. And now we are, had to get the funding for this agriculture's working capital That's another part. The machines aren't cheap, yeah. Machines aren't cheap. But we are now at the point where we are comfortable with offering this technology to other farmers. So we created this service package, which we call Regenerative Organic as a Service, where we will partner with a farmer, transfer this technology, help them produce, and then we sell this grain together. And then we collect the fee for our services. So it's a win-win because the farmer doesn't pay anything upfront. We're there to really, really help them through the transition we are farmers ourselves so they come and they learn at our farm we go and we teach them and we are now creating this production network of farmers and this is i think something worth mentioning this is brazil is known for this super large-scale farmers these are farmers that have gotten so big in the last 30 40 50 years that's when the cerrado became agricultural land because of the evolution of technology a lot of these farmers Farmers are now in the second generation and are looking for more sustainable solutions. And I think part of the interesting process was us coming kind of from the ecological point of view. But when we did our Brazil trip and you really engage with people on a personal level, you see that they want to change things and they're tired of being the bad guys. Farming, as I think everyone knows, is a tough business. The food system is not really fair to farmers, but that's a whole different issue. But you don't need an ecologist to go and tell the farmer what's happening to his or her land. They know what's happening. They can see it. They know it better than anyone else. And they are looking for solutions. But the fact is we have a system where all the research and development and agronomy, all the technical assistance is being given by the chemical companies, the input companies. For free, for free. Exactly. And also the financing, right? Because you're bartering the product versus the production. And so how do farmers convert who is there to help them there's a big transformation going on in this industry who's going to be there to help the farmers because it's very tough for the farmer to bet the farm on an idea and lose everything that they worked so hard to build so there's a big gap there and this is what we're trying to fill today because if you're going to convert technical assistance is hard to come by and I think this is or impossible depending on where you are and I think this is where organic could be better with much more science better qualified technicians Offtake is not easy. I mean, it's contracts usually with companies. It's not kind of a commodity. Let me just drive my grain to the grain elevator and collect the money. There's certifications and traceabilities and there's specific logistics. It's very tough to convert. And I understand the resistance and

SPEAKER_00 15:53

the financing part. Oh, of course. I mean, we were discussing this in the pre-interview. It's almost a miracle that many have made the transition against or the transition are on the transition pathway and against all odds. And I think, but it's interesting to hear that you've see not just, which is something we see every day in the supermarket and in the market, the growth of the consumer side of things for organic, because it's easy to recognize, but hopefully also for regenerative organic in the future, but that there's actually a generation of farmers that is at least willing to listen and is willing to do some experiments, not betting the farm, which I don't think we should expect from anybody, but to engage and see. It's very interesting how you mentioned the essential pieces of transitioning, which is very similar, and I I will link it below in a discussion we had with the perennial fund and mad agriculture, like access to independent advice and peers, like expert advice, experts that are not paid by the input companies of take both for, and it depends a bit where you are, obviously, but for your produce during the transition and after the transition and for potentially your ecosystem services, depending if there's a market marketplaces, which are popping up left and right, and then flexible finance. But it's the third, like if you don't have the other two, forget about it because you need the hands to help you to actually do it is that have done it before and can show you and so you can touch it you can know which machines to buy and which not and you need the offtake you need the markets to be ready to support you in that process

SPEAKER_01 17:16

and this is how we managed to align this because we are farmers we are farming and i'm not interested in selling any inputs or even advice i think if you go to organic conferences you know sometimes in the u.s it seems like soil is very complicated you need to know you know because people are selling advice and like you have to if you have too much magnesium it's going to lock up the calcium and And people sometimes make it sound very complex and we're experimenting it ourselves. And we're saying this worked for us. This didn't work for us. Here's the science. We also have a very strong team. This is

SPEAKER_00 17:46

what works in this place. in this context with this soil when we got it you can relate to it or you can't that's been pretty much the

SPEAKER_01 17:54

yeah and combining I think there's a huge wealth in combining this is what we do in our team combining professionals with decades experience of organic with professionals with decades of experience with conventional so one guy has very good inspiration and observes nature the other guy is good at operations at standardizing things and also bringing a lot of science and research and isolating factors and put these two guys together in a room and really interesting things come out but you have to find this bridge for these two worlds to collaborate

SPEAKER_00 18:23

and the language yeah because otherwise they would come out of the room with a lot of shared knowledge they would come out of the room really or not really annoyed by the other and so you're creating basically this hub and spokes model or the you're you're basically the regenerative organic approach in a box or as an approach to others with as a long-term or medium-term goal what's the medium-term goal doing that are you running a huge wholesaler you're gonna I see a lot of inputs, probably not, if I guess you're, are you, what are you interested in as a long-term?

SPEAKER_01 18:53

No, no, no, no, no. We are interested in furthering our technical development. So we have 12 years of research and we want to continue that. And as you saw, to keep increasing productivity and lowering costs and making regenerative organic more competitive. So we're going to keep doing research to stay ahead of the curve.

SPEAKER_00 19:11

On the grain and pulses side, mostly. And the citrus, is that very different or similar?

SPEAKER_01 19:16

All of the citrus, none of the same. the same. It's just that citrus is more capital intensive. So we have 50 hectares of citrus experiments. The grain moved very fast. So within three years, with different experiments, we were able to advance very quickly. Citrus now, we're having great results, but it's perennials. You have to wait until the fourth year when you're getting full production. It's looking really good. The citrus growth has very low disease rate because of all the biodiversity that is in there. The productivity is looking really, really good. We actually advanced one year of productivity. We even had production this year that wasn't expected. But let's see next year and then let's compare that

SPEAKER_00 19:51

with the curve. Yeah, of course. Let's see in the next few years. And are you mixing them at some point? Like, is it the agroforestry idea, obviously, of the farm you're coming from? You were born in as a project, as a company. Are we going to see trees in the grain operation as well?

SPEAKER_01 20:06

We love this idea. We're not mixing this right now. We're just getting large scale organic grain farmers to consider what we're doing, doing everything biologically and organically. It's quite a big step and uh we don't want to freak them out trees

SPEAKER_00 20:21

and animals might be a bit out there yeah yeah i can imagine

SPEAKER_01 20:24

if you know what if i had land and i'm worried about the resilience of my system for the decade to come i would plant trees not every five meters of course but it's proven that trees reduce your evapotranspiration and it helps you keep the water there and i would plant trees and maybe take the hit on the yield right next to the trees because you have some shading but i think there'll be other benefits i would do it and something we want to do experimentally too. Would you integrate animals as well? We do integrate animals at our farm. We have, besides the citrus and the grains, we have civil pastoral systems that we're piloting. So we did a 44 hectare pilot where 11 hectares of each system is being tested. Three systems are being tested versus a witness system, which is just a rotational grazing. And we are measuring everything. We have university researchers come and measure the soil and the yields and the costs and the reduction of inputs. so that we can quantify this.

SPEAKER_00 21:19

Step by step. Wow. Actually, the 12 years plus the three years were a lot of R&D. That's amazing. Very interesting.

SPEAKER_01 21:27

And to your question, I think if you just look at the, for example, organic grains and pulses, organic grains today are less than 1% of total conventional grains. It's like 0.63. And we can question what's going to happen with all these grains because a lot of these grains is for feed. But 0.63% is just not enough. Yeah. And if people want plant-based burgers... You need the soy. You need the soy. And it's being done with GMO soy right now. It doesn't make any sense. So there's a huge opportunity there.

SPEAKER_00 21:56

To some players, it makes sense. They were very convinced about choosing GMO soy because it has a lower environmental impact. And I know some people in the audience got very, very annoyed by that. I will leave it at that.

SPEAKER_01 22:08

And maybe they're pragmatic. Like, how are you going to source all this organic soy? I mean, you already have a deficit of soy. But that's where players like us and other farmers come in? Think

SPEAKER_00 22:18

long term. I mean, if you're in for the carbon, for the climate, you cannot make those decisions. Even if your lifecycle assessment company, we're talking about, I think it was Impossible, showed clearly that, I mean, the same lifecycle assessment company, Qantas, showed a clear benefit of regenerative agriculture on Will Harris's farm and a net soil, like a net carbon sink. And they kept arguing that the best thing was to do to get GMO soy. I always wonder when is the last time they visited a regenerative farm? and a real size, large scale. And how do you come to those conclusions? I always wonder what happened there. But anyway, so there's going to be a huge market for regenerative organic. So as it is, the organic market is already growing and there's not nearly enough at the moment.

SPEAKER_01 23:03

Yeah. So we, I mean, just looking at the market as it is, we see a potential for creating a network of about 350,000 hectares within the next years of production. This is, I think, look at the global market.

SPEAKER_00 23:15

All around where you're now, basically. Yeah. around your hub.

SPEAKER_01 23:18

Yeah, and three hubs across Brazil, which we've mapped. It sounds like a lot to a foreigner, but it's less than 1% of the soy area in Brazil. I know farmers who plant 170,000 hectares, 200,000 hectares of individual families. So getting to 350 within the next couple of years shouldn't be too hard. There's definitely the demand there, and this is what we want to create, create this network. What's going

SPEAKER_00 23:41

to be the hardest piece there to get there? I mean, if the land is there, the farmers are interested, you mentioned, I wouldn't say it's figured out the recipe, but are getting close to getting comfortable with the recipe. Well, what's the biggest barrier, the hardest part for you now to get that done over the next couple of years?

SPEAKER_01 23:56

It's actually been moving very quickly. We thought it was going to be more difficult. We thought we were going to do a more asset-heavy model where we would have to raise capital, invest ourselves first. Farmers are like this. They need to see it before they believe it because everyone's trying to sell a farm or something. Of course. But when they come to our farm and they see what we've done, we're already working with farmers.

SPEAKER_00 24:15

Yeah, I will link some videos below. There's a video of a field day, which is quite interesting. Yeah. And you see the reaction of farmers visiting your operation.

SPEAKER_01 24:23

So this was the first time we kind of engaged with farmers. This was five months ago, right before COVID. And they come to the farm and the video is nice to see because they are shocked. They are expecting like this.

SPEAKER_00 24:34

You can see the shock. Yeah, it's very.

SPEAKER_01 24:36

Yeah, they're expecting this like low tech, you know, field full of weeds and really bad production. I

SPEAKER_00 24:43

think there's one guy, there are two guys saying, one is, yeah, I've been in organic for a long time. but I've never seen it at this scale. And then the other immediately after someone says something exactly of, yeah, to see crops this clean and this neat and this full or something he says is very inspiring. He said something like that.

SPEAKER_01 24:59

Yeah, we had farming groups there that represented 110,000 hectares, I think, or 120. And 70% of them wanted to engage and enter into discussions of partnership. So right now we're starting to roll this out. I think for these farmers, for them financing 1,000 hectares of organic produce, it's not an issue for them. They have access to capital. I think if you really want to scale this, and I would love to scale this not only on agricultural area and replace conventional, but also on degraded pasture lands. Because as you know, we have all these degraded pastures which are not doing us any service in terms of carbon and not even economically, they're good for anything.

SPEAKER_00 25:36

They're actually losing carbon. They're

SPEAKER_01 25:39

losing carbon. We could, Brazil as a country could triple, Brazil's already number one in soy, but we could triple grain production in Brazil. without clearing a single hectare from the forest if we just plant on this land that is already available. We know the world needs more supply. And with this, we will be taking pressure off the forest. Let the police take care of the bandits that are cutting down the forest. It's not being cut for economic reasons. There's plenty of land. And I think to convert this land, an issue might be access to funding because then, of course, it's more capital intensive than what the farmers are doing now because right now they're converting their own land. But there's a huge, huge opportunity here. And their trees

SPEAKER_00 26:17

might be part of the picture at some point. Yeah. Yeah. Silver pasture systems.

SPEAKER_01 26:22

And this thesis was kind of custom made for this very specific Brazilian reality. Like we thought a lot, like over three years, it was like, how do we engage the farmers? And now, so we created a model. The farmer doesn't pay us anything upfront. Of course, this creates capital requirements on my side and I need to raise capital to give them technical assistance, but it really creates a transparent win-win value proposition that, Hey, if you're not making money, I'm not going to make money and we're going to do this together. So the

SPEAKER_00 26:47

fee is connected to the farmer. How does the fee work and how does the offtake work? Because you said we sell the grain together. So how does the fee and the offtake work? Let's say I'm a farmer.

SPEAKER_01 26:58

Well, we take care. You give the grain to us and then we find the buyer. We give you something that doesn't exist in farming. We give you full transparency on the costs that we got with the buyer.

SPEAKER_00 27:09

Which no wholesaler on the planet does. Except for I interviewed Aosta in the Netherlands and Fokker, the founder, always said, I mean, he has a a number of amazing lines, but they're one of the few that in fruit and vegetables, they give full transparency to their farmers and none of them ever left or ever transferred back to non-organic. And he says, it's normal, but we're not trying to, we're trying to play the long game. We're not trying to play you, but most of the others obviously are buying wherever and keeping everybody in the dark because that's how trading in many cases work, unfortunately.

SPEAKER_01 27:38

Yeah. So we get like a, depending on the crop six percent fee, which is for part of this fee is for our technical assistance, all the help we've provided and part of it is for this commercial service and developing the commercial side. And it's been interesting. Pharma's like, wow, you're really going to show me the contract.

SPEAKER_00 27:55

Which makes you want to sell it for a good premium. Yeah. Interesting. Yeah, exactly. And so you're trying to find the interesting markets that are screaming for more regenerative pharma. Okay. So that's how I engage with you. And basically that's what you're rolling out now. And as we speak, COVID, post-COVID, I mean, you're not in post-COVID yet but as the world slowly starts opening up I mean farms have always been running obviously nobody stopped there and many markets have continued to run so where are you now we're talking the end of June what's the phase you're in at the moment

SPEAKER_01 28:29

we are going to so from this field day in February we are onboarding three new farmers for the season that starts now in October we are expanding with the current farmer that we piloted with and we will be now doing more events more field days to bring more farmers on so we are high more people, to give technical assistance to these farmers. We need to train these people. We need to develop our technological platform because we want to interact with these farmers using technology. So how does it work with the farmer? Now, farmers are in different places across Brazil. They come to our farm, they get training, we go to their farms, we train them. But we do a full planning of the season and my team meets with the farmer every week. So every week there's a Zoom call on Thursday where they go over everything that's been done and everything that's going to be done in the next week. And we are working with the farmers now to get real-time data with the sensors and all the information so that by the time Thursday arrives, we know everything that has happened and the planning is just easier and automatic so that we have all this data. And all this data will also help us getting more and more accumulative experience.

SPEAKER_00 29:49

But you're replacing the input guys, the Syngentas, the buyers that already do. I mean, the best friend of the farmer is the agronomist that comes on the farm, the only friend in many cases. And as long as we don't change be a grown mister or be advised and nothing will move because a farmer is not going to risk, rightfully so, any season because they only have 40. So that's about it.

SPEAKER_01 30:11

Yeah. And we're also trying to work with these guys where possible. I mean, these companies are super important for agriculture. They have seed companies. They have biological inputs. Now they're all investing heavily in biologicals. Of

SPEAKER_00 30:22

course, of course. Yeah. So

SPEAKER_01 30:23

now everyone's a partner and this is what we want to engage. I mean, individual people are friendly. They want to help. They want to transform. Of course, these companies Some of them are quicker, some are slower, but we are having great results in interacting with the John Deere's, the chemical companies, even like the bio inputs, like the corporates. Everyone's kind of helping us develop these farming systems. Everyone's

SPEAKER_00 30:46

interested in what we're doing. And what do you see as the biggest barriers? Let's say more generally in REGENEC. I mean, obviously you've done the scan and the research for specifically Brazil and specifically large scale to have an impact on chemical use on a lot of hectares, because that's what you're going for. But if you would zoom out a bit, what do you see as the biggest barriers currently that are holding back regenerative agriculture and food?

SPEAKER_01 31:08

Yeah, so for the people that already know how to do it, and that's a minority, but for those people, I think it's long-term contracts. On

SPEAKER_00 31:19

the off-take side.

SPEAKER_01 31:21

Yeah, the off-taker gives the farmer a five-year contract. It's what the farmer needs to raise capital and to make sure that he or she will have enough time to work the land and receive the return. I mean, we

SPEAKER_00 31:32

So that could be something investors, I mean, that's transition finance at the end. That's financeable if the contract is there.

SPEAKER_01 31:40

Yeah. So I think that would be key to unlocking this. And for, of course, the many farmers that are not there yet, it's I think the two issues that we've mentioned is technical assistance and financing. Financing is trying, but technical assistance is not moving nearly as quickly as we need it to. And it's too expensive for farmers just to learn by trial and error. And many might get discouraged if they try something It doesn't work.

SPEAKER_00 32:03

Yeah. I've tried these cover crops and it doesn't work. And now I let go. Yeah. I bought a very expensive tool and yeah, that's, I mean, then you lose trust and we lose a generation that won't come back very quickly. Yes. And so if we, I mean, not giving investment advice, but looking at, let's say a lot of investors are listening to this podcast, hopefully, and they're all excited about soil and about the why and climate, et cetera. Where do you think they should start? What would be questions you ask? I mean, we get bombarded with techs, with agriculture, technology companies, with et cetera, et cetera, et cetera. What would be your advice to smart investors to look out for or to questions to ask when starting to put their toes in the water in terms of investing in this space?

SPEAKER_01 32:48

Well, you need to get much more than your toes in the water. I think there's such a depth of knowledge to understand. So take your time studying this. And then looking at thesis, I think you need to look for outstanding teams. with skin in the game. And you need to look for an investment thesis with proven unit economics. So what do I mean by that? And this is from the Venture Capital Playbook. You need to know what you're going to produce and have a good idea of how much it will cost. You need to know who you're going to sell it to, what's the type of contract, how much it costs, what are the prices, and making sure you've done it And I think this is where the segment is now versus taking the playbook of growth equity or private equity where you're asking farmers for 10 years of track record and- Show me the markets of the last 10 years. Yeah, it's not there. Already generating cash. I think this is where we are being realistic, but it works really well in private equity. And what do I mean by unit economics now? So a lot of the farmers I see going into regenerative can be very philosophical about it. So I'm going to do 10 crops. But how do you sell them? It's hard enough to sell one crop. It's a lot of work and getting the right, finding the right buyer, doing all this intermediation and all that. How are you going to sell 10 crops? And people fall in love with the spreadsheet and fall in love with the farm. But then reality is really tough. So I would look for these two things. And I think you mentioned in one of the podcasts, I think teams that have. good economical teams and experienced economical teams. But I think people with management experience and governance, I think that's basic for good investors, investing in projects that have good practices. That's what I would look for. And this is where the sector is at right now. Maybe in a few years, you can have growth investors coming in and say, hey, if you are beyond$100 million in revenues and whatnot, then I can come in. But the really regenerative initiatives, I think, are at this stage of development.

SPEAKER_00 34:50

I agree. I think it's getting your feet more than wet and learning and having a long-term view because some of this is going to take time and we're really at the early stages of figuring out a lot of these things at scale. I mean, a lot has been done, but figuring out a lot of these things at scale and nobody knows what the market is going to do unless you really know your costs.

SPEAKER_01 35:10

Yeah, and this is the importance of a good team because you're going to pivot it many times. You're going to discover new things and a good team with skin in the game that's there with you, it takes away this distance between investor and farmers. You know, the investor that says, here's the five-year business plan. I want you to to stick exactly to the fiber.

SPEAKER_00 35:28

Doesn't understand agriculture, no. It's

SPEAKER_01 35:30

not going to help the farmer.

SPEAKER_00 35:32

And it's an interesting point you made about the rotation or the 10 crops, or it depends a bit, really. If you're in a perennial system, you plant multiple, how complex it gets, you need to sell that, which is a potential role for people like you, obviously, like slowly introducing more complexity if there's a customer that's asking for crop number three or four. And suddenly a farming system or platform becomes much more complex, but it is because you know it works agronomically, but also because there's a customer actually willing to buy crop number three or four. And intermediaries like yourself become extremely relevant, but not for the individual farmer to plant 10 crops and then hope for the best.

SPEAKER_01 36:09

Exactly. And I think this sector is a kind of a chicken and egg thing. So if you are a big multinational company and you, oh, let's do a different type of soy with higher protein and all of this, you need a minimum scale to develop this. So they come to us and say, can you deliver 10,000 hectares of this. I said, I can't right now, but if you give me two years, I can. And you give me a contract. So these two things have to move together. And that's the work that the farmer can do on his own and that we can help. And also develop different varieties and pulses, which are a huge opportunity. Why do you say that? Pulses are a bit of a hype right now, but all the protein and the vegetable proteins, I think it makes a lot of sense. To grow, they're easier to, some of them are easier to grow and it makes a lot of sense. from the

SPEAKER_00 36:56

nutrition point. And from the soil perspective and nutrition perspective as well, they fit in your rotation. And you have experience with managing capital, but maybe not so much in this amount in the regenerative ag space. What if you wake up tomorrow morning, I mean, I ask this question often now, and you're the head of a$1 billion investment portfolio or 1 billion euro, I mean, you can choose. I would choose the euro. It's a bit more at the moment. But what would you focus on? You have an unlimited timeline, like it doesn't need to be, it's not a private equity fund with a 10-year horizon, but it does have to come back. So it is an investment. How would you split up the one with the nine zeros over it, which is a lot of money at the same time, and at the same time, nothing, if you compare it to the agriculture investments in Brazil or in general in the world. How would you put that to work?

SPEAKER_01 37:43

So if I had a very open mandate, which would be a dream for any asset manager, and I would, with the knowledge I know, and we thought very deeply about this, I would invest some of it in production, and I would do tropical agroforestry systems, and I'll tell you why. And as I mentioned before, I think there's also a window of opportunity to combine this with more short-term annuals like grains and pulses. And I would also invest in this space where farming is being disrupted and there are opportunities to fill in the gaps. So let me go to the first thing. I think tropical agroforestry systems, they work. They work really well. The trees grow really fast in the tropics. And there are some products that you will not produce anywhere. A Norwegian will not produce locally sourced coffee or chocolate. And I think people will still want coffee or chocolate in the future, or even things like citrus have to come from somewhere. But not only because of that, I think capital is scarce in the tropics. It's hard to come by and long-term capital, even much more so. So there are not a lot of investments. And I think we will live in a world where 10 years down the road, we were like, oh, I wish I had planted those trees 10 years ago. And who's got them now? I

SPEAKER_00 38:56

think there's an African pro like the best moment to plant a tree is 15 years ago or 10 years ago, depending on how fast they grow. The second best moment is today.

SPEAKER_01 39:04

Yes, exactly. These systems, we've been piloting them. They work really well and it's super regenerative. And we'll go into that afterwards because the agroforestry systems are sequestering more than 40 tons of CO2 per hectare per year. It's amazing.

SPEAKER_00 39:19

And producing a lot of food. The myth of these systems, it's a mix and it comes back to the rotation question or what happens if you plant a lot of different crops and animals through it etc you have to sell all of it if you manage to do that it produces an amount of calories an amount of food fiber and oils per hectare that is unbeatable in any other system i've seen at least like it's really really really productive

SPEAKER_01 39:43

yeah so from the investor you have a portfolio of tropical agroforestry and it's going nicely and it's producing it's generating cash from the fourth fifth year on and you have that for another 15 years and you have the timber in the end which is also really nice because that timber will then pay for the renewal of the agroforestry system. So it becomes almost like a perennial investment. You just sell the timber in the end so that you can renew the production and it's a one-shot investment. I think the grains are a nice combination because it generates cash already in the first year.

SPEAKER_00 40:13

So you would interval it basically and put it in between the tree lines or you would separate the systems?

SPEAKER_01 40:19

No, as a portfolio manager, I would have one farm focused on the agroforestry and I would have another farm focused on developing the grains. But if you could mix them, that would be better. But I think trying to keep it simple in the beginning and make sure, I mean, you have a fiduciary responsibility on the capital being deployed. So I think just getting those two things right would be great. The third thing that I mentioned is, yeah, is if the system is going through the shift of how do we finance this and how do we give the R&D and agronomic advice once the system is going to change and maybe no longer the chemical companies are going to do this, what sort of opportunities does this create? Like we are tackling this in a Brazilian reality of giving agronomic advice and doing the commercial part. We are still going to tackle the financial part and hopefully one day we'll raise a billion dollars other green bonds just to finance these farmers through our platform and also carbon credits, but it creates these sorts of opportunities. And so as an investment, I think it's a nice mix of like perennials, annuals, and something like a technology or industry transformation opportunity of a service.

SPEAKER_00 41:26

Yeah, not just on your land. I think that's the interesting piece I see now. A lot of people are starting to think beyond their own farm gate and with more than their own money, like they've created their piece of paradise and some cases very big, some cases small, but they've done really well and now it's time to okay what happens after what how do i influence first all my neighbors and then the whole region and then the watershed and the bioregion or first of all thinking okay which area of the world which area of my world is the most at risk or the most interesting piece to apply regeneration because we have scarce resources and that's why i asked the question like what would you focus on if you only between brackets and doing brackets had a billion dollars you can do a lot but you cannot do everything obviously

SPEAKER_01 42:06

it's not that much money to change what we want to change right kun I mean, I think the ambition is much

SPEAKER_00 42:11

greater. Yeah, it's a lot of money and it's more money than many of us have ever seen and maybe will. But at the same time, I see we're not that far off from people entering the space with that amount of money, from institutional investors, from private individuals. Honestly, there are family offices that are managing that kind of capital and getting interested in the space. And I think it's up to us, the space, to be ready and build the pieces of infrastructure, the building blocks, the pipelines to take that money and flood it to the land and make sure it gets to work as soon as possible, because more and more people are waking up to the potential here and the need. And more of those are commanding or at some point influencing large amount of capital coming from the infrastructure company or the insurance companies, the pension funds, the large commodity buyers who are getting interested. And yeah, there's capital there. There's not a shortage of capital. There's a shortage of ways to put it to work.

SPEAKER_01 43:04

And you know how it is with finance. It's easier to move large amounts of capital because it's justifies the monitoring costs, the deployment of this capital. We've had conversations with him.

SPEAKER_00 43:14

Can you explain that a bit? Because I've had discussions with people, why is it so much more difficult to raise$1 million or$5 million compared to, in some cases,$50 or$100 million, which sounds counterintuitive, but can you explain from a finance perspective why it makes sense to write bigger checks?

SPEAKER_01 43:28

Well, if you're going to invest in something and you put your money in a fund, in a professional investor, and you agree with this fund that you have a fee for them to manage your money, an admin fee, and a performance fee if you're investing a billion dollars and you have a two percent fee that's 20 million dollars per year that you have to and you can pay your team and you can do a good job if you're raising 50 million dollars or 10 million dollars then the fee either will be too big versus the size of the amount of capital will be more than two percent yeah much more and a lot of the money then the investor is not happy that a lot of the money is just staying within the structure and not being deployed where it's supposed to so it's easy from a financial mathematical point of You say, let's raise these huge funds. And then I'm an investor. So I need to make sure that the company is being well run, that I have all the accounting firms looking at it, all the lawyers making sure everything in this monitoring has a price. So oftentimes for big institutional investors, it's not worth it to deploy less than$100 million. We talk to the guys and they say, we love your project, but come back in three years. The way capital flows goes into these funds and they have a minimum ticket size.

SPEAKER_00 44:39

Yeah, because also just the research of doing, if you do the research on one, the due diligence and research on one company, if you do a half a million investment or 50 million, it doesn't really change that much. It changes a bit, but the price is pretty much the same, which means everybody's going for, obviously the unit economics, coming back to that, makes much more sense to go upstream, which is very annoying for a lot of people. I'm imagining a lot of people listening now thinking, why is that? Or how do you change that? But it's the reality of investing.

SPEAKER_01 45:10

And for investors often, you know, investing in two small companies, two smaller company is a headache because, you know, where's the governance? Where's the, you

SPEAKER_00 45:17

know? Yeah, it's simply impossible, but it's changing. We're learning from, I think the renewable energy space from other, and it's that phase where we're going through where the$15 million investments are possible, but the 50 are getting possible. And there's some people actually putting to work 200 million in agroforestry. Actually, I just recorded with Richard Falcon, which should be out before this comes out. So that's good. I will link it below. And so there is movement happening much faster than I predicted, honestly, a year ago. But it's still where we're really in the early phases of investing in this space. Not in the early phases of the agriculture space, because we all know the gurus, we all know the people that have done it and are continuing to improve a lot and continue to scale in the work you're doing. But of the investing piece, we're really scratching the surface. But it's very exciting.

SPEAKER_01 46:03

It's moving very quickly, and I think we'll see more debt. Because as these farmers prove their unit economics then it's easy to raise. Have

SPEAKER_00 46:11

you seen that in Brazil? Do you get easier or easy debts for farmers in transition?

SPEAKER_01 46:16

I mean, you get the normal conditions that you get for conventional farming.

SPEAKER_00 46:20

Okay, but still.

SPEAKER_01 46:21

Which is great. So you don't have a disadvantage anymore. So now we can go to the bank, the Dutch bank that is our partner. And the first year when they lent us money, I mean, they really took on a risk because we gave them the spiel. We showed them the presentations. We knew how much.

SPEAKER_00 46:36

The pictures and all that.

SPEAKER_01 46:38

We had everything. we have the contracts, but then there was like, oh, what about performance risk? And now we've been performing and now we're just renewing our loans every year. So at least I don't have a disadvantage anymore. But I think as we move forward,

SPEAKER_00 46:50

it's going to be an advantage, I hope. The cost of capital should get to a lower point.

SPEAKER_01 46:55

Yeah, and we are in the process of trying to raise the first green bond of its type, you know, approved by the Climate Bonds Initiative in Brazil. It's not a big thing, like$5 million. Yeah,

SPEAKER_00 47:06

but still, I had Sean Kidney on the call a long time ago feels like ages but I think it was last year I will link it below and we're discussing what does it take to get climate bonds green bonds certified by the climate initiative into agriculture and food and he was saying yeah we haven't looked at organic because honestly from a climate perspective it hasn't been all that great if we look at the research that's out there which is very shaky but and so we've been looking and there hasn't been too much but I'm very happy people are people are moving in terms of regenerative organic and getting yes access to the bond market which is huge let's just I mean that's an enormous pot of money

SPEAKER_01 47:38

we're gonna do a small one and just the fees for emitting this. But still, just doing it once,

SPEAKER_00 47:44

that's

SPEAKER_01 47:44

the... Just doing one to unblocking this road, right? But getting the metrics right, I think I agree is key. And you have to measure everything that you're doing. I mean, we are a research farm. We are 1,200 hectare research farm and we measure everything and we have partnerships with university CEOs, with Wageningen, with different... We had a third-party certifier come and apply the greenhouse protocol on our farm based on actual... soil data.

SPEAKER_00 48:10

So not on a model, but based on actually on your soil data. That's very interesting.

SPEAKER_01 48:16

Based on historical soil data, because we've been doing this for a long time, it's based on our historical soil data. So our grain productions and pulses sequester 1.9 tons of CO2 per hectare per year, whereas our conventional neighbors are emitting five, almost

SPEAKER_00 48:35

six. Wow. So that's a seven, that's almost a seven... difference.

SPEAKER_01 48:39

Yeah, because we're not using synthetic nitrogen and because we are building soil at the rate of 0.01 per year, which doesn't sound like a lot, but it makes a

SPEAKER_00 48:50

huge, huge difference in carbon. And just for fun, I mean, I know the number. Well, what's the citrus ones? What are they doing? The

SPEAKER_01 48:57

citrus ones is sequestering 46, 45 tons of CO2 per hectare because the citrus, besides the soil creation, there's also the above ground carbon. Yeah,

SPEAKER_00 49:07

yeah, of course, of course. And it's a pretty Yeah, but it's just to show the difference. So 1.9 versus 45.

SPEAKER_01 49:13

Yes.

SPEAKER_00 49:13

We need to eat grain, but that's a big difference.

SPEAKER_01 49:16

And it's interesting because when we looked at this, it's like, yeah, let's continue to do fruits because even though it's a small area, the impact is multiplied by 30, by 20, whatever. But we have 40 million hectares of grains and growing in Brazil. So we need to convert this huge area. Of course, of course. But it's a huge, huge area.

SPEAKER_00 49:34

Very interesting.

SPEAKER_01 49:35

And this was important, I think, for these initiatives. I know there's a big discussion on carbon. and people wanting to create mechanisms to sell carbon just based on models. But I think where we are now is you need to measure it. I don't think there's any substitution for measuring at the farm. I think every good farmer measures soil organic matter a lot and lots of points on the farm every year. I think we should just use this data. I know people want to go like the tech. Let me just do something very simple that works for everybody, but it's super controversial.

SPEAKER_00 50:05

Let's get a satellite to figure it out. Yeah. Yeah. And it's very risky because I've seen some data on a pilot farm. I still need to interview them, but actually it's on Transition Finance, but a pilot farm somewhere, I think in the New York area. And they were showing that the sequestration rates in terms of holistic grazing and grains operations, I might be getting it wrong, but it was a lot higher than any of the models predicted. So they were saying the models are so far off. We don't know. I mean, these models are not very accurate. And if you want to sell this and get a comfortable market, we might want to base it on real data, which is tricky, but essentially I agree. The model part is very difficult in terms of marketplaces in this case, and I applaud them. I've bought Nori tokens for offsetting and removing my carbon of last year, and I had them on the podcast, but the fact that it's based on the Comet farm, it's tricky for the farmers that are actually doing this and are measuring it on the ground themselves. That's the data we need also in terms of tweaking the system and getting better.

SPEAKER_01 51:05

For example, our carbon sequestration was a actually bigger. If you look at the soil data, like I have the data here, the agroforestry system, the soil organic matter increased from 1819 to 1920, increased from 2.7 to 3.3. So that's 0.6. But can we guarantee that this will happen every year? And you've talked to the soil scientists at Wageningen and they will say, no, you need longer. So we took the historical data, which is much lower. You have to be conservative in carbon lest you do the sector a disfavor and you over-promise and you don't deliver. And the last thing you want is selling well-intentioned people in the city's credits, which then don't become true.

SPEAKER_00 51:44

Dangerous, Pete. Yeah, no, absolutely. And what if you, okay, so you're no longer in charge of a$1 billion investment fund, but you have a power. So you can change one thing in the agriculture space, agriculture and food, actually larger if you want to. What would you do with your magic wand? What would you change overnight?

SPEAKER_01 52:01

The magic wand question, eh? It's a beautiful question.

SPEAKER_00 52:05

I have to check when I introduced it and I don't even remember how I come up with it, but the answers are always interesting. So I keep doing it.

SPEAKER_01 52:14

I'm going to try to keep it not that creative. I would just strengthen the link between agricultural funding and soil or organic matter. That's it.

SPEAKER_00 52:24

Which is revolutionary. Let's not, I mean, any prices of current farmland, et cetera, are never taking into account soil health or soil organic

SPEAKER_01 52:32

matter. Yeah. So that would be my acupuncture point. So if a farmer wants to get a loan, goes to the bank and the bank says, oh, you're doing great. Here's a cheaper loan. You're doing kind of average. Here's kind of a more expensive loan, or you're not doing great at all. You need to commit to a program to improve your soil or else in two years time, you will not get any financing from any of the banks because this has to be a coalition. And this would make the farm manager have to look for alternatives and improve the soil on the farm. And also, I think there's another important part of the agricultural market, which a lot of the land is leased. And the owners of the land right now have no incentive. If you have two possible tenants, a guy that's doing regenerative and a guy that's... There's no differentiation.

SPEAKER_00 53:16

As long as they pay, it doesn't matter.

SPEAKER_01 53:18

Exactly. And oftentimes, the loan is linked as a guarantee, the production of that land. It's linked to the land. So if a land, a better quality land has cheaper rates, it would impact on the value of the land and it would impact on the decision of the landowner and who to lease it out to. I think this would be a huge incentive for the sector. Absolutely. And is

SPEAKER_00 53:38

that something, because it's a question I've been asking a few times now and I haven't included in the preparation, but let's wing it. In terms of agriculture, if you look at the whole space, what is the most connected piece? Like what is the piece that you see in region an egg that very few people are working on, but it's absolutely crucial and absolutely solvable. It comes from the ITN framework, which is importance, tractability, so solvability and neglectedness. And I'm always interested in people that are thinking along those lines of what is the piece that is very important, very solvable, but nobody's doing it. Is there something that comes to mind? Is that this, is it carbon tax? Is it, I will first do research. What is the piece that is really missing according to you?

SPEAKER_01 54:23

I'll fall back to the point. of good technical assistance because it's not replacing one type of people who are trying to sell you something with another type of people trying to sell you something. I think farmers really need good neutral technical assistance. Unfortunately, the extension services of different governments are not capable of doing that. Universities are doing research often that's too far away from farmers.

SPEAKER_00 54:47

Those two points we discussed with Soil Capital, which I will link below with Nicolas, very extensively on independent agronomic advice. and the university piece with John Lutren, actually, that left the USDA because he said a lot of the research is just way behind what's happening on real regenerative farms. So we need to go there and become regenerative farms ourselves as academics and then start the research again. But farmers first, then research, because what's happening in many universities is just not the cutting edge. The cutting edge is happening on experimental farms of, in many cases, in very good ways, crazy farmers. So that's a very interesting answer.

SPEAKER_01 55:22

Yeah, and I think Interesting seed. So Wageningen has a program called Lighthouse Farms, where they identified farmers that they say are already in 2050 in terms of combining sustainability and economic performance. And we are one of those farms. And we have a forum where we exchange ideas. We want to do this with our farmer network. So getting them together once a year and really exchanging experiences and bringing the university to come and complement with knowledge. But really, let's discuss what works, what doesn't. And with a very open mind, I mean, in agronomy, You need to have different tools that you use in different situations. But let's just measure everything. I think this is where the research is now. If I have soil compaction and I need to decompact the soil and I need to move the soil a little bit, how much is this going to set me further back in terms of carbon? But then if you're taking better care of the plants and these plants will put more exudates in the ground, how much is that? So it's all these trade-offs that we're not able to navigate yet. And I think the sector is still... There's a lot of... Idealism, which is great, but a lot of dogmas also. And we need better science to be able to navigate this because telling farmer, hey, buy into my ideological package, that's kind of tough. Buy into my scientific package. I think that's much easier.

SPEAKER_00 56:38

Yeah, that changes the discussion. And then the final question, the famous final question that I never ask, but then we always end up two or three. What do you believe to be true about regenerative agriculture that others don't believe to be true? And this is definitely inspired by a question John Kempf is often asking in his interview.

SPEAKER_01 56:53

I think I think that regenerative agricultural products will become cheaper on a cost per unit basis than conventional very, very soon. So if you see the work that we've done, I'll just give you an example why I think that. If you look at what's happening in biological inputs, now farmers such as us in Brazil, we are multiplying bacteria, fungi, and viruses on our own farm with stainless steel vats. We have a It's

SPEAKER_00 57:24

not somebody just pouring into a small barrel. These are massive breweries, basically.

SPEAKER_01 57:31

No. We tried that and the contamination is too high and doesn't really work. But we're doing this in a very high-tech way. And this is replacing a lot of the chemicals, even for the conventional farmers. So it used to be that organic, regenerative agriculture had a disadvantage to conventional. Conventional would always be cheaper. Well, guess what? The chemicals aren't working as well anymore.

SPEAKER_00 57:52

They're more expensive. So do you see... the cost going up there in the conventional piece? Like, do you see these, because I've talked to farmers, but not in Brazil too much that are, they started switching because they saw this cost curve creeping up and they saw the yield not really going up anymore. So they saw these two lines and we're thinking, okay, at some point he's going to touch, which then we're in trouble. Do you see that? Like the, is the cost creeping up of the food and the yield on the pressure? Is that happening?

SPEAKER_01 58:16

The cost is going up. The pest pressure is going up. So you need more chemicals, more applications. And this movement is coming, not just from the organic farmers. It's coming from the Conventional farmers.

SPEAKER_00 58:25

It's everywhere.

SPEAKER_01 58:25

So this is one of the examples, which is leveling the playing field. I think on the yield side, and I said cost per unit, right? On the yield side, like you mentioned, I think as the climate changes, we will really see the effect of more resilient soils.

SPEAKER_00 58:42

Yeah, just a number. I think I checked it yesterday. No, a few days ago. So 19 million acres were implanted in the U.S. last year due to weather. 19 million, one nine, and then six zeros. just for your image, weren't even planted because of weather.

SPEAKER_01 58:57

Yeah, I was there. they were all flooded the fields were flooded they look like rice paddies some of them

SPEAKER_00 59:02

well you know they could have planted rice no they couldn't but yeah but it's just to get you the impact of a very wet spring that's it 19 million acres

SPEAKER_01 59:13

yeah so for that year that year your yield was zero you have your fixed costs to pay so your cost per unit goes up right so and not to mention i think the bonuses i'm a you know very focused on my business so i'm not really tracking the carbon thing that close. I mean, for me, it's an upside, but I don't need the ecosystem services to make my business work. But it's coming. But it's coming and it will be great. So that will help it even further. And I think this is a call out to organic farmers not to be comfortable with the price premiums that they get today because this is a situation where only a few fortunate people are able to buy organic. And I think this is not the vision we want to work for. We want to work for a world in which a lot of people, as many as possible, can access good quality food and we can do the land right and the farmer right without having, and we can talk about pricing, but we have to aim there. We have to use all the technology and all the knowledge that we have to do things better and not just say, you know, people should be paying triple or double the price. I think we can't get to- Just because it's worth it. No, no. I think it's a good incentive for the next 10 years that this premium is there and it's high and it's helping farmers in the conversion. But in the long run, I think we have to do better.

SPEAKER_00 1:00:28

Yeah. I think it's a perfect answer too. And I think we have so much more to talk about, but we'll save that for another one. I want to thank you, Fabio, so much for your time and sharing and good luck in these extremely busy times. I mean, I'm happy you took the time to record as you don't do a lot of interviews because you're head down working and getting farmers on board and getting hectares converted, which is on the journey, let's say. Thank you so much.

SPEAKER_01 1:00:51

Thank you for having me. I really like the podcast. I appreciate how you're trying to advance the field while at the same time making it accessible to people who are just entering and doing this very important translation work so thank you very much for your services

SPEAKER_00 1:01:07

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