Transition Finance for Farmers with Benedikt - Thomas Kliemt-Rippel, Kulturland Genossenschaft

Thomas Kliemt-Rippel of Kulturland Genossenschaft is the seventh guest of the Transition Finance for Farmers with Benedikt Series. This episode is about the role of the crowd in transition finance.

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Koen van Seijen and Benedikt Bösel are the co-hosts of this special series dedicated to Transition Finance in regenerative agriculture and food (investinginregenerativeagriculture.com/transition-finance-series/)

In this series Koen is joined by Benedikt Bösel, owner of the Gut&Bösel farm (www.gutundboesel.org) and former Venture Capitalist with a focus on environmental technologies and AgTech startups. Follow them on their journey to find out what are the key principles of transition finance for regenerative farmers.

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Thomas Kliemt-Rippel together with hosts Koen van Seijen and Benedikt Bösel discuss the role of the crowd in transition finance for farmers not only to speed up regenerative practices, but also for transitioning from active farmer to retirement and freeing up the land to the next generation.

Find full show notes and links of the episode on
www.investinginregenerativeagriculture.com/2020/08/18/transition-finance-ep8.

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For feedback, ideas, suggestions please contact us through Twitter @KoenvanSeijen, or get in touch through the website www.investinginregenerativeagriculture.com.

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Transcript

SPEAKER_01 0:00

What could the role of the crowd be in transition finance for farmers, not just to speed up their regenerative practices, but also to transition from active farmer to retirement and freeing up the land to the next generation without selling out, but still have a comfortable pension? And what could Benedict, who is absolutely not retiring, do by partnering with the crowds to free up capital to invest in his regenerative transition? Listen to this interview with Thomas, who has enabled local regenerative farmers in Germany to raise over four and a half million euros from the crowd.

UNKNOWN 0:30

Thank you.

SPEAKER_01 0:40

Welcome to Investing in Regenerative Agriculture and Food. This is a special dedicated series on transition finance. Why are we recording this series? Many farmers are ready to speed up their regenerative transition. They've looked for learning, done the courses, read the key books, hosted the gurus on their farms, explored farm-sized regenerative designs, and most importantly, started their pilots and feedback loops. This is where transition finance is key. A local bank loan often isn't feasible because of the short duration, lack of flexibility and the farmer's lack of collateral. Furthermore, there's a limit of how much equity a farmer is able or willing to give away. That is why my co-host aspiring to be regenerative farmer, Benedikt Beusel, and I are embarking on a journey to find out what are the key principles of transition finance for regenerative farmers. We are interviewing leading practitioners in the regenerative agriculture and food finance space. They share their insights, how they would finance the speed up of the regenerative transition on benedict's 1000 hectares which is almost two and a half thousand acres farm in germany close to berlin this is an open process we are sharing our lessons through the podcast episodes as we go along we don't have the answers yet just a lot of questions so please share with us any examples of transition finance you've seen other inspiration people to interview etc get in touch via the contact page on the website investing in regenerative agriculture.com that is investing in regenerative agriculture Thank you. Welcome to another Transition Finance for Farmers series episode. Today with Thomas Ripple, friend of the show who has been on here already twice. I think that's a new record. And we're very happy to have him back and dive deep into the crowd side of investing in regenerative agriculture and specifically Transition Finance for Farmers. And obviously my co-host and partner in crime, Benedikt Boesel. So welcome to both of you, Thomas and Benedikt.

SPEAKER_02 2:35

Thank you, Koen. Thank you for having me on the show again. A lot has happened since we last talked.

SPEAKER_00 2:40

Indeed. Hi, Thomas. Great to have you.

SPEAKER_01 2:42

And to that Thomas can you for anybody I obviously linked the two interviews we did before below in the show notes but can you I mean you already alluded to a lot has happened since we talked if you had to pick one thing it's very difficult because you operate on so many different chess boards what have you been busy with since the last time we talked which was actually the beginning or the end of last year so the end of 2019 and what has been happening in the last six months apart from all the craziness obviously

SPEAKER_02 3:08

well yeah as you say the last six months have been crazy for all of us and throughout the world but for us actually we have received a lot of positive attention and we have a lot more new members and we're receiving more citizen capital than before the corona crisis so this is really a positive surprise I was not sure how it's going to turn out I was thinking maybe people are going to hold tight to their money you know being afraid of economic consequences but the opposite happened we have a lot more people investing and making capital available because regenerative agriculture, local agriculture has been a big topic. We've heard all about the slaughterhouses that are in the news in Germany, but in all over the world as big hubs of spreading Corona and the work conditions there and everything. So initiatives like ours are receiving positive attention but besides that what has happened in the past year is that we have now really started to take over entire farms so before we were helping farms to secure the land that they have been mostly leasing for a long time and then to buy it so to secure it permanently and now we are receiving a lot of requests from farmers who are retiring or want to retire and don't have children who want to take over the farm and they want to hand it over to the next generation and this issue of them needing a retirement so that they can leave the farm they need money so they can leave the farm and buy themselves a house they need a monthly retirement and at the same time the young people who come who want to take over farms they don't have the money to buy a farm and to pay a farm or a retirement for the rest of their life and this is where we have now started to play a big role and this has really opened up a lot of new avenues and we're growing really quickly so we're doubling our balance sheets this year we're doubling the number of hectares we're taking over and this has pushed us to think about how to create more decentralized structure to create a kind of heterarchical organization in the sense of Frederic Lallou from reinventing organizations the organization that is our goal we were actually reading that book together as a team right it's been a big inspiration for us

SPEAKER_01 5:50

it's amazing so basically i mean i can imagine the growth that happens because of that because before you were helping maybe relatively small farms to secure the land underneath their farm that they've been farming for quite a while and that maybe came on the market or was threatened to be sold and those are x amounts and then now because i think we talked about one of the first cases of the pension the pension plan you're helping farmers with last time we talked about was one or two maybe and but those are obviously complete farms much larger amounts real estate on it so the amount of money flowing through the system is much bigger but when you say we're taking over a lot of hectares etc can you describe in a few sentences what we is or how do you do to take that over because it sounds like a big between brackets big land grabbing and we're going to own a lot of land but it's completely the opposite of your intentions so for anybody that didn't listen to the previous episodes when you say we take over the land what does that entail

SPEAKER_02 6:40

okay yeah absolutely so we see see ourselves as a commons. So we are a community. We, Kulturland Genossenschaft, we are a cooperative. And what we enable through our organization is that citizens pool their capital and then we make that capital available to secure land. And we have really worked out a legal structure for this where the ownership of land gets neutralized in a way. So we take it out of private capital and we turn it into a commons so the idea is that the land never gets sold again and we have really in a way invented a new type of ownership so it's not private ownership but it's also not the classical sense of community ownership but rather the land gets removed from the ownership mind frame in a way the land belongs to itself and then we make it available to those people who can be the best stewards to the land so just to give you a little bit of an idea of how we do this it's a little bit complicated if you've not dealt with this kind of structure before and we are the first ones to do it but the way we do it is so we are cooperative we enable people to invest money by signing shares in the cooperative and then when a farm comes to us and one to buy land and they can't afford it or if now a farmer wants to hand over his farm to the next generation so he can retire, then we form a legal entity with each farm. And we become a stakeholder in that legal entity. And the farmer becomes the other stakeholder. And we both have a veto right. But the executive party actually is the farm, right? And so what we really do is we stipulate the criteria, which is that the land that we secure has to be farmed organically or regeneratively. And I'm saying regeneratively because we have criteria beyond just organic. And actually, we don't care about the organic label but rather we care that the farm functions in a in a regional regionally so that that the farm either does regional marketing or community supported agriculture or is breeding local varieties and breeds or is working with school children so it really is it has a social aspect to it and it has a regional aspect and 10% of the land has to be put aside for ecological reserve so it should not be actively farmed but it should be put aside for wildlife, birds and so on and so when we let me give you an example so it's easier to understand let's say a 50 hectare farm that has been farming for many, many years and most of the land they farm is leased. And let's say 40 hectares of the land is leased and 10 hectares are their own. And now the land owner of, let's say, 20 hectares of their land wants to sell it. Or the owner died and the children, they inherited it and they want to sell the land. And now the farmer, he has to buy the land or he's going to lose it. Because once it's sold, then new owner, he's going to want to lease it out for a higher price and so on. And so this farm, they come to us and they ask us for help. And so what we do is we set up this new legal entity where the farm becomes the executive party and we enable the community around the farm or regionally, we also do press work and then people hear about it, to invest by signing shares in our cooperative. And then we take this money, we put it in this legal entity and then we buy the land or actually we put the money in before because sometimes you know we need to buy the land quickly so we make the money available we secure the land and then we ask the people around the farm to invest and then this land is available in perpetuity

SPEAKER_01 11:04

for the 10 hectare farm that now suddenly is a bigger farm and more secure because suddenly you can do things longer term that previously when you're leasing is risky and you cannot really plan and you know you can have access to this land as long as you're farming organically regeneratively and have your social role and not set up a big monoculture pig fattening facility on top of it obviously

SPEAKER_02 12:02

exactly so as long as you keep those criteria the land is yours forever and we also you know we even thought about the case you know let's say in 50 years all of the people who started this organization they're gone and the next generation comes and let's say they think well you know now we can make a lot of money selling this land no we don't want that so what we do is we give the farms a so if we would ever sell the land then the right has a the farm has a right of first refusal to buy the land but not for the current market price but for the price that we bought it for back when we bought it so let's say we we decide to sell the land in 30 years then they're paying the price that we paid now right so basically they're getting it for a really really cheap price there is no incentive for us to ever sell the land

SPEAKER_01 12:51

but still you don't know what happens in 30 years with the organization with the people so you already safeguarded basically or the organization and the land to forever stay in the commons not at least for as long as you could imagine and all the potentialities you could imagine now obviously we don't know what happens in the future but you try to take into consideration everything that could happen and block it from any land grabbing high exits uh villa development etc

SPEAKER_02 13:18

exactly because i really believe humans are good beings by nature and we are able to create rules that bring out the best in us but we all know this from ourselves and from other people that when we are in a tight spot we will sometimes act selfishly and that has very long term consequences so if you know we thought about how we can set the rules that kind of selfish behavior is you know not possible yeah at least in in that with regard to the ownership of the land and how we make it available

SPEAKER_00 13:54

Thomas do you have any sort of control mechanisms in there because I mean if you have a smart investor that owns land he would basically bring all the land into your structure then basically run the company hopefully successfully and then you know the time comes where you're like okay we might want to sell it do you want to buy it for this very cheap price he buys it back and he's just made you know he's made a good deal. So I think if you are that successful, that business model will scale, which I think all of us will hope that it does. I think there has to be some sort of way of having a control mechanism. I don't know what you guys have in place.

SPEAKER_02 14:33

Well, absolutely. I mean, this is something that's taken care of. So a cooperative in the legal sense in Germany, so the way it works is that each shareholder, regardless of how many they have only has one vote. This is by law. This is not something that a rule that we made up. This is by law. This is for every cooperative in Germany. So it really doesn't, you know, it doesn't matter if an investor, you know, gives us 10 million, he only has one vote and we have more than 700 members. So he really has nothing to say. But still, we only allow investors to invest 5% of the total capital. If it should, you know, if it's more than that, then we really want to get to know them very well and see who they are. Because, you know, that's also a risk if there's too much capital from one source and they can also withdraw that capital and then we might be in a tight spot and we don't want

SPEAKER_01 15:27

that in the size of the group and the relatively small size of every individual investor because then of course the investor could pass away and the children might think very differently and if they suddenly withdraw like you mentioned you can cripple an organization or a cooperative like that

SPEAKER_02 15:42

yeah and actually we don't allow automatic inheritance of shares because we want the people to be in invested not just with their money but with their hearts so if it's inherited then there's of course you know they're not disowned they still own the shares but it's a transition period and then we can approve them as new members but if we don't then we will pay them out there's no automatic right to join the community super interesting

SPEAKER_00 16:08

you know I think that whenever you start new ways or new thinking there's a couple of you know risks and possibilities that could possibly go wrong involved but I'm always much more interested in the potential and the things that do work. So if I was a young farmer seeking land or seeking a way into farming, could I basically make an appointment with you, Thomas, and be like, look, what do you have? I don't care where, I just need land and then I can get going. How could that process look or is that something that you guys offer?

SPEAKER_02 16:43

Yes, absolutely. I'm glad you mentioned that. So now that we have been taking over entire farms, So let me give you two examples of farms that we have recently taken over. The one is a 70-hectare farm east of Dortmund. Most of it is cropland, quite fertile, and it has three houses on it with more than 400 square meters of room to live. So maybe at least two, maybe three families could live there. And the person who was farming this land, he's retiring. It's a seventh generation farm. They have been farming for more than 200 years there. And his children, they don't want to take over the farm. But this is his life's work. This is his family's generational work. And he has been farming for more than 30 years biodynamically. And so he wants to pass it on to a next generation that wants to continue in spirit and for him you know he didn't look at the market price and the market price would be maybe two and a half million he didn't look at that he said look what I need is 150,000 euros to buy myself a house to leave the farm and 2,000 euros a month retirement and that you know for somebody retirement age you know 2,000 a month for the rest of his life that's maybe four or five hundred thousand euros so what he's asking for is basically five six hundred thousand euros for a farm that's worth at least two and a half million so that's very generous and we pass on this generosity or you know yeah so because we get it so cheaply in a way we can pass it on to the next generation very cheaply in a way so then you know now we are setting up a kind of a round table or how to say a video conference where we ask people who are passing retiring and want to pass on their farms and young farmers who are looking for farms we bring them together and yeah we're asking people to apply for this farm and we have some people interested but we need to get the word out because obviously not everybody knows about this and we have another wonderful farm like this it's an 80 hectare farm close to Hannover it has soils with 95 soil points so in Germany they classify the soils from zero to 100 points. 100 is like you stick your seed in and the next day you can harvest basically. So 95 is pretty good. 95 is pretty good, right? And so he's also retiring and he's passing it on. And he also is asking for a certain amount so he can buy himself a house outside. And he's also asking for 2,000 euros a month and that's it. And there's many, I'm going to another farm on Friday and there's a few other farms. And so it's just really been taking off. and all of these farms, we really are looking for young farmers to take over.

SPEAKER_00 19:54

This is so incredible. I get goosebumps when you tell the story because this is just so desperately needed and there's just such an amazing potential because especially also in Germany, you have all the discussion about young people not wanting to get into farming, people that not want to take over farms and what you guys are on and what I see for this, it's really what I always try to tell people as well that when it comes to land use and having access to land, it's not always just primary production. There's so much more to this. There's so much more value. There's so much more potential business models. And when you tell from those different farms and those different contexts, it's not just a farmer that you're looking for. It's also someone that wants to extract colors from natural produce or that wants to make deodorants or that wants to have a leather factory or whatever. And you can bring these people together on the farms in those kind of communities and these are going to be hot spots of of growth and of creativity and of of a future and hope so yeah it's um it's it's amazing

SPEAKER_01 20:58

do you see that thomas yeah i think it's very interesting because you mentioned something very interesting from the biodynamic farmer you're stuck constantly you're talking in singular and then you said this this house can probably or these square meters can probably host three families do you see those three families potentially also living off the farm somehow the food the fibers the oils that could a farm like that 70 hectares or 80 hectares support more than just one family and if so then suddenly we sort of quadruple the potential at least social impact

SPEAKER_02 21:28

absolutely and I'm glad you mentioned that the potential of creativity just explodes when you don't have you know the bank sitting in your in your neck you know and the banks they only understand classical production models they're not gonna give you a loan if you tell them you're gonna do a community supported farm they don't even understand what that is. They're going to give you a loan if you say you build an industry, you know, pig stable, right? And so if you don't have that financial pressure, then all of these creative potentials are unlocked and you can try different things. And we see this, especially with community supported farms, most of the farms that we buy land with, they are community supported farms.

SPEAKER_01 22:08

Literally, because the community invests.

SPEAKER_02 22:10

Yeah, so it absolutely makes sense. But these two farms that I just mentioned, you know, it's up to the next generation, whether they want to make it a community supported farm or or they find other ways with direct marketing, whatever creative way they want to farm land. Let me just give you one example. One of our farms is close to Freiburg, Luzernenhof. We also took over that farm as a whole, and now...

SPEAKER_01 22:33

It was the first, if I remember, from our first interview.

SPEAKER_02 22:36

Yes, exactly. It was the first farm, and I was working and living there as well. I was part of that team that was farming there, and I just had a small... role because I was doing my work for but I'm of course a trained farmer as well and it's my passion and I really love living on a farm but yeah so on that farm it's 33 hectares and they produce about 3 hectares of vegetables about 10 hectares of grains they make cheeses and different milk products and so on and of course there's animals, there's pigs, there's calves and all of that goes to the community. There's 200 families as members of that community supported farm and they manage to support not just one person. So in Germany now you could maybe support not even one family with 33 hectares. So you would on average need 60 hectares to support one

SPEAKER_01 23:48

One family. Okay. Conventional model, 60 hectares to support one family and probably one of the family members needs to work off farm to make it work.

SPEAKER_02 23:56

Yeah. And on Luzernenhof, it supports 10 full-time positions. Wow. So this is the kind of factor we're talking about. It's at least a factor of 10. If you're really doing a lot of value-added things on your farm, they also make bread, they make milk products, they're diverse fried farm and so on and then you don't get let's say 20 30 cents a liter for conventional milk but you're turning the milk into high quality cheese and then you're getting on the value of the milk you're getting like three euros per liter of milk in in terms of actual value right and So this is what's possible. And this would be my vision for the future of farming, at least close to populated areas. So I'm thinking, you know, anywhere where there's people, you can have community supported farming. If it's really in the middle of nowhere, then of course, community supported farming is not going to be a model that works. And, you know, that's not what I'm saying. But I think there's other very interesting models for that

SPEAKER_01 25:06

as well. Yeah, super, super interesting. The factor 10 is just very impressive going from one-ish on 33 hectares or in 60 hectares actually to 10 full-time. It's actually a factor of 20 almost. It's crazy what that could support, which means these farms of 60, 70 hectares or 80 hectares you just described, obviously in a different situation, different local community, completely different circumstances, but theoretically they could support a number of families relatively easily. If they have local, relatively local markets, to supply and obviously the entrepreneurial creativity to do that. But it opens up because sort of the historic, and maybe you see that now as well, because you're having a lot of these retirement discussions, the historic biodynamic or organic is still one family. It's not really operating the farm as a platform for multiple families. And a lot of the CSA of community supported agriculture ones I know are much more, much more broad, much more flat and much more as a platform.

SPEAKER_00 26:04

So Thomas, just could you talk us through the process? If I'd decide, look, you know, I need to take more risk and I need more capital for that. And I would be thinking of bringing in some of our land into your organization. What would be the steps? What would be the timeframe? What would I have to know and keep in mind? And how would we then basically come together and work together?

SPEAKER_01 26:27

And what would it enable you to do?

SPEAKER_00 26:29

Well, I know the answer to that.

SPEAKER_02 26:33

Right. Well, I can't answer the second part, but I can tell you what it would look like. And I'm glad you're asking that because when we worked on building this organization, you as a person, the type of farm that you're running was really what we had in mind. And so you could already, in a way, start the generational transition process where you bring maybe piece by piece, or if you wanted to, you could bring all of your land basically into this kind of neutralized ownership form, and then we could raise community capital on that land. So let's say you just want to start with a patch of your land, and you want to do something special there, maybe permaculture or something. So let's say you put just 10 hectares of land aside for that, then we create this legal entity, as I mentioned, For those who know the German, know what it means, it's a commanditgesellschaft. You become the complementaire, which is the executive party, and we are a commanditiste, which is in a way the investing party. And so then the community around your farm, and you have a very strong community, you have a very broad reach, they can then participate by... signing shares and then this money, let's say the land has a value of low balling here, let's say 10,000 euros per hectare, then we can raise 100,000 euros on this land and you as the owner of the land, you put the land into this legal entity, we buy the land from you in a way and then the land is still available to you but you don't own it anymore. You can still farm it as long as you farm it regeneratively, you can use it forever but But at the same time, you have 100,000 euros available to then invest in whatever you want to do on the land. Let's say you want to plant some kind of agroforestry and you have investment costs and so on, then you can cover those costs with that money.

SPEAKER_01 28:39

And you pay a rent as the then user, no longer owner to the organization. How does that work?

SPEAKER_02 28:45

Right. So interesting question. So until last year, what we did was that we asked the farmers what they want to pay, basically. So we agreed on a lease on a yearly basis, something between 150 to 400 euros per hectare, which is much below market price, but still in a way a classical model where we're asking a fixed price. And we wanted to move away from that and we started a new advisory board where all of our farmers are members and we asked them how we could come up with a better way to organize this. And we took the community supported agriculture as our guiding star. community supported farms in Germany what they do is they have a budget that they need to cover to run their operations and then they ask the members what they want to pay so it's not a fixed amount but rather each member can in a way place a bid then that's what they pay and so this is what we're doing now so the farms they are not asked to pay a fixed price but rather we say look to run our operations obviously we need operational capital we have You know, we have employees. One of them is me. And, you know, I also need to make a living. And so we communicate transparently what that budget is. And then the farms, they cover that budget collectively. And each farm is free to pay whatever is possible for them.

SPEAKER_01 30:16

Transparently. So I can see what the others are paying? It's

SPEAKER_02 30:22

transparent what our costs are. We have not decided yet how transparent we want to be about how much... So you would see that Farm A paid so much, but do we want to label Farm A as Luzernenhof or do we want to keep it in a way semi-anonymous? We haven't decided on that, but this is how we're doing it starting next year. So what we need is about 200 euros per hectare, which as you can probably test to Benedikt is very low for a lease in Germany. and as we grow that probably gets even lower because you know we we get more hectares and our you know we don't need to hire that many more people right so that's how we operate and and this is how you could or if you are leasing land I don't know how much land you own and how much you lease if one of the owners of the land that is that you're leasing from wants to sell the land and you don't have the capital to buy it then also this is what we can do you know we create this legal entity and then we put the money into buy the land and then we ask for the community to participate financially and then secure it long term.

SPEAKER_01 31:33

And as an investor, what do I get?

SPEAKER_02 31:36

Good question. So what you get is being part of a wonderful community and supporting regenerative local farming and you get a lot of returns in terms of social capital and we're storing a lot of carbon in the soil by building up CO2 and that has a huge value and creating biodiversity and so on but we're not paying any financial returns no dividends and the shares are not increasing in value and nonetheless you know it's even though we don't pay financial returns we have been able to raise you know quite a few million euros now how many at the moment so we are currently at about four and a half million and by the end of the year we look to be at about seven seven and a half million and yeah so one of the things actually with that I'm working on is lobbying for better support on a political level for what we're doing here. And I'm looking to France, how they're doing it. There's an organization there that we have learned a lot from, Terre des Liens. They're doing something similar to what we're doing. And the French government had created a law 10 years ago where they created a label for social companies. And your social company, if the income gap between the highest and lowest income is 7 to 1 and you state in your articles of incorporation that you have a social purpose and a few other criteria but it's not that complicated and if you are labeled as a social company as we obviously are and maybe you could expand that label to not just social but ecological then in France if you as a citizen invest money up to 20,000 euros you can deduct that from your income tax. You have to keep that capital in the company for five years and then you can take it out. So just as a quick calculation example. In Germany, the highest tax bracket is 42%. And let's say you are in that highest tax bracket. Let's say you invest 20,000 euros, then you're saving that 42% tax. And then five years later, you can take that money out. So just in terms of financial returns, you would have made about 8% per year. Now, compared to our 0% today, that's really attractive. And I'm sure that we would have have a lot more citizens wanting to invest money if we would get this kind of tax break and this I really hope that we can convince the government that this is something they should do because you know now in times of corona we want more citizen participation we want more investing in regenerative anything right and we know that the climate crisis is happening and we need transition finance and especially in farming and you know we're better to generate that transition financing from citizens, right? So why not create tax breaks? Why should citizens pay taxes on money that they're investing in this kind of transition? To me, it just makes sense, right?

SPEAKER_00 34:41

Absolutely. And I mean, think about the potential of capital flowing into the sector. I mean, this is just incredible. The only thing is obviously that when it comes to the whole lobbying part and politicians and everything, there's in front or behind that you know they have that money calculated in in different areas and to make them understand the potential and maybe also let's say the economic potential that comes out of it but also the social possibilities also costs that they can save it's you know in some sense it is comparable to changing your your your style of agriculture to regenerative where you're not only create values on different areas, but you also have an economic benefit because you're not only able to have additional incomes, but you also reduce your costs. So this is actually an interesting thought process to bring through a politician who obviously, by definition, thinks rather short-term than long-term. But I mean, you're right. It would be a relatively simple step to basically change that whole system and imagine what would be possible if we did

SPEAKER_01 36:00

is that a bottleneck now Thomas like the flow of money for you guys specifically or is the bottleneck the farms you can find or the land or the farmers what would be the biggest leverage point to unlock a lot of these

SPEAKER_02 36:15

well a year ago I would have said no it's not a bottleneck but now that we have so many requests by farms I would say yes it is becoming a bottleneck and we until now have been able to fund all of the land purchases through community capital that we raised from individual citizens but now for the first time we're taking up a larger loan from Triodos Bank actually

SPEAKER_01 36:38

friend of the show first interview of the series

SPEAKER_02 36:40

I hope they're listening in because they're supposed to send us the offer this week I hope that the interest rate is nice

SPEAKER_01 36:49

I cannot promise to have it out within a week Thomas that they can hear this but I we can reach out to our friends yeah so I mean you know in these days you know That's interesting that you're interacting with the, I wouldn't say the old world because definitely Triodos is not part of the old world, but it's a bank and that's almost by definition part of an older world and interesting that you're now interacting with that part of the financial sector, let's say.

SPEAKER_02 37:14

Well, yeah, and I have no problem with that. I think it's absolutely fine. We have so much equity. We don't have any outstanding loans, so there's no problem with taking on loans to fund land purchases. But ideally, I would like to be in the situation that is in France, where they have raised more than 100 million euros by now. And in France, actually, pension funds, they have to invest 5% of their capital in these social labeled companies. And they have more than 200 million euros in capital lined up. And they said, well, they don't want to take on that much institutional capital. So they have limited that to 20% because they want this to be a citizen movement.

SPEAKER_01 38:00

Which means they go to a billion, very simply.

SPEAKER_02 38:03

They're heading for a billion, and I would love to be in that situation.

SPEAKER_01 38:09

Yeah, but they have a few more years, I think, under their belt. It's not that fresh, but it's interesting what's happening there.

SPEAKER_00 38:15

Also, Thomas, I was going to ask you on this also, going back to an idea that I could be able to bring some of our land into your organization. What is the time requirement among when it comes to not only speaking to my community and my network to basically try to raise the money, but also maybe accounting things and organizational things that go around. How much of the pre-work are you guys doing? How much am I doing? Because obviously time is just the biggest constraint of all of them. So having money lined up, being able to move in fast would obviously be something that would be so... appealing to me because that means I don't have to really do so much about it.

SPEAKER_02 39:02

Well, yeah, you're not the exception there, right? So the farmers, they are not known to have a lot of time on their hands. So we really do all of the administrative work. So we create this legal entity, and that might sound like a lot of work, but it's not. So we do all of that because that legal entity is only holding the land. It's not active in an economic sense. So it's just copy-paste in terms of doing the accounting on a yearly basis. We do all of that. and the contracts and going to the authorities for the approval and this and that. We do all of that. All you have to then do is to go when the purchase contract is being signed in front of the notary, you are the person going there to sign that purchase contract, not us, because you are the executive party in that legal entity, so it's your signature. And when you then lease, so the land lease, interestingly, is you leasing the land to yourself. So the lease contract you sign as leasee and leaser. So we're basically just in there.

SPEAKER_01 40:09

It's a very tough negotiation.

SPEAKER_02 40:11

We're just there to set the frame. You know, we say organic regenerative local farming, right? And as long as you do that, the land is yours and you can do with it what you want for as long as you want, right? And in terms of, you know, if you were to come to us and say, look, here's 10 hectares, then obviously we'll have a look at how your farm is set up and whether you know we believe that there is a community because you're just a farm in the middle of nowhere you're producing monoculture corn for some industrial production then it's really tough for us to raise community capital

SPEAKER_01 41:01

but what if the farmer would be interested to transition is that something like the conventional to sorry let's finish this part and let's go to that like i'm interested if that if that's happening

SPEAKER_02 41:11

well we have one example there actually i can give you an example of where we have actually done that where we bought 1500 hectares of land in the middle of a monoculture desert. And the reason we did it is because there was young people who were super committed. They said they wanted to do community supported farming. And we believed in them. And we said, okay, then we do it, right? But we have to believe that it's possible. And in your case, obviously, it's possible. So then from the time that you decide you want to do is to the time where everything is signed and sealed. It can be as short as two months. But usually for a case where a farmer is handing over his farm and we're looking for the next generation and he still has to maybe buy his house to leave the farm and there's a lot of questions regarding his children. They might still want to get inheritance and in Germany the law is that children have a right to inheritance a certain amount and so you need to find an agreement with the children and so on and even if there's no agreement then there's others you know avenues and so this process usually takes more than a year I would say one to two years but if the situation is more clear like in your case then I would say two months but normally because you know you need to go there we need to get to know each other and this and that normally takes four to six months

SPEAKER_01 42:41

and that includes the raising so includes to get to rally the community of Benedict or you're actually saying in some cases you have the capital available to quickly move and then you raise from the community

SPEAKER_02 42:53

we generally have the capital available before so we put in the money but we want a commitment from the farm from the community so what we're asking for is a non-legally binding commitment from people that they are willing to put up at least a third of the capital and then once we bought it and we already put up the money then we're asking for people to put in the money

SPEAKER_01 43:17

to wire Yeah, exactly.

SPEAKER_02 43:47

your shares to another member. So not somebody outside the community. If it's somebody outside the community, then we need to approve it. But you're allowed to sell your shares at any time to another member, or you give them back to us after five years, and then we give you back your money. And in Germany, it's by law that the value of the shares of the cooperatives remain nominally constant. So the idea of a cooperative structure is that you raise capital within the community to do something that benefits the community. And so there's no sense in having increases in share values like you have in a stockholding company. So the value that, you know, the internal value, let's say the value of the land rises, that remains within the company, but you can't take it out with the shares. And that's actually by law, and I think that makes a lot of sense.

SPEAKER_01 44:45

And that includes inflation or not?

SPEAKER_02 44:47

So you will lose money through inflation. The value remains nominally constant. We could choose to pay a dividend, but we choose not to because the money, you know, the land values is so astronomical. Land costs, on average, 30,000 euros in some areas, up to 100,000 euros now. And if you look at how much a farmer can earn farming his land, on average, an organic farm earns about 480 euros per per hectare and a conventional farm about 420 euros per hectare. So if you compare that to the value of the land, that's maybe 1.3% to 1.5%. Now, we are asking in terms of the lease, so to say, that farms are paying, that's between 0.6% and 1.5%. And we need that to run our operation for overhead. So there's nothing left over to pay dividends. It doesn't really make sense.

SPEAKER_00 45:44

One more question regarding the model. For example, we often have many visitors or volunteers and interns and some of which by the end of the internship you know we get on so well and there's so many possibilities and thoughts and ideas that we can do or that we can basically start a side project or a side business and it's often always involved with a capital investment now there could be a possibility of basically using your model bringing in some of the land basically thereby raising capital which then would obviously be be leased by me again but then i could basically lease it to the ex-intern for example and at the same time make it available for him and or her and and he or she could then also use the capital for example to invest in a greenhouse or whatever so first of all first of question is that possible because this would be important to me because i mean it's my home so i wouldn't want to give it to someone for 30 50 years without having an idea if are they going to kick my dog or whatever you know so that's one thing and the other thing is thinking about an investment that goes with it are you already thinking about that step where it's not only about the land but maybe also adding an additional sum of investment that you know basically uh could be a technical greenhouse that is then not only a hundred thousand k if we think about the that model but maybe two hundred thousand all right so let

SPEAKER_02 47:19

me answer the first part um so if the land belongs to you and you know we talked about this before if you need capital to invest in order to you know enable a transition or enable a new person to farm that land, then absolutely, you know, this is possible. Then, you know, we, you sell the land and you neutralize, you know, through our structure and you neutralize the ownership and then, you know, land is still available. And then you can absolutely make that available to whoever you trust and, you know, you, you, but then, you know, you are legally required to make sure that they keep the requirements which is, you know, obviously regenerative local farming. But as long as you do that, you know, it's up to you. I mean, the land is still within your full purview. You know, there's no restrictions as long. I mean, yes, this is the restriction. But beyond that, there's no restriction. You can do whatever you want with the land and make it available to anyone you want. So to your second question with regard to buying or investing in greenhouses or so on. That's tricky because we don't want to be the owners of greenhouses, right? So we can make capital available, as I just said, and then you can buy the greenhouse, right? But just recently, because when we take over a whole farm, obviously there's buildings on there and we need to take them as well. But the way we do it is we take the farm as a whole, but then when we pass it on to the next generation, the ownership of the land stays within our structure. So that's in this commons legal framework and the buildings they are tied to it through a long term lease which is called an Erbpacht so we sell the buildings but it's still tied to the land through a 99 year lease contract and as part of this contract we stipulate the criteria that you as the owner of the buildings and you living there in those buildings have to also farm the land so you can't decide to stop farming but still live there So it's still tied together. And we also make the contract so that even though you're the owner of the buildings, when you pass it on to the next generation, you can obviously sell it, but you can only sell it for a reasonable price, which is an objective measure. So you can't kind of stop the transition to the next generation by kind of asking for a ridiculous price. And so we enable this kind of transition finance by also buying the buildings and then we sell the buildings for a very very very cheap price to the next generation and for example the farm I mentioned worth two and a half million including the buildings everything he's giving us to us for 650,000 then you know we don't need to ask a lot of money for the buildings right so we just sell it for a super low price but still something because I think you know you still own the buildings right and that's a real value that you're getting and you know there's you you don't have an issue to get a loan from the bank for, for a very, um, you know, good interest rate, right? So you're paying less than 1% and why shouldn't you, let's say the buildings are worth half a million and then we give it to you for 250,000. Why shouldn't you pay 250,000 for that? If you're getting a half million worth, because then, you know, one day you will be able to sell it again, right? So this is how we're thinking. Maybe through feedback and different experiences will change our thinking on this, but currently this is how we are.

SPEAKER_00 50:58

So what happens if we, basically go through the process and then I want to take a loan which then as a security I would usually bring in the land that I have which I've just basically sold to you. How does that work? Well that's not possible

SPEAKER_02 51:13

because you can't take a loan with the land as a security because you need our approval now and we're not going to give that approval because we don't want the land to be sold again and you know if you you know if your farm doesn't operate well and whatever and then the bank would come and take the land, then the land would be lost. This is something that we don't want. So you can sell your land for a reasonable price. We're going to raise market value for it. But beyond that, you can't leverage your land twice. That doesn't make sense.

SPEAKER_00 51:44

Well, I wouldn't necessarily call it leveraging it twice. But it's just a process that you have to keep in mind because that's what happens in practical agriculture. You go to the bank, you get a loan, and the security is the land. So it's a thoughtful process that is obviously in there. And it's an option that you don't have anymore, right? And I mean, if we think back to the 10 hectare, 100,000 euro example, I mean, it sounds like a lot of money, but it really isn't that much. If you think about large changes and investments, it's gone pretty fast. So, you know, it's a relevant question.

SPEAKER_02 52:23

Well, I'm glad you mentioned it because, of course, this is also a relevant question for the firms that we work with and And see, the wonderful thing is that we here have a community that obviously is willing to invest and take money in their hands. And we built our own web platform. We programmed it ourselves. And each farm has its own website where you can go and you can choose to invest. And the farms are free to also use that to raise capital for themselves. And just to go back to the example of Zandenhof, they needed money to to invest in new stables and cooling facilities and this and that. They needed to raise something like, I think, 450,000. And so they just put out the word and they said, look, we're willing to pay an interest rate of up to 1.5%. So zero to 1.5, you're free to choose. And then people came and they gave loans and they raised the money in no time. It was oversight.

SPEAKER_01 53:24

It's amazing. But without the land as a security. I mean, that's what

SPEAKER_02 53:27

you're saying. Without using the land as security, they got there. money they needed. And they even had more money offered than they needed. So they could choose basically the lower interest offers. And in the end, they are paying an average of 0.6%, which no bank is going to give you a loan for less than 0.6%.

SPEAKER_00 53:43

That's amazing. It's just fantastic. But I would love to get to know some of the investors into your structure. So could you just tell us, what are these kind of people? Is there a certain type or is it completely versatile? I'd love to hear some of that some of those human stories behind it

SPEAKER_02 54:04

empirically we haven't I can't tell you the average age or so on but from my feeling and knowing a lot of them I can tell you that the average age is probably around 40 plus maybe 45 to 50 and obviously some older and obviously some younger but this is the average age and I would say a little bit more female than male noticeable and most of them, they have a direct connection to the farm. So 85% of people who are investing, they have a direct connection to the farm, either because they're buying products from there, they're a CSA member, or they have been to the farm, or they somehow have friends working there, or they visited the farm at one point. There's some kind of personal connection. And 15%, they don't have a personal connection, but they think this idea as such is really great. And those 15% are actually the ones that are willing to invest more money. So on average, the people they give maybe five, well, the lowest amount is 500 and there's quite a few people who give 500 euros. But the average amount is about 3,000 euros if you don't take into consideration the people who give larger amounts like 20,000 plus. And those 15% that don't have a direct connection to the farm, they just think this idea of land as a commons to make it available for the next generation, for sustainable regenerative regional farming, they are usually the ones who are willing to put in larger sums between 20,000 and 150,000. We even have one person that made a million available. So half of our capital is from those 15%. Half of our capital is from the 85%, right?

SPEAKER_00 55:49

Amazing. And I mean, going back to what you said about lobbying, I think those people, those investors, if investors is the right term, but those people who see the value in this, I mean, they are one of your biggest strengths, I guess, right? So I was wondering, do you have some sort of form where you kind of bring them together or you have some sort of community that is basically working and getting to know each other and communicating? Because these are the people that have to tell all the other people people what they are doing and why they're doing it and how much fun it is. I mean, this is such a huge potential to basically make this thinking, this knowledge, this form of investing known to other people and through this sort of bottom-up experience, you know, sort of, yeah, I mean, initiate some sort of pressure towards political thinking and so forth. So is that something that you utilize at all?

SPEAKER_02 56:49

Well, we try really hard and we're still open to and when we're exploring different avenues but I think the biggest potential here is always regional so the farms you know we support the farms in doing events or panel discussions or one of us goes there or we also invite other people to give a talk and then we create an event and then the community around the farm they come and they listen and this is how we engage local communities but in terms of the larger community all of the 700 plus members that we have it's really hard to bring all of them together. And I would say we as a national organization, we are not where most people feel the strongest emotional bond. So the emotional bond usually happens on a regional level. And this is something that we really aim for as we grow in the number of farms. Now we're 20 farms and I think as we grow to maybe 100 farms and then maybe one day 1,000 farms, then as we have a certain number of farms, let's say at least five farms in a certain region, then you can create regional structures where then it's possible for people to really come together because it's just you know Germany is still a fairly large country obviously not compared to geographically compared to the US it's still small but still it's a huge effort to come together let's say you know we invite them to attend some event then some of them would have to travel

SPEAKER_01 58:14

but it's also the local laws like the regional laws and the local politicians you want to really engage and understand and take action which is much easier if they can easily visit one of the farms if they can see if they can touch if they maybe even can participate and invest themselves personally and you get a whole different dynamic and discussion

SPEAKER_02 58:34

yeah and this is something we still need to figure out how we can utilize the community best in that way so we provide them obviously with information we you know we provide them with flyers and we have a handbook that is you know that describes our as an organization as a community and we have a nice website and we have nice videos but still I think there is a lot of room for potential to utilize that potential

SPEAKER_01 59:04

and just to get it out a bit of the German context specifically and to end with a few questions because I know and I don't know the details about it but you do for anybody that's not listening that's listening let's say in the rest of Europe that's not listening in Germany how easy is it because you're talking about some cases where small investments in some cases quite a lot larger 600 000 700 000 etc but always the term of the transaction costs are always an issue small tickets it's difficult to put 50k to work if for many people it's difficult to understand like it's much easier to put 5 million or even 50 million to work because the cost of doing the due diligence and doing the whole process the prospectus and everything it's it just makes more sense on larger numbers but you mentioned that in europe or in the eu there's actually some um some interesting things that have changed the last few years, not many people are knowing about it, and you're actually using that to make a lot of these concepts flow. Can you describe a bit what has changed, I think it's 2017 or 18, and what makes that possible for anybody that's actually in Europe that is thinking, wow, I should do this in Portugal, or I should do this in Spain, or Italy, Greece, etc.?

SPEAKER_02 1:00:12

I'm glad you mentioned that. So yeah, there have been significant changes that I think went mostly under the radar for most people. So one of the issues was that after some shady investments were offered in the past, the new regulations were put in place that required any investment offering over 100,000 euros to issue a prospectus. And for those who don't know what that is, it's basically a very thick legal document that costs between 30 and 50,000 euros in lawyer costs to make, right? And so if you're raising 100,000 euros and you have to spend at least 30,000 to raise that money, it doesn't With

SPEAKER_01 1:00:53

just legal costs. Imagine the cost of the raising, the platform. It

SPEAKER_02 1:00:56

doesn't really make sense at all. And so they realized that they made a mistake there, to be honest. And so in 2017, they revised this law and they said that up to a million euros, you don't need to issue a prospectus anymore. Each country has to kind of create its own regulation as to what they require, but it should be simple. Basically, that's what the EU law said. And up to 8 million, each country is free to choose whether they want to stipulate the prospectus requirement or have their own local law. Important is that whatever regulations they put in place, it still has to enable the free flow of capital between EU countries. So Germany opted for no prospectus requirement up to 8 million in investments. And last year, they made this new law where they stipulated the criteria, what is now required. And this is a very simple pamphlet which is allowed to be maximum of three pages and it just has to have the information on your balance sheet and you know that your past year's performance and a legal disclaimer where it says look this is a private offering and there it's a high risk investment and you could lose all of your investment and that's basically it you send that to you to the financial regulatory office and they have to give you the go or no go within 10 days and then you are free to raise up to 8 million for every single investment. So this is especially important for us raising money through shares. This has been exempt already before. So for us, it wasn't really an issue. But for farms to raise capital to invest in stables from the community, this was a huge issue because they couldn't raise more than 100,000. And now, there was a legal gray area. We had an agreement with the financial regulatory authorities where we kind of use the loophole but basically now there's no more headaches in terms of the legal framework and now any farm can raise up to 8 million through community capital and we have the IT infrastructure available where you know this is very easily possible you have your you know if you're part of the culture land community you have your own website and then people can go there they can choose to invest in whatever you want to offer

SPEAKER_01 1:03:19

and this could be all over Europe just say this might be slightly different in different countries because Germany chose the 8 million and chose the pamphlet but it has to be a simple process in every different country when you're raising more than that's very very interesting and foreign

SPEAKER_02 1:03:36

exactly and so this is possible all over Europe and the IT that we built it's something we built and want to make available for any eco-social project so we keep it so get in touch when you want to do this we're still developing it and I would say maybe in a years time the software is available for anyone to use but yeah get in touch if you want to use it and then we'll work you know we'll talk with you and see when we can make that happen and we're happy to make that available to anyone

SPEAKER_01 1:04:04

super and just to bring this conversation home benedict um i mean this has been a long series we're we're at the end actually we're going to do another episode where we look back but at this episode of the crowd and and super practical because we're talking germany you are based in germany and what brings this to mind or if you have in a few sentences what what's your um what's your feedback what's your what are your leaders going through your head right now um at the at the end of this episode with thomas and then i will ask thomas the same actually

SPEAKER_00 1:04:33

well i mean there's so many things one i think that is always um so dominant when you hear of initiatives like this and then i mean there are so many which we all don't know of right and it's incredible what people already do in that regard but you always think why is it not everyone talking about this why is not politics saying oh my god we have found an amazing solution that that does so much good and it has so much potential this is always one thing that that goes through my mind and i mean with regard to to thomas and i guess his team i'm just deeply impressed by you know the whole thought process they have actually gone through and that is something that has so much detail and it goes down to so many different aspects you have to keep in mind and you have to think through and you have to communicate communicate on a short term, but also on a long term period. And I think it's incredible what kind of not only thought process that they have developed, but also the kind of decisions that they took. I guess there was a lot of discussions around them, but this sounds very holistic, if you ask me. I'm just really grateful that Thomas and his team have done this and are going through this. I think this has enormous potential. I'm already looking forward to a couple of years' time. You guys need to meet. I spoke to Thomas back in the day when they only had like I don't know when he was still accessible 8 million on the balance sheet you know so you know I think it's there's going to be amazing times to come and Thomas and that kind of thinking and those kind of ways are going to have an incredible influence on this so I think it's our task of all of us to basically make sure that this information gets out and it's being pushed and that we collectively basically see that you know we can we can grow this movement yeah So good stuff, Thomas. Thank you so much for being on the show.

SPEAKER_01 1:06:32

Thank you. Any final words from us in this episode?

SPEAKER_02 1:06:35

Well, I think what I didn't say at all this time is really my motivation to do all of this. And we're talking about a lot of numbers and that's just because this is the world we live in. We live in a world of numbers and metrics and regulations and this is the things we have to deal with to make things work. But You know, this really comes from a very deep place, our motivation. And, you know, I studied economics and I was very disillusioned with the kind of picture of humanity that is portrayed there. You know, this homo economicus, this selfish human that is just working in self-interest. I never believed that, you know. And when I got to know the commons, you know, Eleanor Ostrom, how she's, you know, showing us that there is another way of, working together. There's a way to... And it really works. It has worked for hundreds of years, even thousands of years, where communities have managed their own resources. And so this is really a guiding star to really enable young people and also, of course, old people who... Young at heart. Young at heart, who are connected really deeply in their hearts and souls with the land, with the plants and the animals. And they want to enable communities to

SPEAKER_01 1:08:01

flourish that's the only place you can do that yeah

SPEAKER_02 1:08:04

so this is really what inspires me and this is why I love my work so much you know I'm really glad

SPEAKER_01 1:08:10

even when you go through all the legal details in in our numbers world at the moment yeah and we salute you for that because it's work that should be done has to be done I know you like it and enjoy it but for some people like me it's very difficult to imagine somebody enjoys that piece and I see Benedict laughing which means I think he thinks the same so thank you so much both of you for your time your energy I really hope you'll be able to meet soon in person meaning visiting the farm of Benedict and start dreaming and practicing and seeing what is possible there and we'll for sure be checking in on that thank you so much for your time this morning and have a great day thank you thank you guys thank you for listening to this episode which is part of the transition finance series trying to find appropriate transition finance to speed up regenerative agriculture on farms for feedback and Thank you and see you next time.