Soil Builders, regenerative agroforestry on Hawaii and soil carbon credits in Australia

In this episode we hear what regenerative agriculture looks like with bread fruit in Hawaii. Also Bert Glover of Impact Ag Partners shares their part in the soil carbon credit deal with Microsoft and an Australian rancher.

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Transcript

SPEAKER_00 0:01

Welcome to Soil Builders, a series where we follow who is building soils at scale. This is an experiment, so please share any feedback. Why this show Soil Builders? I believe that most change in regenerative agriculture and food will come from and is coming from entrepreneurs building ways to regenerate soil at scale. I call these Soil Builders. Soil Builders are entrepreneurial farmers, ag tech companies, investment funds, food startups, new seed cooperatives, teams within food companies, robot startups, investment vehicles, etc, etc, etc. All regenerating soil beyond their own farm gate and with more than their own money. This series allows the community of the podcast, which is you full of funders investors and fellow soil builders to follow their progress their challenges and their breakthroughs i hope you enjoy it and please reach out with any comments feedback and ideas welcome to the soil builder series where we follow who is rebuilding soils at scale today we hear from brett glover of impact act partners on the deal of microsoft with an australian rancher to purchase many many soil carbon credits but first up what does regenerative agriculture look like with breadfruit on hawaii i found it super interesting how dana and and her team are building a crucial puzzle piece of the regenerative future of Hawaii. Hi, Dana. Welcome on the podcast. Could you please introduce yourself and what brought you to produce breadfruit on Hawaii?

SPEAKER_02 1:20

My name is Dana Shapiro, and I'm the general manager of the Hawaii Ulu Cooperative, a social enterprise owned by about 100 small family farmers in Hawaii. Most of our members are located on Hawaii Island. We also have a few in East Maui. I came to work with breadfruit in Hawaii through a friend who introduced me to the crop about 10 10 years ago when she recruited me to serve as the volunteer coordinator for the Breadfruit Festival in South Kona in 2011. And I was amazed by the fruit's versatility. In particular, I entered the cooking contest and was really excited to play around with cooking the crop in all of its maturity stages, which are very different one from the next. And I really fell in love with it and actually met my husband the following year festival we were both on the planning committee. And from then on, it's sort of been a breadfruit journey.

SPEAKER_00 2:19

Why is breadfruit so interesting from a food perspective?

SPEAKER_02 2:23

From a food perspective, breadfruit is really exciting for a number of reasons. First of all, it's one of the only staple foods on earth that grows on a tree. And that means that by growing breadfruit, we are effectively reforesting the planet and actively fighting climate change. It is a carbon-negative crop, which cannot be said for most starches. It's also extremely versatile. From a culinary perspective, it can be eaten at all stages of its maturity, from when the fruit is a baby spiky ball on the tree, at which point it sort of tastes like an artichoke heart, into the stage where it matures and the starches develop and it becomes very potato-like, and then the starches convert into sugars and it becomes sweet like a dessert, initially like a pumpkin, and then like a ripe banana. And at every single stage. It's delicious. It can be prepared in all sorts of innovative ways. And it's very nutritious as well at every stage. It's a complex carbohydrate. It's naturally gluten-free. It's very high in fiber. Flour made from breadfruit is, of course, naturally gluten-free and contains three times the amount of fiber as conventional all-purpose wheat flour does. It has a lot of micronutrients, really high in vitamin A and beta carotene, the nutrients that are good for your eyes and your Also really high in vitamin C. It has more vitamin C than oranges and more vitamin A than carrots. So it's just an amazing, nutritious, versatile and delicious food.

SPEAKER_00 3:56

And why from a farming slash farmer's perspective?

SPEAKER_02 4:00

From a farming perspective, breadfruit is extremely resilient and abundant. Because it's a tree, it's relatively resilient to climate change as well as just normal weather extreme events. If you think about most annual crops, they can be wiped out by a drought or conversely a big storm. Trees usually do not. And breadfruit trees in particular are really adaptable. They grow in almost every microclimate in Hawaii below about 2,000 feet elevation. They need relatively little input in terms of irrigation and fertilizer once they're established. And they're just incredibly resilient. In fact, it's hard to kill a breadfruit tree. You can basically stump it and the tree will regrow. They're also prolific producers. A single tree can on average yield about 300 pounds of food a year. And that's split across two to three fruitings over the course of its season. But some trees will produce twice that much or even more. And so it's a It's also very beautiful. It works well in diversified agroforestry systems where the trees can act as windbreaks or alley crops or hedgerows. They can be lined throughout riparian buffers to protect the watershed. And they create a beautiful canopy with these huge leaves that create shade for wildlife and recreational spaces for humans. And they're very pleasing to look at. They're just an absolutely beautiful crop to incorporate onto a diversified farm.

SPEAKER_00 5:30

How has COVID affected your company?

SPEAKER_02 5:32

COVID-19 had a catastrophic impact initially on the co-op. Our sales halted in March 2020 when the lockdown started and schools closed. About 95% of our sales went to food service outlets pre-pandemic, including about 50% to Hawaii public schools. And public schools still haven't resumed in-person learning. And they have pretty much stopped buying local We hope that it will come back next school year, but in reality, it might be a few years before our public schools start buying significant amounts of local food again, mostly because of the budget restrictions resulting from COVID. On the food service side, we are seeing hotels and restaurants coming back online slowly, but really what COVID did is it forced us to take a hard look at our market base and realize how at risk we were by So we launched our online store in April of 2020, which has grown pretty quickly. We brought in a little over$50,000 from the online store between July and February, which now accounts for about 8% of our sales. And we hope to To grow that further, we've also been working with local grocery stores to get more of our products into the retail supply chain. And another target market for us is manufacturers. So we're looking at becoming an ingredient supplier for more Hawaii-based and non-Hawaii-based manufacturers with our minimally processed breadfruit and related products. So all in all, COVID has not had a lasting negative impact on us, but it definitely shook us up a lot. It had a temporary, really harsh negative impact. And hopefully in the longer term, it will make us stronger as an organization by really intentionally building a more diversified market base.

SPEAKER_00 7:39

What are you going to be mostly working on in 2021?

SPEAKER_02 7:42

2021 is going to be a year of continuing to focus on diversifying our market, getting more products into the retail supply chain, hopefully finding a great distribution partner locally for retail stores and completing a few big milestones. One is that we are currently in the middle of our hopefully last big capital campaign. We are currently raising$1.2 million, which will, we think, take us sort of the rest of the way toward developing a profitable co-op business. We are working with a number of local foundations and enterprises, organizations and individuals on that. So we have a real diversified sort of capital stack, including preferred stock from non-co-op members, PRI loans, community loans, and a small amount of grant revenue that we're seeking. We also are working with the Department of Agriculture to plan our facility upgrades. Our flagship facility is a state-owned ag hub. And we received about$1.2 million from the state in fiscal year 2019 to make really sorely needed upgrades. upgrades that will bring the facility up to code and expand it to handle our projected increasing volumes of fruit, up to 2 million pounds a year in total, which will be broken into about 1.5 million pounds of ulu over the next 10 years and 500,000 pounds of other crops, primarily other local staple foods. And so we're going to be making progress toward that. We're currently in an environmental assessment process, and we're going to be making some key sort of equipment purchases that we're able to make on our own thanks to grant funds and some low interest loans. And all of those things combined should increase our efficiency, bring down our cost of production, and ultimately make our products more competitive against imported staple foods. So there's a lot of exciting work to do, a few key hires that we're looking at, including a sales position and a co-op member coordinator position that we're really excited about as well. So we have a And what is

SPEAKER_00 9:52

your main focus over the mid and long term?

SPEAKER_02 9:55

Our main focus over the mid to longer term is broken into three categories. The first is on the supply side, working to help increase our farmers' capacity. This is one of the biggest hurdles for Hawaii agriculture in general and something that we feel really strongly about at the co-op. Most of Hawaii's farmers are small-scale farmers. That means they have less than$250,000 a year in gross revenues. The average farm size is less than 10 acres. And our farmers need a lot of support in order to professionalize and collectively to scale and adopt best practices that will help ensure the success of their own farm operations. Technical stuff like fertilizing regiments and pruning regiments and more nuanced stuff like how to plan out the design of new plantings, for example. And so we're working with the University of Hawaii, College of Tropical Agriculture and Human Resources, CTAHR, with Dr. Noah Lincoln, who's also my husband. He's sort of leading the agronomic research side for Hawaii's breadfruit industry. And Hawaii doesn't have a dedicated extension agent for this crop. So we actually find that the co-op is acting as an arm of the extension service. Ideally, there would be a whole extension branch dedicated to indigenous crops and breadfruit in particular, but there isn't. So we we do find ourselves trying to fill that gap in partnership with NOAA and others at the university. So the supply side is a huge one for us. And our whole success as a co-op really hinges on the success of our farmers. So their success is ours as well. And the second category is manufacturing. So basically increasing our manufacturing capacity through infrastructure and equipment upgrades and gearing up our whole manufacturing team to just get better and more professional in the processing side, the quality, standardization, and food safety. So that's another big hurdle as well. And the final side is our sales and marketing. So really, where is all this supply of Ulu going? Within 10 years, we're going to have 1.5 million pounds. Currently, we have 100,000 pounds. So it's a 15-fold increase over a 10-year period. And our sales and marketing work is really a consumer educational campaign, a public education campaign about all the benefits of eating ulu and other indigenous starches here in Hawaii, what you can do with it, how to use it, and really just continuing to build interest and awareness around these indigenous starches. We see that momentum growing. We have really strong partnerships among chefs. We work with a wonderful nonprofit called the Chef Hui, and we've established an ulu ambassador program in partnership with them where we bring in professional as well as really cutting edge schools and even hospitals, state institutions that are showcasing Ulu in all its glory and educating the public about this wonderful crop. And so working to highlight them and their work and finding additional ways to partner is one of the key strategies we have for the sales and marketing component. And we also have a really strong youth education piece, which is sort of like a really, really long-term sales and marketing approach. We've been working in partnership with with the Hawaii Farm to School Hui and the University of Hawaii College of Education for the last three, going on three and a half years. And in April of 2021, next month, we're going to be launching our Ulu Education Toolkit as an online database, which is a project, again, we've been working on for a number of years with a lot of wonderful teachers and other educational organizations contributing resources and testing out what we put together. And we're finally putting the final version as a a searchable online database for teachers to use and parents and students on their own. So it's basically a repository of educational resources about breadfruit geared for a wide range of ages, all the way from preschool through adult education. And it's searchable by curricular standard grade level resource type. And we're really excited for that to launch and just continuing to spread the good word about this amazing crop, breadfruit.

SPEAKER_00 14:51

And up next, we hear Bert, who has been on the show a few times before to share more on their part of the soil carbon credit deal with Microsoft and where he sees this space going. Hey Bert, great to have you back on the show. Can you tell us more about this new, very exciting project where you have sold soil carbon credits to Microsoft?

SPEAKER_01 15:10

Thanks, Cohen. Great to be in contact again. I guess Impact Ag Partners has, as you know, for quite some time been practicing regenerative agriculture across the assets it manages. Well, We've been, on behalf of offshore investors, investing and deploying capital into Australia for over 10 years now and through separate managed accounts have been practising the sorts of agriculture that we think helps build the wealth of soil in our ecosystems. And I guess this sale of the... is one way of monetising the ecosystem services we have created. This transaction and the first transaction, which is one of three transactions that has occurred, is off a farm we purchased back in 2008. And we've always been very diligent in our capture of data and utilisation of data to make better business decisions. And so this farm has, we knew we had strong carbon performance off this farm. We've been tracking that right back since 2010. And so when the opportunity came around for us to meet the guys at the Regen Network out of the US in San Francisco, we started to talk to them about how we could monetize our carbon. And between us, we came up with a system that the Regen Network have now called a Carbon Plus Grassland Credit, which is a voluntary credit. And so what we've been able to do and the methodology the Regen Network have created is based on utilization of satellite data but correlating that with physical soil tests that we've had so in this example we've used those soil tests and that data to create the grasslands credit based on and what we call vintage carbon so it's carbon that we have sequestered in the past right back to 2017 and so that's taken from soils physical soil samples gps located every year and that's what's been able to deliver the measurements and results around the carbon. So off this one farm we sold 43,000 tonnes of CO2 equivalent and the buyer as you say has been Microsoft in this instance. Of course in the methodology there is some discounting which takes into account any accuracy issues. It's delivered a net profit per hectare of$62 which is equivalent to about$150 And the good thing about this is we can credit on an annual basis moving forward as it's a voluntary credit in a private market. We can credit every 12 months if we so wish, as opposed to some regulated markets where you cannot do that. So it's been great for delivering value for our investors. And we, you know, look to continue to do this and build more carbon. I mean, it's adding about anywhere between 50 to 100 base points per annum to our annual cash yield, and that starts to be significant. And so it's just another way of creating not only value for the investors, but building up that soil carbon and delivering ecosystem services and holding more moisture in our soils and building the health of our landscapes.

SPEAKER_00 18:32

Hi Bert, thank you so much for sharing that story and congratulations. Where do you see this going? As you mentioned, this is the voluntary market. We actually had Christian of Region Network on the show, I'll make sure to share the link below with the interview. But where do you see this market going? How big could this be? And most importantly, what does it mean for land owners like you or stewards and farmers in general?

SPEAKER_01 18:56

Well, this could be really big. We know that in Australia, down to about three meters in our soil profile, there's approximately 2,300 billion tons of carbon. And that's again down to three meters. And if you take into account that Australia, is really only about 5.2% of the global landmass. The amount of carbon stocks globally, you know, that's an amazingly huge number. So the opportunity is great. And I guess we feel now that this first transaction and all these three transactions are a demonstration of the start of a market whereby you've got a willing seller and a willing buyer, comfortable with the discounts, comfortable with pricing, and conditions, and it's been third-party verified through auditors. So you've got, in our mind, a marketplace. And I think what you're going to see moving forward is the refinement of new methods will come to bear. There will be refinement of existing methods and the co-benefits. So when I'm talking about the co-benefits, again, I'm talking about improvements in other ecosystem services such as water quality and biodiversity and vegetation aspects. along with things such as animal welfare benefits and or conservation. So you're going to see different products come to market. And I think what's going to help drive a lot of this is private capital. I think what we're seeing interest in, in addition to the purchase of credits, is the interest from private investors wanting to participate in some form in these markets. And as we know that private investment will generally lead public investment and These private markets for voluntary credits we know will probably get a lot more traction and really catalyse the industry ahead of the regulated markets because the regulated markets, as you know, they have to go through so many pieces of legislation change and there's red tape associated with the robustness around the public markets. So these public markets or regulated markets, they're going to become– they'll get refined. It's just going to take time and I think what we'll see is that the private markets and with voluntary buyers will start to take carbon credits from national accounts and that carbon will get sold out of existing jurisdictions purely because of these private transactions. So we're quite bullish about where this could go and I think what we will find is that for farmers it means that they're all of a sudden going to have another potential revenue stream. All of a sudden, when they're making decisions inside their farm gate about whether they're going to sow corn or soy and how they're going to manage livestock, they're going to be thinking about what's the impact I'm having on also my carbon stocks. And they're also going to be thinking about, is my practices going to add to my carbon stocks or am I going to be depleting my carbon stocks? And how am I going to manage my soil so that I'm more resilient in drier times as we see climate variability associated with climate change. How is that going to impact my practices on farm? And I think the other big thing is that we're going to see farmers really start to think about the use of data. We're going to see farmers get a lot more discipline around how they capture data. And so if we take into account soil sampling so that farmers can participate in soil carbon credit markets. The disciplines are really around the timing of when you're taking soil samples, the location of where you're taking them, the method you're using and the depth and all of those things and also the consistency in testing through the lab results and making sure you're using accredited labs to do that. I think some of the benefits out of this for farmers is we With all this private capital coming in, you're going to see a lot of different products come to market whereby a farmer can choose a carbon product that really suits their risk appetite, really suits their stage of life. If you're a 30-year-old farmer, you can probably take some greater risk in terms of which carbon market you participate in. But if you're a 65-year-old farmer, you may like to participate in markets that carry less risk but still offer that liquidity, may not be as much potential carbon upside. So your annual returns may only be 20 basis points instead of 50 basis points or 100 basis points. But I think there's definitely going to be opportunities. One thing we're seeing from the demand side is just the appetite to get close to where the carbon is getting generated. So the appetite we're seeing at the moment is from multiple different sources. But the common theme is that those buyers want to get closer to the generation of the carbon. One understand the story and one understand how the farmer has produced the carbon and the practices that they have been utilising across their farm. And so if farmers are open to capturing data, open to discussions about how the transactions can happen, open to looking at different products, I think farmers are going to end up with more Just like they do at the moment with their other commodities. If they start treating carbon as another commodity, they're going to have plenty of markets to participate in.

SPEAKER_00 24:53

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