126 Nathalie Whitaker and Mike Taitoko, regenerating New Zealand’s dairy industry focussing on water not carbon

A conversation with Nathalie Whitaker and Mike Taitoko, co-founders of Toha, which is building a one-of-a-kind global marketplace with climate and environment impact at its heart.

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New Zealand's dairy industry has intensified tremendously over the last 20 years and has to change if it doesn’t want to lose its social licence to operate. Consumers and governments are putting pressure to clean the heavily polluted waterways, restore biodiversity and store a lot of carbon. But how? What role does data play and why should we start with water and not with carbon?

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Transcript

SPEAKER_01 0:00

New Zealand's dairy industry has intensified tremendously over the last 20 years and has to change if it doesn't want to lose its social license to operate. Consumers and governments are putting enormous pressure to clean up the heavily polluted waterways, restore biodiversity and store a lot of carbon. But how and what role does data play and why should we start with water and not with carbon? Tempering climate change, bringing back rivers, preventing floods and obviously lots and lots of nutrient-dense food. The problem The promises of region ag often sounds straight out of a science fiction book. And for these promises to be met, we need to significantly scale regeneration to a landscape scale within this decade. Welcome to a new series where we look into the technologies needed to bring regeneration to a landscape scale. In this series, we'll look at already existing technologies, digital tech, ag tech, new financing mechanisms, etc. that can scale fast enough during the next 10 years. Technologies which put significantly more money into the We're very happy with the support for this series by the Grantham Environmental Trust, which supports strategic communications and collaboration in solving the world's most pressing environmental problems. You can find out more at granthamfoundation.org. In March last year, we launched our membership community. 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 egg or find the link below. Thank you. Welcome to another episode today with the two of the three co-founders of Toha and Come the Farm, which is accelerating the global transition to regenerative agriculture starting in New Zealand. So welcome, Mike and Natalie. Kia ora, Colin. Thanks for having us.

SPEAKER_02 2:06

Kia ora, Colin.

SPEAKER_01 2:07

And starting with the personal question, how did you end up in soil? Obviously, both of you, but let's start with Mike. And how did you end up working on regenerative agriculture, the investment realm around it and transitioning or trying to transition the agriculture system of New Zealand to start with?

SPEAKER_00 2:23

Thanks, Cohen. Matt and I both had windy routes to get to where we are with being right in the middle of the regenerative movement today in Aotearoa, New Zealand. For me, my pathway was really coming out of the engineering space and then to end it up at Deloitte as running the strategy work there in Wellington. And I left Deloitte to set up my own consulting company, which became a consulting and law firm, ran that for a few years. And during that time, we got involved in setting up building digital platforms to be able to pull data from government and regional councils and authorities, regulators and industry. And one of the areas we found ourselves working quite heavily in was looking at things like land use and land impacts on freshwater, freshwater quality, amongst other things, including things like population health. During that journey, we got involved working with the Ministry for the Environment, trying to look at how the dairy industry in New Zealand can move to a lighter environmental footprint. What are the barriers and what are the opportunities? What are the risks? And there was a huge learning curve for us. And I think the ministry, we saw a dairy sector that was under huge stress, high intensive, high production, business model, and under huge pressure socially from community and from politicians and all sorts of different angles, really, the industry was coming under attack and many farmers felt like they were losing or had lost their social license to operate. During that work, we got introduced to farmers that were carrying out regenerative and biological farming practices and we got to see the difference was night and day. We saw stress, we saw depression and anxiety, worry about the future of agriculture being put into the emission trading scheme here, growing compliance costs for farmers for freshwater impacts from overuse of nitrogen, all sorts of things. But then we're standing in paddocks with farmers who are carrying out these biological and regenerative practices. And we saw joy. We saw profitability back again. We saw succession plans starting to take care of themselves because now the kids want to stay on the farm and be the fifth generation farmer versus the children coming through the intensive conventional model. I mean, we all know it's a major problem globally as succession. So That was the real illuminating piece for me. At the same time, I got introduced to Natalie. The digital platform my team had been working on, we built that to demonstrate and prove impact. Where are the most impactful investments, investment decisions, activities, projects and initiatives? Where are they and how do we turn the curve on some of our biggest environmental and climate-related issues? What I didn't have at that point, whilst we could start to see and show and prove impact and demonstrate what good looks like. We had no way of funding that because now we're relying on industry and government and others to fund the change. And we all know how challenging that is, which is what gets us into the financial piece of this whole journey. And that's when I got introduced to Nat. Nat's one of New Zealand's leading experts in the field of crowdfunding. She built New Zealand's largest crowdfunding platform called Give A Little amongst a number of other platforms, and Matt will talk about that. But by bringing our kind of tech background and our careers together, we can start to ask ourselves questions. If we can see and prove what good looks like, particularly with regard to climate and environment, then maybe we can start to unlock some of the capital that the world's awash with, particularly around ESG and sustainability and now regenerative, kind of the growth of the idea of regenerative economics and financial models, then maybe there's something in there for us to have a serious look at. That was three years ago and the last three years has been the best three years of my journey. It's just been amazing. Innovation, design, huge pressure. We've got amazing investors backing us and that got us to soil and I found myself saying on a number of occasions recently that I think this is me for the rest of my life. I love it and it's a big important job to help to support the role that agriculture must play in addressing the huge climate challenge and crisis we have on our doorsteps right now and the urgency around that. Unlocking the financial and capital markets and other forms of funding are going to be critical if we're going to speed this thing up. Thank you so much

SPEAKER_01 7:20

for that, Mike. So much to unpack there, but let's go to Natalie before we unpack a lot of that. How did you come from crowdfunding I

SPEAKER_02 7:27

guess the crowdfunding piece for me was a real gift, but also a bit of a curse. Having built New Zealand's largest crowdfunding platform, the kind of the GoFundMe for New Zealand, it meant that I had visibility to a lot of the things that actually go wrong in the New Zealand market and where people have to go and ask for help when they've run out of options. And I think after eight years of running that platform and seeing all the data about everything that goes wrong, I became obsessed with getting back to root causes and solving things before they go bad. And so for me, that pretty much led me all the way back from social problems to environmental challenges to trees. And then Mike convinced me to look at soil and I realized that actually this pretty much comes all the way back to soil. If we want to solve all of our problems, we have to start at the soil.

SPEAKER_01 8:22

I think it's very interesting. I don't know who wants to talk about that, but you've gained a bit of the picture. I mean, Mike highlighted some of that with his work on water. But of the current agriculture industry and current state in New Zealand, for anybody that doesn't live there, I think we get a very pretty picture, ranging from the images we see on TV or in the promotion material. But as you already highlighted, there's enormous pressure losing social licenses, especially around water, if I understand well. So in a nutshell, what's the current state of especially the dairy industry? And why is it such a perfect storm for regenerative agriculture?

SPEAKER_00 8:56

Yeah, I mean, that's a huge and a great question, Colin. In New Zealand, we do have this clean green image mostly around the world, but you don't have to dig very deep on social and to see that New Zealand has some pretty serious challenges with regard to freshwater quality. The neutrification of our lakes and rivers has meant that we have a very high percentage and up around 70% and over our rivers, you know, at risk of swimming in and some are unswimmable at certain times of the year. Some of our lakes, the signs go up, we can't swim in them due to the toxicity and the algal blooms within the waterways and water bodies and agriculture as it became more intensified over the last 20 years as the amount of nitrogen and phosphorus and other synthetics and chemicals started being applied to the farms. Those were obviously like a lot of places around the world finding their way into the waterways And you can really see that because

SPEAKER_01 9:58

you have following, especially with the technology you've built, like you could see that the last 20 years, that water quality, the water sheds basically going, dipping downwards in terms of quality in life. Oh, totally.

SPEAKER_02 10:10

I need to get to the bottom of the stat, but I saw something recently that said that we'd had a 650% increase in synthetic nitrogen use since 1995 in New Zealand. So the intensification has been very serious and the impacts are now seen in our environment.

SPEAKER_01 10:28

And do you see water as then being, I wouldn't say a bigger issue, but maybe a more tangible issue than carbon? As the carbon markets are taking off and people are talking a lot about it, but I always feel maybe water is closer or there is more happening there or more potential.

SPEAKER_00 10:42

Totally. We've chosen to, I mean, we all know what the markets are doing with regard to carbon and why there's such a strong emphasis on that, rightly or wrongly. We're baselining soil organic carbon, we're baselining a whole bunch of things on farms, but we've chosen to focus on water for a lot of reasons. Our science team at Tor has been working on this, looking at soil moisture content, a whole lot of areas around irrigation or non-irrigation. New Zealand has a hugely diverse geology and For the size of our footprint, we've got probably one of the most diverse landscapes in the world. So it means we can test and see what's going on across these different geological and topographical footprints. And we've got a huge amount of water bodies and lakes within the country, obviously, that's surrounded or is in real close proximity to a lot of our most intensive agriculture. sectors and dairy is the industry in New Zealand that's created the biggest challenge, mostly because of the intensification of the dairy sector. And so we can see the data that our regulators and regional councils have been collecting over 20 years. You can actually see the decline in the regions where we've had the highest intensification of dairy farming. So it's really easy to see what the cause and effect are. It's not so easy to work out how to slow that down. I

SPEAKER_02 12:21

think the other thing that's great about focusing on water and there are benefits for carbon is that you know we know that this climate challenge is going to take cooperation and it's going to take everybody doing their bit but when you talk about carbon it's really hard to kind of get that tangibly how everybody needs to contribute and do something with water it's a lot more physical because you're talking about waterways where many many farms border a single waterway or you're talking about a watershed or a catchment. And the need for cooperation is so physical and tangible. And so I think that whole idea of placing water at the heart of what we're doing has really helped us zero in, particularly from a technology perspective, on just how important the mechanics are for incentivizing cooperation.

SPEAKER_00 13:11

The other piece to that too, Cohen, is that, you know, in designing out the financial infrastructure where we need to get the scaled finance down to the front line, we've chosen to start at the front line first. We need to understand as deeply as we can the psychology of the farmer, what the farm environment looks like, what the sector is that the farmer is operating in. If we understand that, then we start to understand what the critical success factors are that are going to lead that farmer and those farms, whether it's a fifth generation family farm or a corporate farm, to start to take action in a way that's going to lead to a lighter environmental and climate footprint, but at the same time be more profitable, at least be more profitable, if not as profitable as what they were when they started. So understanding that psychology has been really important for us. And then we can start to build up from there.

SPEAKER_01 14:02

So let's unpack that a bit. What is the technology piece of Toha? And then, I mean, it's clear why you chose regenerative agriculture, but it still would be good to dive a bit into that and unpack why it's such a perfect fit, New Zealand and RegenAg, for the technology piece that you have been building over the last years.

SPEAKER_02 14:19

I think for us, this comes down to trust. And we wanted to build a platform that helped everybody lean back in, in situations where everybody throws their hands up in the air and says, no, my problem. We wanted to build a platform that was centered almost 100% around trust. So for us, the technology starts with this concept of a pledge, a contract, a commitment. You know, we don't, I guess it is a few hundreds of years ago that we actually used to talk about, you know, giving an oath giving your word, doing what you say you're going to do and being trustworthy. And so for us, we put this pledge, this contract commitment to take action to reduce your impacts on the environment, to make a transition to regenerative agriculture at the sort of start of the technology. And then for us, the data piece is the really important bit because it allows us to Take measurement data that proves that you are doing what you said you'd do and that that change is having the impact that everybody hopes that you'll have. Sort

SPEAKER_01 15:34

of

SPEAKER_02 15:42

enforce trust. challenges that we have.

SPEAKER_01 15:52

So how does it work practically? Let's say I'm a farmer in one of the catchment areas you're working in or you're looking at, and I really want to take a pledge of starting at least a transition towards applying more regenerative practices. What would a concrete pledge look like and what would it mean for me in next season or this season to take the first steps in terms of support? Because we all know the first steps are the most difficult ones.

SPEAKER_00 16:16

Yeah, so just kind of following on from what I was saying before about understanding the behavior of the farmer and tying this question into the last one around carbon. If we ask ourselves, in order for a farmer to succeed day in, day out, they get up at four o'clock in the morning, they look outside, it's not carbon they're looking for, it's water. And so hence why we're saying, well, if we know what water is, what that looks like on the farm, what it means to the farmer, what it means to success, then that's our starting point for the things that we need to start measuring and monitoring. Carbon is almost not a byproduct of that, but the relationship's critical as you know. So we'll measure that secondarily. And

SPEAKER_01 16:55

water is much more certain. Water is much more easy, at least runoff is easy to measure. Chemical use is relatively easy to measure. And then it's much more concrete. And we've been doing it for much longer compared to carbon, I think.

SPEAKER_00 17:08

That's exactly right. We know what the inputs are. We know what that looks like, volumes and where they're going. So farmers are collecting that data every day and putting sensors in the rivers now. I mean, attribution is still not perfect, but we can still get a really good view on what the impacts of the inputs and the farming practices look like. So what a pledge looks like, and remember, we're focusing on dairy in the first instance. We do have some sheep and beef farms in play at the moment, but we've been focusing all of our work and research and design around dairy. So we've had some of our team out working with dairy farmers, writing pledges, getting the pledge finance up and running. So what a pledge looks like to get started is we want to know three or four key things at a high level We want to know that, and these are based on our research around what a successful transition looks like within year one. So we've got farmers we call pathfinders that we've been working with, dairy farmers who have been in the transition program for anywhere between two years and seven years, eight years. So we've been collecting the data across those transitions, focusing on things like animal health and well-being, the species, the plant species that have been put into the pastures The milk solids, how much milk is being produced, and also the financials. And so we've got a really good line of sight across that. So when we look at the measures of success for dairy farming in New Zealand, we know that when you go from a monocultural system from, say, ryegrass and clovers up to a more diverse system of anything from nine to 30 different types of plant species, straight away we know that by going to that mixed multi-species pasture, the biodiversity just in the plants alone is enough to kickstart the biodiversity that occurs below the ground on the soil, but above the ground with insects and bird life and everything starts to come back to life again. Which is something I can do in

SPEAKER_01 19:07

the first year, basically. Like changing my cover crop mix is, I wouldn't say easy and might be expensive because it depends on how many hectares or acres I manage, but it is something I don't need to wait for the tree to grow.

SPEAKER_00 19:18

That's right. And it is more expensive than just planting. planting, continuing to plant your monocultural, put those seeds down every year, two years, three years, whatever it looks like. But in this process, remember, we're dropping out all the synthetic and chemical inputs right at the start. And so you kind of offset some of those costs, some costs with other new ones. So we want to see the diversity of those plant species going. And the farmers, I mean, that's part of the change program. They sign up for that really easily. They just want to know what types of seeds they need to get down. And that might vary a little bit, but mostly it's reasonably generic across the system. We want to see that the stock rotation rates grow. I mean, typically you'll see anything between 12 days and 25 days before the cows are allowed back in the same paddock again. We've got to go to at least 30 days before the cows are allowed back in that paddock again. So at least a 30-day minimum stock rotation rate. If you can get up to 40 or 50, which some farmers are doing that reasonably well now, we know that those pastures are going to get the chance to bounce back and the biological process, nature's going to really kick in and do its thing. And so those are two really key indicators that we look at for the pledges to get started. The other one is to get the synthetic nitrogen, start to back that down. We don't specify what that needs to drop to. We just need the data to be provided to show that it's dropping. We can say now that best practice is to get it to zero, and you can do that pretty quickly. You might need to apply a bit of urea every now and then if you think you need to do a bit of catch-up. But we're seeing farmers go through year one now starting zero synthetic nitrogen inputs from day one, and they're doing really well. And we want to see a reduction in chemicals. And this is all geared around what are those things that these guys need to do in order to get the biological function and activity and well-being and wellness back into the pastures, which flows almost immediately back into the animals. We're seeing production curves drop off slightly, but then come bounce back up again, you know, within the second half of the year, they start to come back again, obviously adjusting for seasons. Do you see quality changes as well in the milk? Yeah, totally. So one of the key metrics there is, I mean, in order to make the data collection part as easy as possible, low cost as possible, high quality, high volume data, in order to run a low transition transaction cost right across and down acquisition cost across the platform, the easiest thing we can do is take data that's been collected every day, if not every week, off the farm. And so things like somatic cell counts and milky rare levels are collected every time the milk leaves the farm. It's all automated. Now, we can see that data. What we can see is that within the first three to six months, indicators like somatic cell counts and milky rare levels start to drop away. And they drop away at about the same rate as the vet costs start to drop away. And so now you're starting to see these indicators that represent what the well-being of the animals. The milk you're eating also represents the quality of the milk because once you get over a certain level, the milk company won't take or leave your milk behind. They won't pick it up because it degrades the quality of the product. So, you know, we can talk about... the importance of focusing on carbon because the markets want us to focus on it. But if we're not focusing on things like the quality of the product, the well-being of the animals, therefore the production, the productivity of the animals, the well-being of the pastures, then we're going to miss the point for the farmers. And if we miss the point for the farmers, we're not going to get the accelerated scale actions on the ground that we need in order for us to really start solving this kind of crisis that we're in right now around climate

SPEAKER_01 23:08

so the farmer makes the pledge like i'm starting the transition i have this amount of acres this amount of heads of cattle and then how does this connect to first of all the platform you're collecting a lot of data as you mentioned but then how does it connect to the financial world as well like where does the investor or investors coming into this picture

SPEAKER_02 23:27

well i think that this part is really potentially how we differ from a lot of the great work that we're seeing happening all over the world but for us the pledge is a data asset. It's a legal agreement, but it's also an asset in that it sets up the rights to reuse the measurement data that's being captured on the farm. Once you're starting to think about data as an asset because of the value that can be attracted from reusing the data, so whether that's to prove the benefits of what's happening on farm through to consumers or through to regulators or back into the bank who is supporting or has the mortgage over the farm, you're actually in a position where the measurement data is able to earn revenue, new revenue for the farmer. But because we are treating this pledge as an asset, we're also able to do a second thing, which is to offer pledges And pledge finance is debt to help accelerate the transition. And it really has to be tailored to the individual farmer's needs. Every farmer's different, comes into the process with different levels of existing debt or different challenges to face in terms of their farming system. But pledge finance is designed to help accelerate the transition. to cover either the real or perceived risk of embarking on the transition. So we often hear a lot of pushback around or misconceptions around the shift to either organics or regen as being a serious dip for a number of years. And whilst we have the data to prove that that isn't the case, the Pledge Finance is really there to help give the farmer confidence to lean into those very first steps and we know that particularly in dairy there because of the intensification and the increasing demand for inputs into the dairy system that those debt levels continue to get higher and higher and so providing additional debt is not something that we are really excited about but we know that there is a job for it and it could be that it's swapping out higher cost capital in the business. We've had a very interesting dynamic in the New Zealand market and this is, I don't know how unique this is to our situation, but from a banking perspective, nitrogen application rates have been used in the banking system as a proxy for farm valuation in the credit assessment process. So for very many years, you would see farmers attempt to make transitions to regenerative agriculture and actually be penalized with higher interest rates by their banks.

SPEAKER_01 26:50

Just to get that straight, so the higher my rate of nitrogen, the lower my cost of capital until now.

SPEAKER_00 26:58

So basically the reduction in nitrogen and the reduction in stocking rates we're seeing is a loss in your product capacity, and therefore it strows out your dynamics of your P&Ls and ultimately your balance sheet. And so when the whole industry is geared around high production, higher input, high output, and everyone in the supply chain, including the banks, is making money from that, except for the farmers nowadays, and the consumers are paying too much for food, then we've got this supply chain, and we could call it a value chain, except there's too much value there's too much value destruction going on rather than accretion, you start to get these dynamics that attempt to hold it there. Well, that's not helping the farmers by any stretch. And so now we've been working with the banks to start to provide that data and to show that the debt risk can start to come down. We can back off this idea that reducing, backing off the intensive model and taking the lid off the pressure cooker, it actually strengthens the P&Ls and balance sheets in a reasonably short period of time. Therefore, interest rates should reflect that rather than penalising them, it should be rewarding

SPEAKER_01 28:14

them. And just to be clear, who is financing currently these pledges?

SPEAKER_02 28:17

We have a pretty interesting dynamic around finance as well. With our Pledge Finance product, we're able to blend different types of capital. So we take grant and philanthropy, apply it to certain milestones in the pledge, as well as debt and equity as well. And so So what we try and do is blend the investment interests depending on who's got what objectives in terms of engaging with the farmer and what that does is create a package of funding for the pledge that is really geared around the farmer's success. So we've designed the pledge finance product to make sure that we can engage with central and regional governments. There's quite significant grant funding programs that don't always necessarily show up the proof of good use of funds and then obviously there's the debt and equity interest and the value of the region transition. But I just wanted to pick up on what Mike was saying around the banks. The other thing that we have in the New Zealand market which we think is happening earlier in New Zealand than it is in the rest of the world and is helping us design with maybe a few extra levers is the requirements for banks and public and investment bodies in the New Zealand market to disclose publicly their climate risk and their financial offerings and so TCFD, the Task Force for Climate Related Financial Disclosures and what What that means is that the banks are now really interested in understanding the climate risk that sits within their agricultural lending, which creates a perfect opportunity for regen farmers to demonstrate that they're actually able to be more climate resilient because they are able to hold more moisture in the soil and protect the soils and stay greener for longer. So when it comes to droughts and floods, they're in a good position. So making sure that the pledge is able to offer the data that proves that the risk at the farm level is changing is a really big part of the work that we're doing to support the banks to have what they need, as well as the farmers to get what they need.

SPEAKER_01 31:02

On the piece you mentioned before, where basically the data becomes an asset and you mentioned a few potential clients like banks, regulators, but also consumer brands. Are banks in this case paying for having that data and that monitoring and thus it becomes valuable for the farmer? And if not, how would that work with other potential customers like a milk brand or like the end user or the processor at the end of the product? Do you see there's that interest in having verifiable different type of milk or is everything just being blended in one big jar? Do you have the same issues that we see in some renewable energy project or the energy sector as a whole? How does that data become super valuable, but how does it actually become valuable as in money flowing to the farm?

SPEAKER_02 31:44

I think this comes back to that idea of trust. We're building Toha basically on the belief that verifiable proof of impact is going to be really important in the markets globally over the next decade as everybody rushes to make really big commitments but doesn't necessarily provide proof that they're meeting them and so our technology is all designed to make it really easy to track the provenance of data from farm scale and then make sure it's really easy to packet it up as claims to go into all of those different market opportunities that you described whether that's premium carbon offsets or water investment products or grant programs back to regulators or back to government or proving things to regulators. These claims or these bundles of the data from the pledge basically create verifiable proof of the actions that have happened on farm. And so the technology is designed to basically attribute the value that's And where do you see...

SPEAKER_01 33:15

that market takeoff first? Obviously, it's a bit of a guess. The next 10 years, a lot of these things are going to happen. We just don't know where they have seen the most interest at the moment, as you've been working on this for a while. Where are the first bites being taken into this data model? Is that the banks that you just mentioned because of disclosures? Is it a food brand? What has been the most exciting moves on getting their hands on this data and thus money flowing towards farmers and investors?

SPEAKER_02 33:40

I think it's definitely the two that you've highlighted. It's the disclosure piece, but we also think that there's going to be an enormous amount of innovation in the insurance space, which is going to create critical demand for this data as well. We are very excited about the shifts we see in consumer brands. And we know that a lot of the big producers in New Zealand are gearing up with programs within their supply chains to actually prove the value of what's happening on farms. And, you you know, make sure that we can showcase regenerative New Zealand made products to the world. But we also know that the world is changing and that, you know, New Zealand as an export nation, we are sending a lot of our food offshore. And we know that the regulatory environments for those trade arrangements are changing all the time. And so just making sure that this data about the environmental performance of New Zealand farms is available back through those supply chains all the way to the ports of those export markets is going to be really, really important over the next few years.

SPEAKER_01 35:01

And how significant could, I mean, this is predicting a market which is impossible, but how significant are these potential flows for a farmer? Is it a nice extra to have potentially or do you see, as I'm asking the question, I'm realizing we're going to also predict carbon prices, which is impossible, but how significant do you think it could be for farmers? Apart from obviously the P&L, which gets better from the practices, et cetera, et cetera, how significant could this data play in the best use of the word?

SPEAKER_02 35:30

Well, we think it's going to show up in two ways. We think the value of the data will attract new revenue streams from the reuse of that data, but we also think that it's going to help in avoiding future costs as well. So So what we can say is that when we talk to the banks in the New Zealand market, they're talking about instead of penalising farmers for removing synthetic nitrogen, we're now talking about interest rate rebates for the farmers who can demonstrate that they're actually addressing the climate risk on their farm and making themselves more resilient. And so you don't need to be talking about too significant an interest rate rebate on a really highly leveraged dairy farm for too many months before that starts to really look significant in terms of the business that's operating. But there is a really important dynamic. Agriculture in New Zealand has been outside of our emissions trading scheme and that's going to be a future cost wherever that lands in terms of farmers and so we've think that this data that the pledge holders have is going to be really important in both the emissions trading scheme and the freshwater regulations to be able to demonstrate that regenerative farmers are not contributing as much to these problems that the regulators are seeking with sticks and quite heavy-handed approaches, that they're not contributing to those problems.

SPEAKER_01 37:10

Hopefully they're contributing to the solution.

SPEAKER_02 37:12

Yeah, that's right.

SPEAKER_01 37:13

And how does this connect to the larger financial because you mentioned the beginning Mike as well like there's so much money available looking for impact investments ESG has come through the roof in last year and we can all ask the questions about that obviously but there's money looking for investment opportunities with not just financial benefits but impact benefits as well how does that tie into how do you see foreign investors becoming active in this or how do you see large institutional investors potentially or the crowd obviously very important as retail investors as myself would love to be part of things like this as well. How do you see this playing out over the next years as a lot of money is needed to finance pledges potentially around the world?

SPEAKER_02 37:53

Well, we've been really excited to be in several kind of validation partnerships with asset managers and testing these pledges out with institutional investors that, you know, as financial products, the pledge finance agreements that we've designed, the debt security. So the pledge is a data asset, the pledge finance are and as a debt security, it doesn't take too much of an imagination to imagine what many pledges refinanced as green bonds, what that looks like or how cool it will be to be able to invest in portfolios where a big slice of your investment is going into direct farm investments. We've just got to do the really important work at grassroots right now to get it really easy to create and build these pledges on our technology platform, support the advisors who do the really important work with farmers in the real world, giving context to this digital process and making sure that we are able to blend the early finance that comes in, the grant and impact capital that comes in to get these transitions rolling. Once that's underway, then everybody's in partnership with the farmer and wants to see that refinancing or securitization event actually happen because it kind of validates the early work that is being done. And so we see a huge future for pledges, but also for claims as well. The other part of our platform, which is the reuse of the data, claims as options over valuables reports from the system, whether that is for carbon or for water. There's going to be great markets for those products too. So it's all ahead of us right now. A lot to prove. We try not to crystal ball gaze too much. Just keep our firmly planted on the ground and just keep focused on farmers and building pledges.

SPEAKER_01 40:08

And just to get a bit of the size, I mean, it's a bit of a crystal ball, but let's say the dairy industry in New Zealand, how much would be needed more or less to get most of them on a journey

SPEAKER_00 40:19

look there's 12 000 or so dairy farms in new zealand co and most of those farmers are in the brought into the high intensive high production model the psyche around that and the behaviors across the industry norms are still sticking to that but you're starting to see a shift now both in the kind of one end of the bell curve started to actually make the move and some have been there for a long time they now are showing they can get through the transition in year one without needing any additional funding. So there's a really diverse range of needs across those farmers that are making the transition. Some don't need any, others need to put new infrastructure in place and might need two,$300,000. So we're seeing what that continuum looks like. But at the same time, we're seeing large industry players and brands starting to say out loud that they've now spent the last 12 months rewriting their strategies. They've got regenerative futures. They're talking about changing the way that their producers farm so that they can get their produce to market in a completely different way or type of product. And so whilst the government's moving really slowly in this space and it's not real clear how the money markets are going to respond to this just yet, although we can see what it looks like in terms of the engagement we've been having at a smaller scale, it's actually the middle of the Now, some of the processes and brands that are starting to put a stake in the ground. So that's going to start driving a more accelerated shift into the dairy sector at that end of the bell curve. In terms of the size of that, look, I mean, if we can get to 25% of the dairy sector within the next five years, it could be seen as ambitious. We think that that could be conservative. And what we think will change that is the success of the pledge finance and the claims revenue that are generated out of this. Nothing will change this transition faster or more powerfully than evidence that the financial upside for farmers is real through both business as usual changes and benefits to the P&Ls and the additionality of the revenue streams that can flow from claims through the data provided through the pledge agreement. And so we're optimistic that we can see a reasonably large-scale transition as long as we can get the mechanics around that right and And at the moment, we've got every reason to believe that we can.

SPEAKER_01 42:47

And as it feels, it always feels we're early. And at the same time, many have been through this transition. This is a long journey. And many people have been in the region, biodynamic, organic space. And many pioneers have been here for a long time. But at the same time, we feel like we're entering a new era or a new phase. For investors, without giving investment advice, which we obviously don't do here, but what would you tell them? Where would you focus their attention when they get... interested in the space, they're listening maybe to this podcast, they read the books, they visit some farms, they saw some documentaries, what would you tell them as an entry point when they say, okay, I want to become active? Maybe they're not located in New Zealand, so it's not so easy to visit you and spend some time with dairy farms in transition, but what would be your next step if you would be in their shoes? Yeah, awesome

SPEAKER_00 43:35

question, Cohen. I think, look, we've seen the capital stack arrive when we put it out there, what we were doing, we did a soft launch, went to the meat We got picked up by a whole bunch of different... publications, social, industry, government, we were kind of bombarded in a really good way. So we saw the capital stack turn up pretty quickly, but we also saw the diversity across the farmer needs turned up pretty quick. The market essentially showed itself within two or three weeks. And so what would I say to investors? Well, now I can say, well, it depends which investor you are inside of that stack, and it depends what opportunity on the other side, the cost of diversity of needs there are. Now, to work that out, if you don't know what we're generative ag, how it works, not just how it works, but how it works really, really well. My advice would be go to those organisations that have already put the hard work in to understand the sector and understand where the investment needs to go to do two things. One, in order for the investor to get whatever the return is that they're looking for on their money. And two, that where they're putting their money is actually going to make a positive impact or contribution to the asset or the farmer or whatever it is that applying it to the on the other side now when you look at who those organizations are you know most of them you know you probably know all of them you know it's the mad eggs it's the regen networks it's the ori co-op in australia it's you know what we're trying to do it's the road hours and savories and land to market programs the the the entities exist and those entities have the that's replant capital robin o'brien and and her team doing amazing stuff um go there They've done the heavy lifting. That's the funnel that investment needs to go through. The investment's gonna be much safer, or at least more de-risked out the other side, because these guys have all done the hard work, both for the farmers, but also for the

SPEAKER_01 45:34

investors. And Natalie, what do you see as a role, I don't know now, maybe it will take a bit of time, but for the crowd, for the retail investors, for the normal people that are buying the milk every day in the supermarket, apart from being a consumer, Or maybe even becoming a consumer again, because they were switching to plant-based and coming back to some kind of regenerative produce. But apart from being a consumer, do you see a role for the retail investor or do we have to go first through the institutional part, the green bonds, et cetera, before the normal people on the street can also participate in this?

SPEAKER_02 46:06

No, I think one of the most interesting things from my perspective last year in 2020 was the GameStop carnage that we saw in the stock market. I think we have to really recognise that we're going to see activist retail investors looking for opportunities to go right into the middle of investment opportunities that are being ignored by other investors and really starting to crowd in and bring some might and some visibility to areas, particularly that are neglected by government or neglected by big corporates in terms of their obligations. And I think that that's that's really exciting um so from a retail investor perspective i just i just be like you know keep don't just watch the netflix uh documentary like google the names find the organizations um get directly involved um get on the mailing lists um that you know every single regen ag team like our calm the farm team um globally right now is looking for funding um an looking for new markets and looking to bring new products. And they're not going to be all just for the wholesale and wholesale markets and large institutional investors. We're going to find ways to actually bring really innovative, high value investment products direct to consumers. You just need to be looking out for them. And when they turn up, you know, obviously you only ever invest what you're prepared to lose when you play in that game. But, you know, follow, do the head and the heart thing and you'll get great results.

SPEAKER_01 48:00

Thank you so much for that. And I think we're going to have, I hope to have more discussions on the retail side of things. I keep bringing it up and up and it comes back and I think it's coming, but it does feel, I have said it many times in the podcast, renewable energy space obviously has a few more years under their belt. Not if you consider the early organics and biodynamics, but especially on the run to financing, they do. And there it is much easier in many countries is not an all to get involved with a few hundred or a few thousand dollars and euros and to have a few final questions to wrap this up won't be the last time we're talking because there's so much to unpack here but where do you find yourself contrarian where do you think differently than most other people in the region ag space definitely inspired by a question that john kemp always asks but where are you contrarian and i would love to ask those of you what do you see differently than most people if you go to a conference and when we went to conferences before

SPEAKER_00 48:49

i mean i i met you at a rf i RSFI conference a couple of years ago up in Oakland, Cohen, and got to see then the investor space and market coming into regenerative ag setting to talk about how to invest. And I did feel like an oddball. I mean, one of the reasons I was up in the US at that time was I'd said to Nat, I'm going up to the US. I went to SOCAP, went to RFSI. I was looking for the innovation and the investor space into this area. And I was phoning Nat every day saying, I haven't found it yet. I haven't found it yet. I saw your presentation. I love the kind of what you were starting to angle at, but I certainly didn't see it from anyone who was speaking about this from the markets or from the bond space. There were some traditional mindsets talking about going into a new sector, but there wasn't a traditional mindset saying, talking about a new innovation as a financial product. And we kind of, I felt like a bit of a fish out of water when I was And we still do. You know, the area we want to crack is the financial markets, capital markets, moving into tokens. How do we bridge that gap from traditional into what the future is going to be? But where we differ is whilst that's almost our end point, Our boots are on the ground as much as humanly possible every day of the week with the farmer. And I know there's a whole ton of Region 8 advisors and farmers out there. That's how they make a living. That's not where we come from. But, man, we've spent so much time out in kitchens and with farms saying we're talking to investment bankers. We're talking to all sorts of investors, retail bank, whatever. But, man, we aren't budging until we understand as deeply as humanly possible what's going to make you guys succeed and win. we're not going to solve carbon if these guys aren't going to be at the forefront of driving the change. And so that's where we found ourselves a little bit different. Regen network are there as well. But, you know, it's an area I think that we've spent a huge amount of effort, time and energy and investment in really deeply understanding. And then just to round that out, what that's meant is that that's how we got to saying, okay, carbon's a thing, we get that, but that's not where we're going to spend most of our time to try and understand it. look at what the new market opportunities need to be, which is why we landed on water.

SPEAKER_02 51:18

Personally, for me, I think the most contrarian thing that I'm confronted with personally is that I went vegan for the environment five years ago. And I developed a view of agriculture and particularly of dairy. And I just find myself humbled every day by the enormous impact, positive impact that agriculture done right can have for the future. And I just feel really grateful for the opportunity to be working alongside farmers because the reality was that being a vegan and sitting back and passing judgment, obviously working hard to make conscious choices in terms of what I was buying, but really I wasn't doing anything material in terms of putting more carbon back into the soil or actively planting trees or getting out there and regenerating our indigenous biodiversity and so I take my hat off to farmers and I've pretty much dedicated myself to making sure that they've got everything that they need to do the work that a lot of us town folk can't do sitting behind our computers

SPEAKER_01 52:31

and do you remember if it was a moment like you visited a farm was it a gradual process where you saw the potential of agriculture beyond the judgment of if everybody goes vegan we should we were okay and actually the truth is a bit more complex than that. Was that a moment of one farm visit? I'm always interested in these light bulb moments or light bulb journeys, but do you remember that or was it a longer process?

SPEAKER_02 52:57

It was a longer process, but I think for me it came down to compassion, right? So there's a whole lot of really difficult change that we face with climate change and everybody needs to give up some things that we've got used to in order to have a chance for living a regenerative on this planet again but for me it was recognising that there was more positive benefits to be had by actually working with farmers than disengaging so yeah it was a tough learning and you know I'll probably be kicked out of a few vegan Facebook groups after this podcast but you know that's kind of where I got to who personally was recognizing that, yeah, there was more work to be done than just fighting.

SPEAKER_01 53:48

Yeah, I think it's a very interesting point. We had a vegan cheese maker, Willie Croft, which I'll definitely put the link below on the podcast, that had that realization as well when they did an LCA and noticed that the cashew nuts they were using for their vegan cheese were definitely a step up from industrial dairy, but absolutely not as clean and as environmentally friendly as they hoped they would be. As they were shipped around the world, they were dried using natural and obviously extractive fossil fuel gas. And so they switched their whole process to beans and to other, but it was a very painful transition or very painful realization to see like, we're actually not as far as we hope we would have been. But I think it's necessary. We need the whole movement here to push on ag and to pull on ag at the same time. And to end with a final question for both of you, but let's start with Natalie. If there's one thing you could change, you have a magic wand. There's one thing you can change in the food and ag industry or sector or whatever you want to call it. What would that be?

SPEAKER_02 54:43

I think it would be the... the inability for us to get over where we've come from and the knowledge that we've used in the past. And it's really the open mindset piece. I think we just, what I've observed over the last couple of years is that we're either looking at science gaps or we're looking at, you know, problems with products and things like that. And I think the reality is, is that it's time for everybody to be open to new ideas. And I think, yeah, it's just more openness and more sharing of information. I would love to see more open data and more knowledge sharing, particularly within the corporate environments and less locking people out of the knowledge that they need to change quickly.

SPEAKER_00 55:35

Adding on to that, for me, it's about, I think, I'd like to see much shorter supply chains with friendlier capital coming into the industry. You know, every farmer we've met who's made the change to regenerative agriculture, the number one driver has been to improve the economics. The environmental, climate and biodiversity outcomes have been important to them, but that hasn't been the primary driver. So how do we make the economics around this much more friendly? By shortening that supply chain, we say to farmers now, man, looking in from the outside if there's one thing you guys have got really good at it's writing checks out for everybody else in your supply chain and getting as much money off your farm as quickly as you possibly can how do we turn that around so getting a lot of that like we talked about the synthetic nitrogen fertilizer you know you start to see that drop to zero there's a massive cost drops out of the supply chain sure someone in that supply chain is going to lose out ultimately but the benefit comes back to the growers and the consumers and at the end of the day that's where all the The feedback that we're getting is telling us this is where we need that value to flow to. So that would be my magic wand moment.

SPEAKER_01 56:43

I think it's a perfect answer. By the time this is up, I don't know if the interview I just recorded will be up already, but we recorded an interview with one of the largest biodynamic farms in Europe, over 2000 hectares and selling everything and always for the last 40 years directly to consumers. And you can see the wealth that has created the wealth in terms of biodiversity. Obviously, now they're profitable. It wasn't easy. in the beginning but and you see the intimate relationship they have great with their customers and of course it's easier in wine and certain other products so direct to consumer I would say director to consumer they took a very extreme route but have been not consciously actually it was more an accident at the beginning but now definitely it's turned into one of their great strengths because they own the relationship with their consumer and the consumer owns them in a certain extent as well totally it's a perfect end to not easy in a New Zealand context where a lot of consumers are very far away but also there I think there's transition to be made. So I want to thank you so much for your time today. Very exciting times I had. I hope we'll be checking in not too far away, not in the too distant future to see how all the pledges are going, technology platform and a lot more work you have been doing. So thank you. Thank you, Callan. Thanks for having us.

SPEAKER_02 57:52

Thank you.

SPEAKER_01 57:53

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