Investing in Regenerative Agriculture and Food
Investing in Regenerative Agriculture and Food podcast features the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
Investing in Regenerative Agriculture and Food
358 Laimonas Noreika - From FinTech to Farms: bridging the €60B loan gap for Europe's small farms
A conversation with Laimonas Noreika, founder of HeavyFinance, about providing loans to farmers, bringing innovation to the traditionally stagnant agri-loan sector (some numbers: over €70M loaned to farmers and over 13,000 individual investors have invested through them).
The profitability of regenerative agriculture isn't just a theory—it's backed by hard data from hundreds of thousands of hectares across Eastern Europe. According to Laimonas, the financial case for regenerative farming methods is compelling, showing roughly 20% higher profits compared to conventional approaches, even without factoring in potential carbon credit revenue.
Traditional banking institutions have created a €60 billion annual financing gap for small and medium-sized European farms, which means we need institutional investors. Some, like the European Investment Fund, have invested through HeavyFinance. And why aren’t banks stepping in? Because small farmers don’t fit their criteria well. So, we need new fintech solutions and scale.
Despite agriculture presenting lower default risks than many other industries, banks avoid these loans because of regulatory requirements that penalize them when farmers experience seasonal payment delays. This financing gap has slowed the transition to more sustainable and profitable farming methods, particularly in Eastern Europe's breadbasket regions where soil organic carbon levels have plummeted from approximately 150 tons per hectare historically to just 30 tons today.
HeavyFinance bridges this gap with an innovative approach: providing interest-free loans to farmers transitioning to regenerative practices, particularly for purchasing no-till seeders and implementing cover cropping systems. Instead of charging interest, they take a percentage of future carbon credits generated by improved farming practices. This creates a powerful incentive system where farmers access needed capital without interest payments while simultaneously improving soil health, reducing input costs, and increasing crop resilience.
More about this episode on https://investinginregenerativeagriculture.com/laimonas-noreika.
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In Investing in Regenerative Agriculture and Food podcast show we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
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We have full data to prove that RegenAg is a more profitable business. Well then, I would short against fertilizer companies, I would bet against them, and that's what I would do, and then I would go and hunt them for over, fertilizing our land, polluting our food, and they're damaging. They literally make money on damaging, so that's completely wrong.
Speaker 2:Regen AG is more profitable. Our guest of today has the data to prove it and is putting serious money to work to scale Regen across Eastern Europe. Some numbers over 17 million euro loan to farmers and over 13,000 individual investors have invested through them. But the gap is much bigger than that over 60 billion a year which means we need institutional investors which have invested through heavy finance already the European Investment Fund, for example, and others. And why are banks not stepping in? Because small farmers don't fit that criteria very well. So we need new fintech solutions and scale.
Speaker 2:This could be quite a standard fintech play in agriculture if it wasn't for a super clear focus on regeneration. Why? Because it's more profitable and thus makes farmers better lenders. And yes, we're also talking about carbon credits. Our guest of today is placing a big bet in that space and, yes, we'll also be talking about carbon credits. Our guest of today is placing big bets in that space and we explore why and how. This is the Investing in Regenerative Agriculture and Food podcast, where we learn more on how to put money to work to regenerate soil, people, local communities and ecosystems, while making an appropriate and fair return. Welcome to another interview Today with the founder of Heavy Finance funding farmers who fight climate change. They provided over 70 million in loans for farmers, clearly innovating in a super sleepy space of agri-loans. Welcome Laimonas.
Speaker 1:Hi Koen, thanks for having me and pleasure to be and speak with your community.
Speaker 2:Yeah, so we always start with a personal question understanding or trying to understand, which usually is a long and winding road, like how do you find yourself in an office these days focusing on carbon farming, focusing on agri loans and focusing on smallholder farmers or smaller farmers let's say not the gigantic ones in, I think, about 10 European countries now, which I don't think was a path you could have picked 10 years ago or 15 or 20 years ago. So I'm very interested. I'm asking this question always because I'm interested how people with experience elsewhere get into the space, why they get hooked, excited, and because it's not the easiest one, as we'll get it. So how come you spend most of your waking hours thinking about soil, thinking about loans, debt to equity ratio, collateral, on the farming side of things?
Speaker 1:Yeah, that's a very good question and I sometimes think about it myself, but I look at it often. I always had a passion for finance and building business. So that's how I arrived to this, because in my career, at first I did payments as an entrepreneur, then I did lending to SME companies in this region where we operate lending to SME companies in this region where we operate and then my friend explained to me that agriculture and small and medium farms they lack financing, which was very counterintuitive For me, a person from the city. I always thought that somehow I had this impression that farmers, they buy a flat each year after the harvest and they have these foreign factors, factories and everything is perfect there. But the more he explained to me, the more for me as a finance person, this seemed as a very interesting industry to innovate. I thought, okay, let's give it a chance. Maybe they actually lack financing. So literally I started digging into their reports and the truth is that around 16 billion euros is missing for SME farmers in Europe.
Speaker 2:And it's simply missing, meaning that that's a yearly wow, working capital loans to do things. So that's very significant.
Speaker 1:That's very significant number, and also for me as a finance person. I thought but these guys have a lot of land, a lot of collateral. They cannot do what you lend the money, they cannot do it. So these small things for me invited me to the industry. Right, they were with the enter and I realized how large it is. It's pretty much like a real estate industry and yet there're so full of innovation there. So that's me innovating in the sector, which I didn't know, and yeah, it's very interesting. I've been a builder, entrepreneur and many other things happen, but that's how I entered the space and I'm very happy I'm here.
Speaker 2:And it is such an interesting industry, but not even such a big leap from what you were doing before, like SME financing and loans. A lot of these firms are SMEs on the S side mostly, but they have a lot of collateral and so there is, from a finance perspective, it's an interesting case to look at, compared to maybe a shop somewhere or maybe some office, that there's more to it if something goes wrong. Of course, margins are very different in many cases. What was your first experience looking at some farms with, like your finance glasses on, and what did you see and what opportunities did you see there?
Speaker 1:At first. What surprised me is that how cash intense the business is, how little room for mistakes there are, right. So the farmer, when he makes a choice what to plant for next year, he single-handedly takes the risk all rights, no one else. So these guys have to be perfect agronomists, perfect tech owners all these tractors with GPS and everything. It's a technology which you need to run. Then they need to have good planning skills, be a very hardworking person and there's so little room for a mistake. That's why the innovation is happening relatively slow.
Speaker 1:And talking to your community on RegenAg, what we realized is that it's obvious that the farmers actually want to go there. They understand that the better business model is RegenAg, but they do not have room for a mistake. So you need to create a buffer for that. We need to. Someone needs to provide funding for that so they make a change. So that's what we learned. That's where we moved with the organization. If we want to make money, if we want our farmers to make money, we need to push them to a better business model, which is Regenag, provide an education on that, but also the main thing, the tool, which is finance. That's where we focused and that's what we do I'm not sure if I actually answered your question the tool which is finance. So that's where we focused at and that's what we do, so I'm not sure if I actually answered your question.
Speaker 2:No, no, and I want to know, because it wasn't the starting point. The starting point that the regen piece like the starting point. That's why I think it's so interesting. The starting point was let's provide finance to small to medium-sized farms that are lacking other options, and we'll get to what the options were to small to medium-sized farms that are lacking other options, and we'll get to what the options were. Probably some regional banks, some like what are, because you said this amount is missing, meaning that they currently don't have access to or had or have access to farming. What were the alternatives for people you worked with or work with to find to finance these seasons, because they're mostly arable farms very heavy costs at the beginning, seed planting, unknown reward at the end and a lot of risk in the middle. Like what are their alternatives of not working with you? And then we'll get to how the regen piece entered the stage.
Speaker 1:So that's a very interesting observation which we figured out as a finance guys. The question is why the banks are not lending money to small and medium farms. There is a collateral. Agriculture is an industry where you take a five, seven-year cycle. The loss rate of capital in agriculture is very low from the computer industry, let's say real estate or transport, so the risk profile is smaller, but the access to financing is as well smaller for a farm. So that's what was very good.
Speaker 2:It's weird and counterintuitive, and so why? What is the?
Speaker 1:And then there's the regulation of European Central Bank, right? What these guys do? They push banks to score clients' cafeteria and farming is scored in the same way. And farmers? They don't have monthly cash flow. What they don't have is predictability on how much money they will actually make at this exact period. So what happens? Farmers really tend to be late by 90 days. For them, 90 days description means nothing, right? If the salary is not there, they just lose the phone and that's it, right. So how I pay? I don't have money, so I don't pay. I will pay later. That's their approach. But for bank that doesn't work. Then there are capital adequacy ratios, blah, blah, blah, blah blah. That makes it unprofitable to serve the fire, even if they will pay back, but still it ruins statistics of the bank. So what they do?
Speaker 2:banks focus on smaller and big ones, the big farms, because they fit more into their criteria 90 days.
Speaker 2:So this 90 days is what is important, right? Okay, and so you're saying actually, inherently, if you look at the longer cycle, and we get to how climate change might be ruining that cycle partly, but if you look at the longer cycle, you're in a region which has incredible soils Eastern Europe, of course, is a big region, but many parts of that is the breadbasket has been for millennia and centuries and we get why that's so interesting. But if you look at longer cycles, you're saying actually it's less risky than a cafeteria or less risky than a real estate investment, but you need to approach it differently. You might need that 90 days. You need a bit more flexibility. You need another approach than a bank is forced. Maybe the bank even wants to, but it's forced by European investment or the European central bank to book its loans in a certain way and to look at risk. And basically, with that inflexibility, you don't want to touch small farms, even though that might be interesting as an investment opportunity or loan opportunity. So they're completely ignored. That's what you're saying.
Speaker 1:Yeah. So to summarize what I said so we did the math and if you're a traditional financial institution, a bank, for you to provide the loan which is smaller than 50,000 euros, you make direct negative profitability. So instead of making money, you lose money. Each site provides such a loan. So that's why and the farmer let's say it's a small farmer who has 200 hectares the farmer doesn't need a new John Deere or new class Lexi arm 200,000 euros. No, the guy needs a five years old tractor which costs 45,000 euros or 50. And that's good enough for his business. That's where the gap really exists.
Speaker 2:And so how do you overcome that gap? Of course, with your FinTech background, you've done loans small loans or smaller loans to SMEs so how do you build in that flexibility? How do you make sure that they're not getting punished for 90 days of not paying but, of course, still pay, because otherwise your loan book looks like? What's the innovation there, or what's the approach there?
Speaker 1:as someone who comes from a different space, Truth to be said, not much of innovation there on that side of things. It's just that the regulation comes for the banks. If they take deposits from people Only, then their regulation is they need that, yeah. And for us, as we don't take deposits from people, we can blind ourselves from these results. 15% of the fibers are not paying time at 90 days late, so for us it's not that big of a drama. So that's what allows us to get into the deal with the fiber. Understand, it most probably might get late at some point, but still still it works for our math right.
Speaker 2:so there's just a different approach to that set of things and so how do you like you, you see that opportunity, you see that gap in the market. What's the next step? How do you approach that? How do you find farmers? How do you score those loans, how do you finance them? And how do you start that little cycle of getting money to smaller firms and then we get to the region part? But how do you even start that mechanism, let's say, and when was that? More or less when you did your first loan.
Speaker 1:So the first loan we did, I think four and a half years ago. The idea was to pretty much build up the credit scoring and understanding what can you find as what you cannot, and then attract as much institutional capital as possible. So only now we started unlocking the capital. So last year we launched a small fund with a European investment fund guarantee being that if the farmer is not paying, then the EIF provides a guarantee and rewards the capital provider. We're launching a fund ourselves the big one. So now what we focus is that we think we know what we can finance with WeCanRaw. Now we need to scale it to appropriate levels. So, even though we did around 70 million euros of loan already, we think that 7-0 people, just 7-0, not 1-5.
Speaker 2:Yeah, just to frame it.
Speaker 1:Yeah, which is a lot of money Like it's yeah. That's little compared to the opportunity. In the size it's very little money and only now we're starting to increase the amounts. Now we're doing close to 4 million euros per month and by the end of the year we think we will be doing around 8 million euros. Now the idea is to take the capital and provide it to the farmers.
Speaker 2:And a few different roads to go from there. One is why institutional capital is so important. You've been supported by, or you have, 13,000 investors, smaller ones, who are on the crowd lending side, let's say. But from the first moment you said no, we need institutional investors on board. Why is that? And does that bring some of the scrutiny or some of the criteria that banks have to deal with as well, or is that a completely different game you're playing Because you're at the European Investment Fund and quite some others as well, starting to lend through you to SME farmers?
Speaker 1:So look the gap is 60 billion per year. That's a lot of money. It's a lot of savings. It's a lot of savings and I don't believe that the retail parts can actually provide this amount. So that's the logical I need to go for big money and attract big money and support the farmers. Otherwise, sme Firearms is not created to be a small company. So we think that we can be a Revolut for five years give us 10, 15 years and that's fine.
Speaker 2:Revolut, one of the new banks, not new anymore, but definitely doing things completely different. And then, when did the regen piece, let's say, come in it? Or when did you? Because four and a half years ago, and of course there was already quite a bit of regen hype, you mentioned it before. It seems to make a lot of sense, clearly from a financial perspective, on a farmer level. But they need cushion, they need investments, they need help as well, ergonomic advice. So when did, let let's say, the word regen popped up on your screens and in your fields for the first time? And why is it so exciting?
Speaker 2:So, once again, I'm a finance guy. I never planned to do anything with agriculture. There's a plan behind him. If you're looking at the video, you can see that. But apart from that, yeah, but we need but that's why I'm, that's why we're hosting this podcast how do we get more people with backgrounds like yourself into the ag space and really focus on soil? And hence we're having this conversation? So, no, there are no excuses. It doesn't matter if you've never driven a tractor, which I haven't.
Speaker 1:If I may, on the side of questions, I will answer this question how we ended up in RegenEgg. But I really wanted to touch a little bit on what you said. Want to touch a little bit on what you said. The moment I started doing Regenag, I got so many pushback from climate community, regen community Like why on earth you're here? I came here to do money and everything. I'm like guys, you need people like me. You need finance people. You need I don't know science people. You need climate people. You need all people to work on this.
Speaker 2:What were the complaints? What was the? I'm curious. What was the pushback?
Speaker 1:Pretty much you are outsider and you don't belong here. And then this year, first impression come on, it's my earth too. I solve it from your knowledge, I solve it.
Speaker 2:From my knowledge, that's a good one. It's my earth too, and did you get pushback from farmers as well?
Speaker 1:No, farmers. Farmers have a very funny cooperation farm teacher right With the white shirts and have literally zero understanding of what's in the soil. They just laugh together with me. But I support the very other approach. So we get on very well. I don't teach them what agronomy. They don't teach me finance. We get on well. But, answering your question, now that we finance, there's around 30, 35 people who know the soil and who know agronomy. I'm not the one here, but there's quite a lot of guys.
Speaker 1:So three and a half years ago I received a call from my current colleague, violeta, and she asked me the question can I finance the farmers in their transition from conventional to reject farming? That was her question and I really knew nothing about it. You were like what, what is that? But the more I listened to what she said, the more it made sense for me and what we did. I said I think you're not pulling off this project alone and I really want to do what you do because it makes sense right.
Speaker 1:So we joined our forces together and that's how we ended up in finance and REJAG intersection. That's what every finance is. We have a hybrid business model where we fund farmers and at the same time we do what's called carbon farming or and we're re-technology providing to the farmers. So that's a weird story. But that's our biggest advantage now as a company, because we kick in, we talk with the farmers. Not only we provide you agronomical advice, not only we believe we will get carbon credits for a positive change we do, but as well we can finance the change. That's what makes us an interesting company, a bit tough from the managerial position, but at the same time we're an ambitious finance organization, a very ambitious carbon farming organization, but I'm very happy with it.
Speaker 2:Yeah, but probably the two need each other in a sense. Yeah, but probably the two need each other in a sense. Your finance operation is generating money and is doing well and growing. I mean you were mentioning 4 million a month, going to 5, 8, etc. And some of that money can help the carbon piece, which isn't super established. That is at least the market side of things, and we'll get to that Isn't ready yet but is a long-term bet, is a long-term conviction that will happen and when that happens it's very interesting.
Speaker 2:But of course, what many of your, let's say, colleagues or competitors in this space is that they only have the carbon side and until that develops, they have to keep raising money constantly to cover the cost there, which is fine to a certain extent. But of course at some point the market needs to be there for carbon credits, otherwise it's just yeah, it's going to be very difficult to build businesses. And looking at that opportunity, first one step back, is there any fear in you or some of your investors, maybe also in general, that some of these farmers that like we see that in some, let's say, larger farmers, let's say they have a lot of depth.
Speaker 2:They have a lot of collateral because of the land but of course they would have to sell to and the margins are so thin. Do you think, in your context, over-depthness and like pumping out a lot of depth to farmers is an issue, is going to be an issue, or is actually not an issue at all because the space is just so large?
Speaker 1:That's a very good question, but let's take a step back. Why the margins are so small? Because the soil's undepleted, even in your region, yeah, everywhere. So we did a really extremely large soil sampling events in Lithuania.
Speaker 2:Poland and Ukraine. I saw that An agri-carbon XO truck with a drill on the deck in the slides.
Speaker 1:Yeah, and we just finished the one in Ukraine, even close to the war zone. So we do quite a lot of field work where we learn about the soil itself. And the reason why farmers are not making money is two. One they're damaging the soil year and year with the plow. That's one thing, and it's very obvious that.
Speaker 2:Here's a sentence you never thought you would say five years ago. Oh yeah.
Speaker 1:You would see my friends when I tell them this Ah, you're one of those just like me annoying people about soil and everybody's like let's talk about football, yeah.
Speaker 1:So the farmer is really damaging their fields with the plow when they switch to no-till or strip-till or mineral-till, that's the first step on losing organic carbon in the soil, right? So that data we got and we can prove that if the fiber switches from plowing to no-till or mineral-till, at least they stop losing the organic carbon in the soil. So that's the first step. Of course, there's all other things, so for us we just act as a system, right? So the first step is get rid of your plow and then let's see what happens. But the other thing which we figured out is that majority of the farms are over-fertilized, so farmers are paying to damage their soil.
Speaker 2:It's very expensive for it to live, it's very expensive. So that's why the margins are thin, right, so you're saying very simple, not simply, but what you've seen it's more profitable to farm regen even if you're not access to, let's say, premium markets, organic, whatever, certification. Of course you might be working on that, but even if you're in the commodity markets, your costs are significant and maybe your yields are equal, slash, similar and Kuhn, we have a data for that.
Speaker 1:That's where it comes interesting. So we're a finance organization. So when we talk with the farmer, we know everything. We know what's your financial, what's your yield, how much money you make, what's your margins, and we're going to decide why this, what happens on your soil, what crops did you add. So we see everything from the satellite. We don't need much to talk with the farm If we put a sample into the soil after we've finished our job. We know everything about the farm. So we have full data to prove that Regenang is a more profitable business model than the other.
Speaker 2:And this is without carbon credits yet yes, if we add a carbon credits element, it's dead flies.
Speaker 1:So that's around 20% increase in profitability of the farm. That's what we're so excited about this one. Everyone wins and we have clear data proof to prove that to anyone.
Speaker 2:So what's blocking? We'll get to the carbon piece, but let's say, on the land, what is blocking to you and your team? To roll this out more widely, is it the amount of funding you have or the amount of, let's say, loans you can put out and thus, let's say, the amount of farmers you can reach? Is it the training side? Is it, I don't know limited till equipment? What is limiting you to reach way more farmers at the moment, and we're recording this at the beginning of 25. What's a blocker at the moment for you?
Speaker 1:I think we did quite a lot with the limited resources which we had. Currently we have 700,000 hectares under management, what we call under management meaning that we provide.
Speaker 2:You're the biggest landowner of Europe Under management. People doesn't mean he owns it. You're touching 700,000 hectares.
Speaker 1:Our farmers work on this in a manner of reject farming. That's quite a lot. So that's where we get the data and everything. So I think that we did quite a lot of that kind of things and that's where we are learning from that data. Imagine we did small sampling on all of these. We collected all the satellite data available for five years on these ones. We collected all the data from public sources. So we know a lot about what happens when you switch and what each practice actually means. How much impact on your yield does a residue management create or cover crops, and which kind of crop works better with this crop plan. So we I think we did quite a lot on this one right. What stops us is more farmers adopting reject farming faster, because you still have.
Speaker 2:Do you have a lot of farmers you work with that haven't adopted anything, or like some steps, or how does it like in terms of your cohort, of your group of farmers, like, how do we see it? Of course not 100%, but what's the spectrum? So the biggest market?
Speaker 1:for us is Poland, soil should be great or was great, and only from, in fact, like in agriculture. If I had to say that the data is right, only 10 to 20% is in the region act, which is still, which is probably that's high in terms of.
Speaker 2:I mean, it depends on how we define region and what kind of practices and outcomes, et cetera, but it's close to tipping point. Actually, if you look at change theory, like if you get above 15, it starts to become a lot of people are going to see a neighbor that does something like it's gonna. It's not only the one or two percent crazy people that read too many books yeah, it is a system.
Speaker 1:It's always an approach. We should define the definitions. What's regenerative for us? The first step to regenerate is lose your plot, leave, leave it. So that's the first step.
Speaker 1:Then, of course, the crop rotation most probably is there. And then what's important for us, what we teach the farmers, is never leave your soil empty. Bare, bare, right, bare, cover crops but which cover crops is also important. And then the residue management is as well, very important. So basically, the switching to no-till it's it makes sure soil stop depleting. That's the first step. But then to grow organic matter inside, you need to leave organic matter, so that's covered crops. Residue management so that's where that our agronomy team steps in and tries to educate the farmers. But in this case, lithuania is doing pretty well. Poland is terrible. There's a lot of room to improve and that's good. All we need to do is to speed up. We need to provide somebody to pay. These farmers don't have money to do the change and to bear the risk. So that's where we focus and that's where we create pilots how to make the money flow, so the farmers are incentivized to change faster.
Speaker 2:And so how do you build that? Let's say, a farmer in Poland knocks on your door and says here's my data of how I've been doing financially. This is what I've been doing. I've been plowing quite conservatively, let's say, over the last years. I have a bit of rotation. How do you finance that transition? How does a typical loan look like and how do you make sure the cushion is there, the flexibility is there to maybe weather a few worse years or at least some kind of shock in the system? Because if I stop spraying a lot of things, if I stop over-fertilizing probably stop over-fertilizing not too much happens. But if I cut back on a lot of the chemicals and depending how bad the soil is, it might be one or two or three or, let's say, different years how do you approach that from a finance perspective and how do you build something that works for me as a Polish farmer?
Speaker 1:Actually, we decided to take a bold step and take some risks here, Together with our community and actually even institutional investors. So what we do? If the farmer wants to switch from conventional to regen farm, typically that means to buy a new seeder, that direct seeder. So we say, dear farmer, we are ready to provide you funding, meaning that here, take a loan which doesn't have any interest rates. So free money Free is a very big price, I would say, compared to what they could have If you Money at no cost.
Speaker 2:of course you have to pay it back.
Speaker 1:Yeah, you have to pay it back. So then the farmer, in our understanding, becomes eligible or almost eligible to what we call carbon credits. The farmer buys a seer changes, the practice starts going towards the regenerating ag system, what we call it. Then our agronomist steps in and provides education or additional support for a fiber. And we see this as a very important element because the other agronomy advice which typically fiber receives is buy more fertilizers. So our agronomists don't tell that Typically they say.
Speaker 2:But whatever the question is, the answer is buy more fertilizer, yeah, so at least they give an advice which is independent. You're on the same side of the farmer and you're trying to improve the business.
Speaker 1:Independent and based on data which we received on a very large amount of samples. So that's important. Okay, so if this happens, the farmer changes, then he becomes eligible for carbon credits, and that's how we remunerate ourselves. Instead of taking interest rates, we take the carbon credits, if they will ever be received and monetized. So that's a huge risk which we're taking. We believe this will happen, but, as of now, we never got any cent from carbon credits.
Speaker 2:So yes, we are taking credits here, but there is an origination fee, so you get some money in for, let's say, the loan side of business to cover costs there. And then sort of carbon credits. Let's say they come, we'll get to. What do you think is needed for that? But let's say they will come? How is that split between you, investor and farmer and how does that work compared to or would? A farmer also could say, actually I would like to take that risk and I would like to take the carbon, but I actually, so I will pay. Let's say I'll pay the interest rate or pay an interest rate. How does that work If the carbon credits fall at some point? How does the split work and what are you counting on in terms of price and things like that?
Speaker 1:So basically, from the farmer's perspective, that's our client right, so it's important to understand how it works for the client.
Speaker 1:Yeah, for me as a Polish farmer, I would like to know how it works. So for you, as a Polish farmer, while you hold my money, while you hold my loan, you don't receive any carbon credits. But if you pay back the loan after one year, you start receiving carbon credits for forever. So for you, not only you get the free money, not only you advance your technology of the farm, but as well you create additional revenue stream, because when you pay back the loan, there's additional revenue stream coming. So there's a huge incentive for you to make a change now and to pay back the loan and, as well, to pay back the loan.
Speaker 1:So that's for you, for us as a platform. We, while we're holding our funds and not paying interest, we take 35% of the carbon credits to be received and the investors take 65% of these credits. The moment a farmer pays back the loan, investors don't receive anything and we always receive the same 35% to do the job needed.
Speaker 2:So you provide more organic carbon as well, and you will take on, as a platform, the job of selling these credits at some point.
Speaker 2:Also yes, and so what will be needed? We are in a voluntary market now in europe. Your bet is that this will be regulated at some point in the next two, three plus years. We just saw something on vera and a greener in denmark starting to. So what is needed in for you and why are you so bullish on this bet? Because you're taking a risk there, obviously, as a company, and your investors are as well. So what is needed to unlock that market and why are you bullish that it's going to happen?
Speaker 1:It's to build on that infrastructure, which is I can't find the word, what is it? It should work, but it's not working properly. My understanding is that there's a lot of computational damage done to that industry. There's a lot of computational damage done to that industry. So when we analyze with the team how we rely on this infrastructure, we think that if you have a quality product there, there's always liquidity and there's a price. There are buyers. It's just that the buyers are not for everyone.
Speaker 1:So what we do in our operations first thing is that we are a real loans product and then deal with this interest zero, interest rate. There's a lot of conditionality element. We actually make a change, we actually advise the buyers on how to make these things right, and the shell element is very important. Also, the way we and to prove that the change was not is based on the sampling like the field works, not only the supply and everything. So what I'm seeing here is that I believe that the product which we create has quality. If it doesn't have quality, we will find a buyer. If we will find a buyer, then everyone's happy.
Speaker 2:And are you suggesting it doesn't need to be a regulated market for that? What are you like? What could be buyers? What are people you talk, not people like? When will be actually let's rephrase, when will be the moment you need to start selling credits or when does it start making sense? Is that, do you still have a couple of years, or is it now that you're starting looking around for significant credits, because there's a lot of farmers, you work with a lot of actors, which it's not a small amount. What are you seeing currently, in the beginning of 25?
Speaker 1:As mentioned, we already had conversations with the buyers for quite some time, and I'm not just saying one statement. I think we do have a buyer.
Speaker 2:For a price that makes sense. Yeah, for you and the farmer. Yeah, so we don't need to wait for a regulated market necessarily. It would be nice, I would love to be in a regulated market.
Speaker 1:Regulated market means rules. Rules are good for business. I know some people hate rules. I love rules.
Speaker 2:Especially in finance. It's nice to have some rules that everybody has to play, at least let's say semi-fair, and so you might have a buyer. Let's say, maybe when this is out, actually there's news, we're not going to talk about it. Um then, is there enough intro? Do you see, let's say, the interest for the size you need, or is it like, okay, we're step by step, small amounts, like whenever they come on the market price wise, what do you see in terms of hungry, hungerness or eagerness and the market side of things of the carbon credits?
Speaker 1:as a project developer, what we realize is that the scale is very important. So when you're talking with a buyer, if you want to talk with a properly big ones have to be at some proper size. So now the size which we love the most is around 100,000 to 200,000 carbon credits a year. So that's how much we're delivering. Now the first issuance, that's exactly 100,000. And the buyers love it. They say that's exactly the amount which makes sense for us to engage in the property diligence, et cetera, et cetera. So to get to this stage is hard, but to sell a million common credits to you is also hard. So you really need to grow together with the market, and that's our understanding there. As of now, we're well-positioned and that's why we have liquidity. But the market needs to grow or become a regulated market. There are things moving forward Corsair, sbti, even the one to market. There are good developments, but I'm really a fan of the regulated one.
Speaker 2:Are you more bullish on the market now than you were a few years ago, Like three, four years ago when you came into it? Or did you think it was easier back then, like you were going to sell earlier? What is your current feeling on the carbon side?
Speaker 1:We can discuss it, prove whatever we want. We can prove it's going upwards, it's going downwards and that's exactly what the market is. It depends on your mood in the morning. You dream coffee or you didn't. I don't want to see it this way. I take a little back. See it this way, I take a little back. Everything. People need to solve three things how we produce electricity, energy, how we transfer things and how we make food. If we don't solve these things, we are toast sorry for my friendship toast. So we need to do something right. And that's one thing. And the other thing is someone needs to pay for it. The electricity change happened because there was economical reasons for it.
Speaker 2:We created the one. It's interesting, I think, and there's an interesting analogy there. We created the one it's interesting, I think, and there's an interesting analogy there Like we've Germany to a certain extent, with some feed-in tariffs, and, of course, china, have created exponential technology that is now like off to the races, but it took 20, 30, 40 years. I don't think anybody that invented the first solar panel that went on a satellite could have imagined that it would be houses covered in fields and it would be the fastest growing and cheapest in most places, if not all places. But I think we can learn there as well, because now it's an industry that you can invest in. You could put billions to work if you wanted to and people are doing that and regardless of whoever is in office in certain places, this will continue to go. I think Saudi Arabia was the biggest buyer of solar last year. Pakistan is not far behind India. Like these make economic sense in a lot of places. I'm always wondering what do we need for agriculture to get there? What do we need to, partly on technology side, on finance side, to make it such a logical step? We're not there yet. I think we're getting there. I think you're showing in data that it's absolutely, in your context, way more profitable and we're foolish for not backing that, even without carbon credits. And I think we need people from the renewable energy space that have done this, that have created the market, that have regulated it, that have pumped billions into it, to come to Food and Ag and help us as well to figure out.
Speaker 2:Okay, what are the next steps? What were things that you thought 20 years ago when you were financing the first PPAs? Or 15, 20?, probably 20. Power purchase agreements, like how did you unlock a market? Like how do we do that with here, et cetera. And actually it leads to a question Do you see on the market side of the crops, like the farmers, do you help your farmers with that? Do you like, how do you see a role for accessing more interesting premium markets? Or do you see any kind of because you say somebody has to pay for it? Could be partly carbon credits, could also be commodity buyers that want certain crops with a lower carbon footprint, which of course, means you cannot sell the carbon credits. But do you see a potential on the market side of things, of the crops, not just the carbon credit side?
Speaker 1:Once again, the question is pretty long one. What we realized is that one of the reasons as well why farmers have low margins is that the margins stay with the big companies fertilizers companies and the buyers of the yields and harvests. What I would like to achieve is to reduce the dependency of the farmers from these two organizations and, in a way, wanting to cover the market gives that chance. Let's say, microsoft of the world are paying farmers to do good for their environment and create more healthier food. What's wrong with that? The farmer has a preferred organization to speak to, right? So I'm really a sign of not current market players pushing farmers to what's good, because I hope you get my point here.
Speaker 2:Yeah, yeah, yeah. Why would you trust Cargill or a fertilizer company to work with you on region ag, while their incentive is sell more of that or buy your commodity at a lower price? It's like Shell telling you to buy this more efficient petrol for your car. Yeah, probably, probably. It's a nice marketing spiel and so you're not doing anything on the market side of crops. You're trying to circumvent that and say, okay, what if we give farmers more space, margin and breathing room? And who knows, if they access other markets, which would be great, higher paid markets, which is great for you as a loan provider? Of course, you want them to get more money for the crop.
Speaker 1:So, yes, the answer is no. We don't engage in farmers helping them market their products, sell it for a better price. We're so, yes, the answer is no, we don't engage in firewalls helping them market their products, sell it for a better price. We're not there yet. One day we will be able to provide a certificate that this firewall is region maximalist and his food is very safe and nice and healthy, but I don't think that we're there yet. For now, no.
Speaker 2:And so why should people look at the region you're active in, eastern europe? It used to, you said used to have one of the best soils. Is it also the place with the most potential for the carbon side and in terms of farming, let's say industry or farming potential like? Why are you so bullish on the region or the countries you're operating in?
Speaker 1:basically the idea is the darker the soil, the more it can absorb organic carbon. So for us, we follow effectively two soil streams which work as a pool to sequester carbon, so that one starts in Russia, goes for Ukraine, belarus, and then Lithuania, poland and north of Germany, north of France, north of Spain, england. That's one stream, and the other one goes from Latvia, lithuania, poland, hungary, romania, bulgaria, this To the Black Sea, yeah, and of course, ukraine, a larger one, where both of the streams collide. That's where we plan to operate, mostly because there's a lot of potential to be there, and that's where the soils are damaged as well In some cases. The data shows that we found that there should be around 150 tons of organic carbon per one hectare and we find only 30 tons. So that's how much is lost during the year, so damaging the swamp, but at the same time, this recovers most quickly. So basically, the soil is hungry for for a generation.
Speaker 2:So and that's data- which we have so just and really good growing conditions, like adequate water, adequate sunlight, adequate yeah easy terrain, relatively easy terrain, not crazy mountains or crazy hills, and all of that which makes it just easier to get to scale and why you're working with so many hectares already but at the same time, when I first traveled to talk to farmers about the climate change, I thought that they're gonna shoot me.
Speaker 1:And that's what two of these guys say.
Speaker 2:Yeah, I know you see it, it's, they see it every day and they agree.
Speaker 1:So that was very surprising to me.
Speaker 2:Oh, there is a group of people who actually believe in climate change and want to do something about it because it's their livelihood that's on the line. And now switching gears a bit to a few questions we always like to ask, and let's say the finance community. You've talked to many investors, from the largest institutional ones European Investment Fund to many retail. Many people have invested through heavy finance into these loans. What is your main message to the finance world? What is your main? Let's say I'd like to ask this question.
Speaker 2:Let's say we do this in a theater in the financial capital of Vilnius, a nice theater where the room is full of institutional investors, but also private investors, of course. A lot of stories, great food, but what should they remember? What is your main message to the financial community at the end of the evening? Something that sorry. Hopefully they do something the next day, when they're sitting at their desk and they didn't forget, because people forget. So what's your main message to the financial community? Of course, through the podcast, but let's say we do this in a live setting.
Speaker 1:So my first thing, what I do in these environments, I remind them where the food comes from, where the wine comes from, where the champagne comes from. So that's these hardworking people, where the champagne comes from. So that's these hardworking people. And look, I'm not trying to be here nice and cute, but these are very hardworking people who deserve some respect. That's the first thing, right, because we stop respecting the people who generate the swoon and they lack it. Right?
Speaker 1:Look, the suicide rates of farmers are huge. These guys barely make money working 12 hours a day, and then we still have this. Oh, you guys with the nice tractors, go or go, we don't even come to our cities and then we eat their food. So we need to show respect, get back to the bond with the farmers and that's maybe how we get back to the volume with the nature. Small things, small steps need to be done and first of all, we need to change the mindset of city people. That's why we are very happy with our platform that retail investors can invest, can see, maybe one day we will create a marketplace that the farmers can sell directly to their same communities.
Speaker 2:That's a lot of work. I'm not against it. We've had many attempts and failures around that. It's super important Shout out to Ubi and Dirty, clean Food and many others. But it starts with the stories. You're right. It starts with respect and even seeing a farm. How many people know an active farmer and know the issues, the opportunities, the challenges? Yeah, we moved to cities and disconnected from that.
Speaker 1:Last year we did actually take a full bus of our investors and we just went to visit farmers and everyone enjoyed it so much. The rich individuals just bumped into the bus altogether and went for a ride, so that's fun.
Speaker 2:And flipping the question or the conversation and putting you in the investor seat. We like to ask this question what if you had a billion euros, in this case, and had to put it to work? What would you do? And I'm not asking exact investment advice, obviously, or buckets or exact numbers, but I'm looking. What would you prioritize, when would you in, how many pieces would you cut it and what would be your main areas of focus if you had a billion euros to put to work?
Speaker 2:billion, I think is a little too little for my idea, but I had a sense you were going for more.
Speaker 1:Yeah, but go, you can leverage no, exactly what I would do with a significant amount of capital. I would short against fertilizer companies, I would bet against, and that's what I would do. And then I would go and hunt them for over-fertilizing our land, for looting our food, and they're damaging. They literally make money on damaging. So that's completely wrong and I think we can prove that. I think they're doomed to drop in sales, basically. Otherwise they need to switch to organic fertilizers. But let's not look for enemies here. If the investment is in agriculture space, then it's suing JRAG because it makes sense. The yields increase, the cost decreases why not?
Speaker 2:If it makes sense, then it makes money, and if it's not in ag and food anywhere else, what would you? What excites you beyond?
Speaker 1:I don't want to hear it. I'm a Bitcoin maximalist.
Speaker 2:Everything in Bitcoin at the moment. That would be the leverage, could be the leverage and we covered it a bit, but it might be something else. We like to ask this question, inspired by John Kempf what do you believe to be true about regenerative agriculture that others don't? So where are you contrarian in that sense? Of course, you talked about the profit side of things, that fertilizer companies should disappear. I think many people agree, but like where do you as a finance guy in this world? Where do you Like? Where do you as a finance guy in this world? Where do you? What do you believe to be true about region act that others around you, let's say, don't?
Speaker 1:Maybe I'm wrong. What bothers me is that it is simple. There's nothing complicated there. It all makes sense. If you switch, you make more money and it's good for environment. It just needs some knowledge. So I believe that it is simple. That's what I believe. Everyone is trying to overcomplicate it. But what's hard in it? Which part you've done? Show me that. What does make sense here? Maybe because I'm not dedicated in the field, maybe I don't understand nature, but from data perspective, everything makes sense.
Speaker 2:That's my belief and you're seeing the results in the field with the farmers you work with. So from the data perspective, everything makes sense.
Speaker 2:That's my belief, and you're seeing the results in the field with the farmers you work with. Yeah, and as a final question, which usually leads to other questions, but if you had the power to change one thing overnight? So it could be anything from banning fertilizer to global consciousness to better taste. We've heard a wide range of answers to this question, to the magic wand question. But if you had the power to change one thing, but only one, what would that be? Could be in food and egg, could be beyond that, but what would you change? Anything but only one. So it's not Aladdin, you get three.
Speaker 1:That's a good one, because I want to change so many things. Let's stick to our podcast and let's not be too much of the dreamers. So I would just make the plow disappear.
Speaker 2:That's a very interesting one. Yeah, Would be a bit of a shock for many people. They would see that Not impossible to overcome. Indeed, I don't know if you've ever been to Groundswell. It's a big region ag festival basically in in the uk, mostly farmers, like 7 000 people, mostly farmers, and at the parking they used to have I think I don't know if they still have it like a big plow standing up like that with an rest in peace sign underneath. So every everybody had to park there, walk past that thing into to the entrance of the festival just to remind people about of. Of course there are ways to shallow plow. I know don't start emailing people please, because some people are very. It depends on the context, but most of the times deep plowing or plowing in general or soil disturbance is going to lead to a lot of issues and we're trying to prevent that.
Speaker 2:I want to thank you so much for coming on here. Be conscious of your time wrapping up, learned a lot on the finance side, the loan side and what a fintech guy is doing in region ag. They might have not laughed at you but not really welcomed you super nicely at the beginning, but I hope that has shifted over the last years and you seem to be on a trajectory of reaching way more people, way more hectares and getting a lot more plows, let's say, forgotten or parked in a shed or maybe sold or at least not used anymore. So thank you for the work you do, Thank you for coming on here to talk about it Cool, thank you so much. Thank you for listening all the way to the end.
Speaker 2:For show notes and links discussed. Check out our website investinginregenerativeagriculturecom slash posts. If you liked this episode, why not share it with a friend and get in touch with us on social media, our website or via the Spotify app, and tell us what you liked most and give us a rating on Apple Podcasts or Spotify or your podcast player. That really, really helps us. Thanks again and see you next time.
