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
399 AI in Ag: What’s Possible, What’s Not, What Farmers Need to Know @ Groundswell 2025
AI is transforming agriculture, how can farmers and land managers be sure it works for them? What digital twins, soil health metrics, novel robot sensors and other technologies can do to support profitable farming and enable ecosystem service payments—while also addressing critical questions about data rights, governance, and ownership like: How can farmers and landholders retain control of their own data and capture more of the value AI creates? How can the new tech help farmers to monitor, track and predict soil health and empower them to make on-farm decisions? Through maps and real-world examples, let’s explore limits and opportunities.
This episode was recorded live at Groundswell 2025, in the UK, one of the most important gatherings for regenerative agriculture in the world. During the panel Koen moderated on AI in Ag: What’s Possible,What’s Not, What Farmers Need to Know we dove into into challenges and opportunities with the scientist Ichsani Wheeler, the farmer and investor Maarten van Dam, the journalist Louisa Burwood-Taylor and the fund manager Naeem Lakhani.
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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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Thanks for listening and sharing!
And then I will very basically want to say thank you to all that joined on this afternoon.
Speaker 1:It's very sunny here, I'm in a very appropriate location I think I'm in the headquarters of Slow Food in Bara in northern Italy and I think it was a perfect place to do this webinar and to host this group of supporters, patrons of the podcast.
Speaker 1:This is the second time we're doing this. It's exclusive to supporters to have the opportunity to do Q&A with a past interviewee, and I was sharing already in the pre-talk with Brandon that we definitely do need to do a deep dive, I think, on the transition finance piece. We're going to definitely discuss a lot, but we had only a very short one just before the summer of 15 minutes, and there's so much more to discuss around the perennial fund. So I'm very happy to have Brendan and Phil here with us and I would love to start with questions from the room. I have a number of questions, obviously, and you might want to introduce you very briefly, phil, because we haven't seen you in the podcast, although you're very present, obviously, in the region ag movement with maybe a short introduction for whoever is thinking who's Phil Sure?
Speaker 2:Yeah, so I co-founded Mad Agriculture with my wife about two years ago. I'm really born out of the frustration of the modern food system and really sensing the need for a gigantic overturn of how agriculture is created and works on the landscape, really shifting the way we think about our place on earth from a mode of working with nature against sort of the working against nature and just a lot of imagination and creativity needed for that. I grew up in a farming community and spun through academia, got my PhD in soil ecology and biogeochemistry, worked at Duke and Stanford, kind of in the upper echelons of the academic scene, and ultimately felt that was unfulfilling from what I wanted to bring in manifest to the world and so I started Mad Agriculture, which is inspired by Wendell Berry's Mad Farmer poems. Wendell Berry is a great agrarian in the States here and one of the elders that I look to for inspiration and guidance as we move forward. So there's a short one. Thank you so much.
Speaker 1:I've listened to a few podcasts with you and I think there's a lot one. Thank you so much. I've listened to a few podcasts with you and I think there's a lot more there to uncover. But let's get started. If anyone and I'm looking around because you all are around me on the screen has a question for Phil and Brandon on the perennial fund, or if you want to do it at a later stage, it's fine. I have a few questions as well, but I wouldn't give it to the room first, as that's the Q&A format. So you can unmute yourself if you want to and just share your question or type it if you want as well. I don't see any concrete unmute yet. Everybody's a bit shy.
Speaker 3:That would be an interesting idea uh, we could go over the model of change and maybe we could spur. There'll probably be questions that'll inevitably come up absolutely, and I would love to know.
Speaker 1:So what has changed in? I mean, gina has a question. Sorry, gina.
Speaker 4:Well, I was just going to say. What would you like to tell us in the first instance, to kind of provoke us, if you like, or wake us up or shake?
Speaker 1:us down.
Speaker 4:What would you want to say to?
Speaker 1:us. They did clean the whiteboard behind them, so I don't know how it's going, what you need, what the challenges are, what yeah it's been a good surprise, it's bad surprise, but I, I don't know if
Speaker 2:that's q a format, so yeah, I think maybe just running through kind of our model of change, model and theory of change really quickly would be good to give context to how we see finance fueling the creation of a new system. Finance is one piece of things. You know. We work in a holistic change that spans poetry to science, soil to shelf finance to marketing. All of those things have to change simultaneously, from the language to the dollar, and we work systematically and systemically across them, all moving together to offer an alternative route and an alternative paradigm for farmers to live and thrive in. And so I think our model of change. It lays the groundwork for seeing how the perennial fund is going to work, because the perennial fund is not financing without technical assistance, it's not financing without market access, it's not financing without good virtue and value underneath it and good farm design. Let me let me walk you very quickly through our model of change in the whiteboard and then I think we should you know they'll take maybe five to seven minutes and then I'll focus on the perennial fund and how we see that working and why that sound good yeah and then I can absolutely what's
Speaker 3:about challenges, where it's going, the status of the fund and such.
Speaker 2:Okay, I'm going to pull that chair off the table. Yeah, okay, give us a sec. So the way we work is we always start with the farmer. The farmer is the steward of the land. They represent the nexus point between you know. Basically our most intimate relationship with nature eating food, I mean, that's how we interact with nature in the most intimate way is through that stewardship and reciprocity. And so, everything you know, we wanna support the farmer and co-create and give rise to their vision.
Speaker 2:We often find here in the States that farmers are wrapped up in systems that they're really frustrated by, have no idea how to break or exit, especially with really tight margins, net income being below zero dollars this year. Farmers are utterly stuck and they've not even been given permission to dream about what their land could be or wants to be. And so our initial work with farmers is always based on the sort of core, which is how do we vision with them and plan a regenerative farm that creates both financial and ecological wealth? And so in our farm design process, we always think about how explicit the return on investment is for both the money and for the ecology, in an attempt to design systems that build whole or true wealth. That's really the goal. I was sharing this with Gina the other day. The real world runs on sunlight and the carbon cycle. We, you know the modern money economy is an abstraction of value in some ways, and so we're. We know that, and things live and die by the paper dollar. And so we design farms that are always profitable, knowing that that's the way they have to work, but they also have to create ecological wealth at the same time. And so our vision and planning process is sort of designed in a couple ways.
Speaker 2:One way to view it is sort of concentric circles, with the farmer being in the middle. The farmer and the family and their decision-making team. What is the? And this is kind of it pulls a little bit on Simon Sinek's golden circle concept, where it's like what's the why? What are the values? Why is the family there? The family is usually not there because they want to make dollars. They're usually there because of heritage reasons, spiritual reasons, a sense of belonging, togetherness and community.
Speaker 2:And so MAD-AG does not shy away from going into that kind of heart and soul space. In fact we're really good at going there. You know, we break bread, we sit around the kitchen table, we laugh, we cry, we get to know their kids, and because everything that we do on the land is founded with trust, and so we never show up to the farm trying to sell or peddle. You know a, you know a new input or you know a new program, it's really a deep interest in asking okay, what's your vision for the land and how can we break you out of the industrial ag system and create that off ramp into a regenerative mode of living? So we work really at like what is?
Speaker 2:We ask the farmer and often they don't have like the toolkits to fully go here, but it's really fun and kind of adventurous to ask them what's their mission in life, what are their gifts? How do your gifts express through your interaction with the land? And we let that kind of exercise give rise to what the farm ecosystem is going to start functioning as and being designed as, and so in this next layer it's really the farm or the ranch, and this is where we start bringing in the yeoman scale of permanence and some of the more permaculture agrarian stuff, understanding that we're applying all of those principles to farms that are 500 hectares or more. Our central goal are really big farms that dominate land, and so we we shy away from the language. That's scary and we we often talk about.
Speaker 2:You know, for americans, we talk about freedom farming. You know what does it mean to be independent from the companies, what does it mean to be a patriot and be in love with your place, in love with your soil, be a member of your community? That isn't, you know, hooked up to welfare farming and government subsidies. So we invigorate the values of the farmer in the language that we use and we're just very strategic about it. You know, if we're working with someone in Boulder, we'll talk about carbon farming, because that's what they like, that's their story, that's what they find resonance with. When we're in the middle of the plains for someone that's voted for Trump, you know we'll talk about. You know, patriotism, independence, and you know, put American flags on our.
Speaker 2:You know, put American flags on our, you know, on our problem, you know on our, on our paperwork. So it's, you know, being using language to connect with the farmers to find shared value is a very important thing to do. I'm getting a little long-winded, but so in this farm thing, what we do is we roll through the scale of permanence to really highlight where there are strengths or weaknesses within the farm system. So we work from the things that you cannot change in your farm system, like climate, to the things that you can change. You know climate, water, geography, your tools, your infrastructure, your land, your plants, your soil and we work down through those things. We basically do a SWOT analysis with the farmer, with the farmer, because you know you can't be prescriptive with a farmer when you're going to be regenerative. Regenerative is a complex system that you have to understand the dynamism of, because you know if you were to say, hey, a farmer, you know you should plant cover crops, like that might be number 10 on the things that are the best step forward for the farmer. And so we have to use a discovery process with the farmer to identify, you know, what's the best way and step forward in a regenerative farm plan. So the the next three things. This is really how the farm ecosystem interacts with society. So you have the farmer tending the land and then it becomes what is the way that the farmer interacts with society? And so this is really where our three levers of change exist, and we know with a farmer that it's. It's easy to dream big on paper about what the farm can be, but it's really hard to activate. And so in our early work, you know, when we were developing our farm design process pulling from holistic management, pulling from savory, pulling from regrarians, pulling from these really awesome farm design methods we were noticing that a lot of the designs were just stuck in the idea phase. So how do you actually like activate it or, you know, enable it? So the three levers of change that we use I'm just gonna erase this little circle are community of practice.
Speaker 2:There's a lot of ways to say it, but you know who you surround yourself with is who you become, and so a lot of farmers are isolated, and so we think about. You know, who do they surround themselves with? What conferences, what workshops, what YouTube channels that give them a sense of being in a movement? The second one is access to money. How are you going to finance and capitalize the farm operation. And the third is access to markets. How do we start decommoditizing the production so that there's a farmer's face and value behind every bushel of corn and soy sold? That's our vision. It's going to take a while. On the market side, in an effort to create financial and ecological wealth back on the farm, we look for opportunities to get paid for both crops and ecosystem. I want to say services. I don't like that word. Um, it's funny.
Speaker 1:A lot of people in this space don't like the word, but somehow we we keep using it. Yeah we?
Speaker 2:I like to think about, like how do we create public good? You know, how do we pay a farmer for creating public good? You know, if they're cleaning water or creating drawdown, they're creating a public good that they should get rewarded for, and so I let's collectively think about renaming that, because it's awfully utilitarian.
Speaker 1:I had a long discussion with Tony Love of SLM Partners, who hates that word and somehow it's stuck until now. But yeah, we should think about it.
Speaker 2:Yeah, good podcast discussion, and so I would say I'm going to just simplify all this and saying that on the crop side, we're working with brands and have strategies from like Patagonia up to General Mills, and then on this side, our main point of contact that we're working with is Nori. We are currently their largest data manager and bringing the largest number of acres and numbers of farmers into their pilot launch of their market. And then we're also working with regenerative future capital here on a couple of projects as well. So you know, we're cognizant of Indigo, cognizant of ecosystem service marketplace and all the others, but we really like Nori as the kind of front runner. So this is our model of change.
Speaker 2:I'm going to jump back over to the finance, just to link back to the perennial fund, which is we came to the perennial fund in a recognition that there isn't regenerative capital out there that can actually catalyze these farm visions that we. We started by looking. We split this bucket into two things. One was public funds. So how do we use farm bill that? We have a very big farm bill here in the States. Most of it's like misallocated, misused and poorly designed.
Speaker 1:It's not very different in Europe. I can safely say I see that laughing yeah.
Speaker 2:And so we thought that there would be some money here to really mobilize these things. It's not enough, it's some, and we do tap this bucket, but we got this glaring hole, which is what the perennial fund hopes to fill, which is basically, you know, we need an alternative bank for farmers that they can go to to finance this vision. Um perennial bank. That's funny. I wrote that meant to say perennial fund. Yeah, that's the first time.
Speaker 3:We like it.
Speaker 1:Are you applying for your?
Speaker 2:license. Farmers need an alternative bank because they go back to the bank every year getting their operating loan. That operating loan comes with all of these stipulations like what seed are you using, what fertilizer are you using? What elevator? It locks them in to that system that's made robust by government subsidies, by debt obligations, by equipment loans. All of that is a tangled and tight situation for a farmer, and so the goal of the perennial fund is to replace their operating loan and give them permission to imagine and move really to regenerative and organic agriculture. And so I think now we can kind of go into the guts of the perennial fund if there are kind of overarching questions about the model.
Speaker 3:That sounds like a good plan. Probably field some questions.
Speaker 1:Probably field some questions.
Speaker 2:Any questions from Kais Thais, gina, fred Augusto yeah, I would say that we're implementing various components of this model across about 40,000 acres right now, so you know about 20,000 hectares. It mainly in broad acre staple crop commodity production. We kind of test drove this on small diversified market farms two years ago and then last year we really been shifting into basically Great Plains commodity staple crop agriculture.
Speaker 1:How do you find your farmers? What's your?
Speaker 2:well, they come to us, we go, we go to them. It's, it's both, you know. As you know, the community around regenerative ag is relatively small. It's represented here by the faces on the podcast and it doesn't take long for someone with a good solution that's authentic and has trust and delivers value to spread like wildfire.
Speaker 1:So yeah, gina go ahead.
Speaker 4:Oh no, fred, go ahead. No, please, gina, I couldn't.
Speaker 4:Fred after you. Okay, I'll go, then Fred will go, and then we'll all back up. Great. Thank you, frederick. I just wondered. It's quite a big statement to say the fund is going to replace their operating loans. So I'm curious to know, understand more about what does that involve? Does that mean you can? Are contracts breakable? How long does that take? What kind of finance does that take? How easily does the farmer trust you to do that and on board? I'm just curious to understand more deeply, but I I don't know whether, frederick, you have a question that's related or is perhaps more succinct than that.
Speaker 6:No, it's less technical, but I'm really interested to hear the answer to that to your question, gina. No, I wanted to ask you actually about when you're on the whiteboard just below the vision and mission you talk about when you go out to the community. What would be if there is, like the most prevalent issue farmers have with working with you and adopting, like changing, their practices?
Speaker 2:What's the largest barrier? Basically? Yeah, it's the ability for us to help them see that it drives an economic return and actually works. So the best way farmers learn is by visiting other farmers. Seeing is believing and shared experience is kind of crucial, and so what we try to do is glue farmers together into these. That's why community of practice is our like foundational lever of change, because we can go transition a lot of farmers off of GMO crops and neonic based pesticides into, you know, sort of like a regenerative, conventional, not organic systems, and so we bring our farmers that are leaders in that from all over the high plains to come in and do workshops, you know PowerPoint slides, and then make those farmers accessible by phone. So if the farmer is trying something, they can talk to them as well as talk to us, and so that's that's.
Speaker 2:I think probably the biggest barrier is the cultural barrier, um, but it very quickly gets into barrier too, which is like well, how am I going to pay for this? Um, you know, and and I think people can dabble, um, people can dabble a lot on small acreage, but when it comes to purchasing the seed to do scale, it requires money, and here most operating loans won't cover that sort of thing. In fact, most operating loans won't even go out if you use cover crops, because it affects whether your ability to actually get insurance, you know, for the crop. So you know the operating loan is in fact operating in the reverse. It's not enabling at all, it's actually a deterrent from doing regenerative ag. So yeah, so the money thing comes up quick.
Speaker 3:Gina, just to your point, I can just go over the general model of the fund and then we can talk about, you know, if it will replace their whole operating loan and such. So the gist of the fund. I think you've all read the five-pager before, but it's a means of essentially helping them through the organic trough that many farmers see. So let me say this is year 10, this is year zero and a farm wants to transition to organic.
Speaker 3:Many growers experience a trough right here where they're losing $50 to $200 an acre because they've basically taken the chemical-dependent, the chemical dependent input dependent soil that used to rely on all these agro inputs and usually growers see a yield hit that could be anywhere from 10 to 40 to 50 percent depending on where their soil health was before. So this piece is a big deterrent because to get to USDA organic certified, you know it takes 36 months from the last application of a prohibited substance, whether that be a GMO seed or nitrogen input, glyphosate, whatever that may be. So this to cover this gap. It essentially means you can either go slowly and go one acre at a time.
Speaker 2:I'm sorry, okay, okay.
Speaker 3:Okay, sorry, I had an electrician. So they can either go slowly, one acre at a time, and be able to fund it and cash flow it from their other profitable acres. You know they can go in whole hog but that means they're going to go deep into the red, or they can find a lender that's going to work with them. But those lenders in the US generally don't exist. They operate on, you know they're on the annual mindset. They need to get their money back every fall after harvest and be able to pay back their institutional you know sovereign wealth funds and pension funds and all the people that are providing capital for that bank itself, pension funds and all the people that are providing capital for that bank itself. So all we've really done is take that financing mechanism that's been around for decades annual operating loan and then just extend the timeframe. So here we're able to provide operating capital for three years to help the farmer through the trough, understanding that they're going to be losing money along the way, and then on the back end, once they hit certified organic, where generally they can be anywhere from three to five to six X as net profitable as conventional acres in the US at least, we're able to then share in that upside to pay back the loan.
Speaker 3:So farmer loses money during the transition. We provide capital to help them transition to organic as well as that full system of change. So every farm we work with we help them create a vision, create a farm plan, access new markets, monetize their carbon and build a community with their neighbors. And once they hit certified organic, we participate in a net profit share on the back end until one and a half X whatever was loaned out is paid back. So right here that could be a 30 or 40% net profit share. We model it on a five-year payback. So three years of distributing capital, five years of a net profit share to pay back one and a half X of what was loaned out, and then we build in two buffer years just to account for, essentially, weather that's going to be inevitable, potentially market risk too if we can't find the right market for that given year. So that's, that's the general model. I don't know.
Speaker 2:Yeah, the other thing, you have any questions in this trough? Oftentimes the soil is pretty bottled out and so you know the most profitable way to get through transition might not be the best way to heal the land, and so this gives them the ability to, you know, perennialize during those three years and really focus. It might be like, you know, year one of transition might be a really interesting like nurse cover crop. You know that's going to like really turbo inject the soil with a lot of carbon and exudates and we might perennialize to alfalfa and a brome grass for two years and then you come in and you break that for your cash crop, and so designing this transition that is not going to make is going to do the best for the soil. To ensure this outcome is our goal. You know some organic growers can, you know, buy through here using organic corn and soy and putting in compost, but it's really not the best thing to do. It's really pretty darn extractive, and so part of the way we work is designing rotations that are diverse and regenerative and finding market offtake for all of those things. So, on our what's cool about the perennial fund Brandon alluded to it is that you know most money doesn't come with wisdom, it doesn't come with market offtake. We, we provide all of that, you know, with the farmer. I mean many farmers already have their markets dialed in, but some as they're transitioning, you know don't. I mean many farmers already have their markets dialed in, but some as they're transitioning, you know don't. And so our partners on the back end, for some of them it's going to be, you know, very likely Patagonia provisions for, like those special farmers that are going ROC, which a few of them will be in the fund and then, but for most of them that are selling broad you know broad organic commodities, pipeline foods, which operates out of Minneapolis.
Speaker 2:They work in the driftless in Iowa. The core of where we're thinking about working is in the driftless region in Iowa. Iowa is really ground zero of the agricultural crisis here and we feel like if we can tilt, tilt the system in Iowa, it's going to create an inevitability in the revolution, so to speak. And so we also have really great on the ground partners there, including Practical Farmers of Iowa and Rodale Institute, and so you know, the way we do good farm design in the middle of our, in the middle of what was up here, is that we believe in, like first principles, ecological design that is place-based.
Speaker 2:And so you know, we know that we're not Iowans and we don't have the best, you know, most effective farm design and we have certainly enough tools to be dangerous, but we'd rather use on the ground partners there that are deeply, they exist within and operate within existing trust networks to do that work with us. And that's part of our theory of change, which is scale through replication. You know, madag doesn't want to have field offices all over the world. We'd rather find the technical service providers you know in those locales and empower them through the economics of the fund. So that's part of the way that we see working beyond perennial fund one.
Speaker 1:Yeah, and then yeah, can you explain what the three lines you draw the family mortgage and the other one that I cannot read.
Speaker 3:What are those? And this was to Gina's point about are we going to give out the whole operating loan or not? We can actually function in two different ways. So we can either stack on top of their current operating lender as subordinated debt or give the whole operating loan. So, for example, let's say we were to work with a local community bank like Compier, something who wants to understands that the organic transition this specific grower is going to lose $100 an acre.
Speaker 3:We can essentially come in. They can provide the main bulk of the operating capital, which is probably going to be on the order of $300 to $500 an acre. We know that that farmer is going to lose money during the transition and we can just fund that loss so they can meet their other debt obligations, whether that be family expenses or their mortgage or, you know, their current operating lender. So in that way we can help them transition and that actually gives us a lot more efficiency, because then we can impact many more acres by, you know, having the we're. You know the five million dollar fund we're raising. If we give out three hundred dollar loans versus three thousand dollar loans we're going to, if we give out $300 loans versus $3,000 loans, we're going to impact that many more farms.
Speaker 1:It's a good point actually. So you're raising $5 million.
Speaker 3:So we're raising $5 million by September 30th this year. September 30th Great yeah. So that's one way to stack on top. The other way is by offering the entire operating loan and just understanding that during the transition, you know it's going to come at a loss. And there's there's a couple options as well. Most likely, when we give out the whole operating loan, the farmer will pay what they can during the transition, which we understand is, you know, going to come at a similar loss. So we would still take that $100 hit, but we would make up for it on the back end when we're hitting that 1.5x.
Speaker 3:So two different options. It depends on if the farmer's current lender is comfortable with it. If they are, I think we'd prefer to just take the dip. So then we can work with that many more farmers and quickly learn and be able to cycle capital a little more quickly. But yeah, those are the two different ways. We can work with that many more farmers and quickly learn and be able to cycle capital a little more quickly. But yeah, those are the two different ways we can work.
Speaker 2:You know, some of the feedback we're getting on the ground and talking with the farmers is that some of that operating loan costs them up to 18% and these are in like heartland situations where you know they don't have community banks that understand first of all the economics and the reason for this crop. The other is that some farmers who want to transition to a regenerative organic system, they literally cannot get a loan. So it's sort of a context-dependent solution that we're offering If we're working in northern Wisconsin or mid-Wisconsin, mid-minnesota, where organic is more prevalent and abundant, abundant and it's more of a stacking opportunity. So you know, part of the pilot fund is to test these concepts and we're trying to. You know, we're de-risking some things. For example, we're only working with farmers that are currently organic and want to expand their organic operation. So we're taking out the risk of like oh, we need to find a certifier, they don't have the right tools. Like, we're limiting the experiment in certain ways to test different kind of theories of change, so to say.
Speaker 1:Okay, yeah, that's a good point. So with the perennial fund it will be focused only on organic farmers that want to go beyond. And the other work you're doing with boulder, boulder, etc.
Speaker 2:That's much more on the conventional chemical agriculture slight modification of that, which is that we're working with organic farmers that want to expand their operation, converting from chemical to organic because they might operate both and they have a piece of land, or yes, for example, we work.
Speaker 2:We work with one farmer in Montana that has 9,800 acres. They sell to Patagonia, they sell to Timeless they're really fantastic farmers and they want to expand another 2,500 acres. They don't have the capital to rent that land and expand in that direction, so that's an opportunity where they embody everything that's good about organic and regenerative. They're, in fact, well poised to get the ROC certification that Patagonia, rodale and Brawner's been putting together, but they don't have the capital to do any of that, so that we would come in and we would actually offer the whole operating loan for that transition.
Speaker 3:Yeah, and that hedges a lot of risk for us. Yeah, certification, finding markets, risk of reversion, all those other things that come up. Experience yeah, already up the learning curve in it for the reasons that we'd like to see the minute for. Yeah, so hopefully maybe in fund two you know we could fund beginning farmers transitioning to organic. But in this first one I think we have to take kind of more strategic bets on where we take risk and where we aren't going to.
Speaker 2:Yeah, it's also, you know, part of the way that farmer community changes. I mean, there's like on the social movement curve, the bell curve on the far front, moving side the iconic class, the first movers, like it takes a while for that first mover to turn into a community leader because they're often a bit rebellious, and so, um, you know, we are strategically working on the front bleeding edge of the iconic class. That's like the montana example. And then we also have the kind of first adopter, which are more communities of change. And the way that farmers often change is they look to what's happening across the fence line. They see the economic success, you know, they have a new, new Ford truck, and that's ultimately what starts getting them to question their own techniques and say, hmm, what are you doing, bob? And so we're cognizant of that, and so we'd rather, in this first fund, have those, create those beacons of change, those lighthouses on the hill, so to speak, so that in fund two, that gives us our nexus point for kind of radiating out from that community and inviting more people in.
Speaker 2:We know that farmer field days are probably the most powerful moment. Well, I wouldn't know if they're the most powerful, they're probably the second, most powerful way of creating a eureka moment for a farmer. Most farmers change after they have some eureka moment like an aha. Farmers change after they have some eureka moment like an aha, and that often will happen in a field day where they're astounded by, you know, just being able to put their hands in the soil when there's cover cropping being used and on their farm. It's hard as a rock. That that can, you know, inspire change. But the most profound is on their own operation, which you know that can be a little more challenging to achieve.
Speaker 3:And what Phil was alluding to is kind of the diffusion, innovation and that curve in general. Up here we have those leaders and you know that are shooting for ROC. That's like no-till organic, the organic folks, soil health. And we have, you know, the no-till conservation, like they're starting to catch up the curve but they're probably still desiccating glyphosate at the end of the year. And then this is old school, heavy tillage, chemical, gmo use, whatever you can, just the plug and play system.
Speaker 3:We're in the perennial fund, really focusing on these folks like that, leading 13% so that we can pull everybody along and show people that we can actually get out here one day.
Speaker 1:Wow, thank you so much. I'm going to look at the group. Any follow-up questions, any other questions from anyone currently calling in? Otherwise, I have a few. I see tags.
Speaker 7:Yeah, hey guys, thanks a lot for making yourself available. First of all for the explanation. I was wondering the the bell curve you you just drew there that's, is that representative of the total acreage at the moment, where because in that case the no-till, but still, yeah, quite conventional would seem quite, quite large? Is it number of farmers, or?
Speaker 3:acres. That's a good point. Yeah, a third of all acres in the US is no-till. I don't know if this is necessarily representative percentage wise.
Speaker 2:We have a lot of no-tillers, it's, it's just economically more feasible because they use glyphosate as their weed, you know. And then I always say this is no-tillers, it's, it's just economically more feasible because they use glyphosate as their weed, you know. And then I would say this is no-till without cover crops, without no-till with cover crops. This is like the Gabe Brown, ray Archuleta zone. I would actually say that these, these are probably tighter, like ROC. I mean, in reality, roc is here, organic is here. You know, we only have about 0.7 percent of USS acreage in organic and probably half of that is an industrial organic. That is not in line with Rodale's original theories around organic. I mean a lot of folks in the States.
Speaker 2:I'll just give you one little vignette. We have a conservation reserve program which is basically when we have an oversupply of commodities, we pay farmers to take land out of production and restore it back to like native grasslands. Well, that's a 20-year term. They get paid a nominal piece per acreage. We have millions and millions of acres in that.
Speaker 2:Well, when those acres retire out of that program, these chemical-based farmers who have no consciousness around being organic are going Ooh, organic is paying two to 400% over my conventional. They get their old moldboard plows out of the weeds, they go out there, they break the ground for three or four years and then they run it into the ground, they use all of that soil wealth and then they're done. And so we have, I would say, a lot of organic is like that in the States, and I would say even globally, and so we're very we know how to suss those things out really easily. Just looking at your tool library, your mentality, all of that. And so I would say that, like most of the movement is here and and soil health is probably, you know, it's probably here, but but this was a general schematic, but I do think that it's a mental model.
Speaker 7:I had a question as well. This only came up since you drew the bell curve, so it sparked my interest. I had a question about how you're determining the percentage of profit share or the one point times, one point x times. So you basically you're not setting an interest margin upfront, you're setting a sort of a repayment obligation cover or something exactly.
Speaker 3:Yes, officially called the return cap, as some some people call it. But essentially what we're determining is well, I won't redraw it, but let's say we were to issue $300 over the course of the transition, so $100 an acre for three years and we model that on a five-year payback. So take 450 divided by five. We're shooting for a $90 return back to the fund and depending on their rotation, we wanna optimize that. So it's the lowest it could be on the individual farmer. So it's not too much of a burden for them but it's probably gonna fall within the range of 20 to 50% of their net, just based on some of the modeling that we've done with typical organic transitions in eastern Nebraska, iowa, minnesota, that type of region.
Speaker 3:And the reason that it's a wide range is really the difference in fixed cost between whether you own the land or you rent it.
Speaker 3:When you own, most of the time you're paying about 2% of the land's value and just liability insurance and taxes, and if you're leasing, that can range anywhere from 4% to 6% of the land's value.
Speaker 3:That's typically what they would charge in cash rent if they're not doing a crop share or a cash crop share. But it's going to be very individualized because every farmer's situation is so different, on whether they have a long-term lease, whether they own, whether, you know, they're renting from family and they're just doing a crop share. So it's it's very context-based, but that's what we're thinking, based on the numbers that we've seen historically from, you know, 20 years of organic data on what the net profit share is going to fall within. We just really like that model because you know it caps the farmers downside, downside risk and enables them to transition to organic where we are only getting paid if they're doing well, and it ties ourselves to one another and incentivizes us to make sure that we're giving them all the tools that we possibly can helping set them up with markets that they have sustainable revenues and then also reducing their cost with regenerative practices.
Speaker 2:Yeah, I would say two things too, to add on to that would be you know, one, the idea of the perennial fund was, you know how do we structure our financial economics and our models to be more like perennial old growth systems that we find most beautiful, you know, and you look at a Sequoia forest or a grassland, their internal rate of return never exceeds 10%. Their closed systems, the balance between productivity and decomposition is almost in balance and they never exceed 10%. And actually we're writing kind of a concept paper. You know, like in all the ecosystem service language we've seen out there, no one has ever written anything on like what is the IRR of a beautiful ecosystem, and so we're starting to think about that. And actually, as a biogeochemist and ecologist, carbon cycle person, I already actually know some data sets where I could start exploring that.
Speaker 2:And we really want to build our financial tools to mimic what we find beautiful in nature. I mean, that's ultimately the harmonization that we need, and so I would say the 9% is IRR is built around that concept, while also being tempered by the reality that current money will flow at a 9% but maybe not at a 6%. You know what I mean. Like we were trying to sort of optimize what we see in nature with what we know the current system being willing to do. We also, like you know, the effective interest rate for the farmer in the fund is about 5%, and so that actually undercut the cost of capital from their community bank as well. So, you know, in addition to all the other incentives that we're providing, we're also providing a lower cost of capital as a lender, and so that's another, you know, added benefit.
Speaker 3:Yeah, and then another mechanism that we're thinking through is actually lower, lowering that one and a half X return cap and incentivizing the farmer to essentially pay off the loan early by giving them a lower return cap.
Speaker 3:So let's say, instead of one and a half X we shoot for one point three X.
Speaker 3:But to get there within a given amount of time, for us to hit our target rate of return, they might have to do a higher net profit share, you know, over the course of two to three years versus five years. But that'll get the farmer to the 1.3 X. So in the short run it might cost them a little more of their net profits, but in the longterm the total cost of capital for the life of the loan for the farmer is actually significantly less. So it's and that's good for us, because that means that if we can get investors a return quicker, we can then cycle, you know, the fund and cycle capital quicker and raise further funds to then deliver more impact, which is great. I mean maybe, you know, some investors might want to see that nine, 11% IRR over 10 years, so they don't have to, you know, investigate new investment opportunities. But I mean we'd rather see that money be put to good use and help more acres yeah, part of the perenniality.
Speaker 2:It's an evergreen fund.
Speaker 2:I mean, we're not, it's a, it's a way that we can recycle capital back into it and grow it.
Speaker 2:Um, the other thing that I would say is that, you know, in this initial phase, part of our approach is that, you know and it's been a really nice approach from mad ag is that we don't, really we don't charge the farmer anything until they're making money, um, and we find win-win.
Speaker 2:So, like when they make money, we make money. So in our like nori work, you know, we take 10, roughly 10, of the carbon value that's tokenized and sold, but that only, um, that only happens when the farmer gets paid. And so we we try to find the it's the same economics with the fund, the same model of the fund that you know, in this first round we're currently not thinking about taking the management fee. That might change, but it would be really small. But we're, we were essentially funded by the we're, you know we're funded by the government. We got an eight hundred and seventeen,000 cash grant to launch this whole idea, with another equivalent amount of money coming in through various partners, mainly through InKind, and so we can approach all the farmers and launch this without any charge up front, which I think is pretty amazing.
Speaker 1:Gijs, you have a question? I can see your hand, yes it works.
Speaker 5:How do you establish a question? I can see your your hand. Yes, it works. Um, how do you um establish a profit for how do you establish, how do you calculate it, what metrics do you use? And how do you make sure that the farmer is not buying all the stuff to keep the profit down? And why haven't you not then choose for revenue, which I think you partly explain, but I think it must have been an option you have looked at. And in addition to that, do you do it? Since the farmers have already some part of organic? Do you do it over their entire farm as operations, or only on the
Speaker 5:land that they have converted, because I think there must have been a process of thinking as well. And, by the way, thanks, and I think there must have been a process of thinking as well. And, by the way, thanks, and I think you're really deep into it. I've looked at similar things and it's so recognized, so much, that it's actually super nice. Thanks for your story. I should have started with that, but the question wasn't top.
Speaker 3:Thanks, yeah, yeah, to your second question. This, yeah, this type of capital will be for the acres that are transitioning to organic. So you know, let's say they have a thousand acres over here that they own and are organic, but they have 500 more that are conventional. This loan will be specifically for those 500 acres. And you know, in talking with many farmers, there are many that have multiple operating loans, depending on their operation. They might have one for their organic acreage, one for their conventional and then they're finding another. Maybe they're using their off farm job to fund their transitional acres.
Speaker 3:And then, on the net profit share piece, you know there's a few different pieces here, but to calculate it we essentially want it to be, we really want to tie our risk to the farmer's success.
Speaker 3:So it's going to be after their fixed cost of, you know, paying their mortgage insurance, after their variable cost every year from, you know, seeds, diesel, labor, et cetera, as well as their family expenses, expenses, and then everything that's left over.
Speaker 3:That's what we'll be considering, you know, net profit, because that's actually what the farm is making.
Speaker 3:And you know, to really have us understand and make sure that those numbers are accurate, there's two different pieces that we're looking at. The revenues are pretty easy where essentially we can just have them show us their receipts and market contracts and where they sold their crop. And since we're helping set them up with those markets through pipeline and grain millers and you know patagonia and such, those relationships are going to be pretty open and we'll we'll know how many bushels they sold and then on the cost side and tracking their expenses. You know the model that phil ran through of farm planning and farm design. We're going to be in there with them on the ground understanding and creating that organic system plan with them. So we're going to know if anything is misrepresented by you know 10, 15%, because to plant an acre of corn is depending on you know what, what equipment they're using and what. You know their leases and all those different factors. It's pretty well known in different regions so it's hard to really misrepresent that.
Speaker 2:Yeah, and I would say that, um, you know, we currently work through enterprise budgets, full enterprise budgets, with our producers now, and you know, one of the things that we're asking ourselves as we develop our due diligence process and method for distributing the loan is finding shared agreement on what the enterprise models are and what the costs are. So, like currently, we sit with farmers and we say, hey, let's work through the whole enterprise budget. Revenues is easy, here are all your costs. Like, tell us what it costs. And then we'll say, well, this is what we're seeing in the region, and what's nice about the us is we have extension agents that develop and deliver enterprise budgets for every state, and so there are like regional norms and right now in our own fund pro forma and farmer pro formas, we're going to be starting to conduct sensitivity analysis. So it's like, okay, you know, let's say, the cost of harvest fluctuates by 20% up or down. How does that affect revenue and payback to the fund? And we can start toggling all of those things to ensure that, you know, the fund is still going to work with some flex around these cost estimations.
Speaker 2:I mean, there are certain things that are just unmovable, like diesel costs, this, it takes this much in your tractor, your acre is this big and you should only pass over the field once. I mean, that's a pretty, that's algebra, you know. And so we, we just, you know, some of that stuff can't be. You know what I mean, and I'm saying this because this has been a big question that comes up. I think we're still discovering our tactile on the ground process. You know, I would say that we're test driving a lot of that now in our current work what that feels like, what it looks like, what the shared agreement with the farmer is. But yeah, the net profit share is kind of critical to the essence of the fund, and so we're working hard to make sure that works.
Speaker 3:Yeah, and then we're also leaning on some experts that have been at it for decades at this point, like Craig Chase and Paul Beatman, who literally wrote the book on farm finance.
Speaker 3:So Craig's helping improve our back-end models and creating all these different baseline scenarios based on various equipment, cropping type, revenues from where they're selling in the market. And then we're working with Paul to help really hone out our farm due diligence process and create an effective framework to filter good opportunities from bad opportunities and then running all that data. Ultimately, through this, what phil was alluding to like a monte carlo simulation, where we're going to have a risk register in the back end and we'll be able to then test different you know risk within the on a portfolio level and a fund level and then see anticipated outcomes and that's all in process and that's going to take us another two, three months to get that all battened down, but, um, we have all the teams working on it already no super clear answer and actually, um, yeah, I think you're super deep into it is in a good way, I'm sure that translates well.
Speaker 3:But no, yes, no, I appreciate the compliment we feel pretty deep, obsessed might be a word.
Speaker 1:Yeah, obsession yeah I think I think that can be said, said by, for a few other people on this call as well. Um, I want to thank you so much. I want to be conscious of your time to go ahead, guys no, I was just thinking.
Speaker 5:You do. You've done so much and I've always found it a struggle where to start. If you have to explain to an investor, you know how do you pitch this and what do you select. There's so much. As you started this, markets, this and every you know everything has to happen at the same time, and what I actually are not good at and I was wondering how you were doing that is how do you highlight some of the things, you who come on and then go into deep, and how do you not scare them off by saying, okay, but you have to be and helping them in marketing and helping them in the community of practice.
Speaker 5:And helping financing and those terms have to be flexible. It's, you know, I can see it because actually it's one of my struggles. But how do?
Speaker 2:you do that. It's um, it's a challenge. I would say that we, we go, we go slow. I mean some people this is one criticism we get it's like we, you know, you can't go farm by farm to scale, and I actually totally disagree, um, you have to go farm by farm to scale.
Speaker 2:Um, and we often think that like broad revolution and change is really hard. I mean it's certainly hard but it won't happen. But it already happened, like 40 years ago, All of corn and soy. Like how did that happen? Like it happened farm by farm, individual decision makers saying this is the best move for my economy right now. So, you know, I think we have to kind of think about that similar theory of change in the next revolution in ag. And so I would say we go slow.
Speaker 2:I think the on the ground visioning process that we have is the fundamental and we can quickly sift through sort of where they're strong, where they're weak, what they do want to do and what they don't want to do, and then we often suggest starting small. I mean this is part of the reason we're working with organic farmers that are already organic. You know, to change your whole operation to organic in three years is really difficult, and very few people do that, and so you know we're cognizant that change is slow, but a eureka moment or two can really tilt the whole thing. I don't know. I don't think that's really answering your question. I think it's more just. I think you did.
Speaker 3:Yeah, and it may seem intimidating to farmers.
Speaker 3:This could be a lot for them to be able to handle, but just in being able to get this in front of farmers from different groups like PFI and IOA and Moses that have really blasted this out to their networks, it's actually there.
Speaker 3:Something clicks when they see it, because so far we've had about 18,500 acres sign up to want to apply for this loan and to use it, which you know would be a capital need of like $20 million. So it's already. We already have way more pipeline than we can possibly service. So just in the next few months, as we bring more farmers in as well, I mean something here is working, whether it's the markets or the finance or just the loan with technical assistance. We're not entirely sure what it is yet, but from like a user design experience you know side of things, like when farmers see it, they know they want it, which is, you know, which is great for us. So we're doing something right and if we can then encourage others to also adopt this type of mentality, I mean that's just great for the industry as a whole.
Speaker 2:So yeah, I would say, you know, out of great pain, great innovation occurs and we are in a low spot in commodity industrial agriculture and farmers.
Speaker 2:I mean, you look at, like suicide rates and like the opioid epidemic and obesity, all of these things are characteristic of a very toxic situation in the heartland and we are kind of bringing a holistic solution to that that I, that the farmer can't fully comprehend, nor can we.
Speaker 2:I mean, this is the process and the feeling of emergence. We really don't know where we're all going, but we know it's, it's a better place than where we are, and so I think we embody that sort of open, creativeness in in shared journey which I feel like is really critical for the farmer. We don't come in with a bunch of solutions, it's like let's get to work together and I feel like that mentality and approach is it's created the trust, the will and the passion to move forward. And I think that's how Mad Ag is represented. It's our reputation, it's the excitement and it's very different than, like, you know, your extension agent, your government official, your loan officer, your whatever. It is like, it's just fresh. So you know, that's a piece of our personality I think is also helping us work.
Speaker 1:I want to. I mean, there's so much more to cover. I don't think it's the last time we're talking and we definitely need to do some long form episodes and some deep dives. I want to thank everyone, first of all, phil and Brendan, obviously, for taking the time this morning and for everyone who called in and for everyone that's watching this later as it is recorded. Thank you so much. Great and definitely. I will make sure link to link everything below. People can get in touch for more questions, follow-ups, ideas, et cetera, et cetera.
Speaker 3:Awesome. Yeah, thanks so much. Yeah, thanks for the opportunity. I really appreciate it. Yeah, nice to see you all. Yeah, this is fun.
