The average farmer loses money, is indebted, and has extremely limited access to capital. Without farm profitability, farmers cannot devote adequate resources or attention to soil, animal, and ecosystem health. As more consumers, investors, and entrepreneurs push for regenerative agriculture, it is essential to consider the best financing mechanisms to facilitate such transition. It is also critical to appreciate that financing is just one piece of the puzzle, and that significant efforts and planning are key to changing mindsets and arming farmers with the necessary capabilities to succeed. There are many intriguing players committed to aiding farmers along the regenerative path through creative financing tools often coupled with technical assistance. Before highlighting some of the promising organizations focused on economic sustainability, it is worth stepping back to understand the typical farmer’s financial state and the governmental systems incentivizing harmful practices.
American taxpayers fund the federal crop insurance program (“FCIP”), which provides guaranteed fallback prices for commodities impacted by adverse weather conditions or market price declines. To encourage farmers to use the FCIP, the federal government subsidizes around 60% of insurance premiums. Furthermore, farm lenders often mandate farmers purchase crop insurance to obtain loans. According to the Environmental Working Group’s crop insurance database, from 1995 through 2020, the FCIP paid out more than $143.5 billion in federal crop insurance payments, with just under two-thirds paid out for crop damage from droughts and excess moisture exacerbated by the climate crisis. On top of these hefty payments, the federal government paid $103.5 billion to subsidize farmers’ FCIP insurance premiums. In 2019, the FCIP insured more than 90% of planted acres for corn, soybeans, and cotton, and more than 85% of wheat planted acres.
As argued in Josh Tickell’s Kiss the Ground, the FCIP “has become the single most powerful tool in dictating continued use of genetically modified seeds, the toxic chemicals required, and soil-destroying practices of modern agriculture.” Because the FCIP imposes strict guidelines about the types of crops to be planted, and when, where, and how the crops can be grown, farmers generally grow crops with the highest per acre insurance rates in their area. Indeed, according to 2017 census estimates, corn, soy, and wheat cover nearly 65% of harvested cropland acres. The FCIP has directed hundreds of billions of dollars to pesticide, seed, and synthetic fertilizer companies, with a select group of massive companies producing the majority of what we eat. Rather than supporting diverse ecosystems and soil health, the FCIP has driven monocultures and the rampant use of agrochemicals, thereby destroying soil, polluting the air and water, and producing unhealthy food.
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Flipping the script, here are some compelling organizations employing financing solutions to incentivize practices promoting ecological health.
Mad Agriculture's Perennial Fund is one of the most thoughtful financing approaches I’ve reviewed. As Phil Taylor and Brandon Welch explain on the Investing in Regenerative Agriculture and Food Podcast, Mad Agriculture is pursuing a holistic approach covering comprehensive and flexible financing, market analysis, farm planning, business optimization, and community building. Mad Agriculture, a 501(c)(3), focuses on farmers who have already embraced regenerative principles and now need tools to completely transition to organic and scale. As Phil and Brandon note, it is significantly easier to work with farmers who have already “mentally made the switch” to regenerative/organic.
Drawing upon serious due diligence and direct interactions with numerous farmers, Mad Agriculture understands the major pain points, relevant time horizons, and complexities of transitioning to organic. Mad Agriculture appreciates that farmers can only evaluate financing opportunities by fully tackling market dynamics, farm ecosystems, and long-term business planning. As further explained in Mad Agriculture’s fantastic Perennial Fund White Paper, transitioning to organic is resource-intensive and time-consuming. “For farmers to transition from a chemical system to an organic system, they must not apply any prohibited substances to their land for 3 years (synthetic pesticides, herbicides, fertilizers, and others). When the biology of the land is dependent on chemical drugs, going cold turkey can result in decreased yields. Adding to their woes, during the 3-year transition, farmers can only sell at conventional prices. Combining decreased yields and conventional prices almost guarantees that farmers’ net margins will be negative. Can you imagine not making money for 3 years? We call this the organic valley of despair.” Moreover, transitioning farmers may need to secure new forms of insurance, develop new and more costly relationships with organic channels, and enhance marketing and sales capabilities.
To address these challenges, Mad Agriculture offers flexible operating loans related to all farming needs, two payment deferral opportunities (in the event of unexpected events), generous payment terms during the transitional years, and revenue-based payments. Several of Perennial Fund’s loans are based on revenue shares, which directly tie Mad Agriculture’s receipt of payments to farmers’ success. Though Mad Agriculture originally anticipated all loans would be revenue-based, some farmers have opted to forgo risk-sharing for traditional APR payments.
To guide farmers along a regenerative path ultimately leading to higher profitability, Mad Agriculture is committed to Carbon Farming Planning, which places carbon and soil health at the center of agroecosystem health. “Carbon Farm Plans optimize the use of carbon-beneficial conservation practices (e.g., cover crops, no-till farming, prescribed grazing, forage planting, irrigation improvement, composting, etc.) to create healthy and diverse agroecosystems that are resilient and productive.” Mad Agriculture partners with other experts and organizations to educate farmers about regenerative transitioning. Moreover, Mad Agriculture is building a strong network whereby farmers dealing with the same challenges can support each other and share their learnings. Significantly, Mad Agriculture is working with Steve Apfelbaum and Dr. Jonathan Lundgren to properly track key measurements associated with soil and ecosystem health. In addition, Mad Agriculture is collaborating with an Emmy-award winning documentary filmmaker to chronicle farmers’ personal journeys and highlight the myriad benefits of carbon farm planning.
I’m a really big fan of Dan Miller and his company Steward, which finances farms that have already begun their regenerative journeys. Rather than focusing on novel technologies or nascent soil carbon credit markets, Dan believes a simpler approach to accelerate the adoption of regenerative agriculture is to offer capital to farms that could not otherwise access loans. As my friend Kevin Silverman chronicled in his interview with Dan in The Regeneration Weekly, there are many small farms with great products in high demand, but if they aren’t part of the federal crop insurance program, it is often impossible for them to secure capital. Steward, a Certified B Corporation, fills that gap through flexible loans to farms wishing to scale their operations and access new markets. Qualified lenders purchase slices of the loans and can invest in their own local communities or intriguing projects across the country. Like Mad Agriculture, Steward provides extensive technical assistance to help farmers with business, administrative, and regenerative matters.
It’s fun checking out Steward’s successfully funded projects, which cover oyster farms, holistic grazing expansions for cattle and bison, vegetable farms, a potato growers collective, dairy farms, and more. In addition to the funded projects, Steward Regenerative Capital is an evergreen campaign “supporting a diverse collection of short-term bridge loans made to regenerative farms and food producers.” One of the exciting projects I chatted with Dan about is the Astoria Food Hub, which “serves as a base for local food commerce, providing storage, processing, distribution, and business support for regenerative food producers.” Networks like the Astoria Food Hub help defray costs and create strategic partnerships that can generate new revenue streams and maximize efficiencies.
Another promising organization I have come across is Provenance Capital Group (PCG), a financial services firm “focuse[d] on allocating capital into regenerative natural resource investments.” As Managing Director Jim Pines explains, when he became interested in funding regenerative agriculture projects, he found “there was no capital coordination process or financial infrastructure in place to connect investors with those in need of capital.” PCG aims to “create the missing financial infrastructure” to link the right kind of investors to scalable regenerative agriculture enterprises. By taking a systems approach and fully appreciating the challenges of regenerative transitioning, PCG pays close attention to sales and marketing, technical assistance, time horizons, market dynamics, new farming practices, and crop and ecosystem management. PCG seeks investors and philanthropists with longer time horizons and a genuine commitment to environmental impact.
One compelling project PCG helped launch is Fibershed’s Regional Fiber Manufacturing Initiative (RFMI), a multi-stakeholder initiative to regionalize the production of regenerative textiles with a focus on processing, manufacturing, and marketing. PCG stresses that investing in processing and infrastructure “can actually be a more impactful investment for the whole system, as giving money to a ranch to convert to regenerative won’t be fruitful if the rest of the supply chain to support the rancher does not exist.” The textile industry is responsible for 2.1 billion tons of CO2 each year, and fast fashion demands new styles and production models only supported at scale by global manufacturers. Moreover, the current system is neither resilient nor supportive of graziers, who often had nowhere to sell substantial quantities of wool when the pandemic hit.
RFMI works with stakeholders and experts to identify and prioritize key needs and design solutions throughout regional supply chains. PCG helped develop a business strategy called the Climate Beneficial Fiber Pool to aggregate the processing and distribution of regeneratively produced wool. Through the Climate Beneficial™ verification program, Fibershed evaluates ranchers’ climate impact using direct soil measurement, computer modeling, site analysis, and carbon capture analysis that is formally documented in a long-term carbon farm plan. The “wool pool addresses critical supply chain gaps, including developing an inventory of prepared fiber, which makes the wool more attractive to commercial buyers because of the shorter lead time.” The initial wool pool is housed by entrepreneur Stacie Chavez, founder and operator of Imperial Yarn, which was already storing regionally produced wool and selling climate beneficial wool before RFMI’s launch. Imperial Yarn “creates the market, as its business model is already built on turning the top into yarn and selling the end product.” PCG supported Chavez in formulating a business strategy, developing a predictive financial model, assessing her capital needs, and fine-tuning a financing structure to satisfy such needs. Investors like Cienaga Capital understand the importance of catalytic capital given wool’s “long working capital cycle, as it typically takes a year from purchasing the wool to being able to use the clean top.” Funding the initial investment can expand the market for climate beneficial wool so that Imperial and other organizations can commit to buying farmers’ entire supplies on an annual basis at sufficient premiums.
FarmRaise is another exciting enterprise committed to easing farmers’ financial burden in transitioning to regenerative. As Co-Founder and COO Sami Tellatin notes, “Farmers face two main challenges on the financing front: information about various opportunities is fragmented and not always up-to-date; and, applying to funding programs is time-consuming and confusing. Farmers come to our platform daily to gain clarity on what they’re eligible for and how to apply.” Additionally, FarmRaise is investigating the relationship between various practices (e.g., cover cropping) with farm profitability. The goal is to show farmers the direct link between soil health and farm profitability and to lead farmers to specific actions that can improve economic and environmental sustainability.
FarmRaise asks for granular farm insights and then uses the data to quickly apply for a wide variety of grant programs. As Co-Founder Jayce Hafner explains, FarmRaise hopes to broaden its financial services to help farmers secure loans and equipment, and assist with tax and business planning. When I spoke with Jayce, she emphasized FarmRaise’s commitment to driving ecological resilience and profitability. She noted that there is growing interest in conservation programs, but tech support and financing remain significant barriers. The Environmental Quality Incentives Program (EQIP), for instance, has a huge lag time for application processing so it is extremely difficult for farmers to plan ahead if it takes a year to find out if they will receive funds.
Iroquois Valley, a Public Benefit Corporation and Certified B Corporation, “works with mission-driven investors to provide organic and regenerative farmers land security through long-term leases and mortgages.” On the REIT side, Iroquois Valley allows investors to own a diversified portfolio of organic farmland while supporting independent farmers with long-term access to land. The leases and mortgages account for the time and challenges associated with the organic transition. Farmers initially pay a base rent determined by the land’s acquisition price, and over time, pay variable rent when their revenue surpasses a certain threshold. Even after organic certification and the associated higher premiums, farmers may have challenging years due to weather and other factors. Shareholders’ cash dividends may fluctuate based on variable rent payments across the portfolio. Thus, investors share farmers’ risk and returns. Iroquois Valley also issues Soil Restoration Notes, promissory notes offering accredited investors a fixed income security supporting organic farmers. Beginning in 2020, Iroquois Valley began offering an operating line of credit to help farmers with limited access to banking capital.
Another interesting organization focused on farmland investing is Farmland LP, which buys farmland and adds value by planting higher value crops, converting to certified organic, and implementing regenerative farming practices. Farmland LP then leases the land back out to farmers who agree to maintain these practices. Craig Wichner, Farmland LP Founder and Managing Partner, stresses that farmland has historically generated excellent returns and provides strong diversification as it is largely uncorrelated with stock and debt markets. Focused on economies of scale, Farmland LP invests in infrastructure and technologies, increases crop diversity, and actively manages its properties.
Walden Mutual Bank hopes that impact-driven individuals will park their money at a new depositor-owned financial institution supporting New England’s farms and food producers. Whereas traditional banks are owned by shareholders who may not be members of such banks, mutual banks are owned by their customers. A new mutual bank has not been formed in decades. Just as regenerative agriculture focuses on local conditions and communities, Walden Mutual Bank is an online bank that will provide loans to the region’s sustainable food businesses. Charley Cummings, the Founder of Walden Mutual Bank, is also the Founder and CEO of Walden Local, a leading brand of regeneratively raised chicken, pork, and beef (and wild-caught fish) delivered directly to consumers through a whole-animal share program. Through his work with Walden Local, Charley observed the lack of financial infrastructure for local regenerative food businesses operating outside of the industrial food system. Charley is trying to tap into the younger generations’ desire to invest in mission-driven enterprises focused on sustainability. As he’s noted: “Where you invest your idle savings is often many multiples more impactful than where you buy your clothing. And so it really struck me that there’s not a bank brand in the market today that is really addressing that. There’s no equivalent Patagonia of banking.”
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These noble enterprises are taking varied approaches to fill financial gaps so that regenerative enterprises can scale. Hopefully, federal, state, and local governments will increasingly follow suit to adequately subsidize practices promoting soil, animal, crop, and ecosystem health.
The Decency Foundation’s pilot project is providing a low-rate loan to Hun-Val Dairy Farm to build its own processing and bottling facility. Through on-farm processing, Hun-Val will be able to sell truly local dairy products, cut costs, and develop a more sustainable and thriving farm. To learn more about The Decency Foundation’s direct financial and other support of Hun-Val, please read this powerful interview of Hun-Val’s talented and industrious owner, Jared Weeks.