💡 Investment Notes: Why we invested in the Perennial Fund
Transforming farm financing for a more regenerative agricultural system.
Did you know that although the United States makes up the biggest market for organic sales globally (accounting for 42% of the US$100B global organic food and drinks market in 2018), most of that demand is met by imports? In fact, only 3% of the 71.5 million hectares of global farmland under organic management is located in the US.
With consumers becoming increasingly conscious about the ethics and supply chain transparency of the brands they purchase from, what’s stopping producers from transitioning to more sustainable farming practices to meet that demand? According to this massive, almost 200 page report (which you can also find our summary of here), just a few of the reasons include:
The lack of awareness, knowledge and willingness to change behaviorally and culturally, partly driven by the dearth of a community of regenerative practitioners;
The scarcity of resources, time, or energy for farmers to learn, plan, implement and monitor regenerative practices on their own, and lack of trusted technical assistance;
High existing levels of existing farm debt preventing further investments into the infrastructure needed for regenerative agriculture;
The insufficiency of accessible financial assistance programmes;
The nascence of regenerative supply chains, leading to uncertainties of downstream demand and poor access to the necessary infrastructure to support regenerative production;
The need for more strategic communications to investors, policy makers, producers, and consumers alike; and
The disconnect between research and science, and the realities of the whole system of farming on the ground.
In thinking about what it will take to catalyze systems change in agriculture towards more regenerative practices, we at Silverstrand recognize the need to address many of these barriers.
The Perennial Fund, managed by Mad Agriculture, is an innovative financing vehicle which provides farmers with not only access to capital for regenerative agriculture, but is also pulling on many other levers of change. Here is what stood out to us about the Perennial Fund:
1) Innovation and Capital Efficiency
The Perennial Fund is offering farmers an innovative, first-of-its-kind financing option to support their transition to regenerative agriculture.
The fund offers mission-aligned farmers with operation loans, with the option to pay it back using a revenue-sharing mechanism. This provides the farmer with flexibility to manage their farm budget during the transition period, before their land adapts to the new practices, and before farmers benefit from the premiums on organic produce. Investors benefit from Mad Agriculture’s status as a non-profit, which allows them to capitalize on grant funding to cover the fund management fee.
If this pilot is successful, it can potentially channel even more capital into regenerative agriculture, at a much higher capital efficiency than buying farmland directly. Buying farmland costs on average $4,130 per acre, and is currently the dominant means of investing into regenerative agriculture, according to the 2019 Soil Wealth Report (See our summary of this report here). In contrast, the Perennial Fund enables a farmer to transition an acre using up to $1,000, depending on their financing needs.
This approach to investing also allows farmland ownership to be kept in the hand of farmers.
2) Whole Ecosystem Approach to Transforming Agriculture
USDA Organic certification is the baseline requirement expected of all borrowers from the fund, but farmers will also have to go beyond organic to also implement at least three other regenerative practices. This approach allows farmers to choose which practices are best suited for their enterprise and ecosystem where they are situated.
Examples of practices that farmers may select from the list provided include no-till agriculture, polyculture double cropping or relay cropping, and holistic management of livestock.
3) Building a Community of Change
Besides mobilizing capital, Mad Agriculture is also aiming to facilitate community-building and knowledge-sharing among farmers.
Mad Agriculture will be organizing quarterly meetings for farmers which are part of the fund to convene and share their successes, failures, trends, new practices, and build camaraderie through their transition. Mad Agriculture can be a guiding light in the transition, but farmers benefit the most by learning from one another.
4) Connection to Markets
The farmers in the Perennial Fund are supported by Mad Agriculture’s Markets team, which is working to connect the fund’s farmers to market off-takers who will pay premiums for high quality, regenerative crops.
Although regeneratively grown produce should garner premiums on the market, farmers may not have the resources to market themselves and find suitable buyers. The Mad Agriculture team is working to actively shorten the value chain on the behalf of farmers to secure forward contracts and direct sales agreements with mission-aligned brands, such as Patagonia Provisions.
5) In-situ Research Approach
Farms in the fund will be sites for a long-term academic study on the financial and ecological outcomes of regenerative agriculture, providing a robust, unprecedent evidence base to further the movement.
Led by Dr. Steven Apfelbaum and Dr. Jonathan Lundgren, the research project is multi-variate and will share its findings through multiple channels for different stakeholder groups - More details to come on our Linkedin and Substack platforms.
The Mad Agriculture team estimates that the Perennial Fund could be the first step in unlocking a total addressable market of US$18 Billion in regenerative farm financing. Silverstrand is honored to anchor the Perennial Fund to spark these investments, connecting regenerative farmers to capital, community, and new market opportunities.
You can find more about the Perennial Fund at their website, or at Mad Agriculture’s Linkedin, Twitter, Instagram, Facebook, and Medium.
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