Phil Graves on how Patagonia is investing its $75 million fund into regenerative agriculture

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Why regenerative ORGANIC certification is key for the future of agriculture? To find the answer we interviewed with Phil Graves, head of Patagonia’s venture fund Tin Shed Ventures.

SUMMARY KEYWORDS

regenerative, organic, patagonia, farmers, soil, ag, building, roc, chemicals, food, certification, tin shed, investing, big, brands, podcast, practices, fund, products, people

SPEAKERS

Koen van Seijen, Phil Graves

Koen van Seijen 00:00

This is an interview on how the sustainable clothing giant Patagonia is investing in organic regenerative agriculture and food.

Koen van Seijen 00:08

Welcome to another episode of "Investing in Regenerative Agriculture: Investing as if the Planet Mattered", a podcast show where I 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. Why am I focused on soil and regeneration? Because so many of the pressing issues we face today have their roots in how we treat our land, grow our food and what we eat. And it's time that we as investors, big and small, and consumers, start paying much more attention to the dirt / soil underneath our feet.

Koen van Seijen 00:47

Before we get started, I've been recording these interviews next to my day job and I will definitely continue to do so and release about an episode a month. But at the same time, I would love to take this further share more interviews, there are many more stories to share on investing in regenerative food and agriculture, more depth, improve the quality, maybe even doing some video series. So I started a Patreon community which makes it easy to support creators like myself. If these podcasts have been of value to you, and if you have the means, I invite you to support me and make this happen. For more information, please find the link to my Patreon account in the description below. And now without further ado, the interview. Enjoy!

Koen van Seijen 01:29

Welcome to another episode of "Investing in Regenerative Agriculture". I'm here today with Phil Graves at the Patagonia headquarters and Tin Shed Ventures. Very excited to hear more about their work in regenerative agriculture and food. And what's next for them. So welcome, Phil.

Phil Graves 01:42

Thank you. Thanks for having me.

Koen van Seijen 01:44

And to start with a personal question, what brings you into the space? Why soil? Why regen ag and food?

Phil Graves 01:51

Well, soil's key to our future. I started my career working with a global consulting firm, and I realized that we spend so much of our lives at work, decoupling your craft from your personal values and interests, just something that really bothered me. And so that's what led me to Patagonia and Tin Shed Ventures. And then now when we look at some of our most intractable environmental problems that we face, with the climate crisis going on right now, soil for us seems like our most compelling solution to help mitigate some of these problems like global warming. And with our food business - we make and sell apparel and we've done that for nearly 50 years - you eat every day and for us that's one of the key reasons we launched Patagonia provisions, our in house food business, why we have Tin Shed Ventures, our investment arm where we can fund regenerative ag and scale this movement. And that's what gets me excited each and every day to come to work and make the world a better place for my three young daughters.

Koen van Seijen 02:55

And when you look at the regenerative ag and food movement, we were talking about it before I started recording, it seems like we're having a moment and we're having a moment in the movement. What excites you the most at the moment when you look at regen ag and food?

Phil Graves 03:10

Well for me, the data has been compelling for a long time where you look at chemical ag, industrial ag, conventional ag... I prefer chemical ag just to call it what it is. There have been decades long studies, agricultural health studies, that show that the incidence of cancer rates for farmers, the health of the soil, all of these things, the taste, nutrition, are deteriorating at a rapid rate. Our health and the food that we eat is literally killing us. So it's been very refreshing to see some of these studies come to light. They've been buried in academic papers for a long time. But you're starting to see the movement with roundup being banned in Germany, Bayers backyard, that was headline I loved to see a couple weeks back. And of course you can identify a problem but that's not going to help anything if you don't identify a solution. And now with the spotlight being on regenerative organic agriculture, it's something that Patagonia is keenly interested in right now. We helped develop a new certification called regenerative organic certification, which of course being tied to organic doesn't use harmful chemicals, but goes broader than that to encompass compassion to the workers that are key to the farmers supply chain, compassion to the animals to ensure that they're treated with dignity and respect, and then importantly the soil itself to so not just avoiding chemicals, which of course is a great first step, but looking at tilling practices and cover crops and crop rotations actually building healthy soil that can sequester crawl carbon and be one of our best shots at tackling global warming.

Koen van Seijen 04:53

And when you look at what you've done so far, you've been setting up a food brand, Patagonia rovisions which are very link below because you have a lot of amazing videos and stories to really explain the ingredients in that brand. You've set up a new certification scheme. And what's next for Patagonia when it comes to, of course what you can share, what's next for Patagonia and Tin Shed Ventures when it comes to regen food and ag, what's most exciting for you at the moment we're talking October 2019.

Phil Graves 05:22

I'm proud of what we've done thus far with Provisions in Tin Shed, but I really feel like we've just laid the foundation at this point. We've got a lot of great stories out there, whether it's Kernza beer, Kernza is a perennial grain that is a great alternative to annual wheat, it's got a deep root system that needs less water, fewer nutrients, and is a terrific regenerative crop. That's one example. We've invested in a buffalo company that's restoring the the Great Plains of South Dakota, they make a delicious product. We're selling buffalo jerky through Patagonia Provisions, our food arm. And then the most important part is the Great Plains ecosystem and the soil health and bringing bison back to the prairie. And that for us has been a great example to show that you can bring these products to market and build regenerative food supply chains, but if we stopped there, we failed. We've got to get these practices to scale and that's where we're delighted to see some conversations that are actually resulting in action with some of the bigger food companies adopting Kernza. Some of the biggest bison herds in the land are looking at a wild idea over the fence, literally, and saying "Hey, we like this practice of raising the bison on the prairie and harvesting them on the prairie". So there's no grain that's fed to them their entire life because that's how they were designed to be for thousands of years. So it's something that, to say it's a succinctly, we're looking to scale these practices over the next five years.

Koen van Seijen 06:53

And when it comes to investing, what do you see the role of Tin Shed Ventures in that? How do you see the role of an investment fund, a long term investment fund but still an investment fund, in the regenerative food and ag space?

Phil Graves 07:07

The key word you mentioned there is long term. When you transition to organic, as many farmers are painfully aware, it takes some time. It's a three year process to convert. Whenever you flip from conventional your soil is dead, it's been growing crops on these synthetic harmful inputs and the intent in chemical ag is to sterilize the soil. So out of the gate, you're going to have lower yields, you're going to not realize the organic premium, and it's a really difficult place to be in financially when you're trying to put food on your family's table literally and figuratively. So for the investors that want to come to the table and fund this transition to regenerative ag from chemical ag, having that patient capital mindset, taking a long term view of the fact that this is a broken food system that we're trying to fix and to fix it it's gonna take time. You have to understand that it's not simply just buying seed, working the tractor and then harvesting your mono crop. You're gonna have to be really thoughtful about the crops that you play. What region are you in? What climate are you in? And now with global warming, getting worse and worse every day, you're going to have to deal with extreme weather events too. So it's finding the right creative farmers, problem solvers, giving them the capital to do great things. And then stepping back and not demanding, "Hey, what was our financial return last quarter? What's our net income last quarter". That's been our approach with Tin Shed Ventures. We don't ask for financials on a quarterly basis, we target entrepreneurs doing the right things and regenerative organic ag and renewable energy and the apparel side on innovations that can help us build the best product, the least environmental harm. We equip them in what they need in terms of resources, and then we let them do the great things. So we don't check in and what we've seen as a result of that is on the venture side we have 100% survival rate, knock on wood that continues, the return on invested capital is quite good. We're proud of that as well. And it's because we have that long term view, the Chouinards and Rose. Chouinards are of course our founders and Rose is our CEO, they don't demand to know how's the fund doing financially? It's how do we save our home planet? That's the mission. And by doing that, taking that long term view, you're able to have that strong financial returns. And I would encourage others to take a similar mindset when they deploy capital.

Koen van Seijen 09:32

And I don't know if this has happened, actually. But have you invested in farmers specifically, apart from the bison maybe, and how has that been through the transition as a fund which probably was set up more on the private equity side? Have you been flexible there? What have you seen in terms of your interaction directly with financing farmers, which is something that comes back to this show. Very often I hope to do a transition finance series specifically on farmers, so I'm very curious about your your interaction with farmers directly.

Phil Graves 10:02

Again, the key is is direct there, each time you give me a good word to latch on to. You have to have a direct connection with the farmers, that's what we found has been the best. So when we bring regenerative organic grains to market, buckwheat, for example, we actually go to the source, we meet farmers, we shake their hand, we look them in the eye, we see the practices they're doing, and then we hear what their pain points are. So another example where we've deployed capital to help enable this supply chain and build it from scratch in some cases is for the buckwheat that we're using with a Patagonia provision soups, we learned that the flour mills in the US are solely concentrated on annual wheat, and they don't have the ability to process any kind of ancient or specialized grains. And we had to, to get the product launched, ship it to Asia for processing. And of course, from a carbon standpoint, that doesn't make any sense and then then you look into the facts We used to have thousands of local flour mills in the US that can process specialized grains. With the industrial access to where everyone's growing corn, wheat, and soy, using Monsanto seed, those infrastructure pieces didn't exist anymore. So we literally funded a flour mill from scratch, and they built a flour mill that can process local regenerative grains like buckwheat and bring them to market through Patagonia provisions.

Koen van Seijen 11:30

It's probably something you didn't think you would fund when you said, let's do a number of soups, and then you went into buckwheat, and then you went into mills. But it's probably also the exciting part of being an investor in regenerative food and agriculture. It's all connected, meaning that we have to completely rebuild the infrastructure, and probably a lot more in grain and meat, etc. because most of that has been completely centralized. Also actually on the seed side.

Koen van Seijen 11:53

When you look at other investors in the space what would you see - because you have a very free role and a lot of flexibility to do things - what would you say for others, let's say outside this building, what are the main barriers for them to become more active?Because I see a lot of them are very interested, they start to see food and ag as an absolutely key part if you're interested in healthcare, education, inequality, climate, obviously water, but still I don't see a lot of them actually moving into the space and being as flexible as you. What would you see, what is the biggest barrier for them to be really joining you in this in this wave that you've been creating?

Phil Graves 12:29

You can join the movement apart from Patagonia. One of the things I'd encourage people to do is if you're working for a large food company that may, say they'd like to move to regenerative but you just haven't seen the follow through and the action steps is to create a clear case for why we should do that. I think you can look towards younger people and how they purchase food and clothing, and every product they want to ensure that it's made responsibly, they want to ensure that is on the apparel side a durable good, and for food they don't solely care about price, they want to know how nutritious this is for me, and how was the farmer treated in the entire process, how was the soil treated. Showing that business case, and that you can see it manifest through large traditional food companies buying smaller brands that are trying to do things the right way. You can make that change within. And again, I would encourage those trying to to shift their organizations to regenerative and organic ingredients in food to take the long term view, this is something that on a quarterly basis might not pencil out. In fact, our founder Yvon Chouinard said every time he makes a decision for the planet, it ends up making him money, but what he doesn't say is it may not be that next quarter, it's over the long term, its the cumulative effect. And I think taking the long term view, looking at building relationships with farmers and having long term partnerships, instead of a simple transactional relationship, that's key. And then on the flip side, showing the business case that consumers are clearly moving towards this in their purchasing habits. And if you are known as a brand that does things the right way, you build supply chains if they don't exist, and get these regenerative and organic products to market. Those are the brands that are going to succeed in the future. And in fact, those may be the only brands that survive in the future.

Koen van Seijen 14:18

And you mentioned consumers. Do you see I mean, you're under very much on the consumer side of things and on the producer side of things, do you see that growing interest? Because I think many people in the bubble obviously understand region ag, understand region food, understand soil but do you see a growing interest from the average consumer into something beyond organic or into something that really goes further in terms of soil building?

Phil Graves 14:45

I do. I think before I dive into the response, it's important to say how critical organic is the foundation of regenerative even if it's not certified, but the organic movement, while imperfect, it is made a lot of strides in the industry. And if you look at the premiums that customers are willing to pay for organic, even if they don't fully understand it, you know that helps with the business case and funding the transition too. And for us being paired with organic at Patagonia as a company that's used organic cotton exclusively since 1996 in all of our products. It's something we're really passionate about. So I definitely want to just as a foundation, lay the table for organic as a starting point.

Phil Graves 15:25

But beyond that, building on organic of the foundation, the good foundation, the solid foundation of organic is also really important too. We've done a lot of surveys with customers, as we're looking to further the regenerative organic movement and ensure the ROC certification scales well. And they care about these things. We've done customer focus groups across the country, so not just Patagonia customers or Dr. Bronner's customers, the types who would logically care about these types of products and demand it, but all over the country. And the universal feedback is that they care. And they want to have a comprehensive certification and ag that doesn't use chemicals where the animals are treated with respect. And the farmers and the farm workers are also treated fairly. These things matter, the word regenitive doesn't really matter to them. And I think we just have to use some really smart marketing and communication folks to help convey what we're doing to those customers, because these are the type of products they want.

Koen van Seijen 16:24

That's very encouraging. And we probably yeah, we need some great marketing people to to figure out soil building or something that that touches us much more. To come back to the organic discussion, what would you say, because I was just at a conference in Oakland on investing in regen food systems, and there was a lot of discussion around organic as we've heard, I would even say horror stories, of industrial organic, plowing, like there's no tomorrow. Basically just swiping one chemical for and let's say an organic chemical. And that's one of the reasons why organic probably has a bad rep and is not financed through green bonds, because of actually a lot of carbon, a lot of habits in terms of workers etc. that we don't want to. What would you say to a farmer that has been greatly reducing their chemicals, but is at that limit of cash flow, etc. and cannot make that jump yet? Is it absolutely essential to go organic first? Is there another route basically around and arrive at regenerative as well? Or is that really a first step you have to do step to organic before you go to step two, or three or four in terms of regen?

Phil Graves 17:27

Yes. Fair question. I think organic at its core is a great starting point. The premiums I mentioned a few minutes ago, those are real, I mean my background is in finance and I'm a CPA and you can't deny the fact that you can charge more for organic food. Now, as newspaper headlines are increasingly showing, you can have bad actors in organic and you can have fraud in organic where you're buying some organic products at Whole Foods and it may not be actually organic, and there's just a paperwork scheme. So that integrity of organic is incredibly important. And for us, you have to look at everything. That's why we built this comprehensive, three pillared standard rock where it takes into account soil health, it takes into account animal welfare, and it takes into account social justice at the farm level. We think moving a step in any of those pillars forward towards the high bar, whatever you want to call it, if it's ROC or regenerative organic without being certified, that's fine. But we think we should take stock of where we are with our food system, acknowledge that it's broken, and then encourage others to make steps. We personally feel strongly about organic, but encourage people to look at what regenerative practices you can begin with. Look at using as few chemicals as possible. The very short term goal to use no chemicals. Because we feel like as you can see in the beautiful film by our friends at Apricot Lane Farm, called the Biggest Little Farm, you can work with nature and have a farming and ranching operation that's in harmony with nature and use nature without paying anything to Monsanto for synthetic inputs, to have solid yields delicious food and build a great brand and a viable business from.

Koen van Seijen 19:12

I think it's an excellent point. It will be a discussion we're going to have I feel many, many times as we have to explain soil building. But it's something we need to keep coming back to. I want to end with a few questions. I always like to ask let's imagine there's, we're in a conference room here, but let's imagine there's a theater full of impact investors. They've read the books, they've been to the Biggest Little Farm, what would be your advice, obviously without giving investment advice, to get started. Because they haven't made their first investment yet. They haven't built or bought any farm. They haven't invested in a fund. They haven't made any investment in food and ag space yet, where would you suggest them to start looking?

Koen van Seijen 19:48

I'd say go direct and local if you can. I mean I think the local food movement is important but also we have to acknowledge that regional practices matter and wine in certain regions is better than wine and other reasons. Just to put it in kind of fun terms. But local is easy. So if you look in terms of talking to a farmer in your area and understand where are their specific pain points. If they're already organic, how do they move to regenerative organic. If they're a conventional farmer that's spraying chemicals every day, ask them how their financial situation is. And my guess is it's pretty bleak. It's all over the wall street journal about how small and mid sized farms are folding right and left, they're going bankrupt. And the only ones that are surviving are the mega farms, and even they are not doing as well financially. So understand what the farmers needs are and see if you can deploy capital in a way that can help get them on the journey or on the road to regenerative organic.

Koen van Seijen 20:43

And in terms of your work at the moment at Tin Shed Ventures ventures and Patagonia Provisions, what are you most excited about, what you can share, let's say what you're working on for the next few months? Let's say until the end of the year, or if we speak next year, at the same time, what would you look back on, what really excited you? Again, obviously, if you can share?

Phil Graves 21:02

Absolutely. ROC as I've talked throughout the interview is something that is our highest priority right now. There's a lot of science that affirms that regenerative organic farming and ranching can sequester carbon in the soil. And with climate weak happening with young people and old people getting out in the streets and demanding action, pointing to solutions as a key next step, and regenerative ag we think is again so important to build that healthy soil. ROC is imperfect. It's in the pilot phase right now, we're learning so much through the public comment period we had last year, to the pilots that are happening across the world now too. We are most excited about making rock successful, raising our game and our own supply chain with cotton, and with our ingredients for Patagonia Provisions being sourced in South America being Regenerative Organic certified here in the near future. And then again, we don't want these things to just be a Patagonia innovation. We make great environmentally responsible products tied to ROC, and that's where it lives. We want the big food companies, Danone, General Mills, you name it to take a look at ROC and maybe launch it with one product line, do an experiment, see how the customers react to that. My guess is it's going to be a good step, where you're going to take many steps after that?

Phil Graves 22:17

And would you consider that as a success next year, let's say we talk in October 2020, that at least one or two of these major food companies have launched a single line of ROC products? Is that what you can consider success or there's something else you're targeting or measuring, let's say a year from now.

Phil Graves 22:35

We want rock to be everywhere, on every grocery store across the world. Now that's an ambitious long term goal, I think a successful launch with some lines and sub-brands within some of the big food companies and seeing how those do, proving them successful, making it a scalable model for the farmer financially. Because again, if it works for Patagonia and Danone but the farmer is is not doing well financially, that is not a viable model. So we want to ensure that we can set this up to minimize costs without compromising on the integrity of this certification, be successful with launches to the pilot, and then have this take hold and see traction where it takes over entire businesses, billion dollar conglomerates. And of course, the little brands too. We feel like the future is bright for smaller brands that are willing to do things the right way. And we want to support them as well as the big companies as they transition to regenerative and organic.

Koen van Seijen 23:31

If you could wave a magic wand and tomorrow morning wake up and Phil has changed something. You could choose anything. What would that be in terms of food and ag?

Phil Graves 23:41

Well, moving away from chemicals would be the easiest thing too, and I think that's the the clearest first step. I'm a native Texan. And one of the things that I see all the time is when my friends have kids, they may not have eaten organic food previously, but they don't want to feed their baby pesticides. And they may not vote the same ways as we do in California, they may not do everything the exact same way, but they care about the human health aspect. And when you look at organic and regenerative organic, that chemical free aspect is really compelling to people. So I would love to wave the magic wand and get rid of roundup and glyphosate and any other harmful chemicals that are used in an industrial ag. And then of course, you know, I'd love to think bigger than that too, and beyond just eliminating the chemicals in ag moving to regenerative and building a healthy soil and sequestering carbon and using that as a solution to fight climate change.

Koen van Seijen 24:38

And as a final question, I always say final question and I come up with two or three more, what do you believe to be true in regenerative ag, what others don't? And I borrowed this question from John Kempf, and he always asked this on modern agriculture but I like to ask it on region ag. So what do you believe to be true on region ag that others don't agree with?

Phil Graves 24:56

Well, unsurprisingly, I think the fact that organic should be paired with regenerative is important. Again, whether it's ultimately certified or not, I think certification is one tool, but if you know your farmer and you source through them at the local market and you visited their operations. For example, I could go buy from apricot lane farms and they don't have a certification. And I'm good with that. Because I know John and Molly personally, and I don't need to have that certification. That may not be the reality for most people, especially if you live in a city. So certifications do play a key role, and I think the fact that organic is paired with regenerative in the ROC certification is incredibly important.

Phil Graves 25:30

And I'd encourage one of the big you know, personal things that I have, is that we can't look at regenerative in a silo. There are some organizations that say like, let's only till less, or let's reduce chemicals, and there's other initiatives and I won't name them and throw stones right now. And I think moving a step is good. But with the state of the climate crisis, things are really grave right now, and we have to go big and take a comprehensive approach and look at every tool in our toolbox for regenerative ag, organic ag broadly, and make solid progress on them.

Koen van Seijen 26:02

I think it's an excellent point. We saw it actually, again, and again with with the presentation of David Montgomery in Oakland. And as he always says, it's very easy for farmers to stop tilling for a few years and then say "Oh, this regenerative ag thing doesn't work". And unless you do the four or five principles, depends a bit who you talk to, but it doesn't really work, and it takes time. I think we lose quite a few that are doing two of the three or three of the four, and then a few years only don't align and say this doesn't work. And they get invaded by pests like the Biggest Little Farm, and if they would have given up at that point and start spraying, we would not have had this amazing example.

Koen van Seijen 26:38

I want to thank you so much for your time. I want to be conscious of your time, make sure we end on time, and thank you for your amazing work and hope to check in and see what kind of investments you've made and how you've put money to work to restore soil, people and ecosystems.

Phil Graves 26:52

Thank you so much was a real pleasure talking to you and I can't wait to see this momentum continue. It's good hold that it's got so far.

Koen van Seijen 27:00

If you found the "Investing in Regenerative Agriculture and Food" podcast valuable, there are a few simple ways you can use to support it. (1) rate and review the podcast on your podcast app. That's the best way for our listeners to find the podcast and it only takes a few seconds. (2) share this podcast on social media or email it to your friends and colleagues. (3) if this podcast has been of value to you, and if you have the means please join my patreon community to help grow this platform and allow me to take it further. You can find all the details on patreon.com/regenerative_agriculture or in the description below. Thank you so much and see you at the next podcast.

LISTEN ON:

Recorded live at the Patagonia headquarters in Ventura, in this podcast I discuss with Phil Graves of Tin Shed Venture and Patagonia Provision how they are investing through Tin Shed Ventures, a $75 million fund into regenerative agriculture.

Tin Shed Ventures is Patagonia’s corporate venture capital fund, which invests in start-ups that offer solutions to the environmental crisis. 
tinshedventures.com

Patagonia Provisions is a concerted effort to reshape our food chain using organic, regenerative farming practices,
www.patagoniaprovisions.com

Working closely with Rodale Institute, Patagonia Provisions created Regenerative Organic Certification to establish a new, high bar for regenerative organic agriculture.
regenorganic.org

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The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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