How would two of the most experienced impact investors in regen ag and food approach the financing of regenerative transition?

As part of the Transition Finance for Farmers series, Benedikt Bösel and Koen van Seijen interview Sallie Calhoun and Esther Park of Cienega Capital and the #NoRegrets Initiative. We looked into uncertainty, risk, financial models, scale up vs scale across.

Links to the interview:

Why are we asking an ex software entrepreneur about investing in transition finance for regenerative farmers?

Many farmers are ready to speed up to regenerative transition. They’ve looked for learning, done the courses, read the key books, hosted the gurus on their farms, explored farm sized regenerative designs and most importantly, started their pilots and feedback loops. This is where transition finance is key. A local bank loan often isn’t feasible because of the short duration, lack of flexibility and the farmers lack of collateral. Furthermore, there’s a limit of how much equity a farmer is able or willing to give away. 

That is why my co-host, aspiring to be regenerative farmer Benedikt Bösel, and I are embarking on a journey to find out what are the key principles of transition finance for regenerative farmers. We are having conversations with leading practitioners in the regenerative agriculture and food finance space. They share the insights how they would finance the speed up after regenerative transition on Benedict’s 1000 hectares, which is almost two and a half thousand acres farm in Germany, close to Berlin. 

In our conversation with Sallie Calhoun and Esther Park the founders of Cienega Capital and the #NoRegrets Initiative.

A bit of background on Sallie and Esther: 

Sallie spent about twenty five years in technology and, then, almost 20 years ago ended up becoming a rancher in central California. Since then, she has been doing a lot of work on the ground around regenerating healthy ecosystems while producing food, fuel and fibre. Also, she managed to get into impact investing and philanthropy around just the same issues. And that whole effort is called the #NoRegrets Initiative, which was founded in 2018. 

Esther heads up Cienega Capital, which is part of the #NoRegrets Initiative, and Cienega acts as their private investing vehicle where they invest in regenerative agriculture enterprises. So that includes farms and food businesses.

We asked how they are approaching a farmer knocking on their door, looking for transition finance, to go faster in their regenerative transition. How are they, as private investors, donors and funders looking at cases like that?

Esther: 

What does going faster mean and what does that look like? I try to understand what kind of existing business and revenues are going on at the farm and see: 

Is there a clear line between what’s going on today and what you plan or hope to have going on in the future? 

– What is the acceleration of that line look like? 

What does that mean to you? 

What kind of financing do you think you need for that?

After that we would just go into questions around the planning, the financial model, understanding his/her local situation and the markets that surround it. 

And if it’s a reasonable plan, what we would try to figure out what is the right financing, appropriate for him/her. 

It could mean that there’s a debt investment, a loan of some kind, or if the farmer has some kind of operation where they are aggregating product from multiple farms and selling under a common brand. There could be an equity play there. 

Benedikt on how to deal with uncertainty:

I want to regenerate the land, I want to change the regime of treating the land which is supposedly going to soil health. Maybe I will need five, six, seven, maybe 10 years in which I will have to change, the whole setting, basically the whole philosophy of the farm. 

Many questions arise: How do you bring this highly uncertain and over time changing vision and translate it in a financial model and an investment plan where you would like to communicate the least uncertainty possible? How can you find the right mix, while being responsible about disclosing risks and uncertainty when you’re taking on a third party money?

Sallie argues that there is, indeed, tremendous uncertainty. None of us have any idea how this really turns out at scale or how we could make this happen. But maybe it’s just that the uncertainty here is more obvious than it is in a lot of places. Maybe Esther and Sallie are less willing to believe some spreadsheet that’s been finagled than a lot of other people are. 

If you look at venture capitalists, they assume that at least 50 percent of their companies will just fail, 40 percent will probably not do well. So they are taking this huge risk. But unfortunately, in our society, then we want this giant possibility of return in exchange. 

Maybe the perception of financial return of market rate is higher than it actually is in the market.

Right now that probably means you have to find investors who are willing to look more broadly at return and take social and ecological returns along with the financial one. But how do we get the whole world, the whole investment world to feel that way?

Flexibility

How do you build flexibility into the financial products for farmers? How do you take into account that over a time span of maybe 10 years, maybe the farmers will have three or four years that where they face a crisis and there might not be an annuity being paid?

Esther:

You can build in flexibility into financial products. We do it all the time. I think what the real flexibility that needs to happen is in the mind and in the frameworks that we think about things.

Look very closely at cash flow and, when issuing a loan, you can build in certain structures that make sense for that cash flow. Like giving a grace period the first 12 or 18 months because the company or the farm are going through an investment period where there won’t be enough cash flow to pay back the loan.

Scale

What is scale? Looking at traditional agriculture, we have scaled that and look at how that turned out. But now some questions remain open:

– How do we scale across as opposed to scaling up? 

– How can we take models of people who are doing this well both ecological and financial and how can we replicate that across regions and climates and soil types?

Many thanks to Sallie, Esther and Benedikt for unpacking the role of investors in the regenerative transition with me! 

LEARN MORE ABOUT THE TRANSITION FINANCE FOR FARMERS SERIES.

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For feedback, ideas, suggestions please contact us through Twitter @KoenvanSeijen, in the comments below or through Get in Touch on this website.

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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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