What kind of systems thinking is necessary to design investment products?

As part of the Transition Finance for Farmers series, Benedikt Bösel and Koen van Seijen interview Robyn O’Brien of rePlant Capital. They discussed why farmers should be involved in every conversation and should be on the board on any food, agriculture, agtech, but honestly any company.

Links to the interview:

Why we talk with an ex commodity food analyst about transition finance for 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. 

In this blogpost, we dive deeper into what kind of systems thinking is necessary to design investment products that really help farmers to transition towards regenerative agriculture. For instance, a loan where the interest payments are tied to measurable changes in soil health and why farmers should be involved in every conversation and should be on the board of any food and agriculture ag tech, but honestly, any company.

A bit of background on Robyn: Robyn O’Brien is the co-founder of rePlant Capital, a new financial services firm. rePlant is creating financial products, which addresses the most pressing issue of our time, climate change, through a series of innovative captive funds focused on direct investments. rePlant is partnering with farmers, ranchers, large food companies and technical assistance providers to facilitate more resilient agriculture practices at scale.

Robyn’s career has always been in the food industry. She went to business school at Rice University and when she graduated, she joined a team and managed $20 billion in assets. When her children started to get allergies, she started digging into food, and quickly landed the big question:

Are we allergic to food or are we allergic to what’s been done to it?
As I began to ask that question, there were certain agro chemical companies that were really upset that I was asking the question. There were other big CPG (processed food companies) that also were really upset that I was asking the question, but I couldn’t not ask the question. (Robyn O’Brien)

We have a global opportunity in front of all of us to take the food system that we’ve inherited and say, do we want to embrace this going forward? And what pieces are actually needed and required to build a food system that works for the 21st century? And it’s not just for the 21st century consumer that now has diabetes or food allergies or autism, Alzheimer disease or cancer or any of these conditions now hammering so many of us. But it’s also how do you actually build a food system that works for the farmer. (Robyn O’Brien)

As Robyn spoke to farmers, they were saying that their own kids don’t want to step into this operating model. The kids don’t want to step into the debt levels, the chemical loads. They’re not interested in being on the hook like this. Which means the farmers in the United States (and in many other places around the world) have a real legacy issue for their farms. Who is going to take over their farms in the next 10 years?

Robyn and her team at rePlant realised that there was enormous opportunity to come in, as a value aligned, really well educated capital partner and help the U.S. farmers finance this transition.

Replant capital now offers a menu of solutions that is informed by their technical assistance partners, by farmers that they have worked with and by the food companies. Basically a list of different opportunities for farmers to partner with them so that they have the capital that they need to deploy whatever their unique situation might be.

Trying to answer the question:
How do we convert from conventional chemically intensive agriculture to regenerative agriculture to build soil health?

Cover crops, the least intimidating place to start the regenerative transition?

When a farmer has been growing conventionally using the agrochemicals sweet of portfolio for the last 20 years, to really kind of start with something as simple as cover crops. It does not feel intimidating. It feels accessible. (Robyn O’Brien)

With cover crops it’s the seeds that need to be purchased and depending on the crop maybe different equipment needs that needs to be financed.

Another area of interest to Replant capital is water conservation, water metrics. Especially dairy farmers are really interested in how they can be smarter about water conservation on their farm. Where Replant capital could end up financing the water sensors, or the moisture sensors to help save water.

Another example could be where Replant partners with an organic farmer who already has seven thousand acres under management and he/she wants to acquire two thousand more. Buying the land and leasing it back to the farmer isn’t the approach of Replant capital, they don’t want to operate as land lords, but using their loan soil fund. 

We’re obviously producing food, but we also taking care of the land. We’re also taking care of the animals. We also take care of basically the aesthetics of it. We also take care of the environment in some way. And that has value to it. It has value that you can basically monitor. You can monetize it. (Benedikt Boesel)

So when we talk about climate change, when we talk about the problems we face as a society on a worldwide level, don’t we have to completely change the talk and the topic and the view?

How we see basically agriculturists as people who are in the forestry who actually do take care of the land, that they’re basically caretakers of the land and they produce food.

The language around farming in the United States, and it sounds like around the world, was focused on yield and that was the only value that a farmer was producing was yield. (Robyn O’Brien)

What if we were to focus on profitability for the farmer? What would that actually look like?

Tying the cost of capital to Soil health 

Replant’s loans are tied to soil health. If the farmers is demonstrating it with improved soil health, higher organic nutrient density, water conservation, water infiltration, carbon sequestration, the stronger those metrics are, the lower his or her cost of capital. 

By tying the cost of capital to the health of the soil, you’re actually being compensated directly for those better practices.

The problem with Agtech startups in the space

My first question is always, do you have a farmer on your board? And unfortunately, most of them don’t. They don’t think that way. (Robyn O’Brien)

Which means we have these brilliant minds coming out of the tech world, coming out of Silicon Valley, sincerely trying to help, trying to create solutions that are really tackling some of these systemic issues in the food system. Whether it’s water, soil, health, looking at different ways, that they can leverage ag technology on the farm.

But unless there’s a farmer who is core on that team, you could be creating something that’s never going to be used or adopted on the farm. That’s hundreds of millions of dollars system wasted that really we can’t afford to waste at this time. (Robyn O’Brien)

It doesn’t matter what industry you’re in because your employees are completely dependent on food. (Robyn O’Brien)

Main take away of this interview: get to know your farmers! They need to be part of every decision. For being such a critically important part of society, farmers should be represented at every table.



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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