Brett Hundley – From Tyson Foods equity analyst to financing millions of trees

A conversation with Brett Hundley, President of Agroforestry Partners (AP), a fund that invests in agroforestry projects on farmland with the strategy of providing uncorrelated and attractive nature-based investment opportunities for investors.
We talk about moving away from an agricultural system that relies on annuals to a system that relies more on perennial trees. If trees are the answer to whatever the question is, how do we get millions of more trees into the ground?

LISTEN TO THE CONVERSATION ON:

We all know that pereniallisation of agriculture- simply meaning moving away from an ag system relying on annuals (plants you plant and harvest in the same season) to a system which relies more on perennials trees for example, but also vegetables like asparagus, etc- is fundamental, simply from an energy efficiency perspective, let alone from a health perspective multi year roots have a lot more time to absolve fundamental nutrients.
If trees are the answer to whatever the question is, how do we get millions of more trees into the ground?

How do we finance them, and how do we make the key stakeholders, the farmers- that need to give agroforestry operators access to their land for 20 40 or maybe a 100 years- comfortable with these farming systems? How do we get comfortable with writing these checks the other essential stakeholder investors that need to pore hundreds of millions into an industry and a system they are not really used to, with long time horizons (chestnuts, for instance, take 7 to 9 years before they bare fruit but could produce for at least 50 or even hundreds of years)?

LAND LEASE VS. LAND BUY MODEL

At Agroforestry Partners, they operate on a land lease model as opposed to a land purchase model. They believe that leasing land is a much more efficient form of capital than purchasing land.

”It allows us to take more of the funds that come in the door and apply them to getting trees in the ground as opposed to buying land. And then, number two, our land lease model allows for farmers and landowners to participate in this work, hold on to their land, and realise the incremental value that will be derived from doing this work instead of buying their land and incorporating it into a bank or a corporation. So, we take that very seriously. We want farmers and landowners to be along for the ride. We want them to participate in the value creation from this work. And so, we operate a land lease model. And because of that, we take some of that capital that comes into our fund. And we pay out leases each year, at the start of each year, to our farmer and landowner partners for access to their land. And then, of course, we take the remaining funds, and we buy trees, and we stick them in the ground.” – Brett Hundley

WHY CHESTNUT TREES ARE SO INTERESTING

Chestnuts have the potential to solve environmental and economic problems, but require patience as they take 7-9 years to bear commercial fruit. Farmers in the US can make $50 to $300 per acre in profit from corn and soy farming, but with their chestnut hay projects, they can make more money and have more control over their land.

”Chestnuts solve tons of problems. From a nature standpoint and from an economic standpoint, chestnut trees have incredible economics behind them, between what you’re able to purchase them for and then how you’re ultimately able to monetize them. So chestnut trees themselves will not begin bearing a commercial harvest until about year seven, eight, or nine. So, there is a fairly long lead time from the point of setting the tree in the ground and realising a commercial harvest where you can sell that product into the marketplace. Now that being said, they have a fairly low-cost profile; you can buy the tree, set it in the ground, make sure that it survives its first two to three years, and there’s very little maintenance that comes alongside the tree thereafter.” – Brett Hundley

”We pay our farmers a very competitive lease rate; we pay our farmers about $200 to $300 an acre for access to their land. And then, like I said, right now, in the hay chestnut, alley crop projects that we’re implementing, our farmers also get to run hay in the alleyways of our chestnut trees, and in the money that they can make from hay right now, combined with the lease payments that we make to them, many times, it’s more advantageous for them to join our chestnut hay projects relative to the corn and bean farming that they were doing. And they don’t have to deal with the US government as much when it comes to crop insurance. They’re rehabilitating their land in the process. There are many financial and nature-related benefits for them to do this and join us. And on top of all of that, they get to keep control of their land, which is really important to them.” – Brett Hundley

”We really feel like we bring a win-win-win to the marketplace, a win for the farmers, a win for investors, and a win for the environment and climate.” – Brett Hundley

AGROFORESTRY IS KEY

According to Brett, they knew that they had to de-risk their first fund as much as possible, so they planted on a fairly concentrated grid. The good thing about it is that they are quickly rehabilitating the old corn and bean land because of the number of trees that are going in the ground on a per-acre basis.

”In the spirit of simplicity, our initial approach to these projects is to plant fairly concentrated plots of chestnut trees. […] We’re doing that for simplicity purposes as well, as we know early on here that we have to get the financial return profile. In order to expand agroforestry specifically and regenerative agriculture more broadly, the return profile has to be there for risk capital that is coming into the market and offering up capital upfront to initiate and expand these practices. And if you do not get a financial return back to those initial investors, you really run the risk of taking two steps back after a foot forward in trying to implement these regenerative agriculture practices. So, we knew that we had to get the financial return profile.” – Brett Hundley

WE NEED TO EDUCATE THE INVESTOR COMMUNITY

At Agroforestry Partners, they aim to educate the investment community on regenerative agriculture and overcome cultural hurdles to adoption.

”This individual is extremely intelligent, very smart. But when we were walking around the farm, he said, Brett, I just don’t know what I’m looking at right now. I don’t really know chestnuts, I don’t know chestnut trees, I don’t really know alley cropping, how trees interact with hay, or anything else going on. I don’t understand the economics of everything, and I don’t understand how to analyse my risk. And we spent a long time going through the due diligence process with him. And I just remember him talking about what a challenge it was for him to analyse this, even though he had a forestry background. And that same situation gets replicated time and time again.” – Brett Hundley

”We’ve realised that offering a fund that overcomes the financial and technical hurdles to agroforestry adoption and regenerative agriculture adoption is not enough. We’ve realised that there’s a third hurdle, a cultural hurdle, where we really need to educate the investment community. We need to educate the farming community. And we need to educate society on regenerative agriculture and why it’s needed.” – Brett Hundley

”So, if you go to our website, you’ll see that we have a lot of research papers in place. I spend a fair amount of my time composing and producing those research papers to put in front of investors, to put in front of other stakeholders to help them analyse what we’re doing and make an informed decision. And then the other side of that is just walking investors through specifically what we’re doing in our projects. And why they might differ to what they read in the news.” – Brett Hundley

OTHER POINTS DISCUSSED

Koen and Brett also talked about:

  • Why agroforestry partners was set up
  • Why trees are the answer, whatever the question
  • Why we should focus on the breadbaskets of the world- Brazil, US and some countries in Europe- to integrate trees
  • The importance of carbon sequestration in agroforestry investments
  • Loss of nutrients in food due to current farming practices
  • Trees are the answer to many problems in agriculture, including depleted soils, lower nutrition in food, and biodiversity loss.

LINKS:

LINKED INTERVIEWS:

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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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