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Hi again. Here's your weekly roundup of some things I find interesting as I get back into this.
💸The greatest investment opportunity ever
Last month, I went to the Regenerative Food System Investment forum, a conference that focuses on regenerative agriculture.
Quickly: conventional/industrial farming degrades topsoil, which degrades food quality and has massive environmental and health impacts. It ends up becoming more expensive because yields fall and the sterile soil requires more inputs (fertilizer, water, etc.) to produce the same outputs (crops). Consensus estimate is we have 50-100 harvests left before all soil is dead and can no longer produce crops/food. Regenerative agriculture, in short, is a farming method that improves the soil, reversing all of that.
The focus of the conference was on how to make regenerative agriculture more mainstream, and the first session started off with this slide:
I’m (very) bullish on regenerative agriculture. But I saw that and thought: Really? EVER? That seems a little too “rah rah let’s go fundraise.” Over the course of the next two days, my tune changed a bit.
For a conference, this was very small (~300 people with a short waiting list). But the make up was fantastic: lenders, venture capital, investment banks, start-ups, distributors, and farmers. Farmers calling BS on anybody creating overly simplistic and idealistic solutions to problems that aren’t the real problems. I have never before been to a conference with such a diverse group of people. And I have never before been in a room where hundreds of people are actively working on solving a singular (very hairy) existential problem. Not because it’s a buzz word that collective capital decides is exciting (👋 web 3), but because it’s the kind of problem that capitalism was built to solve. In doing so, we will prevent an economic implosion while expanding the biggest sector of our economy.
“Man – despite his artistic pretensions, his sophistication, and his many accomplishments – owes his existence to a six-inch layer of topsoil and the fact that it rains.”
Preventing economic implosion: Farmland is a $3 trillion asset class. Over the last 25 years, valuations have soared while performance (in terms of both yield and cash) has dropped. Within 60 years, most farms will be completely unproductive. Not “oh I guess we’ll have to jumpstart them now” unproductive. Dustbowl, dead dirt, nothing grows in this sandstorm unproductive. Farms and ranches cover 1 of every 5 acres in the US, all of which could die.
That six inches in the quote above is now closer to one inch due to the way we have farmed since the industrial revolution - heavy tilling, heavy inputs, purely extractive. Conventional farming is inherently risky, but this risk hasn’t been priced into farmland valuations and is not even on any lenders’ radar screens. I can confirm from first hand interviews.
The financial imperative to act is massive.
I can think of only one time in recent history when risk wasn’t priced into an entire asset class. It did not turn out well (👋 2008). But calling this a $3 trillion problem is significantly underselling it. Because, of course, farms aren’t just the farmland. They’re vital businesses. They provide food, feedstock, textiles, and fuel. One study estimates that nearly 18% of the US economy and 29% of all American jobs are linked to agriculture. For those keeping score at home, that’s an additional $4.1 trillion dollars in economic activity. So if farms die because we haven’t put in place the right incentives to enable farmers to build value alongside valuation, so too dies $3 trillion in asset value and $4 trillion in additional US GDP, including $2.3 trillion in wages, $718 billion in tax revenue, and $182 billion in exports. But who cares, right?
The opportunity is not just preventing the death of the US economy’s cornerstone, but a massive expansion of it.
Expanding the biggest sector of our economy: Today, 89% of farmers have a second, off-farm job because farming does not pay a living wage. That means nearly every farmer spends productive time not farming just to put food on their own table. That on its own should tell you how screwed up agricultural economics have become. So we’re maintaining $7 trillion in economic value with a part-time work force that’s quickly aging out of the profession.
Farming is an entrepreneurial feat that requires a huge amount of capital to start, requires understanding of soil science, botany, chemistry, supply chain, distribution, and cash and P&L management. If you want to do something truly hard, be a farmer. But we’re missing the cadre of young farmers who are capable of stimulating and innovating industries because the industry is so unappetizing (pun!). What entrepreneur wants to start an incredibly difficult business that’s no longer revered by society while also being forced to ingloriously work at the local CVS to just buy food?
Creating a more productive farm means higher profit. Higher profit means more entrants. More entrants mean more innovation. And on the flywheel goes.
It’s fun to talk about regenerative ag to people. Because, what do you care about? Health and nutrition? Climate? Resilient domestic supply chains? Economic growth? Economic mobility? Food prices not swinging with the cost of oil? All of it has roots (another pun!) in regenerative ag. It’s not a silver bullet, but does solve the critical issue of unproductive land while being the spark that kicks off the flywheel. Imagine what could be built on top of a healthy agriculture platform? The internet spurred so much growth and innovation in how we communicate. Regenerative agriculture can spur growth and innovation in the cornerstone of the American economy - how we grow and distribute food and fuel.
This stuck with me:
We can still have nice things:
— Nico
www.nicochoksi.com | @nico_in140
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