IMP Matrix Rating: C6
What: the Mad Agriculture Perennial Fund is the first transition finance fund facilitating the conversion of land from conventional, input-dependent agriculture, to regenerative organic practices. It provides operating loans to farmers willing to - and with the capacity to - undergo such transition. The fund is unique in that it is managed by a mission-driven nonprofit, Mad Agriculture. Initially this meant that all operating expenses were funded by grants, thereby resulting in no management fees for LPs like us (in return for taking on the additional risk of providing catalytic capital to this new vehicle). It then evolved after the completion of the investment period into a new firm called Mad Capital, which will continue the pioneering work of the Perennial Fund. The Fund initially targeted a 9% IRR by providing farmers with a loan with two key features: a grace period to allow for the transition to happen, and repayment based on a share of revenues post-transition. However, the market demand was overwhelmingly in favor of more regular loans, which meant that the forecast IRR has been revised down to approx. 5%.
Who: the primary beneficiary is the soil, by being regenerated and therefore increasing fertility and biodiversity, as well as water retention and other positive environmental benefits. Our interest lies particularly in the capacity of soil regeneration to store carbon dioxide (CO2), and the transition to regenerative agriculture greatly enhances such carbon sequestration. Despite the fund’s name, soil regeneration and carbon sequestration will happen largely as a result of regenerative annual cropping, rather than conversion to perennial crops. A secondary but all-important beneficiary of the fund are the farmers who are now currently unbanked due to a lack of loan products suitable for the purpose. The fund will hopefully also be able to serve a racially diverse base of farmers and cooperatives.
How Much Impact: the fund aims to transition around 1 acre per $1,000 dollars in funding. Therefore, assuming the fund reaches its target size of $7-10 million, we can expect between 7,000-10,000 acres (equivalent to 2,800-4,000 hectares) converted to regenerative agriculture in the midwestern United States. We know from Project Drawdown that regenerative annual cropping is among the most effective ways to capture atmospheric CO2. Assuming Drawdown’s 25 tons of CO2 per acre sequestration rate, we can therefore expect 175,000-250,000 tons of CO2 sequestered by the fund, depending on its final size. Our calculations shows a $/ton CO2 ration of $60-100 vs. the philanthropic benchmark estimates of $1-10/ton CO2. Therefore, further efficiency for the fund will be achieved only in the future by successfully scaling the effort (becoming a bank rather than a fund?) and into developing countries. We hope this will be possible given the addressable market of 20+ million acres requiring over $100 billion in transition finance.
Our Contribution: We followed the fund since its infancy in the fall of 2019, and participated into the first close at the end of 2020.
Impact Risk: The main risk to transitioning acreage to regenerative agriculture lies in the difficulty of measuring regeneration, it being such a multi-dimensional target, slowly evolving over time and at different rates for each geography and crop. Therefore, the implementation of robust impact monitoring and evaluation will be crucial. Moreover, the fund runs the risk of only lending to non-diverse legacy white farmers who have historically farmed with chemical inputs and therefore depleted the soil that the fund is now trying to regenerate. Therefore, it needs to be careful to provide loans to a racially diverse base of farmers and cooperatives who could also shift the paradigm of how agriculture is practiced in the US.
Sample Investments: Vilicus Farms in Montana, Hidden Stream Farm in Minnesota, and Knuth Farms in Nebraska
