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Building Rural Resiliency and Food Justice with Mark Watson
203 Plays2 months ago
Today’s guest is proving that financial models can prioritize the well-being of farmers and the resilience of our food systems—not just financial returns. Mark Watson, president and chief investment officer of Potlikker Capital, leads a fund dedicated to supporting BIPOC farmers in the U.S. who operate at the intersection of racial and climate justice.
Drawing from his extensive background in conventional finance, Mark sheds light on why our current economic systems fail small farmers—and how Potlikker is pioneering a blended approach to overcome these challenges.
How can rural BIPOC farmers thrive in an industrialized, consolidated food system? Mark is helping to chart the path forward.
In this episode, we cover:
- Mark’s journey from traditional finance to seeing the need for a new kind of financing for rural BIPOC farmers.
- Potlikker Capital’s strategy for building a networked, resilient food system with an emphasis on supporting farmers of color.
- The revolutionary power of de-centering financial returns from the investment process.
- How they’ve structured their organization to invest wisely.
- How to engage the broader investment community in food and racial justice work.
- And much more...
More about Mark and Potlikker Capital:
Mark Watson is the President and Chief Investment Officer of Potlikker Capital. Previously, his impactful tenure as Managing Director of the Fair Food Fund mobilized catalytic capital to enhance community access to healthy food and promote local ownership in food production and distribution, always with a focus on social equity.
In addition, Mark founded Keel Asset Management LLC, a pioneering financial advisory firm dedicated to providing socially responsible investment solutions to nonprofits and public and corporate pension plans. His career began in commercial banking at the First National Bank of Chicago (now JP Morgan Chase), where he amassed over 30 years of experience managing investment portfolios for foundations, endowments, and institutional pension funds.
Notably, Mark co-designed and launched the Boston Impact Initiative Fund, an integrated racial justice capital fund that successfully deployed capital to over 30 small businesses. He continues to contribute his expertise as an investment committee member for the Fund.
He serves as an advisory board member of MIT/Health Innovation Systems Inc., Director of Transition at The Institute of Educational Leadership, board president of Sustainable Cape, Inc., and was previously a board member of the Social Venture Network.
Agrarian Futures is produced by Alexandre Miller, who also wrote our theme song. This episode was edited by Drew O’Doherty.
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Transcript
Generational Land Retention and Community Support
00:00:02
Speaker
These are families often who have held this land since the Civil War. And you see, despite the fact that they don't have any money, they have held onto this land. They have lost have got to support the leaders in these rural communities that they are our solution for all of us.
Introduction of Agrarian Futures Podcast
00:00:33
Speaker
You are listening to Agrarian Futures, a podcast exploring a future centered around land, community, and connection to place. I'm Emma Ratcliffe. And I'm Austin Unruh. And on the show, we chat with farmers, philosophers, and entrepreneurs reimagining our relationship to the land and to each other to showcase real hope and solutions for the future.
Mark's Vision for Social Impact Finance
00:01:04
Speaker
So Mark, thank you so much for being with us today. We're really excited to be talking to you. You have a long career in the financial industry, both traditional financial industry and also more of the social impact space. To start us off, I'd be really curious to hear how is your vision of what the financial industry should look like evolved over your career, especially as you went from the traditional financial industry to working at Boston Impact Initiative and then Fairfund and now to fund potlicker capital. So first of all, thank you, Emma and Austin and Agrarian Futures for inviting me to talk about
Mark's Journey into Finance
00:01:44
Speaker
this. This is a big question. I'm now in 61. So there are a lot of years to account for. But I actually ended up in finance by accident. This is an important fact. And I went to University of Illinois in Champaign Urbana, an agriculture school. I had no interest.
00:02:05
Speaker
I mean, we did cow tipping at night, but that's about it when I was in college. And I needed a summer job to pay my student loans. And the only job that I got was a summer internship at a bank that's now part of JP Morgan called First National Bank of Chicago. And it happened to be working for the CFO and treasurer of at that point, First Chicago was one of the 10 major money center banks in the US. And little old me, a junior in college was responsible for calculating the daily cost of funds for the bank and reporting it to the CFO. And I sat next to the trading floor. And the reason why that's important is most people's first introduction to banking is a loan or some sort of financial product. And mine was from a bird's eye standpoint. So I knew that financial institutions and in and intermediaries buy and sell money and they do it in different increments. And that is part of the flow of money.
00:03:04
Speaker
in the system. So it and I didn't realize it then, but it was a bedrock of things to come in my career. And I was 20. I ended up being very fortunate to be invited to start a pension management firm in Chicago and then working for a British insurance company that's the largest shareholder on the London Stock Exchange. But based in Chicago, I ran together are three other people, a public equity business for global investors. And then I had an invitation to go to New York for a very fast growing pension management business in Manhattan.
00:03:40
Speaker
that grew from five to 15 billion over really just six years. And I was the third most senior person, all a very traditional and very interesting career.
Shift to Mission-Aligned Investments
00:03:52
Speaker
What made me switch at 38 was a realization of how much money tends to pull in certain pockets of the universe and how little tools and other pockets of the universe. And I picked stocks or managed bonds. I had pretty good foundation in traditional finance. I went through credit training. I've done public finance, corporate finance. I was a very lucky person to get a survey and really the first 20 years of my career of what traditional finance.
00:04:22
Speaker
So I took that knowledge and upon an invitation by one Chicago based foundation that asked me to create a mission aligned investment portfolio. I had never even considered that you could talk about investments and mission in the same sentence. Ask me to see if I could do that. And so I developed a strategy for them to realign their endowment along their values. It was a social justice Chicago based organization.
00:04:53
Speaker
And that was sort of the second major inflection point. The first was that internship. The second was this client asking me to create a product for them. And that led me on a journey from basically 38 to 61, trying to learn all the different ways that you can use money.
00:05:15
Speaker
and capital to do what it should be doing, which is supporting humanity, not the other way around. And unfortunately, I think Western society centers the investor at the center of all that revolves around the sun. And in reality, it should be the outcome, um the expected outcome.
Integrating Traditional and Social Finance
00:05:36
Speaker
If you want healthy food, then what are the inputs to create it? And the money aligns with that, not in service of the returns on the money, which is the way things I think are set up. Over consolidation of the food business, the lack of downside protection by farmers, are all things that are done in service of returns, not the resilience of food system or healthiness of an array of food for communities or priorities are out of line. So I have spent the last, as I mentioned, 20 plus years looking at social impact bonds,
00:06:14
Speaker
helping the founder of BII to create a charitable loan fund, which at that point in 2017, there were only 12 and now they're a plurality and part because we helped teach other people to do that and Potlicker is still doing that as well. Potlicker itself is a charitable
Potlicker Capital's Mission and Structure
00:06:30
Speaker
loan fund. We can talk about that later if you'd like, but it's been all these things and the benefit I think I have is I don't have to throw out all the old to invite in the new.
00:06:41
Speaker
And by that, I mean for a lot of the mechanisms that we're developing around social finance, or mission-related investing, or program-related investing, all the different ways that we can talk about it, impact investing.
00:06:57
Speaker
It still at some point has to plug into the current system because in order to scale and move beyond a science project or a philanthropic project, money has just like food, has production, distribution, processing, those same functions happen in money. And so you have to think about what intermediaries and what entities provide those functions, even if it's mission related, you still need those activities. And that's what I've been trying to do. And that's where I am at this juncture of my life, trying to do the whole value chain, so to speak, of producing money that actually fits into reducing healthy foods in resilient communities, both climate and health wise. I hope I answered your question.
00:07:46
Speaker
No, you definitely did. And lots of threads that we can pick up there that I'm curious to get more into. But before you go further into kind of the big picture kind of questions, could you tell us a little bit about your current fun potlicker capital and what brought you to to start that project specifically? Sure. First of all, I am not a farmer. I don't even garden.
00:08:09
Speaker
And it's a struggle for me to have house plants.
00:08:15
Speaker
But I have had one constant value my entire life and that's justice for the planet and for people. I've had the good fortune of meeting Nelson Mandela and shaking his hand in Joburg. I've traveled a lot around the world and so I've had a chance to see the lot in life that many other people were less fortunate than I am and people who are more fortunate than I am live.
00:08:39
Speaker
And so since I was 12, I was all about equity and justice. And so that has led me into working with similar minded individuals who were interested in finding ways to support equity and justice, whether it was small business lending or food or agriculture, or even just pure investing money.
00:09:08
Speaker
So that has been constant my entire life. And it has been local, a city like Boston or Boston Metro, it has been regional. I run ah loan funds on Cape Cod, I finance Fishers, all sorts of different experiments around providing just access to capital and knowledge. So I had i was fortunate to be on the Fair Food Investment Committee almost since inception.
00:09:37
Speaker
and had been invited to come in and redesign their existing fund, the Fair Food Fund. And while I was there, I had a call from someone that I met, a woman named Conda Mason, who started and runs Jubilee Justice, which is based in Louisiana, and works with farmers of color around growing rice sustainably. That effort was a programmatic effort, but needed money, the thing that we started this conversation talking about.
00:10:05
Speaker
But money as an input, not as the output. So she asked me to consider building an intermediary, and the name Potlicker had already been chosen. That it was not my brainchild. And Potlicker, for those who don't know, were listening to this podcast because I thought it was alcohol.
00:10:26
Speaker
Well, potluck is the juice that you have at the bottom of the pot when you make collard greens. And most people in the South and many African-Americans consider it a delicacy. And it was used to reinforce, like chicken soup, your health. Communities to season other dishes is a perfect metaphor for a lot of ingredients.
00:10:44
Speaker
that were combined to fortify. So I accepted the invitation, obviously. So I'm one of the two co-founders of Potlicker, but I serve as the president. And it's a community-led charitable loan fund. A charitable loan fund is essentially, there's a carve out out of the securities exchange regulations. The IRS allows nonprofits to raise money both from accredited and non-accredited investors.
00:11:12
Speaker
if it's an IRS s charitable purpose. In our case, it's poverty alleviation, etc., which is an IRS approved purpose. You are able to run a nonprofit that's essentially a bank, which is what we are effectively. You can raise money from church groups and the person down the street and a wealthy foundation or a family office, combine that money and reinvest it at below market rates,
00:11:40
Speaker
And as long as you're essentially returning principal to the investors and it's not really in pursuit of you know market rate returns, you can do it at market rate, but we aren't. It's a charitable purpose. You can invest in whatever you want. So Boston Impact Initiative,
00:11:57
Speaker
The model that we use at Potlicker, which I helped build, is in part that it was to help address racial wealth gaps in a place by providing that equity and everything in between using borrowed money, selling notes. Just like a community development financial institute, we sell notes.
00:12:16
Speaker
So Potlicker is different than Fair Food or Boston Impact Initiative in that we are seeking to have impact at three levels every time we do a deployment of money or knowledge or political access or whatever it is. And we decided to focus on resiliency.
00:12:36
Speaker
for those farmers in underserved communities and distributors and transportation people and processors across the nation who not only needed a tractor loan, but would be in relationship to the other farmers, producers in their community, and also would be willing to join a community of practice.
00:12:56
Speaker
So we now have three, we are in 21 states. We have one in Arizona, one in Oklahoma that's launching a couple of weeks, one in New York, and we will be building that in every state that we have a group of borrowers or investees. And those communities or practices are there to support knowledge transfer, advocacy for their own issues, and business, whether it's off-take agreements or supplier relationships things that they cannot do singly they do together and it's an effort to build resiliency and the opportunity is then to connect those communities nationally so that they have an opportunity to has systemic impact one of the things that potluck has been trying to work with
00:13:41
Speaker
USDA is what does it look like to have not only banks, traditional banks, but alternative lenders like charitable loan funds be able to offer FSA guaranteed loans. It would change deployment strategy and be a fantastic way for the USDA to partner locally because we have the communities of practice.
00:14:02
Speaker
We have the relationships and together we can help expand the efforts of USDA.
Reparative Capital for Regeneration
00:14:07
Speaker
So we are looking to do that over time together with other lenders who are not regulated by FDIC or national entities. So that's something in the works. So that's impact at the farmer level, the community level with the practices and then certainly systemically. And that's what we try to do. We've worked with cattle, fishers in Arizona, callow growers in Hawaii,
00:14:31
Speaker
We have a national equipment trust that we're launching because farmers need equipment, but not on their balance sheet necessarily. We have row crop people in Mississippi who are doing cover cropping and no-till drilling procedures, etc. So we are agnostic around practice farmer situation, but all that we require is two things. They'd be willing to move along on the climate.
00:14:56
Speaker
continuum in terms of practices and be willing to work together in a collective. Those are the two things that we require. Outside of that, we're offering what we call reparative capital, which is a double entendre for repairing communities and the land. And it also means reparations, which is an understanding across various communities of past harms and trying to offer capital. We don't charge any more than 4%.
00:15:25
Speaker
irrespective of the current interest rate, we can amortize to fit what they need in the project and not centering the investor. So that's a quick synopsis. ah We have 10 people. We're virtual.
00:15:40
Speaker
And we're in 21 states and we're coming to a state near you soon. I love it. Mark, can you tell us why was potlicker needed? There are other investment, even to impact investing funds out there that are looking to do good, looking to promote regenerative agriculture. Where was there a need that you guys saw?
00:16:03
Speaker
And you said there's something else. We need to provide better terms. We need to serve a different group of people that have been underserved. What was that part of the genesis of Potlicker? We saw that there is land ownership in underserved communities, but often the inputs to make the land productive.
00:16:25
Speaker
We're an issue. So we don't finance land. We let our other friends do that who have more money than we do and have a different skill set. But we want to make the land that people do have productive so that the land can be retained in families and communities, number one. So working capital, a lot of the other funds are land-based and asset-based lending. We are not we are cash flow based.
00:16:53
Speaker
And this I learned to do in the other wonderful experiences that I had at BII and Fair Food, which is I know how to do cash flow loans. And that is a conversation that takes months to vet business models of the farmer and understanding and trust and character building, et cetera, and character assessment. It's inherently more more challenging and more risky on your part, right? It's almost like venture investing or private equity level of due diligence, but with a loan.
00:17:23
Speaker
And the intent is to stay with those farmers for years and to do follow-ons, et cetera. It is not. a transactional relationship. There is still very much a need for the other intermediaries that play in this field. We feel a small part, but there are people who fall outside of the credit boxes. They may not have enough collateral. They may not have the tractors and the labor that you need or the minimum acreage that you have to have even just to be considered a candidate and another regenerative ad fund. We have people with 14 acres.
00:17:59
Speaker
We have people who are 3,000 acres. We have people who are at zero on regen and want to move toward, you know, at least five. We have all people at different, so we meet farmers where they are. With this recognition, the farmers, at least we believe in the US, take on the most risk and have the least ability to respond if things go sideways.
Supporting Smallholder Farmers
00:18:22
Speaker
They have climate, politics,
00:18:25
Speaker
financial risk, every risk, often they don't have crop insurance or they may produce something like vegetables that were not possible to get it. And yet we're relying on them to absorb all of these risks. And they have the thinnest balance sheet. So we're there as a buttress to the smallholder farmer across the country in many different communities as a way to re-engage them into what where we're going, which is a regenerative networked, resilient food system, but they will not be part of that if there's no one there to meet them where they are. And other funds have sometimes more prescriptive and i and part we need them because to scale we need big acreage to move. So somebody has to handle the little guys and and little women who are running firms and that is us. So we're happy to be in this role.
00:19:22
Speaker
Mark, how are you able to make this work financially? Just keep the organization afloat with the terms that you shared with us earlier and the amount of due diligence that needs to go into each one of these small, relatively small transactions. There's no way that you're making money, which is great because you're a charitable group.
00:19:40
Speaker
But how are you able to bring the funding together to be able to make loans? I think you also make grants, if if I'm not mistaken, and provide for the amount of overhead that's required to to be able to provide this high level of service to farmers. So that's why we chose the charitable loan fund structure. Really, for several reasons. Number one, we knew it would require philanthropy to cover the fixed costs of doing this work.
00:20:08
Speaker
What we do for this system is deal discovery. It costs a lot of money to send somebody out to a 50 acre farm in Alabama or Arizona and to do this work. And most banks are not going to send someone to making six figures to make a $25,000 loan, but we need to hold on to those farmers.
00:20:33
Speaker
in order to be resilient. Our goal is actually to support those farmers so they can once again be visible to the bank that has a six-figure loan. We're not saying No to that focus. It's just that somebody has to keep them going till they can reconnect. So that takes philanthropy, which is why we're a father one C3. That's number one. The second reason is population food. We're talking things growing below 5% naturally. So we wanted the capital to not be extractive for small holder farmers. That's some number but between two and 4% we believe.
00:21:13
Speaker
and 4% is at the high. Maybe you're processing facility. So we're trying to make sure that folks have the cash they need to keep doing the work that we all need them to do. So we can't live off spread income or the difference between what you lend the money out and the money that you bring it in at alone. We will once we get to 50 million, it'll probably be half our revenues will be earned revenue today. That's not true.
00:21:38
Speaker
But as we build more and more partnerships, I imagine we'll be there within three to five years, easily. There's plenty of demand. But it was started as a 501c3 because there was recognition early on that to give grants and to support our overhead, we would need grant money. And that's not possible in a for-profit context, easily.
00:21:59
Speaker
Why do you choose to operate with loans at all rather than just give grants? Some farmers will will say, hey, give me a grant. If I could have a loan or a grant, I'd rather the the free one. So what makes you decide to say we are going to provide both loans and grants? I remember I started talking about not centering money and solving food resiliency and community resiliency.
00:22:23
Speaker
So if you're trying to build a house, you need lumber, you need nails, you need people who actually understand construction, the surveyors, all those are in service of ending up with a house at some point. So we're not starting with only using nails to build a house, i.e. grants. The house will not stand with just nails.
00:22:45
Speaker
It needs a ah plurality of capital types. It needs knowledge. It needs relationships. It may need equity. It needs access to future capital, and which means you need credit history. It needs working capital, so you can do procurement contracts with local food banks, et cetera, to cover timing delays, et cetera. It needs bridge financing for rural development, cost shares. You need all different types of capital.
00:23:14
Speaker
There is much, many more times more investment capital available in this world than grant capital. Just a fun fact, if you add up all the philanthropy in the US, it's less than 5% of the health and human services budget for the US. It can only be a catalyst. It cannot be a way to finance a regenerative food system. It's not possible.
00:23:39
Speaker
So could you maybe flesh that out with a specific example of a project that you've worked with? Because from my understanding, you have worked with a number of projects where you did provide ah to the same person or a same group multiple types of capital over time.
00:23:54
Speaker
Yeah, we have, I think as of now, we've done about 45, we call them partnerships because they are indeed that. And about two thirds are what we call a blended capital, which grant and the loan, and we will do equity as well.
Two Rivers: A Case Study in Blended Capital
00:24:09
Speaker
We have three equity deals in the works. And one good example of that is one that is all three. It's called Two Rivers. It's a fish processor, Asian carp fish processor in Kentucky, run by an Asian American woman who emigrated to the US years ago. She's Chinese American. She used to live in LA and she was an import export person. She's traded everything. One day she read in the newspaper about the state of Kentucky, inviting people to come in to do economic development. And she thought about Asian carp. She was familiar with it. It's essentially the Yangtze River in China has been over fished.
00:24:49
Speaker
but is a huge demand market for Asian carp. And she knew that it was a valuable commodity. And she knew that the Mississippi River was being overrun by Asian carp. And people are the natural predators of Asian carp. So she moved to Kentucky near Paducah, Kentucky. I didn't even know Paducah was a real name, but it is indeed a real city. And she's basically in Wycliffe, Kentucky, and hired fishers to fill her processing center with Asian carp and had a wildly successful business. It's called Two Rivers Where Two Rivers Meet, fishing and freezing and exporting this to the Caribbean, Asia, and Israel. All export. Then a little thing called COVID happened and the governor shut down all exports. The ports, where as we all know, were shut down in her business
00:25:45
Speaker
basically went on dimmer lights. And as a result, she was in default of some of the loans that she had. We met her at Potlicker. Nobody would give her any money because she was in default, but her business had been very successful. There was no mismanagement, et cetera.
00:26:05
Speaker
And it was a wonderful integration of climate and social justice and the rural economic development. I mean, you couldn't ask for a better scenario and someone willing to take up the mantle and yet nobody would support her. We gave her a lawyer. We gave her grant money because she needed to turn the lights back on. She needed even money to ensure a shipping container to restart. The plant was empty.
00:26:32
Speaker
And we gave her money more than several hundred thousand dollars to move the first container back out. And we had a plan that she would also develop a domestic business. So she went to zero revenues and now she's doing multi-million again since COVID and is now being invited up and down the Mississippi River to open new plants with great jobs. Again, we're the natural predator to Asian carp and converting that into pet food and fertilizer and meatballs because it's very high in protein and jewelry because they use every part of the fish and all sorts of things. What a story of impact capital, blended capital, and just a wonderful person on top of it. So we have many stories like that. I can give you others from Mississippi to
00:27:24
Speaker
Hawaii to Oklahoma to Arizona. We have stories like that where this catalytic capital seen through a reparative lens has actually blossomed communities to reorganize themselves in order to do that. In Mississippi, we have a group of pork producers who are raising pasture raised meat who are looking to form a co-op and we're funding the first deal with their client.
00:27:53
Speaker
as working capital and it will spur on building a processing center, et cetera, will do equity. But that's what we want to do around the country. That's incredible. I love it. That is that is a wonderful story. Addressing so many, so many issues all at once, invasive species and climate resilience and local role jobs and producing food, taking a problem that's there in the environment and creating a solution out of it. I love it.
00:28:22
Speaker
You've talked of community a lot and the importance of centering the work you guys do in the community with their voices kind of centered. I'd be curious to hear you talk a little bit more about that and why that's so important. So we have community members on the board, on the investment committee, and then people who are proximate. We had the only African-American crop insurance broker in the country on their investment committee.
00:28:49
Speaker
at one point. Our board chair was a farmer in Mississippi and the decisions that come out are very different if it's only finance people. When we work in communities of practice, we go through existing associations of farmers as they tell you what their communities need. It isn't a script. And that is imperative to do things in support of kim communities and not onto communities. It's actually something I learned over the course of my life. Solutions that stick are the ones that are organic, much like the food. So not juxtapose on top of people.
00:29:27
Speaker
so we will always have community woven into our infrastructure. Unlike traditional funds, your investment committee, from what I understand, is made up of people from within the community, which is pretty unique, I would say. It's a diverse group, Emma. There's some farmers, there's some finance people. We work with indigenous communities. We have one who does financial service credit, you know, advising for indigenous communities in New Mexico.
00:29:59
Speaker
She also happens to have grown up on a cattle ranch. We have a woman who financed fiber producing organizations. We have that expertise. We have ranchers. We have people who grow vegetables in Arizona. We have people growing rice in Louisiana. We have all sorts of inputs to arrive at decisions. So it's a mixture. It is not solely farmers because there's things that finance people have learned that are worth including in this.
00:30:33
Speaker
But it's a really a 360 informed in terms of knowledge space committee, both at the board level, it's about half farmers and half not and the investment committee, probably about a third farmers and half not. The others are approximate to egg. And I think that's been it has changed our investment process when we've had to change things.
00:30:56
Speaker
the timing of when we do loans, the pacing, the level of questions, the level of information that we request, whether we even use computers. Half of the farmers we work with don't even have access to internet. So it has really informed, which is why I drive around in an RV at third of the year, the context in which we're making these deployments.
00:31:19
Speaker
Mark, you've shared a little bit ah about how farmers in general, people who live in rural areas, are often under invested in or do not have access to capital. But at Potlicker, you guys are even more focused on BIPOC farmers in particular. Can you share a little bit about how BIPOC farmers in particular have been under invested in or not even under invested in, but have had ah particular struggles in getting access to the resources that they need in order to farm. We work with a variety of communities and they all have their own stories, whether you're indigenous or a new American from East Africa or from South America or from Mexico or African American and a sixth generation family from Alaska or Hawaii. I mean, each of those communities has very different stories.
00:32:14
Speaker
We also work with people who are not of color, who are allies and want to be part of this community. So it is an exclusive. And then we have some of those folks in our portfolios. It is about community, so we need people who want to work together. But the common thread through all of them is they don't have access to government grants often or traditional financing resources because of lack of relationships with the entities that provide that. I mean, all business is about relationships. It's not about the application. It's about relationships.
00:32:51
Speaker
So if you're not on the county commission that's awarding grants, or you're too small, or you don't know who's doing the LFPA you know contracts, and you're just trying to keep it together, like you're not in the flow of commerce. And if you're in a historically disadvantaged community, where you have the legacy of ISMs, which still exists today for women and people of color, and and other farmers too, but particularly those groups, those are generational. You don't change culture overnight. I mean, look even the USDA, which has made some market efforts to be more equitable, it will be a long time before they're not taking calls around ah discrimination.
00:33:41
Speaker
complaints, et cetera. So somebody has got to be there helping to support these folks and introducing them to a broader economic buffet of opportunities and resources. And Potlaker is not alone in doing that. As I mentioned, we co-lend with other folks, including traditional lenders and USDA. yeah you know We are trying to partner. We're not trying to to banish you know important elements of our food system.
00:34:11
Speaker
And we're needed. We would not have started potlicker if not before hearing from farmers that they need it. They often don't even go to lenders because they're worried about denials or communication of private information to other entities within the community like the dealer in town or the insurance broker or the input seller. There's a lot of ways that when you're sitting in a rural town relationships can work for you or against you. And they're very hard to realign.
00:34:41
Speaker
quite frankly. So we're fairly confidential and private about our clients as a result. And I'd be curious to hear from you. I imagine you and people on your team probably spend a lot of the time on the road out in these rural communities that often you don't hear about a lot in just general discourse or or if you do, it's often stories of despair and decline. But from what I've heard from you so far, it sounds like there's a lot of kind of promise and inspiring people and a lot of creativity as well that you're finding. I'd love to hear a little bit more, like what has it been like being out in these communities and in dialogue with the people that you work with there? I mean, this has been such an education. There's a movie called the reeducation of Rita. This is a reeducation of Poplar Girl. And that is, these are families often who have held this land since the civil war.
00:35:37
Speaker
And you see, despite the fact that they don't have any money, they have held onto this
Rural Resilience and Local Leadership Support
00:35:42
Speaker
land. They have lost children and combines. They've lost appendages. The hurricanes just ran through North Carolina. And they stay with us. Think about what it takes to hold onto that land and to keep trying and to risk your family's livelihood and your financial stability year in and year out doing this. Those people have relationships. They just need to be watered. And so riding around in these communities, it's not just me. We have other people in our community that ride west. I do east of the Mississippi with someone who does west, and then we we do north and south opportunistically.
00:36:23
Speaker
And I've had collard greens. i've had i mean I've had so many unusual experiences of different communities. And they work together. They want to work together. They need a place to convene. As tough as this job, and there's some very difficult, sad stories. People that we save from bankruptcy, losing their homes.
00:36:44
Speaker
And those very same people are leaders in their community, and they don't want people to know about the underbelly of what's going on. And we step in you can' we have got to support the leaders in these rural communities. They are our solution for all of us. Mark, are you willing to share any of those stories, any that you are able to share of people who have faced significant adversity and where Potluck is able to come alongside them and provide that support and get them up on their feet again?
00:37:14
Speaker
Yeah, I can share a couple of stories. I'll leave the names off, but a farmer, sixth generation African-American indigenous farmer who to this day had many struggles just to get loans told that they were inexperienced. This is a sixth generation, sizable farm. In fact, the last one that grows this particular product in the old state, the very last one.
00:37:44
Speaker
So we gave them a loan because they're fighting developers, they're fighting climate change, and it would be easy to just cash in, sell the land, collect your money and fold as many other farmers had to do. But they're still in the game and we've stayed with them with multiple rounds of financing, introductions to other intermediaries, grants, bridge loans, knowledge, but they've gone through American history and all the things we all know.
00:38:13
Speaker
in their own family holding onto this land and they're still here. They have more tribulations coming because of climate change and because of their offtake agreements are struggling as well, the owners of those companies. American agriculture is under some real trauma going through that just because of climate change alone, but they're still here. And they're trying to, so we're trying to help them move up the value chain. So they have more margin per you know unit that they grow.
00:38:43
Speaker
So they can stay in business and pass this to the next generation. Doing what they were doing is not going to work. They will eventually have to sell. So they have to move up the value chain. I think this is true of most small older farmers. And this farmer is not small, relatively speaking. So we have that we have and a story of a guy in Mississippi who was a vet who came back to his family's land Most of the other farmers at 75, we all met in a living room in this one community with mostly farmers that had land still from when they were allocated 40 acres in a mule. And these people were all 75 with canes and, you know, hip problems that are met in the living room. And this 40-year-old veteran came back and said, I'm going to help
00:39:30
Speaker
stabilize my farm, and I'm gonna be able to take on handling the production on these other farmers, because they don't have young people to take over the farm. And they need a grain storage facility, so we're gonna work in partnership and be a partner in a grain storage facility.
00:39:46
Speaker
and use royalty financing to get paid back. So there's no debt on his balance sheet. It'll just be in the premium over spot prices for cash crops. I mean, that's an example. And that's somebody who's willing to be a leader in the community and at the same time be willing to take on the risk of trying to keep these folks in business. There are many stories that a young farmer in Hawaii, he's in his mid 20s,
00:40:17
Speaker
is fighting for food sovereignty, for he's ethnically Hawaiian, is in a valley with four other farmers, had just five acres, now has 15, that has been made, ah he leases the land, and is teaching regenerative practices, all organic, grows only traditional Hawaiian foods for the local restaurant, and he's got degrees up the wazoo, but this is what he wanted to do. And he has stories like that all over the place. That's why we have to stay in this.
00:40:46
Speaker
You've a few times kind of made the comparison between food and finance, just like food, finance needs, producers, distributors, sellers, that kind of thing. Like food that has like, you know, the Purdue's, the Tyson's, the Walmart's, the finance industry is also like really concentrated. Like you have a few big banks that basically control a huge amount of all assets in this country. I'd be curious to hear your perspective on what does that look like, especially when we're talking about smaller players like Potlick are like plugging into the larger system. But this larger system is this massive monolith that maybe doesn't have the ability to really support kind of regenerative projects. I'd love to hear your thoughts on what's your view in terms of larger systemic change within the finance industry?
00:41:39
Speaker
I believe in cycles. We had the railroad oligarchs in the US and then there weren't. We had the oil oligarchs and then they weren't. you know Any trust issues. Money, I find, does seek returns. Let's just set aside mission related. Money seeks returns as like water will always find a place to be, whether it's invited or not.
00:42:06
Speaker
and I think it's our job, but over concentration in any sector is unstable. and That's why countries implode. When the central banks implode and there's not distributed power, they implode when the currency devalues. You need plurality. You need it in nature. You need it in financial systems and food systems. So what happens is just like a spore, I would consider potlicker a little spore.
00:42:36
Speaker
an errands for that landed somewhere and it germinated into this charitable loan fund, which collects philanthropy. We can sell notes that sit on a large investment banks wealth management platform. They may have millions of dollars and they decided to do 5% for climate and social justice. They can buy a climate note from potlicker or a social justice note.
00:43:03
Speaker
So all of a sudden we're connected to that big system. It might be a giant investment bank that we all know the name of, but now we're on the platform of the XYZ Investment Bank, right?
00:43:15
Speaker
And they decide their clients seem to like this and it differentiates their wealth managers offering. All of a sudden they have access to these place-based opportunities to reinvigorate them. And then it becomes a product. That's what happened to what used to be SRI, which people laughed at and ignored. Social response investing, then it became ESG, Environmental Social Governance.
00:43:41
Speaker
We're talking more than a trillion dollars in the US. In the 80s, it was nonexistent. what But what made it happen is people iterated products off of it, and indices to measure the performance off of it, and had shareholder activists pushing forward for large pension funds at Republic. You have all these things that are starting to happen in Region A.
00:44:04
Speaker
where where you will start seeing policies and buyers and customers of Walmart requiring it and processing centers who are exclusively servicing that. It'll happen and Pollock is just part of that. I expect there to be, you'll see policy initiatives happen. If we get the right to do guarantees, watch out.
00:44:27
Speaker
because all of a sudden we can package loans to create more capital in this sector for these endowment funds and community benefit. Those are some of the largest clients of traditional finance organizations. Can you explain right to do guarantees? Yeah. So right now you, if you're a farmer, you can go to a bank that has the opportunity to solicit up to 90% guarantee from the USDA. So they will give you a loan, but USDA will guarantee if you underwrite that loan in a certain way, or if it's underwritten to you in a certain way, they will guarantee 90% of that loan, and the bank gives you the loan. What is shocking is if you look at the current Farm Service Agency portfolio,
00:45:17
Speaker
If you were to guess, most people would guess the number much higher, but the default rate and the FSA is the lender of last resort for farmers. So you have to bring in a decline letter even to get a loan from a traditional bank. Less than 4% of their loans actually are defaults, which is not that you don't pay it back, it's that you miss a payment or you're late. Less than half a percent are actually written off.
00:45:45
Speaker
So remember, this is the lender last resort to farmers and less than half percent are written on. Meanwhile, you go to XYZ Banking, they give you a 90% taxpayer funded guarantee. That's over-collateralization from my standpoint. We have 20% guarantees to our lenders and we have no problem raising capital. And I just told you a stat.
00:46:08
Speaker
So my thought is that we can have alternative lenders who need, who would take less than a night. I can do four times a loan that a traditional bank with the same amount of taxpayer guarantee. We would like to be in the position as what others to do the same.
00:46:25
Speaker
But it seems like in the big finance world, there's a lot of learnings and tools that are incredible, especially in terms of underwriting, processing, aggregating, all that kind of stuff. But I also kind of wonder, do you think there's an issue with asset allocators being so large?
00:46:43
Speaker
Just like at a Walmart, if you have you know the procurement manager manage the supply of tomatoes for a hundred stores across half of the country, fundamentally, structurally, it's going to be really hard, if not impossible for him to work with a small farmer. Similarly, is there an issue with asset allocators being responsible for billions of dollars?
00:47:06
Speaker
that fundamentally leads them to need to allocate towards kind of large scale, one size fits all type projects. I used to manage pension money for states. They can't make investments less than $25 million dollars easily.
00:47:23
Speaker
We're talking smallholder farmers who maybe do 50,000 revenues. There's no way for them actually to make an investment. So when you talk about the black rocks of the world and the you know other and investment banks, and it's inefficient for them even to look this granularly. So I i i want to acknowledge what you're saying.
00:47:44
Speaker
The only way to fix that is you have to create and make investments in intermediaries that deconstruct and do deal discovery and then repackage. So we could technically put together a $25 million dollars pool of loans of all region A and you can mix and curate the risk levels so that XYZ Insurance Company can buy because a bond rating agency gives it a double A rating so that it can, I mean, being technical, maybe for some listeners, but you need all those pieces that come together to make it an investible asset. You can use financial mechanisms to provide liquidity. Let's say it's for, it's $25 million of region ag loans, production, processing, land, even,
00:48:33
Speaker
And you need oh a city and you want them to buy it, but they have liquidity needs because they have pension liabilities, et cetera. A large investment bank in their portfolio could actually provide the liquidity. They could chop that $25 million dollars investment into tranches. I'm going deep now.
00:48:54
Speaker
and provide liquidity so that a school, a local city or town could buy it for their money market fund. There are examples, C note is an example that buys CDFI notes and provides 90-day liquidity when normally you could have to get out in five years. You can use old school financial structuring to create things that are infeasible by concentrated buyers and also new buyers who can't even get in the game, like individuals. I am convinced that the US financial system is innovative enough. Sometimes it goes for bad reasons, like collateralized mortgage obligations, you know, and it blows up communities. And sometimes it can be good. A lot of people were able to buy homes because they had cheaper credit because of CMOs.
00:49:45
Speaker
we We talk about the negative, but there was positive too. I just want to say financial system, nothing is static. Things break down. There certainly are antitrust issues with large banks and institutions.
00:49:59
Speaker
but they also germinate new spores. And I think if there are policy changes to allow, like allowing other non-regulated entities to do guarantees, it will open up opportunities for institutional buyers to buy $25 million dollars of Mississippi, you know, smallholder, pasture-raised meatloans. They can actually fund those and add it to the portfolio. I believe that.
00:50:26
Speaker
That's what we want to see. Mark, I want to be respectful of your time. and Thank you so much for how generous you've been with your time and with your knowledge. Your knowledge runs wide and it runs deep. Well, I'd like to thank both you and Emma and Agrarian Futures for the invitation. This is just one perspective of one firm. We have a team of people and a board in the community.
00:50:50
Speaker
But this perspective belongs on the landscape in order to build resiliency. And so thank you for the opportunity to share our, our learnings. I hope people listening to this take some germ of this, kernel of this and build their own intermediary and call us up and ask us to work together. This is how new structures are developed. Innovation. So thank you both. Thank you, Mark. Thank you.
00:51:18
Speaker
Agrarian Futures is produced by Alexander Miller, who also wrote our theme song. If you enjoyed this episode, please like subscribe and leave us a comment on your podcast app of choice. As a new podcast, it's crucial for helping us reach more people. You can visit agrarianfuturespod dot.com to join our email list for a heads up on upcoming episodes and bonus content.