More than a decade ago, Dan Miller met a farmer who could not get financing for his fish pepper crop despite a solid product and business from all-star chefs.
The reason? “The USDA and banks didn’t know what a fish pepper was,” says Miller.
This is one of many examples Miller encountered that led him to create commercial lending platform Steward in 2015.
Steward sources regenerative agriculture projects, underwrites the loans, and sells those loan participations through its own platform, which is open to everyone from family offices to individuals with $100. It finances farmers and producers that don’t fit inside the conventional agriculture box and as a result struggle to obtain financing from banks and other traditional routes.
“Our goal is to build a replicable model of financing around scaling regional infrastructure: farmer-owned, farmer-led, regional infrastructure,” he tells AgFunderNews.
The firm’s most prominent example of this is Cairnspring Mills, a regenerative flour producer with whom Steward has done several different financing projects, and for whom it recently helped engineer a one-of-a-kind capital stack.
Miller recently chatted with AgFunderNews about that project, Steward’s origins, what’s driving the need for alternative financing in regenerative agriculture, and how his firm delivers that.
AgFunderNews (AFN): Give us a brief overview of Steward’s mission
Dan Miller (DM): It’s about providing capital to farmers outside of the traditional system.
The model we have is to raise money from individuals and provide that as financing to agricultural producers. That’s really what’s most unique about us: We’re directly distributing our loans to people; to family offices and investors too, but also individuals [contributing amounts] as low as $100.
AFN: What’s the origin story behind Steward?
DM: It was actually through a chef out of Maryland, Chesapeake Bay, where I’m from, originally: Spike Gjerde, who is really the pioneer for regional direct sourcing.
He wouldn’t use olive oil, wouldn’t use citrus, didn’t use anything he couldn’t buy direct from a producer in his region. And so I saw the creation of these supply chains and that type of commitment.
In particular, there was a farmer growing a fish pepper for [Gjerde’s] hot sauce, which created this market for his crop. But the farmer said he couldn’t get financing for fish peppers because the USDA and banks didn’t know what a fish pepper was. Even with guaranteed purchasing from the best-known chef in the city, this farmer couldn’t get any money to produce [his crop].
That was really my introduction to financing [in agriculture] and understanding that ag is really driven by government policy more than market demand and need.
So the idea was born to take the individuals who are supporting regional food systems and have that be the capital to support producers.
I [previously] co-founded [alternative financing platform] Fundrise, which was the first real estate crowdfunding platform. Steward was a way to use that online, direct fundraising but apply it to regenerative agriculture.
AFN: What’s driving the need for this type of financing in regen ag?
DM: The real driver is individual consumer preference and choice, and that’s what’s bringing the demand. But everything else doesn’t function.
The producer needing financing for their business doesn’t have it. The processor doesn’t have any money. The CPG company trying to create that supply chain doesn’t have capital.
The second you’re a producer going outside the system, you’re literally cut off. We’ve had farmers who, when they stop buying chemicals, the bank stops financing them. [To transition to regen ag], they’re basically gambling all their financing to move to the different path. I’ve never met one [alternative agriculture] business with proper access to capital in the sector; even ones with thousands of acres of land still somehow have these gaps.
AFN: How does Steward’s financing model help these farmers?
DM: The model we’ve tried to create is to allow risk and allow funding for projects that provide opportunity but are based on growth, on expanding a market or creating a new one, or proving a product that doesn’t exist today.
The [current] financial system is built for funding existing businesses with historical cash flow, but to create a different agricultural model, you need to create new businesses that are establishing it.
Our goal is to build a replicable model of financing around scaling regional infrastructure: farmer-owned, farmer-led, regional infrastructure, because that’s the real unlock.
AFN: Walk us through how the model works:
DM: Our business is two parts. One is making the commercial loans, where projects come to us. With Cairnspring, for example we did three different financings.
The first was for their annual grain purchases. They were previously having to use their operating money to buy grain, which is just very challenging to manage. We provided a one-year loan where they can buy the grain, and then they pay it over 12 months as they pay the interest. And for our model, the interest in principal gets paid directly to the lenders who participate in the loan.
Another deal we did with them was for equipment at their current mill. That was a five-year loan, and helped them with labor costs and efficiency.
With this newer deal, we put together the anchor financing of $35 million for the debt, and then helped them build the rest of the capital stack around it.
The other part of the business is that Steward sources projects, underwrites them, acts as the lender of record, services the loans, and then sells those loan participations through our platform that people hold.
With Cairnspring, we raised $2 million [from the Steward platform] for the first draw in four hours, with no marketing, just demand. That’s why I feel so positive about this work. The sector is [driven by] pure consumer interest that is off the charts. It’s just people don’t have access.
AFN: Who else are you working with? Are those financing models similar to Cairnspring?
DM: There’s a farmer-owned oat mill in Minnesota, Green Acres Oat Mill, that we just closed financing on, actually a week after Cairnspring, with almost the exact same capital stack, same exact program, same exact structure.
We’ve have a group of livestock processors we work with too.
In every one of these sectors, the access to processing is the main barrier for both sides of the market, for the buyers, the CPG and institutional buyers, who need reliable supply and volume, and then the producers who need a market that pays them fairly.
We’re even actually working with a group in Australia with a story exactly like Cairnspring Mills. You’ve got this beautiful wheat that just gets dumped in the commodity market and the farmers get nothing for it. Why would you take a valuable product and diminish the quality of it?
So that’s to me where the excitement of this project is: large-scale financing for infrastructure that’s going to be competitive from an economic perspective, but still tied to a region. It’s about creating resilient, independent enterprises financed properly that don’t have to give up their values and then can stay for the future.
The post Why regen ag producers can’t get capital—and what alternative lender Steward is doing about it appeared first on AgFunderNews.
