Multi-Generational Capital, Family Business, and Agroforestry – with Jeremy Kaufman

Jeremy Kaufman, together with our CEO Ethan Steinberg, and I, started working on Propagate in 2016. 10 years later, we have some insight into planting trees on farms, not without the standard battle scars of entrepreneurship. Today, we walk through why trees need to make money, the financial and economic bottlenecks in agroforestry, working with farmers and not replacing farmers, Jeremy’s family business in the wood products industry, and why black locust and chestnuts stand out.

Transcript

SPEAKER_00 0:00

Jeremy Kaufman, together with our CEO Ethan Steinberg, and I started working on Propagate in 2016. Ten years later, we have some insight into planting trees on farms, not without the standard battle scars of entrepreneurship. Today, we walk through why trees need to make money, the financial and economic bottlenecks in agroforestry, working with farmers and not replacing farmers, Jeremy's family business in the wood products industry, and why black locusts and chestnuts stand out. Without further ado, here is Jeremy Kaufman. Jeremy, welcome to the Plant the Trees podcast. You're my co-founder. We've told the story of Propagate a good number of times, but we should probably get into it here. We wanted to plant trees on farms for the health of the planet, for the health of humans, good food, clean air, clean water. To do this, we knew that we needed to make it financially viable. So could you take us back to 2016 and 2017, how we started and where we are now?

SPEAKER_01 1:14

Sure. Happy to do that. 2016 is almost is now 10 years ago. Um it's crazy to think that we've been doing it for that long. Which in a tree's life is also still relatively young. And back in 2016, I think a lot of the motivation was a pretty simple thing, which was in the there were not really that many people planting trees on farmland. Um, and we really didn't know why. We had sort of uh business backgrounds uh and some farming backgrounds. We were both first generation farming, but uh we had enough to know what we didn't want to do in agriculture. Uh I I was vegetable farming for many years and then did some small amounts of work on grass-fed dairy when I was living in Ohio. And you know, I knew that the pace, the wood the style of farming that was that I was doing at the time was not the way in which I wanted to engage with the landscape, but I always had a connection to trees primarily through my family. And so additionally, on top of that, going to business school, I I always wanted it to be something that would be profitable, which in large part my experience with small farms was always just struggle. And so trees in agriculture was really appealing at the time. And at the most basic level, the question was can we can we find a way to finance trees on farmland? With a lack of capital that we had at the time, you know, we were but we had enough of a network available to us to really bring that capital to a place of potential interest in that asset. Um we wanted to make sure that the there were actually opportunities out there uh to do it. So I think that you know, when I think about the motivations, it's really simple motivation, which is like working with the landscape in a in a broad acre sense, uh trying to make agriculture profitable, trying to do it on as much acreage as possible in an environmentally friendly way, and um finding trying to find opportunities that really no one else was looking at uh in the market. I do remember at the time there was specifically a big focus of ours was sort of the amount of people that were focused on grass-fed livestock uh rotational grazing, but no one really seemed to be focusing on trees and agriculture. So part of it was also that it seemed to be a niche that no one else was focused on.

SPEAKER_00 3:32

Had everyone been focused on trees, we could have easily gone down the route of trying to finance grass-fed beef operations.

SPEAKER_01 3:41

We have we I remember we built financial models for it at the time.

unknown 3:45

Yeah.

SPEAKER_00 3:46

And just to further express how Propagate works and who's interested in what we do, the conservation world is generally interested, and the regenerative ag finance world is as well. They're totally interlinked, but I I want to set some ground rules for how we work. Why does agroforestry have to make money?

SPEAKER_01 4:09

For agroforestry to grow as a practice, it needs to have a self-generating feedback loop in the world as it exists today. Rewards in our world, especially in a capitalist society, are based on monetary feedback. For something to grow, it needs to have monetary monetary feedback from the market. Now, there's plenty of work that's been done in philanthropy, in government funding for this work, but it's somewhat constrained. It's and it also relatively hinges on the whims of discretionary capital providers, which can be political when it's talking about government-based uh programs, or it can just be like on the level of importance, agroforestry falls to the bottom as compared to other potential philanthropic efforts, um, like feeding children in schools, for example. So you need to for something to grow, it needs a market mechanism to be able to make that possible. So it's sustainable in its growth. A really good example of this is solar energy. Um I know uh when we were starting the business, solar was an inspiration, given that in its early years, it took a lot of discretionary capital, not philanthropic capital, government capital to really get it off the ground. And then it hit an inflection point where the market forces really drove more solar development into happening. Now, there's still state-level incentives and things of that nature, but you know, solar energy stands on its own now as a profitable solution that the market is willing to finance. And that creates the curve that you can look see today in terms of the gigawatts of solar being produced, um, growing on a at a rapid rate. So finding that market mechanism is pivotal to growth, being something that is possible within a broader industry. Agroforestry is different than solar. It has many different offtakes, uh, it has many different species you can work with. So it's it's a little bit uh it's harder in some ways because you don't have sort of a universal unit of measurement in the in kilowatt hours to work with. So solving those market mechanisms in some ways are harder, but still a requirement to see more people basically looking at their fields and saying, can I add value to this field by putting money to work as a capex expense into natural capital asset in trees to live alongside my livestock or live alongside my grain operation or hay production? So yeah, that mostly sort of is the core reason why.

SPEAKER_00 6:53

And it needs an input of financial capital to even exist, to pay for itself, to pay its own way. And what did you see in 2017? What did you see agroforestry lacking there?

SPEAKER_01 7:04

Aaron Powell You know, from a financing perspective, there was a big gap, undoubtedly. The vast majority of tree plantings that occurred in the country were done by large corporations for large commercial efforts. And then on the margins, you have, you know, plantings that are funded by state or federal level programs. So think companies like Wirehouser, you know, they have an existing forest base, they have cash flow from selling timber sales, and then they use that and they take a percentage of that to reinvest in replanting to ensure their future supply. So that feedback loop existed when you're talking about large corporate entities because they have that cash flow on farms across the country, planting new trees on open lands versus planting new trees in recently deforested plantation or recently deforested areas was really lacking because most of those land uses didn't have the cash flow to be able to fund new tree plantings. And if they did have that cash flow, the cash flow is from enterprises that had nothing to do with trees, be it from livestock, grain, or hay or what have you. And so financing those new developments, that new capex on those farms would be very difficult, both because of a lack of corporate track record for those farms in doing that work, but also the wide diversity of types of operations that are out there, making it hard to underwrite them doing sort of a a new thing. I would say additionally to that, just a a broad spectrum lack of knowledge and understanding of what the right trees would be that are financeable in these systems. So that's another another key element here that was missing from the market. There was a lot of people who want to plant trees, they want to plant native reforestation-based uh approaches. But from a bank's perspective, 45, 50 year time horizons for that are really difficult to think about.

SPEAKER_00 9:03

And when we want to vet a new crop, not necessarily a practice, but a tree species, how that integrates into existing farming operations or exists as a new crop entirely. We can increase certainty with good planning, with good financial modeling, we can decrease risk and this gets trees planted. What did you see 10 years ago that would increase tree planting with increased information?

SPEAKER_01 9:34

In general, the and this m derives in large part from my work in vegetable production is that small to medium-sized farms and even larger farms that that I've I've worked with or experienced generally have relatively simplistic books. And it's very annual-based budgeting for what they can do next year for a vegetable crop or for a corn crop or what have you. And thinking about things in 10, 20, 30-year durations when it comes to trees forces you to zoom out and understand the macrodynamics around what your farm is going to be, what it is today, what it was. And that is crucial to planting a long-term asset on your farm. When you go to build a building, for example, or invest in a piece of equipment, you start to think about those timeframes a little bit more, but the feedback loops a little bit faster. So you might buy a tractor and you gain some efficiencies in your vegetable crop production. But then you have to build a building to do processing. And how far down the processing rabbit hole do you go? Um, what is your market you're selling into? Things like that are all questions that start to arise when you start to have these big capex outlays and trying to figure out what is justified when spending that capex. Trees are themselves a capex outlay, and on a per acre basis, they're quite expensive comparatively to other things that you can do in terms of a time value perspective. So for farms, when they're thinking about the next five, 10, 15 years, plant even the question of planting trees forces you to ask those deeper questions of what market am I in, what market am I selling into, and how am I justifying this capex relative to the types of tree planting I can do or other activities I'm doing on this piece of land. So from a financial perspective, that was missing. And so financing those systems was very difficult. Uh you if you don't have the data and the information on how you're gonna do something and make it cash flow, it makes it very hard for a third party who would otherwise invest into that system to really grasp those things too, because they they're gonna be looking at the lack of knowledge, the lack of detail as a risk as part of how they underwrite uh financing that solution.

SPEAKER_00 11:57

So increase knowledge in a system, increase detail, vet those trees, that tree system, and thus it becomes financeable.

SPEAKER_01 12:06

Yeah, I would say there's an additional gap, um, which is just generally held back agroforestry and is generally holds back most new project types, whether it be in energy or otherwise, uh, which is the off-take piece, which is having a track record of being able to clear volumes at a price of that species, whether it be fruit, nut, timber, environmental credit, or otherwise, to make that a financeable thing. Now there are there's financing out there that doesn't need that, that understands markets that only work on what are called spot markets. So they're only gonna people are only gonna buy that offtake when it's available at the time it's available versus on a forward contract. Versus in energy, um, there is now a robust market for power purchase agreements and forward contracting to be able to help underwrite projects. Um, as a market develops, the buyers become more comfortable taking longer outlooks on different crop types or longer outlooks on energy. And then they can feel more comfortable predicting that they're gonna buy something in five years or 10 years or 15 years in the future. Energy is much easier to do that with than something like elderberries that you might plant in in agroforestry systems.

SPEAKER_00 13:22

And you have a good amount of experience in hypermature markets. Your family runs a stair and railing manufacturing business. You're turning wood, really normal wood, Douglas fir conifers into something that people can use. And so this value that agroforestry systems or forestry is creating, it doesn't just exist. It's created in a market, it's created in society. And you've transformed harvested timber into wood products for decades. Your family has done this for a long time. Could you tell us about Kaufman Stairs and how that started?

SPEAKER_01 14:03

Yeah. Well that's uh great. So my grandfather came to the United States in the 1950s and started Kaufman Stairs in 1954. The you know, he came here with very little money from uh Europe. And at that time, he found a niche in stair building. Um he actually was working for somebody else at first, and he said, I'm gonna be able to do this myself, and started a small shop in Linden, New Jersey. In the 50s and 60s, you know, the amount of housing that was being new housing that was being built was really rapid in the U.S. Um, large fueled a lot by waves of immigration and additionally, additional financialization of the housing uh market in the United States. So Kaufman Stairs, Kaufman's my last name, grew alongside the growth of that market, which expanded from what was a relatively uh small to medium-sized business market to now, you know, they're being publicly traded companies in the United States. Kaufman Stairs as an entity became very good uh in the Northeast Corridor in the United States at working with large home builders as well as small home builders. So about 50% of the business is large builders and about 50% is small builders throughout the history of the company. It's sort of that ratio's changed some bit. But the big thing is that being able to work within the system uh and create a high-value, high-quality product that can be utilized by the end market and also can serve as a midpoint for purchasing from vendors from domestic hardwood and softwood production on the ground is a key part of a developed market. Now, in the early days, those things didn't really exist as robustly as they do today. Uh, but today it's a very efficient process working from the forest to the mill to the shop floor uh through to the delivering those stairs and those railings all uh at the housing site and putting them in. Does that answer your question, Harry?

SPEAKER_00 16:19

Absolutely. And you're in this family business. It's in the second generation thinking about a third generation and what's next. And there's so many parallels between family businesses and farms. You're in this, you and I and our farm services team at Propagate. We work with these multi-generational farms all the time. Do you see parallels across family businesses and family farms, regardless of industry?

SPEAKER_01 16:46

Oh, yeah, absolutely. I think there's there's a ton of overlap. Ultimately, a family business is an asset, um, just like farmland is an asset. It all depends on the makeup of that business, of course. Um, and then you've got legacy operations. So operations that have been run, you know, that uh may have inefficiencies based upon previous decades of technology that have been put in place. And you know, when you're managing a business, you're managing a system. Uh and if an older generation is managing a system that they've been managing for a long time, oftentimes the you know, new technology, new process uh efficiencies don't get built into those things. And so uh and then there's succession, which is as those business owners age, as people who are their children or folks who are interested in taking over the business come in, there's sort of a learning of the fundamentals of the business, and then there's the improvements that can be done on top of it. And with agriculture, it's no different. And oftentimes it's you know, in in many businesses and many, in many uh agricultural environments, the children don't want to go into the business because for a variety of reasons. Um it could be a you know, I I'm uninterested in the in the business, I'm uninterested in there's not a lot of creativity in it for me, or they don't see a growth opportunity in the thing, or what have you. I'm very fortunate to, you know, be able to look at the business that my my grandfather started, my dad and my aunt now run, as really something that has a lot of growth and potential in the market. That's sort of uh its own thing. But that there is a ton in that business, just like I've seen in many of the farming operations that I've worked with over the years, where there's a lot of tensions around the change that needs to happen to move things along to the next generation, to move the business into the next cycle that oftentimes requires fresh energy, but also requires a new mindset for how to think about those things. One of the benefits of what we do at Propagate, and one of the things that we've, I think, done quite well, is tap into landowners in particular, who, you know, their only option for many, many years was working with farmers who were only interested in doing, you know, whose incentives are only built around corn and soy-based production conventionally. And whether or not, and then yet even the idea of there being a values orientation around doing something different with the landscape was something that wasn't really in the conversation as much. And I think the opportunity for both the farmer and for the landowner is to bring that conversation to the fore in a way that uh ensures that both of them are still have what they need in terms of financial need, whether it be lease payments or otherwise, uh work, you know, ongoing payroll for the at the farm level. And then the ability for there to be upside in the future, opportunity, long-term value created for everyone in the process. So those are the those still exist. They exist in the stare business and they exist in agriculture, absolutely.

SPEAKER_00 19:49

I have a few more questions on family businesses and the parallels to farms, but first, could just on the note that you were just on, can you touch briefly upon farmland as a family asset and then keeping non-landowning farmers farming that land?

SPEAKER_01 20:07

Yeah. I don't know how many people know this, but in the United States, you know, of corn and soy land in particular, about 60%. I mean, it's creeping up towards 60% of that is leased land. So that means that 60% of the hundreds of millions of acres that are farmed for corn and soy are actually passively owned land that are leased to local farmers. And in a given region, you might have two or three or four, uh sometimes only one farmer that manages those leases on those farms. And those farmers are providing a real service to those landowners because those landowners are never going to farm themselves, um, even if their grandparents did and they handed the farm down to them. Those farmers are providing ongoing cash flow to those landowners. And finally, there's additional benefits in terms of tax status of the land value and ensuring that those farms don't grow up into, you know, in you know, in weeds, uh, whether it be buckthorn or multiflora rose or what have you. There's a benefit there in ensuring that the opportunity value of that land is maintained. So the lease base of the United in the United States corn and soy sector is an incredibly ripe area for in intervening in the system. Pasture land is a little bit lower. It's about thir, I think it's about 31 to 35% of pasture land is leaseland. Still fairly significant in the grand scheme of things, but there are a lot more owner operators in livestock than there are uh with land than there are in corn and soy comparatively.

SPEAKER_00 21:42

So if a non farming landowner has a really good relationship with the person, the farmer that's farming their land, and they decide the landowner to plant trees on that land, could that farmer continue to farm the land and operate the trees?

SPEAKER_01 22:00

Oh, undoubtedly. Corn and soy production is a very transferable thing into tree farming. It's there are a lot of things that you need to learn, but there's also a lot of things that you already know that are applicable. And a lot of that has to do with managing soils for quality production. And trees, like any other crop, have agronomic needs that are predictable, relatively predictable on these sites. So farmers will get that. I think the there's new tools that they need, uh depending on things like tree spacing. You might have to get the mower on a bit more than they are used to comparatively to other implements. Um in general, it's very transferable. It's actually the key to unlocking more land for agroforestry. Entering into a county where there's only two or three farmers and offering another solution, the only way to work with the landowners in that region is to make friends, not enemies, uh, and to work with those farmers to provide them as an opportunity for additional income generation, either at, above, or and at a low at a lower risk to what they're already doing on those landscapes. And it's got to be balanced from business perspective and their needs. Those are keys to being able to scale agroforestry. That's what we've done in our work when we to when we work with landowners and we work with farmers, is trying to find a way to keep those farmers as engaged and paid and incentivized throughout the entirety of the process of working with agroforestry transition.

SPEAKER_00 23:29

And the number of potential managers for any given land base seems like a challenge that farms face that a wood products manufacturing business might not face, in that transforming wood is perhaps more similar to a factory process that has knowledge that can be easily learned if someone has experience in, say, auto manufacturing or something like that. It's a pretty straightforward business. What do you think are other challenges that farms face that a stair and railing manufacturing company might not see?

SPEAKER_01 24:04

Well, I would say the hardest one is the time lag between investment, whether it be CapEx or operational investment. It stares out the door on a daily basis. Uh there's no time lag, there's no seasonality. There's seasonality to building for sure. I mean, the winter slows down because you can build less in the northeast in the northern climates, because there's snow and ice and things of that nature. But to the same degree, it's very different. So I'd say the hardest part is being able to have capital that is patient, that is willing to work through the cycles of CapEx and OpEx to the point in which you're able to get to those cash flow events. With fruit and nut production, it's a little bit more predictable because you have activities that you're out there in the field doing every year. And those activities need to happen to maintain a quality product. So those are similar things, but it's more dynamic, right? In in a in a wood shop, you're not going to have a novel pestorize that's going to potentially be an issue that you need to address. The closest thing to that might be your uh sawdust collector breaks down and you need to have somebody come and you know fix the sawdust collector for the shop. In agriculture, there's a it's a lot more dynamic and responsive. You have to be labor has to be more elastic to the needs of the farm uh in a way that is hard to predict and can be more expensive than you'd want it to be because you didn't weren't able to predict those things. And so you can have a lot of excess capacity on the farm where you're paying for labor to manage those things, or you can be undersupplied in that and then have a lower quality output because you're not out there, say, pruning uh when you should have been pruning, for example.

SPEAKER_00 25:51

And just a topic for business owners, whether they're farmers or non-farming business owners, if there are 50 to 60-year-old business owners listening to this right now, whether they're farmers or not, and they have high school or college-aged kids, what advice would you give them in regard to succession planning?

SPEAKER_01 26:11

The first thing I would say is understand the people who have been operating the business for decades, what their goals are. Are their goals retirement? Are there goals spending less time doing something? Are there goals to spend time with you doing the business for their own sort of connect connection to their children perspective? Unpacking those goals is pivotal to understanding the options that you have related to making changes and decisions. Without that, any presentation of a change or a decision is much more likely to end in flare-ups and argument or what have you, disagreement, than when you can actually hold everyone's goals on the table when having those conversations. That's pivotal.

SPEAKER_00 27:08

It sounds like savory solistic management right there.

SPEAKER_01 27:11

Yeah, I would say it's savory solistic management, it's all, but it's also at the same time good human relationships. It's principles for how to honor each individual's needs, desires. Understand that everyone's has a little bit of a different taste, a little bit of a different flavor of what they want in their life. And oftentimes, what ends up happening is the lowest risk common denominator option for everyone, which isn't necessarily always the best outcome, which is why you end up in a situation where you end up with undermanaged landscapes or landscapes that aren't actually achieving the goals of the people who are engaged in it. It's oftentimes why family businesses get sold for less value than they're worth, or why uh farms sell for decide to go sell because they don't have a second generation to take over. If the family is engaged in that conversation, if the people working in the system are engaged in this conversation and having the hard conversations to make that possible, then you have a fighting chance of actually moving to the next generation possible.

SPEAKER_00 28:26

And from the perspective of a parent, you're now a father, you are a son to your father. You don't know if your kids are always going to want to follow in your footsteps. What would you do to keep that possibility open?

SPEAKER_01 28:42

Aaron Powell It's a great question. Um and it's a hard question. You know, in the United States, especially in modern times, I would say we've built a culture of that being less acceptable or it being not desirable, versus in other countries, it is the only thing that you do. Um and it's a way more of a tribal or community-oriented approach for how things are done. We've lost a little bit of that in the United States, um, I would think sadly. There's something part there's something to that, which is you know, the second generation, especially if, you know, the parents have done their jobs right, they are they believe that they're gonna have a they're gonna be able to achieve a better quality of life and a better world for themselves than their parents. And if they can't see a pathway in the work that their parents have been doing for the last couple decades as a pathway to that, it's hard to see it as a desirable thing for them to go and do. Now, there are things that are key to making that even an option. One is the older generation needs to be open to new ideas, needs to be willing to understand that while they know a lot, they also know that for them to hand they also need to be humble is the wrong word. They need to be willing to entertain the idea that change is a good thing. And then the younger generation needs to additionally at the same time be, you know, honor and humbled by the amount of work and dedication that's gone into creating the value that's even worth talking about in the first place. And the final thing, which is what I was saying before and just worth repeating again, is there needs to be an active conversation. You know, you can't you have to talk about these things. You can't expect without having the conversation. The expectations of somebody, my son will go, my son or my daughter will go into my business. It needs to come from an intrinsic desire from the kid, in our, at least in our culture, from what I've seen and understand about most parts of this country. They need to have that desire intrinsically. Otherwise, you end up in a situation where it's it's relatively unstable or the handoff doesn't go well. There are many, many stories, I mean, countless stories, where the children think that they're gonna get transitioned into the business, and the parent decides to sell it or give it away to somebody else who's maybe more uh who they view as better an operator than the kid, or the parent wants the kid to come into the business, but the kids is like, I don't really want to do this thing. And so it creates tension in there. And so all this comes back to having good active conversations and understanding each other's needs. There's going to be deviations across this, but at the at the generally, the key is that the older generation's goals need to be clear and articulated and there needs to be an active conversation and the y and there needs to be a clear opportunity for the younger generation to see a pathway to having a better life through the work.

SPEAKER_00 31:52

And would you say that business fundamentals and having a profitable business make taking over a business that much easier? Oh, for sure.

SPEAKER_01 32:01

You know, having a good balance sheet and a good P ⁇ L always helps. You know, it comes back to that thing, which is how gonna how are you gonna make a better life for yourself? And if it's a a business that's not uh working, um, that has a lot of debt or what have you, it's really not you know, expecting your children to come in and save a mess is a hard, hard thing. Now that there are people who've done that who will do that, you know, out of the sense of duty to their parents, but it is a it isn't the the norm by any means.

SPEAKER_00 32:30

I'm thinking about farming and businesses and families and generational change. Change isn't linear. It there's a bell curve of innovation. And say 15% of farmers are going to be innovative. They're going to actively seek out change. And 35% of farms, they're going to be somewhat open-minded. Another 35% will only do something after the first half does that thing. And then 15% will die before they change anything. How do you think about farming and generational change like that?

SPEAKER_01 33:09

I think about it in a few different ways. I think culture is a big thing as it relates to managing landscapes over long periods of time. There are cultures that take 10-generation views on things. And the United States is not one of them. The hardest thing about that is it means that no matter what you do on a landscape, you either have to expect that the person who buys the land, manages the land after you, or what have you, um, is going to undo what you did, unless you've somehow encumbered them from doing so. Which is why in the United States you have a robust conservation easement legal structure to be able to prevent that from happening and a rule of law that makes that possible. In general, though, you culture is the driving force behind that not being the case through history, not law. When you look at what's needed to foster a culture of sort of multi-generational land management, such that you end up in a situation where not only that distribution is changed from maybe a normal distribution, but I would I would actually venture to guess it's not a normal distribution. Actually, I'd venture to guess that it's way, way more tail weighted toward laggards. You need a cultural change in this country to make that possible. And I think a lot of that has to do with there being a relatively short history of this country and there being a hyper-individualism that exists in this country that is incredibly useful for productivity, but makes it very difficult to hold that productivity over very long durations. That is seen in a lot of different ways in how our land ownership structures are built. A lot of land is held multi-generationally, but not managed multi-generationally. We sort of end up in this trap where managing to the lowest common denominator because the people who used to manage the landscape, the people that that now own it, no longer have a connection to actually making the decisions or being informed enough to feel comfortable not making a mistake making decisions on the landscapes that they own.

SPEAKER_00 35:42

Optimizing for liquidity and optionality as opposed to profit and value long-term.

SPEAKER_01 35:48

And but also optimizing for uh not losing money, optimizing for not making a mistake so their farmer that they've been working with for 20 years doesn't lose money or create tension in their relationship. Because remember that that might be the only farmer in their county that you can work with that'll pay a lease rate. So there there's a cultural shift that's needed for people to be engaged in a hundred, two hundred, three hundred-year-long mindset that would make engaging with the farmer, the land, or otherwise, a more structurally sound natural resource framework than what we currently have today.

SPEAKER_00 36:32

100%. And I want to segue this to actionable positive change on landscapes, first with a context of solar. And we see this fear in agricultural communities across the farmed landscapes of the US of solar developers coming in. And farms largely don't want to sell out to the solar and the housing developers. My family runs a summer camp. We don't want to sell out to the housing developers either. Uh, the family diner doesn't want to sell out to the to the McDonald's. And all of these things are totally understandable. How do you think about trees on farms providing a durable substitute to planting houses and solar arrays?

SPEAKER_01 37:18

Like with any asset, its proximity to the market is an important part of lowering both lowering the cost of distribution and also having access to that market. It's not really that much different for trees, but shipping trees, tree off takes, whether it be lumber or fruit or nuts, is cheaper on a unit cost basis than the capex cost of shipping electrons across the country or through like power lines, or you know, you're gonna build houses where people want to live. It's gotta be in the locations where people are. So I don't think about it as necessarily a direct substitute because on a dollar-for-dollar basis, your returns are gonna be relatively similar uh depending on what trees you choose. You know, it could be in like the 5% to 20% IRR ranges, which is you know pretty typical of what you might see on solar. But you know, in many of those industries, uh uh construction as well, especially you're looking at things like data centered construction today or otherwise, you're you know, the IRRs are much the timelines are much faster and the IRRs can be higher. So it's hard to compete on financials, um, as could if you put it, if you compare the two. But you're more rate limited uh in how much you can do whether it relates to solar or housing. Because you need those things from a market demand perspective are very sensitive to force and macro forces that are in a say a given geography, versus if you're planting large acreages of timber, those can be shipped way easier across the country, or you can move that across the country. So I think in rural places where the cost of doing solar is high because you have to move electrons more diffic in a more difficult fashion, or the cost of housing is relatively like the construction of new housing is somewhat questionable based upon population and job opportunities of that place. In those places, planting trees is incredibly defensible comparatively to those other options. But if you're looking at opportunities outside of major metros, the thing that keeps trees in play versus those other options is primarily going to be the aesthetic, the environmental, and the desires to keep things in nature more so than the economics in those places.

SPEAKER_00 40:14

The last ten acres of farmland in suburban Massachusetts or Connecticut, the highest return there probably isn't going to be an apple orchard or even a more profitable form of trees. But when you look at well-drained acidic soil that is not in major metropolitan areas, things look a lot different. And when we're looking at options for land use beyond solar, beyond houses, trees really just emerge as this thing that is a viable option for land. Now, in 2016, we're talking about leasing land and establishing trees as owned assets separate from the land itself. We're now doing that. And we started with black walnut because the price per board foot is very high. Veneer logs sell for upwards of$10,000 per log sometimes. But we've moved to black locust and chestnuts. Could you tell us a little bit about why?

SPEAKER_01 41:17

Yeah, I think the the, I mean, the main driver is returns driven. Both of those species are in a unique space. They're both undersupplied relative to the demand in the market, which is a core driver of growth in a crop. So growth in the ability to plant to plant more supply, but also growth in price as those things are mismatched. When you look at the US, when you look at an inventory of what you can plant, there's a lot of options. But you have to figure out where that crop sits in the broader market. And we that propagate do sort of the macroanalysis to ask that question to understand the fundamentals. And you can sort of think about crops on a spectrum from niche relatively minimal demand, relatively minimal supply, all the way through to commodity, which is lots of demand and lots of supply. In the middle of that curve is undersupplied relative to the amount of demand. And in that middle is where you're going to find the most amount of potential growth. And not all crops are in that spot. Black locust and chestnut happen to be two that are in that spot. The other reasons that we're interested in those species are environmental, agronomic, and otherwise. There are benefits to those species that make them very interesting on top of that, such as their drought tolerance, what growing regions they can grow in and they can grow in well, what soil types they work well in, the speed at which they produce, the unique value-added opportunities downstream in those for additional uh upside in the crops. All of those play a role. And the probably one of the biggest ones is on a just pure gross selling perspective of the base level commodity, the base level crop itself, you can cash flow a lease on those projects at rates that make sense in much of the United States. Maybe not in places like Iowa, where corn and soy leases are$350,$400,$450 an acre. But in in much of the United States, especially across the Mid-Atlantic, Appalachia, uh, and a bit of the Northeast, uh it does, it is viable.

SPEAKER_00 43:33

Aaron Powell And if you were to explain black locust to the guys that work on the floor of Kaufman's stairs, what would you tell them?

SPEAKER_01 43:42

Um I would tell them it's uh similar to white oak, which they're very experienced working with, um, but it's just quite a bit harder uh in terms of its density and that it's raw resistant. Those are the main things. I mean, it's really that simple. There wouldn't be too Too much beyond that. That operation doesn't take whole logs, right? It takes finished milled product, right? So the expectation is that the finished milled product would be of high quality coming off the sawmill. On their end, they'd be using it the same way they would use a white oak uh based product today.

SPEAKER_00 44:18

And what would you tell a pastry chef or a baker about chestnuts?

SPEAKER_01 44:24

I think uh pastry shop or a baker, I would tell them to think about it like they think about almond paste in many ways. You know, there's this sort of a little bit it has two opportunities, right? And the pastry shop is probably more familiar with making almond croissants than they are familiar with baking with a new flour. So I'd probably start there with a creamed chestnut product, similar to what they'd expect with almond paste, and then from there introduce them to the idea of it being a flour. Now, if it's a gluten-free bakery, they might have a lot more experience with almond flour. And so in those bakeries specifically, it might be a lot easier for them to incorporate chestnut flour into their into their mix.

SPEAKER_00 45:06

Alright, we're coming to the end. Let's do some rapid fire for immunity. Elderberry or blackcurrant?

SPEAKER_01 45:14

This is gonna be a little bit of a take that people won't like, but it's blackcurrant all the way.

SPEAKER_00 45:20

Grass-finished beef operation or pastured laying hens? Ooh. For me to operate? Yes.

SPEAKER_01 45:28

Grass finished uh livestock for sure. Yeah. I would probably throw sheep in there too.

SPEAKER_00 45:35

Chocolate ice cream or coffee ice cream?

SPEAKER_01 45:39

Coffee ice cream.

SPEAKER_00 45:40

Aronia or eating sand?

SPEAKER_01 45:44

Aronia. Aronia for sure.

SPEAKER_00 45:47

Scalability, black locust or curly poplar.

SPEAKER_01 45:51

I think right now in today's market conditions, black locust, if something were to change around subsidization of water quality-based uh options, and given the low opportunity cost land that's out there, and if there's like um and given the like amount of wood product that's moving into CLT, cross-laminated timber and veneer-based work, curly poplar could be the grass-fed cow milk or macadamia nut milk?

SPEAKER_00 46:25

On grocery store shelf, uh grass-fed cow milk for sure. Black walnut desk or black locust stairs? Black walnut desk. Sea berry or gold rush apples? Gold rush apples are my favorite, so but I also love seaberry. That's a good spot to end. We can dive into any of these topics. We can dive into black locust, deep dive on chestnuts on subsequent episodes. I know where to find you. Anything else you want to leave our listeners with before we end?

SPEAKER_01 47:01

Yeah, I would just say I look forward to uh sharing more, especially on chestnuts and black locust, which I think are two of the biggest opportunities in the U.S. right now, and I'm excited to see more people getting involved in planting and thinking about those species in particular.

SPEAKER_00 47:17

Jeremy, thanks a ton for joining us on the Plant the Trees podcast. I know I'll talk to you soon. If you can't tell, Jeremy and I know each other very well, and I'm sure we could increase the candor of the conversation a few notches. We hope you got a lot from this episode. And if you'd like to learn more about Propagate, don't hesitate to visit our website at propagateag.com. And if you'd like to speak with someone about planting trees on your land, just head to the contact us page and we can set up a time to talk. Until next time, plant the trees and make it count.