The Grassfed Association is currently in negotiation with like-minded organizations regarding co-operation in the development of financing models that can extend into aspects of the grass feeding meat production value chain and consumption arena.
Out of this process we are hoping to extend and facilitate access to financial services for our members which will be unique and suitable for Grass Feeding as a whole.
We call it Risk Finance as it incorporates and enforces responsible decision making, which by its nature is the first and most important facet to good risk management. Such management is integrated with sustainable and regenerative agriculture in its broader definition. The ability to withstand catastrophic events and their consequences can be built into the risk financing model
Development of Risk Finance Models
There are three streams of finance envisaged. Production Finance, Regenerative Finance and Investment Finance.
Producers will decide on their own level
1. Production finance - required to manage and feed animals so that the production performance (kg/day) reaches an expected and achievable target. For this production finance to flow there are certain assumptions
a. There is a off-taker who commits via a suitable and enforceable contract to an agreed delivery period and conditions. This will include at least a minimum price
b. The digitising of the order under acceptable conditions so that this order can be converted into security for the production finance
c. The contract entered will effectively pass ownership of the contracted livestock to the off- taker. The farmer becomes the de facto manager for which the reward and possible profit share details are part of the contract and off-take agreement
2. Regenerative Finance 12J registered company – where it is assumed that for a willing producer to move from the current agricultural production system or status quo to a grass feeding regime will require both time and capital.
For example, to move from a weaner production system to a grass feeding finisher will require capital expenditure (electric fences) and income protection for the two years during which the absence of weaner income will impact on the producer’s livelihood.
This specialist funding requires expertise and it is these experts who we are partnering with as GFASA.
The rationale of this funding lies in the registration of two sub-funding models. Section 12J and Investment Funding.
The first is section 12J funding where investors use tax money to invest in a controlled environment. The detail of this are beyond the scope of the newsletter but it gives an indication of the possibility
3. Investment Funding - here there are also two options or sub-streams.
The first is the similar investor as describe above using the same company but not using 12J tax finance but pure investment finance because the investor is attracted to the holistic production ethics and wants to be involved.
The second is the possibility of the off-taker described above using their balance sheet to guarantee supply through contracts with dedicated “Grass Lotters” or by investing and partnering with a breeding herd to guarantee a supply of a certain type or breed.
These deals will be on the back of a risk mitigating structures that will protect the investor from catastrophe while encouraging the producer to manage and be responsible for the small risks. The initiative uses the terminology of Risk Management – Treat, Tolerate or Terminate.
The discussions described above are currently in process and we are expecting some positive feedback within a timeframe to be ready for the next growing season, hopefully. We will relay such information as appropriate to producer members who may be interested
Rick Dillon
082 564 9404
