April 15, 2023

The workshop series forges unique connections between solution providers, impact investment networks, and US government agencies to scale evidence-based regenerative financing solutions.

Farmers, ranchers, and businesses are working in their communities to regenerate food systems and build community wealth. Investors are showing increasing interest in funding regenerative agricultural enterprises. However, there are gaps in small-to-mid scale processing infrastructure, transportation, and markets for regenerative food products. This missing middle of food systems is well documented in various reports (e.g., Croatan Institute).

Associated with this missing middle is a “missing middle in food systems investing”; i.e., the gap between the investment needs of regenerative businesses and the minimum investment size from interested private and public investors. TIFS has been convening a series of informal dialogues to complement the important work of our partners and generate solutions for this missing middle.

Some of the topics we have discussed include:

• Producers and SMEs (small, medium, and growing businesses) that are creating solutions for a regenerative transition need access to flexible, customized capital.
• Global financial markets allocate capital to companies through standardized, scalable vehicles.
• Systems data, risk assessment, and impact verification metrics are geared towards yield and scale, underestimating systemic risks and externalities.
• Government policies are geared to maintaining the stability of the incumbent food system.
• Agricultural infrastructure has become consolidated and specialized, while a regenerative transition needs infrastructure that can handle diversity and regionality.

The convenings build on conversations TIFS has had over the past three years, including at ESG for Impact, UN Convention on Biological Diversity COP 15, TomKat Ranch Educational Foundation, the Grace Communications Foundation, and Aspen Ideas: Climate.

An important thread that emerged in these conversations is the urgent need for deep ecological transformation. The uncertainty associated with the environmental “polycrisis” requires new approaches to leadership and inclusive stakeholder participation. The private and public sectors need to work together on complex systems change campaigns; big changes don’t happen without government involvement.

Here are key takeaways from our conversations:

Create a toolbox for the financial sector to allocate appropriate finance to regenerative systems. Financial actors in the public and private sectors are signing on to commitments (e.g., climate, biodiversity, social justice), but they don’t have the financial tools to achieve those commitments. And too often current incentives are not working for the missing middle. Tools in the toolbox would include some basics –education, policies and regulations, and data and research. But we also need to provide the mechanisms — such as clearinghouses, rating agencies, insurance, re-insurance, and collateral pools — that will make private capital markets work for today’s risks.  

Prototype models that address system needs. Many initiatives are prototyping approaches that assess risk differently, organize finance to better meet stakeholder needs, or develop approaches to finance aimed at empowering historically underserved communities. Communities want to learn from these models and standardize them for replication or scaling.

Scale models that have been tried and tested. Impact investors and financial intermediaries are developing and investing in models (e.g., clusters of services and finance for farmers in reforestation/agroforestry, equipment, and collateral) that can be scaled or replicated to create equitable and just food systems. 

Use opportunities to scale successful models with government support. In the U.S., the federal government has allocated resources to support the scaling of successful models throughout the value chain (including farming and farm production, value addition, broadband and agtech and access to healthy food). The opportunity is for stakeholders to propose solutions to clearly identified problems and leverage government support. 

Be aware of context and promoting transparency. National contexts for investing in the missing middle are widely diverse. Across the board, however, major investments are needed to achieve the Sustainable Development Goals (SDGs) and climate commitments. To ensure just transitions, we need safeguards and accountability mechanisms to ensure that human rights are respected. For investors — and investment advisors — this requires transparency, an understanding of systems in order to seek opportunity and find gaps in the market, knowing what they own, and tools that provide insights about impacts. 

Mitigating harm while investing in solutions. Although negative food system externalities are largely tied to global supply chains and public equity markets, the focus may be too much on avoiding externalities and not enough on being proactive by investing in solutions. Financial stakeholders are deploying a range of strategies, from changing asset allocations across the capital markets spectrum, to divesting from companies in the extractive agriculture complex, to working with investment advisors on investment strategies across asset classes and risks/issue areas, and a host of other ideas.

Engage with pension funds and reinsurance companies and speak their language to attract capital. Language holds us back; Gone are terms like ESG, impact, or materiality. Now “risk” is the key word. Integrated risk assessments are needed and need to apply to a 10-year horizon. And perhaps a different type of risk; career risk for financial managers, is a major barrier to change.

Takeaways for TIFS. TIFS can play a vital role in helping to bridge the gap, by identifying pipelines of values-aligned investments, convening key stakeholders in the missing middle conversation, applying True Cost Accounting to engage finance stakeholders, and connecting actions at the intersection of public and private finance.

TIFS is partnering with Potlikker Capital, Builders Vision, and other partners to organize additional workshops in Chicago (April 2023) and Washington, DC (June 2023). TIFS looks forward to continuing to partner with stakeholders to build and coordinate actions to increase appropriate investments in the missing middle.