 Good evening, everybody. Welcome to the Private Property Farming Podcast. My name is Mbali Nwokor, your host every Tuesdays and Thursdays at 8pm. Thank you so much for continuing to support the podcast. It's been great to have you guys, you know, taking part in our competitions. And I specifically liked the Know Your Crop campaign or competition that we ran a few weeks ago. You know, it's great to know that people out there are really planting, growing their own food and know a little bit more than their crop than we tend to think. So today we have another amazing, amazing episode. And our topic is all about financing. How do we use technology to finance our agricultural businesses? How does it work in the agricultural supply chain? If you're looking for financing or just ways to think of how you could use technology or broaden your perspective on how you can farm your agribusiness or your farm enterprise, I think this conversation is for you because we have an expert to unpack this topic tonight. But before I get into the show, I just want to mention that the Gardening Series, which we air every once a month towards the end of the month, we've partnered with EcoBuzz, so the Private Property and the Gardening Series with the Gardening Series show, we've partnered with EcoBuzz to give away a nurture products hamper. So you could enter this competition by telling us what you have learned since the first episode of the Gardening Series. So if you miss any of the episodes, go on to our YouTube channel, Private Property Farming Podcast playlist and catch up on the past episodes that we've aired on the Gardening Series and share with us what you have learned using the hashtags, hashtag Gardening Series, hashtag EcoBuzz, hashtag Private Property to better your chances of winning. So please connect, engage, share and like our videos. It's always great to have your feedback. So let's get on to tonight's guest tonight. We are joined by Helmut Druis, who is the founder of Contegra. And we're going to be speaking about using technology to finance the agricultural supply chain. Helmut, thank you so much for training us. How are you doing? Hi, everybody. Great, great to be here. Thanks for the opportunity. Likewise. Thank you for coming on to the podcast. So as a means of introduction of the podcast, we first start off with the conversation, basically, on you introducing yourself to us and maybe giving us a bit of more insight on what does Contegra do? Yeah, thanks, everybody. So Contegra effectively administers a credit marketplace for supply chain finance and that rewards farmers for sustainable farming practices. So we work on a specific platform that gives farmers access to certain markets. And then as part of that structure that he's supplying to a market, we then provide the financing. And the financing is linked to what he actually does on this farming enterprise. So it does two things. First of all, it makes additional capital available to the farmer, but also secondly, it's a way of actually recognizing what farmers actually do and how those effects and on those practices impact the food production. Right, right. So maybe just give us an example of that. It sounds quite interesting. I've never heard of this form of financing as well as linking to market. So I could be a maize farmer and I'm coming to Contegra. What am I looking for? I'm looking for production input finance. And with that, will you assist me to support my maize? Sure. So I think maybe to take a step back to explain what I see as the different forms of finance available to farmers. I think the traditional form of financing agriculture production is based on a system that's called balance sheet financing. But effectively what it is, is that the bank or the financier would look at the balance sheet of the farmer, and you know, in which effectively is the land. So if he owns land and that land has got some value and what the bank says is like, well, we'll take that value and a certain percentage of that will make available to you as cash. So you're effectively converting your asset into short term cash. So a long term asset that's being converted into cash. Now the problem with that system is number one is that if you don't have that asset, there's no way you can get financing. And we see that specifically in South Africa, we have through our political history, certain regions that we don't own title and it's actually makes it unfinanceable. So that's why farmers in those, you know, sort of former homelands are finding it difficult to raise financing because there's no asset that could be converted in terms of converting it into cash. So that's the traditional form of financing. There's an alternative, which would what I would call is a retail credit. And that's effectively where the person or the company that's supplying you with imports says to you, look, we'll provide you your inputs and then you can repay me when you harvest. You know, so that's traditionally what the models that the cooperative would use to say, listen, you know, you've got an account with a cooperative and then you can go buy a season fertilizers from us. And then when you harvest, you repay us. Now, the problem with that, first of all, is that you sort of almost locking yourself into a specific buying relationship so that you you're buying from a single supplier and there's a certain sort of business cost to doing that. But I think the biggest problem with that system is that you're effectively are forced to sell your produce at the time of harvest to settle your credit. And which means you and like you probably know from from experience that market prices go up and down and they usually go down when it's harvest time because that's when everybody is producing. So in a way it strips the farm with the opportunity to actually participate in the longer term market and actually reliver it's the ability to to participate where the market prices go up again. What we do is different. We start at the market. So we say, listen, okay, well, who's buying a specific product. And that's, it's interesting that like agriculture, I think the major major drive of the industry is to push farmers to produce more and more and more, which is sort of this negative cycle of producing commodities at scale. So the only way you can win this by producing more the same stuff and then everybody does it and by doing that the actual price comes down. So that's that's one way of doing it. But there's another way of doing it is to say, listen, well, let's start making agriculture produce that has got some quality to it. You know, it's a different strategy. It's like in the car industry. You can either try and be a large volume. I don't want to abuse any brands, but like something like a company that would be a Toyota or Volkswagen that produces at scale at a low cost point. And then at the other spectrum, you've got the Ferraris and the Porsches who are differentiating themselves on the driving experience. So in agriculture, you could have a similar approach. So if you look at this produce agricultural produce, it's got certain characteristics. And that could be the product itself, but I think increasingly over time, it's also how it was produced. So does the product, you know, when you're buying a bag of maize, where was it produced? And what was the social impact of that bag? So was it produced locally? Was it shipped from Brazil or was it produced locally? Is it organic? Is it GMO free? There's a whole lot of sort of characteristic or product characteristics you can add to agriculture products. But anyway, we start there. Let's not call that as a market value. And what effectively we try and do is to advance the funds to the farmer based on certain events happening. Okay. And if you look at it, so if you, for instance, have produced something of value and you invoicing your buyer, then that's got a certain value. So that's one part where you could say, well, that's financeable. And you could say, listen, okay, I'm going to finance based on that future value. Another event is when you've actually delivered your crop, you know, when you've delivered it across the way bridge, there's a really value that was being created. So we could say, well, that event is another event where we could potentially advance funds on to say listen, let's finance you based on what you've delivered. And then you can actually go further in time to say listen, okay, well, once you've harvested something, if you've recorded that to say listen, okay, I've actually harvested a crop. And there's different ways of recording that thing. There's always modern technologies are being developed. And that's I think our topic today. So for instance, combine harvesters that have yield sensors on that state that we could potentially say, well, that crop has been harvested. So value has been created, which makes it value, which makes it financeable. But you can go in time further and further upstream if I can call it that. So if we convince the validate that the crop is growing funds, you know, so if there's a clear satellite image that says this crop is growing. And that's also a traceable event using technologies and you could say, well, we'll advance funds based on the crop growing. You can go further by saying when that crop has been planted. So technologies help us to do a couple of things. First of all, it allows us to record these events agriculture. And but I think most importantly for what we try we try to do is to combine it with the financing. And by doing that, we believe we can create, we can make financing available to new and emerging farmers and growing farmers that don't necessarily have the balance sheet to finance the operation. So that's in short what we try to do. Yeah, so forgive me, you know, you see Monday and it's quite technical what you're saying. And I'm trying to put it into perspective as a farmer on the ground, you know, so what I hear you saying is that you provide financing at every maybe at you provide financing to farmers but look at every single very channel step of production. And that really has been created, and you could finance on that. Right. Exactly. Farmer hasn't started, you know, they've got 1000 hectares they want to start producing mays, but maybe they just need production input costs to buy the seeds and the fertilizers. And they have a, they have a market meaning an XYZ company that's going to take their maze. So, can the farmer come through to Contegra and say I need, for example, 1 million to form my 1000 hectares, because my maze is going to go to X person. Or do you need the farmer to really be in production so that you can equate some sort of value towards the financing that they need. Yeah, so the quick answer that that's that's exactly what we're trying to achieve this lesson if you've got a contract so somebody's prepared to buy your product. And that has value. You know, so so the idea would be this lesson I can well if you're selling this crop to this buy and he's prepared to buy it from you and then that has value. And then effectively what happens then is it's like a well then we need to fund your business because remember your buyer now has a vested interest in you producing what he needs for his market doesn't make sense. So we, we try to incentivize that this thing is actually by producing something of value, as opposed to looking at what you have at the moment. Do you understand what I'm saying so we are saying we're not going to look at you in terms of what balance sheet you have and what land you own, but in terms of what you're producing. And that's exciting because that could change and unlock the potential of Africa because if there's a lot of potential, what we can achieve as opposed to what we have, and we try to turn that model around. So if you have an agreement to sell and that's got value and it's about actually then organizing that and setting it up and to make it work. I mean I was just, when you asked that question. I was just thinking about like maybe to explain it from it from a different business. Let's take for instance a hair salon, you know, a salon that says okay I need to I need money to grow. Let's say I need, what does a hair salon need? It needs a chair. It needs razor blades. It's got it's got operational expenses electricity. Yeah. Mira there we go now we're going to sort of a capital expense but let's say, but you need you need you need ongoing, you know working capital to make it work. So now when you start off, we can say that you can go to your, your family and friends and so listen please lend me the money so I can start this, this, this, this barbershop and then, then you think go and you start getting customers, you know. But you'll sort of also realize after time that you need more money now you need to grow you want to get additional chairs into your barbershop or and that costs money. So now a hair salon is from a financing perspective relatively easy because you do a monthly sort of business. It's like every month you've got so many customers that comes through your door and you look after them and then you treat them and then they got and that sort of repeats itself. So when you look at that from a financing perspective you can say well that's an ongoing business. What makes agriculture hard is because you got these massive column working capital cycles. Like you said, you know, it takes two months to say you use the example of grain production it takes two months to prepare and to plant and to fertilize and everything. And then you got four or five months of the crop growing and then it takes another month or two months to actually harvest the crop and then move it to a storage facility. So you've got this massive drawdown which makes it unique, but it goes further than that. You must remember that to supply you there's an input supply who needs another 12 months before you to actually get themselves organized to supply you with inputs, you know. And the crop that you've sold takes 12 months until that last bag of maize mills been sold if that makes sense. So it's actually a very long supply chain and to manage these cycles that I think it needs a fresh approach on how you actually finance it and that's what makes agriculture different but also in that sense exciting. Yeah, and with the Contagra's value add and model, you know, basically your unique value proposition. And traditional forms of financing would need like you said balance sheet, maybe would need the land as an asset you know the title. What sort of what form of security. Do you guys take when you're financing a farmer because again we're also very know we know very well how much that you know, as much as a farmer might have a contract and so forth. Some of them are not binding, you know, because kinds can chop and change those contracts based on seasonality as it suits them. So, how do you protect yourself as Contagra in that space where you have to finance a farmer, and maybe what from a farmer what what is it that you will need from the farmer in terms of, I suppose, equity or security, if you are working with that model. Yeah, so so I think you've actually hit the money or the nail on the head if I can call it that is that it the conversation is and this is the correct decision it's moved towards that offtake and his credit worthiness. Do you understand you've just shifted it to say, you know the farmer does everything he can to produce. But we actually rely on that buyer that being ethical and honoring his his contract so in a certain way that's the first step in our process is to assess that what we call that offtake, you know, to make sure that he's he's got a certain a brand promise to the consumer and I think it starts there is to say, we no longer just going to produce commodities but there's somebody out there that say listen, I have a responsibility in terms of my supply to me and I'm committing to actually provide a product to the market to the consumer that I'm tying myself to okay so this is that first step I think that's key to this whole process. It's not guys just trading and being intermediaries. Listen, we want to build certain supply chains, you know, coming back to the car analogy. There's a certain commitment that the car brand makes to the driver to say listen, we will do everything in our ability to make sure this car safe as an example. It's a similar kind of thinking we need to bring into agriculture is that offtake is actually have a promise towards the consumer. And I think it starts there now in terms of what you require so that's the first step that we need. There's a terms of the like let's say there's managing the harvest downstream, you know, that's tangible, you know, you can put stuff into a silo you can put it into a packhouse you can freeze the apple so usually that's that's not the hardest part you have risks around that but the big headache is really this part from when the farmers invested into the production, until there's something of value and that could be a tree that's growing fruit it could be a field crop that's still, you know, germinating and it could also be livestock for instance a calf that needs to be reared and and that before it's ready for market. So that middle section is where the biggest big risks line is many of those these the, you know, the sort of incidental risks we call them that's the stuff that happens that you can't do anything about it's like fire and theft and, you know, it's a big part of what we do is to make sure that that insurance is in place is a little bit control a checklist that we make sure all this stuff is ticked off. And then the second sort of risk that is there is what we call systemic risks which are effectively risk that the farmer carries if he's used to carrying himself, which is effectively rather you know, so if you for instance have like a shortage of excessive grant or there's too much water you know which in some industry that's another concern, then that risk is usually carried by the farmer and that's usually this the cycle that you go through over the years you some years you do well some years you don't do well. Now most cases farmers carry that themselves, but in our case because remember we funding that that part we need to make sure that that's mitigated. So we working with, you know, reinsurers to make sure that that underlying risk is actually mitigated and that's partly what we do with our technologies is that we, we put all this data together to make sure that that production risk is called it bankable you know so you can quantify it you can calculate it and say okay right fine then somebody is prepared to buy that risk that the farmer doesn't carry it. And what it effectively also creates a vehicle for the farmer then to protect his own balance sheet. And it's kind of this idea that you know you build up something of value and in the 10th year, you have a bad yield and all of a sudden you're back to zero and I think a lot of sort of emerging farmers on this kind of like trap where they're trying to get into this market but they build up value they build up some some equity and then all of a sudden it just gets clubbed out and they've lost that so we're trying to mitigate this because it's all about sustainability. And then the third risk that we need to manage is the actual farmers behavior because remember there's a risk that the farmer doesn't commit to what he said he will do you know. And that's an interesting topic in itself because you know how do you do that so first of all, and I believe it's really important that we start recognizing what farmers are actually doing. And we sort of doing some initial investigations into you know regenerative agriculture which, which addresses the topic of first of all soil health. So a farmer that's looking after his soil, in a way you can trust that he can start looking after your supply contract as an example, okay because he's really, he's got a view on his business being sustainable. A farmer that looks after his livestock for instance is also somebody it's a leading indicator somebody that's investing into his production system and recognizing that because at the moment mark the market doesn't really recognize that value that that he's doing. And then thirdly is also his social impact you know and and it's something we probably don't, you know, link to agricultural produce you know so when you're buying a bag of apples or you're buying a bag of something. You don't really recognize like you know there's actually a very important component as a hired was produced. You know, we've had the fortune that we sort of been working in in Europe, and it's a massive train at the moment this whole, this whole desire to move towards more sustainable production systems you know that we have that we no longer just looking at the way of getting food to Europe it's about making sure that that food that's being produced is ethically produced. You know, all those kind of attributes that come into it so I think we also try and in our system recognize what the farmers doing. And then actually that's part of the whole whole sort of compliance model so that we can work on certain certain farm and it does this. Well if your soil conditions start improving, and that increases your credit worthiness which then we can recognize and actually advance in terms of funding. So so we kind of like you know my sort of opening statement that's what we're trying to do we're going to try and do supply chain financing, but really reward farmers that start farming sustainably around various parameters. Wow, that is quite interesting so you walk the journey with the farmer throughout the production cycle, and you would expect the farmer to keep obviously accurate records on what they're doing, they must be open in their production practices to ensure that they're farming ethically. And I suppose it creates a beautiful incentive like a rewards program everybody, you know could just start farming sustainably yeah. Exactly. Yeah, just also verify how much is that the financing can not only be for equipment but can it be for production input costs. And also I know we're looking at the emerging farm or the farmer specifically. But what about those companies that are selling maybe fertilizers to farmers, but they need financing you know maybe to buy more stock etc. So companies that are selling, let's say you mentioned emerging farmers as well and we know some of the problems with that we have in the industry emerging farmers is operational capital, you know. Yes, they might have land that might have the seeds, but to keep the business going, some of them don't have those resources. So, you know, and a lot of the companies let's say you might need a knapsack or spray some form of tools to continue farming and the farmers don't have that capital. Like, do you provide financing to those input suppliers that supplied the knapsacks to the farmers to say okay, you know I could be one of them that person I can say helmets I've got 100 knapsacks, you know retailing let's say 2000 each, but I've got 50 farmers that want to buy but they don't have the cash. And can your form of financing also be part of this. And can a supplier come through to to Contagra for for some financing. Yeah, so I mean the short answer that exactly we actually tie the supply into the whole process. So the sort of preseason funding is not dispersed this cash. So effectively is the farmer has has the ability to purchase from accredited suppliers who then, you know, a supply and with the goods. So so exactly that we try and also remove the credit risk for the input supplier by doing that obviously then it unlocks other opportunities in terms of, you know offering benefits to the farm in terms of price. So that's that's the short answer I think also as one of the maybe touch on this concept of liquidity in a way you know so if you look at a balance sheet, you know, not not to simplify it and too much but you know you've got you've got to sort of what you call a long term asset which is typically your land and your fixed improvements and so forth. And then you have your sort of what they call what we would call sort of medium term or movable assets, and that would be typically your machinery. And then you'll move your breeding livestock. Okay, so in terms of an agriculture context and then you've got your sort of short term assets or liabilities and that's your operating costs. Now, what farmers probably tend to do is that they start using their long term assets to fund their short term working capital if they make sense. And we weren't trying to do is try and correct that slightly so our focus is to look at specifically the value of the material that's moving through the supply chain if I can use that example so that starts with fertilizer and diesel and seeds doesn't make sense so that's the object of value that we try and quantify and make it bankable. And when the farmer have plants, you've got to grow in crops so that crop that plant itself becomes the asset if I understand what I'm saying and as that plant grows, it increases in value you know and then when you harvest that the fruit of the plant, you know the commodity then in the supply chain is what's of value doesn't make sense. So in all the industries that's what that's how it works. So if you take mining funds, you know, the value lies in that all that's been hauled out of the ground or the gold that's been extracted from the oil and as you work this call it this work in progress or this factory that's producing value. That's what happens and actually mining companies that's how they finance the working capital. It's just an agriculture it's not done because of this huge drawdown and this complexity around managing it. So we're saying well, that's the problem that solve it that's put the structures in place. Let's get the pharmacist are reporting its use technologies to monitor this you can you can bring trust into the system just by having the right technology. And you know there's exciting stuff happening in terms of blockchain to even reduce the risk that you leverage this data just for yourself. So there's all the stuff one can do just to increase the trust on the underlying assets. So it's really about solving the short term call it the working capital of the production and maybe to answer your question by doing that you're releasing funds where the farmer would have used those funds for working capital. So we can give them that that allows them to diversify and start investing into sort of longer term assets. Does it make sense. So we like even a livestock example if we can start financing the we know production for instance, and the farmer gets capital released he can start investing into breeding livestock. Well maize farmer might say listen okay well I've put additional capital I'm going to reinvest it into storage for instance or processing. Or fruit farmer can diversify what he's doing with it you know you can you can augment it with different revenue streams and also like, you know, even this this regenerative agriculture idea of combining crops and livestock so so by doing that you unlocking the capital for the farmer to diversify and guess what that reduces credit risk, because you diversify revenue stream you're making the business more robust. So we leave over 1020 years when the farming operation. That's how we need to have our goal on is around succession planning that's really what it was artists to make sure that these farming businesses are growing and then diversifying so you know that's another example of how we try and really focus on the sort of long term value for the farm. Wow. This is definitely interesting I mean it's a whole new different concept. And yeah I think we might have to have a conversation after this. There's so many things that I'd like to ask but you know we only have about 30 minutes in this call in this conversation. What I wanted to find out is what you mentioned you know just before we start our conversation. And I think this could just wrap up our talk today is that you mentioned that you know you're working with some partners overseas on an accelerator program. Maybe just tell us a bit more about that. So we're pretty excited about it so we still are really to run young business, but we got accepted into an accelerator in Germany in Hanover. I don't even know where Hanover is but Hanover is is where the agri-technica is located which is the world's largest technology show like in terms of tractors and stuff and gadgets and things. It's a massive it's a massive confluence and around Hanover there's quite a few companies or it's a very strong agricultural region. It's called that almost the free state of Germany if I can call it that. And anyway so there's a couple of corporate partners that are looking at sort of innovative approaches to agriculture like sort of leading to disruptive technology ideas and there were 300 applications and we were one of the seven that was chosen. We're the only one that's not doing sort of the classical tech you know in terms of like selling gadgets to farmers. So we sort of have this matrix where they assess these different types of companies and there's a box at the bottom right which says other and that's Contagra. So we sort of fall into sort of a sort of supply chain integration you know space which is exciting because it and it's you realize that the industry is really hasn't been looking at that. Like how do we leverage the integration of the supply chain as opposed to just focusing on production and maximizing yields. And then what we also super excited that we're the only company that sort of you know it originates in South Africa. You know so there's there's a Polish team is a Turkish team is a German team. And I think the last one was it was from Belarus you know so it's it's quite cool to sell us and hang on a minute you know this sort of innovative idea she has it through in South Africa. So we're very excited it's going to hopefully open doors and just get this idea onto the map. And I can tell you that I was in Germany last week. There's a there's a massive movement and I think we have experience that gets in South Africa towards this sort of this really deep desire from consumers to understand where their food comes from and the impact of that food production in terms of climate and social impact. And I think that's something we should really think about South Africa and how we export and how we present ourselves on a global scale. So there's I think very exciting stuff anyway so we're very excited to be part of that program. This is fantastic. I'm wishing you all the best not only for Contagra, but for South Africa as well because you are representing and I think what you are offering with Contagra is quite unique. And yeah hopefully you can come back onto the show. I don't know next year you know once you want to do the program and maybe to share experiences how it's been like and maybe you know your business model might change. You know and have more offering because there might be things that you could pick up. You know with the other international businesses that could obviously apply to the farming landscape here in South Africa while all the best and congratulations for being selected. Thank you very much. Thank you so much Helmut. Our time was short but I think what you are doing is quite interesting and I hope a lot of people could grasp what you are saying and I agree you know traditional forms of financing must change because again we don't farm like how we used to farm 50 years ago. There are so many facets and to agree that have changed not only in production cycle but along the very chain and obviously knowledge is also helping with that. So thank you so much for your conversation for our conversation this evening and for sharing us your journey and what you're doing the industry. Thank you very much. What you're doing with this podcast is fantastic. So to you as well congratulations and keep doing what you're doing. Thank you. That was how much drew us from Contagra. He's a founder of Contagra and was speaking about how to use technology to finance the agricultural supply chain to finance your business as a farmer as input supply into the agri industry and what I like about Contagra is that you know they are pushing farmers to farm ethically to look off the environment and you get incentives out of that. So if you missed our conversation please watch it on a farming podcast playlist under the private property YouTube channel and if you have any questions for how much drop them and we will answer them. Immediately after if you've missed this this live show so thank you so much for joining us. Remember just to hop on to the gardening series platform watch the videos. Connect and engage with us and take part in the competition that we have in partnership with eco buzz. There's amazing hamper waiting for you for the winner that's that is. And so follow us on all our social media platforms. And that's where you'll get more competition info. So that's it for me and I will catch you next week Tuesday at 8pm. Take care.