If Demeter has anything to say about it, the coming years’ harvests will be fruitful for both small farmers and the consumers who value the way they operate. But in this instance, it’s not Demeter, the Greek goddess of harvest behind the push, but a small team of Forbes 30 Under 30 list members who gathered this weekend using the same name to take the first steps towards creating a new kind of investment vehicle powered by blockchain.
While retail and institutional investors alike already invest billions of dollars annually in agribusiness funds, largely consisting of the companies farms rely on, the cost of complying with fund requirements excludes most farms. While some of these funds allow investors to back smaller market cap companies, many independent micro-farms must resort to using state lenders and expensive farm banks or agriculture lenders.
By issuing digital assets backed by actual harvests, using an existing blockchain like ethereum or EOS as the transaction layer, the nascent team behind Demeter believes they can lower the cost to provide high quality investment opportunities to micro-farms that exist on only a few acres of land. By allowing the loans to be easily priced on the open market, they believe they can do so at a much better rate.
But it’s not just the small farmers who lose out by their inability to access low-cost capital, says Demeter co-creator Stefan Seltz-Axmacher, a member of the 2018 30 Under 30 list. Without a publicly traded investment vehicle for everyday retail investors to back ethical farms, the only option consumers have for expressing their financial interest in supporting these farms is by buying the actual food. By using blockchain, the technology behind bitcoin that lets individuals directly transact without a middleman, Seltz-Axmacher and the rest of Demeter believe they can jumpstart a new generation of independent farmers, paying actual dividends to the people who eat and invest in their food.
“While many of us want to eat more sustainable food, in the grand scheme of things, we don’t personally consume enough food to really shift the needle,” says Seltz-Axmacher, 30, co-founder of Starsky Robotics. “There’s millions of acres of land under production in the world today, and in our lifespan, we might only eat a couple of acres worth. What Demeter is doing is we’re taking large agricultural assets, like a particular harvest from a particular farm, tokenizing them via the blockchain, and allowing individual retail investors to buy fractional shares of those farms, so that they can put their money where their little mouth is, investing in sustainable foods.”
Starting last Friday, the Demeter concept was developed by the three Forbes 30 Under 30 honorees, also including entrepreneur Raghav Sarinh, 23 and Credimarks founder Robert Kabera, 32, over the course of the three-day Forbes Under 30 Agtech+ Hackathon, in partnership with Agrinovus Indiana and Indiana Economic Development Corporation.
The team describes Demeter as a Robinhood-style marketplace for digital assets issued on a blockchain and backed by crops, milk and meat from tiny micro-farms and industrial farms alike. While the initial cost to create such a company might be more expensive, by building on the shared financial infrastructure of a public blockchain the team believes they can provide traditionally expensive financial services to farmers who wouldn’t otherwise be able to afford the lengthy process of qualifying for existing agriculture funds. Because the underlying transaction layer already exists, much like a utility, all they have to do is customize the top-layer of services.
As an example of how it might work, the team cites 2018 data that shows an acre of corn sold for $673 and cost $664 to grow. While a 1.35% margin may seem small to many an institutional investor, it’s actually 70% larger than a Goldman Sachs
“Just because as retail investors, we’d be putting money into environmentally sustainable fields, that doesn’t mean that they’d be selling for any less,” says Seltz-Axmacher. “And in fact, the returns that most retail investors would see from these types of investments would be far better than the best savings accounts in the country.”
To give an idea of what could be at stake if Demeter or other nascent projects succeed, one of the largest traditional agribusiness funds, VanEck’s Vectors Agribusiness ETF currently manages $602 million in assets invested in the biggest companies that farms rely on, with a minimum value of $150 million. For example Tyson Foods
By contrast, the Demeter team says they would initially charge a percent fee on assets listed on the platform and distributions to investors, but similar to Robinhood, the actual asset trading and speculation would be free. Because the investments will be valued on the open market, the team believes the rates will be more advantageous than many other lending options, and using a blockchain to issue the assets will give the issuers more control over liquidity.
After the platform is ready for public use it could eventually transition to a fully decentralized platform, functioning like plumbing that directly connects investors to small farms—no middleman. Other live platforms that are already more decentralized than the Demeter proposal, in a new category called decentralized finance (DeFi) now hold tokens worth about $15 billion, according to market data site CoinGecko, while exchanges like TinLake have begun to pop up for the exclusive purpose of trading DeFi assets. Entire organizations like hedge-fund infrastructure Melonport and gambling infrastructure Augur have already started to connect counterparties in a similar fashion as Demeter proposes, but in other industries.
Perhaps the largest benefit of tokenizing agriculture assets, according to Demeter, is that doing so could give environmentally minded consumers more ways to invest in what they believe in than just paying a premium price at the grocery store. Indiana Soybean Alliance CEO and board member of event sponsor Agrinovus Indiana, Courtney Kingery, told the Demeter team that while many people say they’re willing to spend more on ethically-sourced food, that’s not often the case. Something an investment with an actual return could change. “This isn’t charity,” says Seltz-Axmacher.
Team Members: Stefan Seltz-Axmacher, Cofounder, Starsky Robotcs; Raghav Sarinh, Founder, Golu; and Robert Kabera, Founder, Credimarks.