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Confusopoly When It Comes To Farmers and Environmental Markets

by | Feb 3, 2021 | Economy, Environmental Markets, Uncategorised

Confusopoly

The Environmental Goods and Services market is a Confusopoly.  This isn’t by accident.  Such market conditions is where brokers thrive due to information asymmetry.

What is a Confusopoly?

confusopoly

The Customers

Environmental markets are booming world wide.  Theses markets are expanding from being focused exclusively on Carbon to “Nature Credits” of all sorts including for biodiversity; soil, water, specific species, specific habitats and cultural / social importance of landscapes. 

Governments and Society are forcing large Corporations to the table on Climate Change. 

In many cases these large Corporations have proven more aggressive than governments.  For example many governments have signed up to Net Zero 2050 whereas similar sized Corporations have signed up to Net Zero by 2030.

Some examples: Microsoft (Trillion dollar business), BHP Billiton, Qantas, American Airlines, BP, Ford, Foxconn (makers of the iphone and many other electrical devices) and thousands more Corporations want to buy Environmental Goods and Services.

The Supply

In Australia, when talking about supply, we are talking about the 40% of Australia’s land mass owned by indigenous people, we are talking about Crown Lands, National Parks, State Parks, Conservation Land Trusts and FARMERS.

Farmers through private ownership of the most fertile areas of habitat do have the greatest ability to meet the growing market for Environmental Goods and Services or “Nature Credits”.

It is entirely reasonable to expect farmers in the future will be paid for their food and fibre production as well as the production of Environmental Goods and Services.

the supply

The Brokers (Sharks)

Sitting between farmers on the supply-side and customers with a huge appetite for Environmental Goods and Services on the demand-side is a range of real barriers including: scale, accepted methods, scientific and transaction skills, farmer-friendliness and brokers.

Making these real barriers harder to overcome are brokers.

Whilst the Supply and Demand side don’t / won’t / can’t communicate with each other the brokers make above market returns.  It is not in the brokers financial interest to really help the Demand and Supply sides connect better, share a common agreement, distribute risk, work together in understanding issues like additionality, durability and leakage etc.

This situation doesn’t help anyone but the brokers.

The Customer pays inflated prices whilst Farmers pay 40%-50% in brokerage fees. 

Specific terms in some cases are downright unethical. 

It is common for example for brokers to be paid in full and taking their money first before farmers get paid a cent.  Its often the case for brokers to take the majority of future appreciation via re-valuation whilst sharing no risk in the case of depreciation via re-valuation.

Brokering in the emerging Environmental Goods and Services market is already a lucrative business, but is set to grow even bigger.  That is why KKR – the ruthless Private Equity company – owns shares in Green Collar, one of Australia’s biggest brokers.  It is not because KKR care about the environment. It is because there’s insane margins in this market. 

The Honest Broker

Australian Farmers are getting behind the Protected Habitat Farmers Mutual.  The ambitious plan of the Protected Habitat Farmer Mutual is to change the market dynamics and broker-led confusopoly.  In it’s place would be a farmer owned mutual that exists to help every Australian farmer unlock the ability to get paid for good environmental stewardship.

protection of the habitat

Owned By Farmers = Aligned 

The mutual allows groups of farmers to aggregate and reach the scale required by Customers. 

The mutual helps each farmer do the specific scientific and transaction processes required to verify and continually monitor the Environmental Goods and Service that Customers want.

And, the mutual does this by splitting the costs of services and not having to make the accelerated returns that all other brokers require. 

The mutual is owned and democratically controlled by the farmers, who are the Members of the Mutual.  These are the same farmers that are using the service to access Customers who want Environmental Goods and Services.

The mutual as a result is seeking to make service sales cover operating costs and future capital requirements, but doesn’t pay external shareholders an accelerated return on top.

The mutual will still employ people where required but can work with existing government-funded extension services more effectively.

Becoming A Mutual Member

The mutual is expected to establish middle of 2021.  Right now Ethical Fields is taking expressions of interest from farmers that wish to become customers (Members) when the mutual does establish. 

This “early access” cohort will have a hand in shaping the mutual and getting paid first.

It is exciting to think of a farmer-owned business helping put more of the money that farmers earn through good stewardship into farmer pockets.  Instead of lining the pockets of middlemen.