A Seed to Stalk Future: Financing America’s Grain Economy

The idea of “nose-to-tail” dining, shorthand for using as much of an animal as possible, has no field-grown counterpart. What about the grains that make up so much of our agricultural production and diet? Where is our “seed to stalk?”

Crafting a Sustainable Grain Cycle

In Maine, a collective of innovative businesses is making sure that grain is valued from field to glass to trough, thanks to the state’s vibrant craft beer industry.

The 92 breweries that make up the Maine Brewer’s Guild use nearly 76 million pounds of malt each year [1]. Malt, which makes up over 90 percent of the non-water ingredients in beer, is made from barley, wheat, and other grains. But until 2014, there was no local source for this vital ingredient, meaning that $35 million of malt was imported from out of state.

To provide the missing link in the creation of a Maine beer made with 100 percent local ingredients, entrepreneur Joel Alex established Blue Ox Malthouse, sourcing and malting Maine grains. In Maine, barley is typically grown as a rotation crop, mostly for potatoes. Since rotation crops are typically undervalued for that single purpose, they are plowed under to replenish the soil, or sold cheaply for animal feed. Blue Ox Malthouse, however, offers farmers an alternative offtake and gives local breweries a critical local ingredient. The project is a win-win-win for the whole brewers’ supply chain. Today, Blue Ox Malthouse counts 100 different breweries in Maine and New England as customers and works with about 10 local Maine farmers.

“At Blue Ox Malthouse, we aren’t just building a business; we are building missing infrastructure in a supply chain that is maximizing connections between local brewers and local farmers. We enable new and old breweries to push innovation, create good jobs in our community, and increase the economic viability of our grain suppliers,” says Joel Alex, Founder and Maltster at Blue Ox Malthouse.

But it nearly didn’t happen. There was a reason Maine wasn’t malting its own grain. Joel Alex had the winning idea, but not the capital. What kind of lender would recognize the market potential, appreciate the linkages, and take a chance on Joel? Community Development Financial Institutions (CDFIs) are ideally suited for providing this kind of patient loans and investments on terms the borrower finds reasonable. Working within the community, CDFIs understand the linkages between growers and processors and producers and retailers, and the kind of exacting balance required to grow markets. Joel was able to find a suitable lender in locally-based Coastal Enterprises Inc. (CEI), a CDFI with a long history of agricultural lending.

One outcome of the malting process is a pint of IPA, but that’s not all. In reciprocity, the waste, or spent grains from the malting process, returns to the farm. This after-product still contains a significant amount of nutrients, meaning that even after being processed, barley can still be used as livestock feed. Blue Ox has developed an efficient system for gathering the spent grains into a transportable form for local pig farms to use as a low-cost feed source.

And yet, there’s more to grain than what we eat (or drink).

Reimagining Grains

Wheat straw that is left behind in the field after a grain harvest can be used for many things, including livestock feed, animal bedding, erosion control, and even basket weaving. Often, the cost to bale and transport the straw outstrips the value of the material, so farmers are left with the choice to till the straw into the soil or burn it.

In 2016, 7.1 million metric tons of wheat straw were burned in the U.S. alone, resulting in emissions equivalent to 557,011 metric tons of C0₂ 2_. Put another way, the burning of wheat residue in the U.S. is equivalent to the greenhouse gas emissions of 118,261 passenger cars over a year 3_. Emissions from wheat burning has declined by 30 percent from 1992-2016, but clearly, there is still much work to be done.

Wheat straw is seeding innovation in Columbia County, Washington. Columbia County has one of the highest concentrations of wheat farms in North America, with farmers in the region producing millions of tons of wheat straw each year, much of which is burned. To better use this resource, Columbia Pulp, LLC developed an environmentally-focused pulping process to turn the waste straw into pulp that can be used to manufacture paper products, packaging, including food grade packaging, and personal care items, as well as creating a bio-polymer that has numerous industrial applications including dust control, de-icing and animal feed.

“We are excited about our ability to convert a troublesome waste product for the farmers into a useable product. In addition, we are the first tree-free pulping facility to be constructed in North America. It’s our desire to bring sustainable, non-wood, market grade pulp to the marketplace. Customers are demanding it, end users are demanding paper products that have a lower impact on the environment,” says Michele McCarthy, CFO/Board Member of Columbia Pulp.

This brand-new enterprise forecasts it will process 230,000 tons of wheat straw annually. That new straw market will produce about $14 million in new annual income for the region’s farmers and their associated contractors from the sale of wheat straw. It will also significantly reduce farmers’ cost of burning the straw, all while reducing annual greenhouse gas emissions from straw burning in Washington State by 40,000 tons.

As was the case with an innovative idea in Maine, traditional financing would not be enough to fund the new concept in Washington State. Entrepreneurship in rural America too often dies on the vine because of underinvestment. In this case, public-private partnerships were necessary to make Columbia Pulp a reality, and the business came online this month thanks to a combination of Washington State bond financing, private equity, and a New Markets Tax Credit-incentivized loan from Maine via CEI Capital Management, a subsidiary of CEI.

Planting Future Seeds

Grain-based innovation is happening in rural America, no surprise given the deep knowledge of and connection to the field. Grain processors help develop new markets for farmers, create jobs and may provide a greener usage for this underutilized crop. But innovation and impact can be stymied by lack of access to appropriate funding, particularly financing that is flexible and adaptable to the seasonal nature of agricultural cycles. Mission-driven investors like CEI and its subsidiaries, with access to various forms of capital and more flexibility than traditional lenders, are well-equipped to provide both technical assistance and financing to businesses of varying size and scale.

With companies like Blue Ox Malthouse and Columbia Pulp placing value on all parts and life-stages of grain plants, “seed to stalk” dining isn’t just a theory. It’s easy enough to imagine a meal eaten on plate made from wheat straw pulp, where the pork in your taco came from a pig fed with spent malted grains that were used to make your beer. The future of “seed to stalk” dining isn’t only possible, it sounds delicious too.

 

Article by Leah B. Thibault and Brett Richardson

Leah B. Thibault, as Director of Executive Administration and Special Projects for CEI Capital Management, Leah provides a wide range of strategic and administrative support to CEI Capital’s work financing businesses in underserved rural areas across the United States. Prior to joining CEI Capital, Leah worked in the non-profit performing arts and educational sectors. Leah holds a B.A. from Willamette University in Salem, Oregon.

Brett Richardson, as Director of CEI’s Sustainable Agriculture and Food Systems program, Brett supports innovative food and beverage companies with growth planning and sustainable supply chain development. Prior to joining CEI, Brett was a founding partner in a food waste collection and composting company. Brett holds a B.A. from Michigan State University and a Masters of Community Planning from the Muskie School of Public Service at the University of Southern Maine.

FOOTNOTES
[1] https://www.nytimes.com/2014/12/31/business/start-ups-rise-to-close-a-gap-for-farmers.html?emc=eta1&_r=2
[2] Data retrieved from Food and Agriculture Organization of the United Nations at http://www.fao.org/faostat/en/#data/GB/visualize  on March 11, 2019.
[3] https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator