Financing for agriculture: An interview with Kurt Tsuo, COO of ProducePay
Specialized financing for farms, working abroad, climate change, and much more!
For this edition of the Fintech Explorer, I spoke to my old friend Kurt Tsuo, who has worked in agtech for many years and now works as COO of ProducePay, which finances farmers and growers across the United States and Latin America. We did a great Q&A covering the unique challenges and opportunities providing financing for farmers, what Kurt has learned about financing in agriculture, and we also discussed climate change’s impact on agriculture as well as Kurt’s experiences working abroad. Enjoy!
Kurt, thanks for taking the time to do a Q&A! Can you tell me a little bit about your professional background and what you currently work on at ProducePay? Can you also give some background on ProducePay?
Thanks for having me Ravi. You’ll remember from our time in college that I have been interested in sustainability for a long time. After starting my career at BCG, I joined the Gates Foundation, exploring how digital technologies could improve the productivity of smallholder farmers. It was there that I came to appreciate the importance of the agricultural sector in economic development and its impact on climate change. Fast forward seven years, and I am still in agriculture today and still inspired by working with farmers. I’m currently COO at ProducePay. We invest capital in growers of fresh produce across the United States and Latin America. Along with financing, ProducePay can also match our growers to new international buyers for their crops.
How does ProducePay think about credit risk differently from a typical bank or financing entity?
Farmers of fresh fruits and vegetables face tremendous challenges even compared to other farmers because what they grow and sell is highly perishable. This perishability compounds all the standard farming risks, like weather variability, abiotic and biotic crop stresses, and commodity price volatility. We work hard to understand these risks at ProducePay for the growers we fund. Instead of securing hard collateral like land or equipment (as a bank would do), we focus instead on evaluating a grower’s ability to have a successful growing season. This means working hand in hand with our growers, not just during the upfront due diligence but continually throughout their entire growing season. For instance, we offer daily reports on weather and market prices for growers at insights.producepay.com, and we also have a team of field agronomists that visit all of our farms on an ongoing basis. You’re not going to see that combination of digital analytics and boots on the ground at a bank, even if it specializes in agriculture.
What has surprised you most through the credit decisioning process at ProducePay?
I’ve been blown away by the sheer diversity of the farms we fund. First of all, we have processes for dozens and dozens of commodities, from tomatoes to strawberries to ginger. Each grower usually raises at least 2-3 different crops. And many also diversify into other businesses outside of fresh produce. I work with one grower in Mexico who raises both bell peppers and shrimp! And even within a certain commodity, growers pursue very different business strategies. If you grow asparagus, do you sell into retail, food service, or both? If you grow avocado, how do you target the peak of your harvest, across many fields, to be ripe at a very specific time of year? This actually matters a lot in avocados because the Super Bowl creates massive demand for guacamole! Because each grower optimizes for considerations like those differently, it means our decisioning process needs to be very adaptable, while still fast.
Given what you’ve learned through your time in the Ag industry, what can the financial services sector do to be most helpful to smaller and rural farmers? Conversely, what common financial services practices are harmful towards farmers?
Great question. Smaller growers can benefit a lot from value-added services that complement and go beyond financing. For instance, ProducePay offers a matchmaking service to help growers in Mexico establish long-term trading relationships with new counterparties. We not only find new buyers that would be hard for growers to access on their own; we also offer trade security and transparency for the life of these commercial relationships. This helps the grower expand, and enhances our ability to extend financing. As to your second question, I don’t think the problem is any specific set of practices that are harmful, but rather that banks generally are overly conservative in lending to farmers because they just don’t understand agriculture very well, particularly in Latin America. This means many deserving farmers simply cannot access credit, even when those farmers can make a strong business case for investing - and returning - that capital.
I’ve covered the intersection between climate and financial services extensively on the Fintech Explorer. Does ProducePay think about climate change at all when forecasting future business or thinking about future customers?
We definitely consider weather risk when conducting due diligence on a new grower we’d like to finance, depending on where in the world their fields are located. As weather variability increases around the world, we’ve also seen our farmers take many adaptation measures. This can mean installing more shadehouse canopies over their fields, which provide shade to keep plants cool (while still being lower cost and less energy intensive than fully enclosed, climate-controlled greenhouses). Or proactively injecting fumigant into their soils to prevent fungus infections from overtaking their crop in case those fields receive an abnormally high amount of rain during the growing season.
How do you personally think about climate change impacting agriculture and agtech in the Americas going forward?
I’ve primarily thought about this in two parts: first, how farms can reduce their emissions while continuing to grow their productivity (abatement). Second, how farms can capture more carbon in their soils (sequestration). I’ve actually written a bit about this in the first (and so far only) blog post I’ve ever written here.
To end on a more personal note, you’ve done a lot of agriculture-related work in your career abroad, both in Asia and Mexico. What have you learned from working internationally that you might not have picked up with a career only focused in the U.S.? And how would you recommend readers think about opportunities to work abroad?
I’m a big believer in maximizing local context and knowledge if you want to have a career in agriculture. If you talk to a lot of farmers, one of the themes that always comes up is how unique their operation is even compared to the next farm over. This is driven by differences in microclimate, soil type, business strategy, and endless other factors, and holds true whether we’re talking about a corn and soybean farm in Nebraska, or farms abroad. So especially in places like Bangladesh or Mexico, I’ve found it very rewarding to work with local sales teams and adoption “agents” on the ground when trying to introduce a new technology on farm. Today when I visit the grocery store near my home in Los Angeles, I regularly encounter fruits and vegetables grown by the farmers supported by ProducePay in Latin America. It’s a nice reminder for me that agricultural development work is not some theoretical abstraction, even if the farms are far away.
To learn more about the role that agriculture plays in a country’s economic development, I highly recommend How Asia Works by Joe Studwell. For a solid, level-headed primer on food and agriculture issues focused on the US and Europe, I also recommend Resetting the Table by Robert Paarlberg, which I just finished last night.