ProducePay adds carbon credit fintech and climate features

It’s not exactly easy to understand what ProducePay does, so let’s get that out of the way first.

The Los Angeles-based fintech company essentially functions as a digital marketplace for products that connects farmers with distributors and sellers.

“We’re going to your farm. We understand what your production capability is. If you need capital to achieve it, we help set it up for you,” explains CEO Pablo Schwarzbeck. “Ultimately, we help you find the buyers – or for the buyers, help them find the sellers.”

Farmers (and distributors and wholesalers and shippers and retailers) just dot com!

To enable trade in perishables such as fruits and vegetables, ProducePay has had to become an underwriter for more than 1,500 farms across America. These farms can vary in size from a few hectares all the way up to multinational giants supplying hundreds or thousands of grocery stores. And the only way to find out who you can trust and how to borrow money is by getting your boots in the dirt. Schwarzbeck, who grew up on a fourth-generation farm in northwest Mexico, spent nearly 100 days visiting farms during the pandemic last year.

“Do these people know what they are doing? Do they have experience in farming? Do they have the infrastructure to support it? Do they have accountants? Do they have a proper staff of people beyond the farm operation who will ultimately be able to run this as a business? Do they have partners to buy products? Do we trust their partners?” Schwarzbeck asks.

ProducePay makes their money by taking a small percentage of every transaction completed on their site. It also lends capital to farmers and distributors it feels will be able to repay. And, of course, they also collect and sell data on crop costs and distribution, among other industry insights.

“Our job is really to create openness and trust that allows both parties to feel comfortable,” says Schwarzbeck.

The amount the company charges per transaction ranges from 0.5% to 10% and depends on the amount of value that ProducePay can generate for the customer.

“We try not to take more than one out of four points that we get back,” Schwarzbeck says, meaning that if ProducePay can help a farmer sell 40% more produce, it will take 10%. If it can only help them sell 2% more, the company takes 0.5%.

This kind of clinical approach to fintech underwriting has remained at the core of ProducePay’s strategy since its inception. But this summer the company added a new pillar to its underwriting model: climate pricing.

With consumer demand for sustainably grown, low-carbon food increasing, ProducePay is adding financial incentives to its platform to encourage farmers to reduce their carbon footprint.

Through a partnership with ALLCOT, a company specializing in offsetting greenhouse gas emissions, the fintech company offers a way for farmers to access the carbon market.

Schwarzbeck says many of the growers he works with already practiced a variety of sustainable farming techniques. With ProducePay, they can now sell carbon credits on voluntary carbon markets, meaning they get paid to grow more sustainably. The specifics of how this plays out and which carbon markets are used may vary, but the idea is that ProducePay evaluates a farm, determines how much carbon it uses, and then recommends climate-smart agricultural practices as outlined by the UN. Farmers can then practice strategies such as crop rotation, minimal tillage and the use of cover crops to reduce their carbon footprint. Once the carbon savings have been calculated and confirmed by an external audit, they can be converted into credits and sold.

When used as a way for companies to buy themselves out of causing climate damage, carbon offsets remain questionable for a number of legitimate reasons. But following sustainable farming practices can actually make a difference in the earth’s carbon budget: Instead of buying a band-aid for the damage a company does, selling credits encourages farmers to do less damage to begin with. And Schwarzbeck says that with consumer demand for sustainable products ever increasing, adding the environmental pillar to their underwriting model has fundamentally changed how the company does business.

“Consumers are really starting to vote with their wallets,” he says. “There has been such a noticeable movement in the market that has literally changed how we underwrite farmers right now.”