Permaculture and finance – OPEX / CAPEX

Permaculture projects have the specificity to focus their investments on CAPEX(CAPital EXpenditure) through landscape design and stacking functions setup.

A successful setup is the one reducing OPEX (OPerational EXpenses) to a minimum, including human resource (labor), commodities, energy and goods inputs. A rule can even be stated ; low environment footprint means low OPEX (in general), although low OPEX is not necessarily equal to low environment footprint since external costs are usually not taken into account.

It is to be noticed that investors use OPEX and CAPEX as Key Performance Indicators (comparisons are made inside the same business segment having their own financial constraints), in order to analyze the health of a company. A more than average OPEX means that a company spend more money than needed in operational costs which is not an healthy situation. In this perspective Permaculture is a very positive approach aiming to reduce operational costs.

Industrial agriculture, once removed the subsidies from the government can only rely on economy of scale and face the challenge of fossil fuel cost increase associated with OPEX increase, therefore an unhealthy situation, endangered as well by the soil inadequacy (compaction and logging) on the middle and long term.

A matter of margin

To provide with a synthetic figure; since industrial farming relies on intense petrol input the production costs are high and the sale margin is tight and will be more and more tight as oil cost increase (this factor is compensated by government subsidies and we may wonder how far and to which extend this will continue). Since the margins are weak the only way to survive is to produce in large volumes. The market segment witnesses a lot of acquisitions and the concentration of power in the hands of few. This model give little space for small business and new entrants.

On the other hand Permaculture by working with nature and letting nature produce on its own provide with low production costs meaning an important margin and the capacity to produce in little quantities as well as experimenting in diversity of production. Permaculture gives latitude to develop a customized set of products adapted both to local ecosystem specificity and local market demand.

CAPEX spreading

The financial challenge in the setup of a Permaculture farm is to handle the CAPEX investment in a way that it becomes affordable for low income entrepreneurs. This can be done by spreading the CAPEX over time so that initial benefits can be used to finance each next step. It implies that each new function of the infrastructure creates either a strong synergistic addition or generates financial income. The approach put emphasis on specific methodologies or perspectives;
– financial critical focus in Options and Decisions based design pathways
– focus on material and labor reuse analysis
– further analysis on maintenance reduction through identification within characteristics list of components analysis and autonomy capability in deduction from nature method of design
– many small investments (mainly labor) in random assembly for yield identification and generalization (genetic like evolution)
– low cost reverse engineering of non connected existing functions or non adapted elements of the existing infrastructure (reuse, genericity, adaptation)
– minimize each CAPEX investment by low cost orientated design implementation, recycling, investing in efficient tools and mainly using the power of nature resilience (e.g. ecosystem succession, flow recycling, animal management, … ).
– reuse of existing resources for diversification still keeping low operational costs and identifying value added services and products

Transition from OPEX based to CAPEX based agriculture

In this video, Gabe Brown, the speaker, comes from classical agriculture and has changed his agricultural model to become sustainable. One leitmotiv in this video is “our Operation” (OPEX) and give plenty of arguments on how nature provide with environmental services (soil ecosystem creating fertility mainly) to increase yield and reduce costs.

It means as well that in opposition with projects where the main investment is done during the first year this approach significantly upgrade its CAPEX during each main phase.

These recipes may support farms
– having a depleted land and poor income
– wishing for a transition from agro-toxic farming, prisoner from their existing mortgages and operational costs, to organic agriculture.

It would as well open a market where the initial investment is made mainly on having a large buffer of time for subsistence (food, logistic and taxes) and a smaller amount of money dedicated to buy (cheap and) depleted lands having potential and needing time for regeneration.

 

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