The Derivative - A brief history of Corn, food co valuations, GMO vs non GMO, and a guacable chip with Zack’s Mighty founder Zack Gazzaniga

Episode Date: November 9, 2023

Get ready to savor an episode of The Derivative that's anything but run-of-the-(corn) mill, featuring a guest who's serving up some fresh and unconventional perspectives. That's right, we're delving into the heart of the snack world where the notion of sturdy, thick chips and delicate, thin chips is more than meets the eye. Prepare to have the simplicity of your favorite tortilla chip upended, revealing the captivating intricacies that fuel everyone’s favorite salsa, guac, and queso vehicle, the tortilla chip.   Zack Gazzaniga, is the visionary behind Zack's Mighty Tortillas, a company rewriting the rulebook on what it means to be a tortilla chip. His entrepreneurial journey takes us from the humble beginnings of a small natural food startup to helping build a 60-SKU condiment brand at Sir Kensington's. Throughout this episode, he generously shares his insights on expanding product lines, managing complex supply chains, and navigating deals with corporate giants. But that’s the boring business stuff… stay for the talk on seed hunting in Italy, making tortillas, then chips – how many growing cycles our US soil has left, the many nuances in GMO vs non-GMO labeling, and the informative history of Corn you didn’t know you needed. This episode is a must-listen for fellow entrepreneurs and tortilla chip lovers – SEND IT! Chapters: 00:00-01:39= Intro  01:40-11:50= Buongiorno! Let’s talk: Origins, Sir Kensington’s, flavor, & the guacable chip 11:51-25:19= Economic building blocks, Investing in food, CAP-X deals, & intense integration 25:20-36:29= A brief history of corn: Quest for the golden kernel 36:30-50:24= The tortilla chip: From field to bag & Going organic – why it makes sense 50:25-01:01:41= Ethanol? Water? Growing and production concerns / Short-corn & gene editing 01:01:42-01:06:03= Where do we get them? & the Takis people... From the episode: Beautiful Corn: America’s Original grain from seed to plate (Book) Don't call it private equity, seeking value (and tax alpha) in small business with Adam Tkaczuk Follow along with Zack's Mighty on LinkedIn and Facebook! For more information on Zack's Mighty tortilla's chips and where to find them visit zacksmighty.com Don't forget to subscribe to ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Derivative⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, follow us on Twitter at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@rcmAlts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and our host Jeff at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠@AttainCap2⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, or ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ , and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠sign-up for our blog digest⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Disclaimer: This podcast is provided for informational purposes only and should not be relied upon as legal, business, or tax advice. All opinions expressed by podcast participants are solely their own opinions and do not necessarily reflect the opinions of RCM Alternatives, their affiliates, or companies featured. Due to industry regulations, participants on this podcast are instructed not to make specific trade recommendations, nor reference past or potential profits. And listeners are reminded that managed futures, commodity trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. For more information, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠www.rcmalternatives.com/disclaimer⁠

Welcome to The Derivative by RCM Alternatives, where we dive into what makes alternative investments go, analyze the strategies of unique hedge fund managers, and chat with interesting guests from across the investment world. Hello there. Welcome back. Quick question for you. What would you do if you had a podcast, say like this one, and you had a neighbor who, say, founded an organic tortilla chip company? Yeah, you'd have them on, and you'd ask them to make you a line of carb-free tortilla chips.

That's what you'd do. Yep, we went far and wide to get this week's guest heading all the way across the street from my house to talk with Zach Gazaninga. He tells me how to pronounce that shortly here. So Zach of Zach's Mighty Tortilla Chips. We dive into why it's better to first make a tortilla than the chips, what GMO versus non-GMO really means, how many growing cycles are left in our rich U.S. soil, if we're running out of water, food company valuations, and an informative history of corn going back about 10,000 years to Mexico. Grab the guacamole and send it. This episode is brought to you by RCM's Ag Division, which helps companies such as Zacks hedge and manage risk in markets like corn, sunflower oil, as well as the farmers producing

the grains on the other side. Visit rcmalts.com slash ag, that's A-G, rcmalts.com slash ag to learn more. And now, back to the show. All right, we are here with Zach. And I'm not going to even try. I just asked you, but how do I pronounce the last name? Gazzaniga. Gazzaniga. Gazaniga. Where's that from? What's the etymology there?

That is Italian. But over in Italy, it's pronounced Gazzaniga. And it's over the generations has gotten Americanized to Gazaniga. Gazzaniga. Yeah. And funnily, is that a word? Yeah. Amusingly, you are about 30 feet from my house right now. That's right.

And I'm here downtown. So we should have done this in person, but I can never figure out the tech how to record and do the video and everything in person. So we'll do it virtual. Great. But we're hanging out the other night. Zach's my neighbor and uh got into his business which was super interesting to me so we thought we'd have him come on and talk tortilla chips um so give us the kind of origin story how you got your start where the company's at then we

can dig into all the cool stuff we were talking about the other night. Cool. Well, yeah, just quick background on me, I guess. I've spent my entire career post-college at small natural food startups. And right before starting Zach's Mighty Tortilla Chips, I was the first employee and COO of a condiment company called Sir Kensington's. And I joined the two co-founders in 2011 when it was just a two-skew ketchup company. And it was a wonderful experience because they put me in charge of the entire supply chain

as well as retail sales. So I got to see the full life cycle of a product from meeting with suppliers on raw materials, whether those were ingredients or packaging, finding co-packers and production facilities to make them within our spec, getting them made, sending them to a warehouse. And then it was me and then eventually a larger team

where we would go in and sell these to buyers and get them on the shelf and set up promotions. So as a learning experience, it was incredible to see how to create products and bring them to life and get them to sell and grow. And so I was at Sir Kensington's for about six and a half years. We grew to a 60 SKU condiment brand. And quickly for the listener, SKU is a UPC symbol.

How do you define SKU? Yeah, SKU, it stands for shelf keeping unit or stock keeping unit. It's basically an individual item. So if you were to have, like, if you were to think of Heinz ketchup in a glass bottle, and then that same formula in a squeeze bottle, those would be two SKUs because they're a different UPC and a different item. So basically, you can think of it as an item that you sell. So we usually have option traders on here talking about SKU, S-K-E-W, which is the

shape of the forward options curve and the puts those calls. Yes. A different SKU. Grocery SKU. Yeah. Yeah. So we had 60 SKUs by the end, which is a pretty sizable product catalog. And we grew to be the number one condiment brand in Whole foods in the natural channel and ultimately sold to Unilever in 2017. We were of interest to Unilever because for two reasons. One, they're actually a large condiment brand. They own Hellman's and Best Foods, which is massive and is bigger than Heinz, I believe. Mayonnaise definitely sells more than ketchup. Really? Yeah. Gross.

Ketchup has a larger food service business, but in retail and grocery, mayonnaise is king because you use mayonnaise every day. Put it on a sandwich. You can use it as a recipe, whereas ketchup's a bit more kind of summer grill focused. Anyhow, that was a wonderful experience. And I went and joined Unilever. I worked with them, uh, for the rest of 2017. And then I wanted to leave and start my own company.

And I started a tortilla chip company because tortilla chips are my favorite food. And so without, uh, really a lot of data to suggest it was a good idea to start a tortilla chip company. I knew that starting a company of any type is hard. I knew what the grind was like of bringing food products to life. And I needed to love what I was doing. So I decided to launch a tortilla chip company. And my mission was and is to make delicious tortilla chips that don't break in guacamole, which sounds simple, but to actually build a supply chain that supports flavor and sturdiness has been very complicated and is one of the unique

things about our company. And so most people would just be like, oh, I'm dipping it wrong, or I need to come in at a different angle to get that chip not to break. You're like, no, I need a better chip. Yeah, need a better chip. And at first from the outside, before I kind of took a peek behind the curtain of from the outside, before I kind of took a peek behind the curtain of the tortilla chip industry, I sort of thought it was as simple as thick chips are sturdy and thin chips are weak. Um, but it's actually really what it is, is, is the process in how you make the chip. You can have a thinner chip that can be sturdier than the thicker chip based on how it's made. Um,, it comes down to tortilla chips are made one of two ways.

You either the authentic and old school way in a way that a lot of restaurants still do it is you make tortillas, you stack them, you let them rest, and then you chop and fry them. And that makes a very sturdy tortilla chip that's got a denser bite. But it's a two-step process. You make tortillas, then you stop and rest, and then you come back and chop and fry them. And that's not really how large-scale food production is meant to be optimized. So most tortilla chips are made in a continuous process that skip the tortilla step. And because it doesn't have that resting time as

a tortilla, it has a different bite, has a different mouthfeel, and the tensile strength is weaker. So they're just like, I'm assuming we're talking like Tostitos or something, right? Yeah. Are they the number one brand, probably? So Frito-Lay is the large, I think they're the largest snack food company in the world,

but Doritos actually outsells Tostitos, but both of those are on my Frito-Lay. I wouldn't but Doritos actually outsells Tostitos. And but both of those are on my Frito-Lay. I wouldn't count Doritos as a tortilla chip. Do we count that as a I guess? It's a it's funny, it is a tortilla chip that has been just covered in seasonings, corn based triangle chip that's baked and fried, and then they just cover it in delicious seasoning. So yeah, I mean, I think you're right. Like most people don't view it as a tortilla chip, but technically it's a tortilla chip with a lot of seasoning. And so they're just putting right there, making their dough, what do you call it? Whatever. And

then they're just stamping out the chip shapes. Exactly. Which is way easier. You skip a step, you save money, save costs. Totally. I mean, you can, a well-optimized tortilla chip line, you can, you can be running it with, you know, just a couple of, of bodies on the line. Um, and, and our process is much more labor intensive because we're taking stacks of tortillas off of the line, putting them on bakery carts and rolling them over and letting them rest for hours and then coming back and grabbing them and chopping them. And our process is a lot of regional brands and old school brands do still have this process. It's just, you know, if you go to the grocery store, probably less than 5% of the items in the store are made from tortilla chips are made from tortillas so it's not we're not unique in doing it there's lots of companies that do it it's just we all of

the us that do it this way are very much in the minority of most chips out there but so does it prevent you from scaling or you have ideas for that ways ways to tackle that? It 100% prevented us from scaling in the beginning. We got our launch at this great family-run business in Northern California. And they had their own production facility and they had their own brand. And their brand is a powerhouse in California, very loved. And they didn't really co-pack for anyone. And co-packing is the term of when a factory makes something for another brand. And just as a side note, most food items in the grocery store, more often than not, even if it's a big company or a

little company, is using a third-party co-packer to make their items as opposed to being vertically integrated. And so we convinced these folks to be co-packers for us because I got close to the family and they're wonderful people. And so I was able to launch my tortilla chips in January of 2020 with this authentic tortilla first process, but we quickly kind of outgrew the available capacity to us. And so this got us to a point where we needed to decide how do we move forward and how do we grow? And a lot of brands had gotten to this point where they had started tortilla first. And often a lot of brands then just decide to abandon being tortilla first and go to inline because it's much more readily available.

And the core reason why it's so hard to find capacity to make a tortilla first chip is because just as I mentioned, 95% of the market does it the other way. That means most factories out there are set up to do it the inline process and not the tortilla chip. So there's just not factories and there's not capabilities sitting out there. So we ultimately decided to do a CapEx deal. And what this was, was we went and found a great tortilla company and we financed the addition of a fry line within their facility. So we could all begin making tortilla chips from tortillas all under one roof.

And that was a great move by us to kind of bridge the gap. We decided we could either go to a snack food company and teach them how to make tortillas and maybe put a tortilla line in a snack food company, or we could go to a tortilla company and put in the fry line, and we opted for the latter. What'd you study in school? What was your background? Did you say? I majored in econ. I went to Brown. And a lot of econ majors on the East Coast just end up kind of in Boston or New York and finance. And for me, I, it was really important for me to be able to physically touch something. And my first job out of college was working for a small organic granola company in San Francisco. And the brand had this branded mini Cooper, the company was called 18 rabbits. And so it had 18 rabbits on this turquoise mini Cooper. The company was called 18 Rabbits. And so it had 18 rabbits on this

turquoise Mini Cooper. And I would go deliver granola in both boxes to corporate offices downtown at six in the morning at the loading docks of these buildings. And I was in complete heaven because taking a heavy case and putting it on a loading dock and having the person sign the bill of lading, it was all these economic concepts I had learned in college coming to life in physical form. And so I just got addicted to consumer products. And then over the course of my first year there, I really fell in love with the food industry. Yeah. But it's weird to me, not weird, but interesting that you write all that you're focused on making the best chip possible. Now you're doing CapEx deals, right? So you have, your brain has to work both sides of the aisle

there, so to speak. And you told me that you didn't bring in like investment bankers or consultants to do that. You guys just did that in house. So you think that's the norm or like to smaller entrepreneurial companies need to, right. To me, talk through that a little bit of like how you thought of that, or it just kind of happened. You're like, Hey, we need this. We're going to get it done. Yeah. It's interesting. I have found in general, most food investors and whether they're individuals or, or, or the kind of the mini, one of the many food venture capitalists out there. In general, I'd say they're pretty anti-investing in assets and CapEx.

And they're pretty anti kind of doing deeper partnership deals with the co-packer. I think the standard prevailing thought has been just find a facility that can do what you need to do and have them handle everything there. Don't get your cash tied up in assets and spend all your money on sales and marketing and keep your focus there. And that's a fine model, but you can only do that if there is a great existing factory that can make what you want to sell. And that's just, here you go at this price that you need to. Right. And if that's the case, that means you're selling something that's not that unique. But then that's why sales and marketing is really important.

And so there's plenty of really successful food companies out there that launch a product that already exists and they make their slight version of it. It could be slightly different ingredients or different flavors, and they really focus on great branding and go-to-market strategy. And that's where they're spending their time and their dollars. For us, we wanted to make something that didn't exist, which I didn't even go into the corn story yet, but we use a weird corn that didn't exist, which I didn't even go into the corn story yet. Yeah, we'll get there. We use a weird corn or a rare corn, I should say. There is no one that could make what we wanted to make. So we had to invest.

And I'm very lucky that my investors, which are for the most part all just kind of individuals or family offices where those folks had made their money operating their own businesses, they're much more inclined and they like hard assets and they like CapEx deals. And so I had the support to do that. But COVID has changed this a bit where pre-COVID, even large companies wanted to have as much of their products co-packed as possible. And for their hero items, they might build a factory to eke out all that margin where they can just run the same item 24-7. But for the most part, they don't want to be having all those assets on their balance sheet. And so what happened with COVID, it's a combination of COVID and inflation. There's just a labor shortage in factories out there.

And when there's a labor shortage, there are fewer shifts. And so what we saw in the food space was during COVID, all these big food companies that predominantly didn't want to own their own manufacturing started buying their co-packers in order to secure their capacity. And they were buying co-packers and then kicking out other brands. And so the scarcity became even bigger if you didn't own your own production facility. So we were looking at this as, okay, not only do we need to invest in our unique process, this is just kind of a scary time to kind of own and control your capacity unless you are semi vertically integrated like we are fully vertically integrated. And explain co-packing for a second. Yeah. So co-packing is, you know, some some group of people will decide to start a pasta sauce manufacturing facility and that pasta sauce manufacturing facility might

make for you know uh rayos and they might make for prego and they might make classico and so they get all the equipment so that they can be a good operator and then different companies will come pay them to make their own formula their own own brand. And how does that work? They switch it over every other week or something like they. It depends. And in general, like they're going to want at your minimum order to be at least a shift. And the shift is anywhere between eight to 12 hours, depending on if they're doing three eight hour shifts or two tens and a clean or two twelves. But but they want to be running a shift as one item. And so when they complete the shift,

take a tortilla chip line, for example. If someone was running our product, it would be all of our ingredients, our seasoning in the seasoning machine. And then on the bagger, it would be our rolls of film and our specific equipment for the size of bag we wanted. And if after we completed a run, they wanted to run something else, they'd clean off the line, they'd swap in the ingredients for that co-packer and they'd change out the packaging and then they could run a tortilla chip for another brand. And then you mentioned VC investors. So what's your thought?

I know a few people actually here in Chicago that run a ag slash food business PE firm. So do you see it more private equity or VC that's investing in food companies? And then we had talked, rolled that into like the appetite previously you said was a little less profit focused. Now it's a little less profit focused. Now it's a little more profit focused. Yeah, totally. I would say it depends on the size of the company. If it's going VC or PE, it's a lot VC and food over pre-COVID and for kind of the 10 years before that had gotten really comfortable in investing earlier and earlier and doing smaller and smaller checks. And what I saw and what we all saw was some funds were realizing that they were missing out on getting in with companies because they were below their mandate

or they wanted money sooner than they got a million and trailing 12 or five and trailing 12. And so a lot of funds started starter funds or early funds because before Russia invaded Ukraine, the valuations in consumer food were just nutty. It was out of control. These are businesses that have no profits that are getting these crazy valuations off of revenue. And what had also happened in food was a number of food companies had done a good job tricking people into selling themselves as tech companies as opposed to food companies. There's a lot of that meatless stuff out there. And so they would have crazy valuations. But in general, most of it, there's a lot of VC activity in food, I'd say more so than private equity. And I would say those meatless investments

probably are all marked to zero now or close to it. Certainly if they invested in the pre pre russia valuations i think it's impossible to make your money on it um yeah you know these are hundreds of million hundred plus million dollar valuations before selling a single item type of things and um it got out of control and and you know it was interesting we i was i was do i started a fundraise in november of uh november of 21 so just a few months before um the invasion and and i i'm using the invasion as a date because it's a kind of a clear time when sort of the financial has changed except i can't remember what that was was it it was february 22 okay around there end of january early february q1 of 22 yeah um and

and at that time you know as i was fundraising i was getting a lot of advice of hey your valuation should be you know really really high and and felt insane to me, but it was comparable to what other companies my size were asking and demanding. And so we started off kind of doing what the market was at that time. And in the process of fundraising, the market crashed. So our valuation from what we started off to where we ended off was cut by more than half in kind of three month process. And so it happened very quickly. So to your point, there's just less cash out there now to invest in food companies. And previously the model had been, you know, get a brand that has

high growth and they are climbing the rankings of a category. And it doesn't matter if they're profitable because you can sell a business on multiples of last 12 months, as opposed to multiples of EBITDA and food acquisitions. You had seen a lot of food acquisitions that were anywhere from at the very low end, kind of four times trailing 12 months up to 14x trailing 12 months in sale price. And just revenues. That's crazy. Just revenues because there's no EBITDA. There's no EBITDA multiple because there's no EBITDA.

Right. And so that had been sort of the thought process in food was, okay, you make enough noise, you build a strong brand, you get to a ranking in the category that's high enough that the large food companies can't ignore anymore. They're going to acquire you with the mindset that as long as your gross margin is sound, they can fix everything below the line that's making you unprofitable by plugging you into the mothership. It works sometimes, it fails a lot of times, but all of that has changed where now the acquirers have gotten burned a number of times by buying non-profitable companies and never turning them profitable. There's just less money out there, so you can't just keep burning cash by showing you have growth. with rates much higher. Yeah. Right. What do they also become like the big brands buy the cool hip brands and then they're not cool anymore. So a little bit of that going on.

There can be, you know, I'd say like, it depends on how the integration goes. Just the act of buying someone, you know, like we'll see that news and, and,

and, and, you know, that'll, that'll be those of us in the industry will know, oh man, so-and-so acquired this company. But the consumer might not know. Got it. Yeah, most of them don't know. But where it happens is how quickly does the acquiring brand take operational control of the asset it just bought? And if that happens really quickly, a lot of times that's

where you see things start to go south quickly. One minor example, when we were at Sir Kensington's, we had built a really great condiment brand that was trusted among our consumers. And we used either organic sunflower oil or non-GMO avocado or non-GMO sunflower oil, all really nice oils for mayonnaise. And we were buying millions of pounds of oil. And one of our first meetings, some analyst deep within Unilever had looked at the cost and said, well, why don't we just switch everything to canola oil? Yeah. And it's like, and they ran the numbers and that would save X. And it's like, well, wait a minute, guys, like canola oil is demonized in the markets we sell to that will ruin the brand. And we were able to fight that off because we still had operational control for

the time period. But those are the types of things that I think, you know, when they don't realize what they bought and they try to make it more similar to the core is when it can start to peter out. And or they can't innovate as quickly or right. It just gets into the big bureauc was upset that you don't so you're a newer neighbor right when did you move in to a year ago year ago yep yeah so i'm like oh this guy owns a tortilla chip we're going to hedge his corn but you don't hedge your corn because you grow all your own corn. So tell us about your corn. Yes. So going back to the mission of my company to have delicious and sturdy chips, when I said, okay, how do I make delicious corn tortilla chips? I need to go find delicious corn. And I was very excited by this challenge because from Sir Kensington's, my background was creating and building supply chains. So I love this stuff. This is my favorite part of what I do is creating new

products and building new supply chains. And as I start to research corn, I stumbled down the 10,000 year history of corn. And what I learned was all corn originated from Mexico or what's Mexico today and spread across the Americas. And in about a thousand A.D., corn made its way up to New England and the northeast of the U.S. and southern Canada. And because the climate in the northeast is so different than Mexico, it it morphed and created a new type of corn called Flint corn. Like Flint, Michigan? Exactly, like Flint, Michigan. And Flint corn was known for being colorful. It was known for being very flavorful. And it was a taller and skinnier ear of corn than a standard ear of corn we have today,

because it only has eight rows of kernels going around the corn. And if you think about modern dent corn, which is what we have today, that's, you know, 16, 18, 20 rows of kernels. So this is a much more slender and taller ear of corn with a little bit plumper kernels. And it was really intriguing to me to learn about this corn because I grew up in Vermont and I had no idea that there used to be this amazing corn from the Northeast. So every Native American tribe had its own version of this corn because corn mutates very quickly. So you could have a slightly different type of corn here than you might have 20 miles away in a different

subclimate. So there were thousands of varieties of flint corn. And then when Columbus came to the Americas originally, he was in the Caribbean and corn had already made its way there. So they found corn, they brought it back to Europe, but those conditions are so different. And those latitudes are so different. There was no corn in Europe, pre Columbus, no corn in Europe, pre Columbus. However, I will disclaimer that with there is heated debate about maritime travel of different cultures. And was there a way that it could have gotten somewhere there but for the most part no got it it was just maybe some little place there was some wild corn or something but who knows yeah it was all corn is just in america and it was in all parts of america canada down to argentina and all the all the islands in the caribbean and so uh they bring

it back to europe and it doesn't grow it doesn doesn't take. So they kind of forget about corn for 100 years. Then the Puritans show up to New England. They find corn. They bring it back to Southern Europe again. Now, New England, Southern Europe are on the same latitude and it starts to grow rapidly across North Africa, Europe and Asia. And it sort of quickly replaces millet as the staple peasant crop because corn is such a prolific crop in the sense it takes one kernel to create one ear. So you go one kernel to about 100 plus kernels in one growth cycle. That's a return on a seed. And so corn just kind of spread rapidly. Corn from New England made its way to northern California, sorry, Northern Italy in Piedmont and was so delicious, it created polenta.

And so polenta was born from New England corn hundreds of years ago. Fast forward to today, flint corn has disappeared from the US because in the early 20th century, corn, we started switching to growing modern dent corn, which only came about in the early 1800s. That moved to the Midwest and modern dent corn is higher yielding, less flavorful, but just better yields. And so the New England farmers kind of couldn't keep up. And a lot of them stopped growing corn and switching to focus on dairy. And so kind of Flint corn disappeared, but there have been these pockets of diehard family resistance farmers in new England that have kept certain varieties of Flint corn alive. And I'm connected with these folks because I was reading about it. I wanted

to try the Flint corn. What was the book where you learned all this or many books? There's many books. There's a great one by this guy from uh uh the organic grain grower a famous organic farmer up in vermont um and there is the uh the best one beautiful corn beautiful corn by anthony boutard this is a really great history of corn and there you go i learned a lot of it all right we're gonna put we'll put that link to that Beautiful corn. By Anthony Boutard. This is a really great history of corn. And there you go. I learned a lot of it. All right. We're going to put, we'll put that link to that in the show notes.

So sorry, interrupted you. Go for it. No, that's great. So I finally got my hands on flint corn and I did a control. I said, okay, I've got five types of flint corn from these five family farms in New England. I'm going to make, I'm going to cook it. I'm going to make masa. I'm going to make tortilla chips with these five family farms in New England. I'm going to make, I'm going to cook it. I'm going to make masa. I'm going to make tortilla chips

with these five types of corn. And I'm going to do the same with standard corn as a control because, you know, I've read that this corn is so flavorful, but once I fry it in oil, does that just equalize the same? And I was really blown away

by how different and more flavorful the Flint corn tasted. And I can equate it to, it just tastes more corny, just like a heirloom, fresh heirloom tomato tastes more tomatoey than, you know, a gassed tomato you buy in the winter. And, and so I was really excited. So I called up this farm, family farm in Rhode Island. I said, I love your, your corn. They had this type called Longfellow yellow. I want to buy love your corn. They had this type called Longfellow Yellow. I want to buy all your corn. How much can you sell me? And they had about 2000 pounds of grain

and two pounds of seed. And that is just not enough to start a business. So I said, oh my gosh, I've just wasted six months on this. And I thought I found this corn and I was really down. And I talked to a buddy of mine named Glenn Roberts of Anson Mills. And he's like the grain guy in terms of land race grains and heirloom grains. And he knows everything. And he said, hey, Longfellow Yellow might even be an original parent of what traveled over to Italy. And the Italians call it Otofile. Otofile stands for the eight rows of kernels. Makes really good polenta. Maybe they have it. Maybe they've kept it alive. So I booked a one-way ticket to Piedmont and I went seed

hunting for two weeks. And I discovered that the Italians who value food so much in flavor, they had kept flint corn alive. Lots of small farms grow it. It's known in Italy that Otofile makes the best polenta. So I secured 2000 pounds of seed and became a corn importer with USDA, brought it back, started partnering with organic farms in the US. And our first grow season was 2019. And now we grow our with our farm partners, we grow our own corn, we grow our own seed on segregated farms to prevent any GMOs from contaminating it. And so we have kind of our own insulated corn supply chain that exists outside of the normal market. And when so you get it wasn't a one-way ticket you eventually came back but so when you get there you just how do you know it's the right they have it grown actually too

right so you're tasting the corn you're not just like cool give me the seeds yeah it was interesting it was so i i did a couple of things i had the the chef who catered my wedding, who's Italian, call a large Polenta grain milling family business in Italy to see if they knew of someone who could. I just thought it'd be simple as, hey, tell me your supplier and I'll buy some corn from your supplier, too. And this is a really cool company called molino marino and they're in ebay um and it's you know like a lot of these european businesses multi-generational family business um and they were so confused by the call because they get a call from america where a guy wants to buy their polenta corn to bring it speak italian i do not so that's why i had the guy who catered my wedding call because he's Italian. And I said, okay, this deal's not

getting done over the phone. Can I come meet you next week? And they said, sure, you can show up this day. So I show up and I connect with the guy. They make me an espresso. We sit in their conference room. And he basically was like, was like otofile is the best corn it makes the best polenta i said great uh do you have suppliers of otofile they say yes we have suppliers of otofile and i said i'd love to buy from your supplier and they said we can't give you our supplier because we run out of it every year i said why do you run out of every year and say there's not enough he said but i do know some people so they don't grow enough they don't have enough land area probably they did well

it is true like i think the average um the average sized farm is just a couple hectares which is two and a half acres and so it's a lot of these smaller farms all mixed together that kind of feed in and you don't have these 10,000 acre farms there. But it's so funny. So I started going farm to farm, connecting with folks. And the conversation was so interesting because they would always be like. They'd say, oh, you want Otofile? Yes, it's very good corn. I say, yes, I want to buy Otofile. And they'reile and like oh we we we run out of it every year and i go well is it a profitable item do you is it is it have a good price say yes we sell it for a great price it's one of our best items and go how many how much do you grow and like we grow

you know half a hectare a year and i was like do you have more land to grow and they were like yes we have more land than that and i go so why don't you grow more yeah that just that didn't compute so it's it's not a mindset of like an american concept like yeah if you make money on this do more of it and to convert your farm into being like we're a corn farm because they're rotating you know much more different items all altogether to keep their soil healthy. And it's just a different mindset. And so eventually I found a seed supplier that had even more relationships and they went and kind of collectively through a number of growers got me 2000 pounds of seed. And so it's all organic, as you mentioned, this seed. So you're not putting any fertilizer, any chemicals.

But then you also have oil needs. What are you doing when you make it? Yep. So we buy... Go real quick. We left that out in the beginning of just how it's made. I didn't know this, but... Sure. So corn, so flint corn, like the main dent corn that's traded in the US is what's called field corn.

So you grow it in a field and it's different than sweet corn. And so just to the average consumer, when you say corn, they think sweet corn. And what sweet corn is, is it's a high sugar content variety of corn that is actually picked early on purpose so that it has a high moisture content and you can bite into it. And that's why it's soft. But sweet corn is what, less than 1% of the corn sold in the US. It's a tiny amount that just goes into the grocery store. Most of the corn grown in the U S is dent corn, which is a type of field corn. So what you do with fuel corn, you grow it, but then once it's done growing kind of in early September, you want it to, you want the plant to die and kind of start to turn Brown and you want the corn to dry out in the field. And you want to get the corn to dry down as low as possible in

the field, anywhere from 14 to 18% moisture, because ultimately you want to store your corn between 11 and 14% moisture. And you don't want to be adding heat after you harvest the corn to get the corn down lower. You can cycle air through it, but you want most of the moisture to dry down in the field. Long story short, all of this corn that you guys work with and that we work with, it's very hard. And so if you were to just take it and bite it, you would crack your tooth. So if you were to take this corn and just boil it in a pot of water, it would still be hard because the outer pericarp can kind of withstand just being in a pot of hot water. So in order to break it down and make masa, there's this old, old, old technique called nixtamal. And so the corn is cooked with calcium hydroxide, which is known as culinary lime or

pickling lime. And you boil it with the calcium hydroxide, which is a completely natural mineral mineral. And that, um, that breaks down the pericard. So now the corn can start to absorb the water that it's cooked in and expand into a softer thing. So at the end of the cook cycle, you can actually take a kernel between two fingers and squish it. So you take this kind of waterlogged corn and then you grind it. We grind it through lava stones and that creates a dough, which is called masa. You then take the masa and you roll it out like you would a piece of pasta into kind of a thinner sheet. And from there you can stamp out whatever shape you want to bake. For us, we stamp out six inch

round tortillas. We bake them in an oven and then eventually they get chopped and put into a fryer. And in the fryer is where you get the moisture down to about one percent and you absorb the oil. And then from there, it goes into a seasoning where you can add salt or nacho seasoning and then it gets bagged. What type of oil is it? Our oil is hyalaic organic sunflower oil. Got it. And then we had talked, there was some Ukraine problems when that happened, because most of the sunflower oil in the U.S. comes from Ukraine. Certainly most of the organic sunflower oil. The U.S. isn't a big grower of organic sunflower oil.

There is a fair amount of non-GMO sunflower oil grown kind of in the Dakotas. But organic sunflower oil, the big producers are kind of the Netherlands and Turkey and Ukraine and Argentina. And I feel like Ukraine taking the mantle as number one happened in like the last 10 years. Because I feel like at one point, Argentina was number one, but I can't remember for sure. But Ukraine is a powerhouse of organic seed oils. Is it still coming out of there? It's been totally shut off? No, it's still coming out of there but when the right when the invasion happened it there was a i can't remember the exact number but there's some large percentage of that year's crop because the invasion happened in you know january february and then start planting again in april

may that planting cycle missed a lot of things acres didn't get planted that planting cycle missed a lot of things. A lot of acres didn't get planted that planting cycle, which shot the price up. So in that period, there was actually a scarcity of organic oil available throughout the market, organic sunflower oil. And some folks weren't getting any organic sunflower oil. But we luckily work with a great company out of Canada, which is one of the largest organic. I think it's one of the largest organic food companies, but certainly one of the largest organic oil companies. And they have stuff out of Ukraine. They have stuff out of Turkey.

They have stuff out of Canada. So we were able to get our organic oil. Let's go down the organic path. So we talked a little bit about here, but what, what is, or let's get into organic GMO, what all that means exactly. Yeah. You feel about it. Yeah. So organic is the main pillars of organic are trying to prevent or chemical pesticides, chemical herbicides, and chemical fertilizers from being used to grow your product. And organic requires, in addition, that the seeds you are using are not genetically modified. So there's a lot of overlap between organic and non-GMO. But separate of that, there can be items that are just non-GMO and not organic.

Non-GMO is an interesting debate about kind of which side are you on. And I think for me, the conversation around GMOs is much more nuanced than being pro or against GMOs. The concept- Seems like a lazy label. I think it is a lazy label in many respects. I think it's a good label in terms of like, by being non-GMO, you can clearly show the consumer that you are non-GMO. And if that's important to them, that's clear. And they can rely that none of your ingredients came from genetically modified organisms but i don't think gmo foods are

necessarily bad there's some gmos that are bad and there are other gmos that aren't bad the example of kind of for me in general whether we're talking about gmos or we're talking about organic a lot of times to the consumer, those are health-related conversations. And I think there's a lot of merit in there. But for me, what's always held the most weight is looking at the environmental and agricultural side of those. And I think growing organically makes more sense for the soil than growing non-organically or growing GMOs. So in the world of corn, corn is very important in the GMO history because one of the first GMO crops that came about in the US was in 1996. Monsanto created Roundup Ready Corn. And the concept here-

They didn't put that on the sign in the grocery store. No. It's your Roundup ready corn. No, they didn't. The concept was Roundup was one of their chemical pesticides, one of their weed killers. And they're also selling that they're also selling. And the, from their perspective, what's great about, uh, about Roundup is it's a highly effective, uh, weed killer, uh, the, the, and pest killer. Um, the downside of Roundup is that it kills everything. So as they were spraying it, it was killing the crop they were trying to protect as well as what they were trying to prevent the pest from being. It's like chemotherapy, like we can kill the cancer,

but we're killing everything else at the same time. Exactly. So GMO, so the Roundup Ready corn was a genetically modified corn where they bred into the corn a resistance to Roundup so that the crop can be sprayed, this corn can survive, and everything else can die. And so the arguments for this are that that had a significant impact on increasing yields per acre. And this is stuff that matters in many parts of the world that are trying to increase crop outputs and trying to combat hunger. So I think there's many there are a lot of pro yield arguments for GMOs. But in terms of you think about, okay, let's look at this cornfield in America that's using Roundup Ready corn. It's getting a lot of

chemical sprayed on it. And so is that good for what ultimately gets made into food and consumed? Is that good for the soil? Those are the debates that I've always found stronger. And the reason why we kind of lean on non-gmo inorganic is there any research or anything that that chemical actually makes it into the corn and hurts people health-wise yes there is research and but it's it's one of these things where it's like you can find the paper done by doctors that show it's harmful and you can find the paper done by doctors that show it's harmful and you can find the paper done by doctors that show it's not harmful right it's hard to control for it right like who knows what else the people were doing exactly and that's why it's that's why i say it's like it's hard for me to say

definitively you know eating non-organic food is bad for you because i don't i don't feel that way and i don't only eat organic food i have just found in my experience working with organic growers, the principles that they grow by make a lot of sense to me, make a lot of sense to the soil. I think their kind of organic material that they're able to retain in their soil makes a lot of sense. Yeah. So is your opinion that these big farms spraying the whole field, they're killing the soil eventually? Like, does the soil degrade over time? That's one of the big kind of conversations in food is what's happening to the health of our soil and how many crop cycles do we have left? And so the argument there is, you know, if you have, if you're basically bringing in chemical fertilizers to give the soil all the nitrogen and nutrients it needs

to grow corn. And then you plant the GMO corn and then you spray it with the pesticides to prevent any pests from growing. You can get this great yield on corn. And that happened separate of what it was actually the health of the soil. And furthermore, you can come back on that same plot of land the next year and do the same thing over and over again. So it doesn't even really matter what's in the soil. It's just holding the plant up, essentially. It's a petri dish. Yeah. And you add everything you need to get what you want. Right. And so that math equation has worked for many years where the yields justify the reliance on these off farm inputs.

But when I've talked to growers who have made the switch to organic, one of the things there are kind of two things that reasons why they switched. One is the profit per acre is really thin on growing kind of standard corn. And some years you make profit, some years you lose profit. My grower had sent me this graph that showed over 20 years, the average profit of corn growers of generic corn growers was a dollar an acre, which is kind of crazy. And so there's more profits to be had in organic farm growing. And they also, they also view that they're in the process of

growing organically, they are increasing the health of their soil, and they have less reliance on off farm inputs, which can, you know, go through the roof with macro events like Russia and Ukraine, it can go through the through the roof with just a company trying to charge you more. So a lot of folks turns out we get all our fertilizer basically from Russia. So yeah, yes, major producer of chemical fertilizer. So again, for me, in terms of why I think it makes sense, I just a lot of I'm not an expert on ag, my growers are experts on ag, and we're very close with with our growers. And when they explain why they've tried, why they've made a commitment to organic, why it makes sense to them, why it makes sense for their soil, because the purpose of having healthy soil is it increases yields. And so being an organic farmer doesn't mean that you are not doing everything you can to maximize yields.

Every grower in the history of agriculture has been trying to maximize yields. They just stay within the parameters of organic farming. And so, you know, just as I mentioned, the field that has the generic GMO corn can use the same field year over year and bring in the nutrients they need in the form of chemical fertilizers. An organic farmer does crop rotations. So they'll grow corn one year on this lot of land and corn takes a lot of nitrogen. So now after they grew the corn, that soil is nitrogen deficient. So instead of growing corn again, the next cycle, they will instead plant something that is nitrogen infusing like alfalfa.

And so they will build their whole crop rotations so that some crops are taking, some crops are giving, but the whole collection of it creates healthy soil. Where do you stand on like ethanol, high fructose corn syrup right like corn you could argue is a very bad thing for the health of the society overall and uh carbs right we've put this high fructose corn syrup and everything iowa being first on the primaries makes it bigger than it probably should be why do we have ethanol there's lots of arguments for it. We don't need ethanol. So you got any thoughts? We don't need to get super political, but you're welcome to if you want. But yeah, what are your thoughts on all that? I think there's no question high fructose corn syrup is bad for you. And sugar in general is

not great for you. And even if we're talking raw organic cane sugar, it should be minimized. But certainly high fructose corn syrup, which is stripped down and kind of quickly turns into carbs, isn't good and should be avoided. Full stop. Can you make me a non-carb tortilla chip? There's not non-carb tortilla chips. Or low carb ones. They those exist and there's some good ones. Uh, but it's not, I mean, I, I like corn. So it, you, you bring up a good point because what you're touching on is like the corn, the larger corn conversation where corn has been demonized in certain because of

whether it's GMOs or ethanol or high fructose corn syrup. And I, my answer to all those things are yes, yes, and yes, but the answer isn't no more corn. Our answer is better corn grown responsibly in a different way. And, and so I'm not anti-corn I'm anti into the status quo of corn. Yeah. But there's right. Huge. Like, okay, what if we get rid of high fructose corn syrup and all those products double in price? Cause you have to use that right. Then there's more inflationary problems.

So yeah, it's a tough, it's a tough nut to crack. Yeah. One of the things we have been interested in at our farm in Iowa is seeing if we are capable of growing regenerative corn that is cheaper than standard GMO corn. We'll never hit the yields of GMO corn.

It's impossible. But those growers spend so much, as we talked about, in the chemical pesticides and the chemical fertilizers. And that's all accounts in the price. And if you have a regenerative process, you don't need all those off-farm inputs. And what do you mean by regenerative? Just let the soil do its thing, basically? Exactly.

Focus on having the soil have high organic matter material, increase your crop rotations, do winter cover cropping. All these things carry costs, but the chemical pesticides and fertilizers are very expensive. And so the question is, can we get enough yield growing items regeneratively that have less per acre inputs where you could create... Where the profit's roughly the same. Exactly. And we haven't done that yet, but there's a lot of optimism that that can happen. But to your point, one of the reasons why there's a lot of corn subsidies. And so I think folks do

get political about this conversation that's saying well wait if we shift these subsidies in a different direction could we incentivize you know a lower cost item that is better for us and i'm not the expert on that right and then you go into right like the subsidies feed all the cows all the that create the method like you can go down a a global warming rabbit hole there for sure yeah um water what's what's your take you have the so where are your farms you have one in iowa one in iowa and one in northern california and how big are those uh they're big farms we grow more in iowa the farm in iowa is um it's about 10 000 organic acres under contract.

Not for us, but just in general. And we're growing a couple hundred acres there. And then we grew less than 50 acres in Northern California. The yield is a little bit better in Northern California, but that land is more expensive. Really? Don't tell the Iowans. Their whole culture is corn. Don't tell them they have less yield. They probably know. So yeah, I just thought of this, but like, what's your take? Is water a problem? Will it become more and more of a problem moving forward?

Are the aquifers declining? All that good stuff. Water is always at the center of every ag conversation in California. And that is something that there's the aquifer conversation of, are they getting depleted? Are they caving in? Are they getting replenished? But then on any given year, there is the question of just water rights and how much is the county going to allow or allocate for certain growers? When I was last in at our farm in Northern California, they were showing us all these walnut farmers that basically just no longer got the water they needed to be able to grow walnuts. And so they were just kind of falling

in disarray. So the water conversation in California is very complicated and I don't know enough about it other than it's for across my career. I've bought lots of items from California, whether it's corn or tomatoes or peppers and everything is about water out there. And so that's a that's a big can of worms to open up out in Iowa. A lot of the water we need for the corn comes from the rainfall. A lot, it's not irrigated. And we used to grow in the Northeast as well. And just sort of the summer rainfall was what we needed. A lot of the purpose of regenerative farming is to have deeper roots and more organic matter in the soil so that the ground can retain water more and longer as opposed to kind of hitting and rushing off. So I think it's going to become a factor, but

it hasn't been the main pain point that we hear from our growers in Iowa. More recently, there have been some winds in the Midwest that have kind of come through and taken down corn and fields of corn. In the last five years that we've grown corn, we've had weather that has caused us to plant late or we've had early frosts. So those are the things kind of right in front of my nose that we've dealt with. And so far, we've gotten less of a red flag on water. Yeah. You mentioned the other night, there's like a short corn coming out. Talk about that for a second. Yeah. I just got sent that there is a short corn coming out. And I think the idea here is that corn can grow really tall.

It can grow to be 10 to 14 feet tall. And one thing that has happened a lot in the Midwest recently is high winds have kind of blown corn stocks over. So I think the thought process here is, can we create a sturdier stock by having it be shorter that can withstand wind, but that can still prevent pest control of, and when people use the word pests, it covers not only bugs, but things like deer. And is there a balance of a win-win variety of corn that can be a short corn? And it looks like they're doing it in Mexico successfully. And it's just one of the early, early kind of thoughts on a new way to grow corn to reduce, to increase yields.

And how do you think about, like if I'm creating this short corn, right? I'm mixing two genes or what, right? Aren't I genetically modifying it to create it? I would assume that the article I saw made it seem like it was more of a mass corn product which then would very much be genetically modified yeah and this is a good example of well how bad is this genetic modification if we're talking about choosing kind of different height attributes to promote and and, you know, one of the original thoughts of

GMOs was, okay, farmers are always selecting traits, and it might take them 10 years to go from this crop today, and then they're going to seed select every year to focus on larger ears, to focus on sturdier stocks, and they might get to where they want to go in 10 cycles. And GMOs can find those attributes, target them, and shorten that time period to have those attributes in one to two years. And so that's where you listen to that, and you're like, well, that doesn't sound so evil. Right, that's just confusing. Like, well, to me, all of farming is genetically modified, modified right like we put the orange tree with the pear tree and we got whatever and like you're you're doing that all the time but it seems gmo as it's used as more of like

involving the monsanto example the chemical protection right so yeah that's what covers everything now there's just gene editing is all follows falls under GMOs. But, you know, I think like we were saying, there's probably totally fine examples that don't hurt one's health, don't hurt the soil. And then there's other examples that allow for the dumping of chemicals onto product and soil. And is that a good thing or not? But yeah, you know, like the, our corn is what's called open pollinated, which means that you can literally take a kernel from one of our ears and plant it and you'll get the same corn next year. Most corn that is grown is a hybrid variety. So the hybrids, you can't take seed from a hybrid corn ear and grow it. You can only buy hybrid seeds from the seed manufacturers. Do you think they do that on purpose? That's one argument is that they created a seed market that they could control. But the idea of hybrids was to, by breeding two varieties together, you can increase the

prevalence of certain traits in either one of them in the offspring more so than how it exists in its own state. But so our stuff is open pollinated. And when I was first getting started and I was working with the Italians and the old timers up in New England, very much a big part of what we did before harvest was seed selecting for the next year. So before we put the combine into the field to harvest all the corn, we walked with bags in the field and we would look at stocks and figure out which stocks are the sturdiest. We like the best. Okay. We like stocks. Now let's look at those ears.

Which ears are the prettiest. And when I say prettiest, the largest looking kernels, tips on the corn, and all these, we were making all of these assessments and selecting the seed based off of that. And that is the old school version of kind of gene editing is over time, we're going to try to have our seed be a collection of the best attributes. What are your last thoughts? Tell us where we can get the chips. You can buy the chips.

We are at Whole Foods Market nationwide. We are in East Coast like Wegmans. If you're down in Florida, we are in Publix, all Publix stores. And then there's a good chance we'll be in whatever your local organic co-op or regional grocer is. Love it. And what you got one flavor, 10 flavors. What's the how many SKUs?

We have here we go we have uh three skews of um of tortilla chips and we have one food service size skew of tortilla chips that we use to sell the sweet green so if you get tortilla chips in your salad at sweet green in either the west coast or the east coast that's our tortilla chip you should have led with that every all the all the kids love the sweet green i know sweet green is great and um and then we just launched uh two skews of a new product line for us which is rolled tortilla chips uh where it's those uh tortilla chips that are rolled up like uh like a i keep saying cigarette but people are telling me i need to think of a different thing to describe chips other than cigarettes and you you also got to change the Sir Kensington Condiment Company.

My brain, my adolescent brain goes to condom company. Yeah. Well, when we were at Sir Kensington's, there was I think there was a condom company that launched called like Sir Richards. We're like a condiment, you know, ketchup. Yeah. And but talk about that for a sec you those rolled things are like the takis the kids like yeah um which is what it's just a rolled up chip that's for then fried exactly right it is a rolled up it's a it's a chip that is rolled up into that shape before it is baked and fried. And by kind of rolling up the chip, you get a really dense, hard crunch, which is kind of a fun snacking experience. But in addition,

these chips are meant to be heavily seasoned with kind of provocative flavors, whether they're really spicy or really tangy. So we have a chili lime, which the heat is, it loses a little bit of heat in there for sure, but nothing crazy. And then we have a fiery nacho, which is pretty hot. Pretty hot. And then you were those talky people are, they think that's their proprietary roll technology. No comment. No comment. All right. The talky people. All right. We'll leave it there. Thanks. We'll see you when I get home, maybe. Awesome. Sounds good. Thanks, Jeff. All right, Zach. Take care.

All right. That's it for the pod. Thanks to Zach. Thanks to you listeners for entertaining a non-quant pod here. Thanks to RCMAG for sponsoring. Thanks to Jeff Berger for producing. We'll be back once or twice in the next two weeks before taking off for the holidays from Thanksgiving through New Year's. We'll bring you a whole new slate.

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