by Ellie Winninghoff,
How do you profitably invest in sustainable agriculture – farms producing diverse, fairly-priced healthy food without harming the environment, but which also restore soil fertility and provide farmers with a fair living? Small farms and community supported agriculture partnerships are nice, but they are predicted in the best-case scenario to reach only 1% to 2% of the population.
Target conventional farms
Farmland LP, a San Francisco-based fund and farmland manager pursues this goal by converting conventional mid-size farms to multi-crop “beyond organic” properties that use a closed-loop, where everything on the farm stays there, a process that reintegrates livestock, also making the system sustainable.
Its newfangled approach moves specialist farmers around the property based on ecology, biodiversity and what’s best for the land in the long run. It has five farms totalling 6,750 acres worth $50m under management east of San Francisco and in Oregon’s Willamette Valley.
Managing partner Craig Wichner claims that after the soil is restored, this approach which eliminates the need to grow corn and soy for animal feed produces the same amount of food as conventional agriculture, but is more profitable because input costs are so much lower.
While yields on farmland increased 38% since 1989, the cost of inputs used by conventional agriculture – fertiliser, herbicides, pesticides, GMOs and fuel – jumped about 325% during the same timeframe, according to the US Department of Agriculture’s Economic Research Service.
Premium for organic?
The five year-old firm has launched its second fund, a $250m private real estate investment trust, or REIT, open to institutional investors and high net worth individuals. Wichner plans to hold the land long-term, but pay investors an estimated 6-8% net cash flow after the soil has been certified organic in a three to five year conversion period.
According to Wichner, that’s nearly double the cash flow for conventional farmland, the price farmers generally pay to lease it. The hitch is that rather than lease land for a fixed cost, farmers share profits with the REIT, something that will be cheaper for them in a bad year and more expensive when times are good.With such high returns, it appears the firm is betting on more good years than bad. But it currently has 20 different tenant farmers growing 20 different crops in diverse geographies. That means the fund’s volatility will be lower than for conventional farmland. But because the growing is more complex, Wichner says it’s more management intensive and requires more intellectual property. And it’s a “team sport.”