By Chuck Stanley – Agri Investor in Fundraising, News & Analysis
Sustainable Farm Partners (SFP), a US equity firm dedicated to developing organic row crop operations in the US, has launched a $40 million funding round. The firm plans to invest $100 million in converting conventional US farms to organic production, through a mix of debt and equity financing. The company plans to acquire 10,000 to 12,000 acres of row crop land in Iowa, where SFP chief executive and founder, Harn Soper, has overseen the conversion of around 640 of his family’s 800 acres of farmland from genetically corn and soybean production to organic corn, alfalfa, oats and clover.
“Our net operating return tripled after we went organic,” Soper told Agri Investor. “Our costs dropped 40 percent.” The targeted $40 million in equity financing will come from family offices, accredited investors and university endowments, said Soper.
The group plans to raise an additional $60 million in bonds and other debt financing from groups that will include major food manufacturers. Soper said he hopes to see a first close around $5 million by mid-February 2016. The group eventually hopes to expand to as many as 40,000 acres.
State regulations prohibiting corporate ownership of farmland in Iowa limit the pool Sustainable Farm Partners can draw from for equity financing. However, those regulations also create barriers to entry for potential competitors to reach the scale Sustainable Farm Partners hopes to achieve. That scale is crucial to spreading the risk attached to the 3-year process of earning certified organic status in the US, said Soper. US farmers see significant premiums for organic staple crops, which have increased in recent years as prices for conventional row crops have fallen. However, reduced revenues during the years spent moving to organic status, supply chain challenges and fears of consumer preference risk stop many owners from moving from conventional production.
SFP plans on leasing acquired farmland to organic operators to oversee conversion to certified organic production. The fund will draw returns through crop share agreements and from appreciation of land values under organic cultivation. According to the company website, operators that lease with the firm will have the right of first refusal to purchase the farmland after a 10-year investment period.
Soper estimates that supply for organic grain in North America will meet demand from food manufacturers for another decade. Among the food manufacturers in talks with SFP for lending agreements are General Mills and Nature’s Path, Soper told Agri Investor. “The demand for (organic) grain is so high right now,” he said. “It’s a very strong place if you want to get into farmland and farming.” Falling conventional grain prices are creating an environment of opportunity for operators and investors looking to acquire land to convert to organic production, added Soper. “It’s a great time to buy farmland. The price of the ground reflects the price of corn,” he said. “In some cases, the lease payments are higher than production.”
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