SFP is seeking to raise up to $50 million to purchase approximately 6,500 acres of Iowa and other Midwest farmland currently using conventional genetically modified farming methods. SFP intends to transition these farms over three years from conventional farms to organic farms growing row crop grains such as oats, corn and other small grains.
The Partnership is structured as a Delaware limited liability partnership. The Managing Partner is Sustainable Farm Capital, LLP (“SFC”). SFC management includes Harn Soper, CEO and Fred Richardson, Director of Investors Relations. This Offering consists of equity partnership interests in SFP of $50 million.
We believe that this structure will provide a win/win for investors and the farm operators. Equity investors will be entitled to share in the performance of the farms and the appreciation of the farmland when it is sold. Food manufacturing companies will provide a consistent customer base for the farms.
Organic agriculture has been in existence for thousands of years. Farming without the use of petroleum-based chemicals (fertilizers and pesticides) was the sole option for farmers until the post-WWII era. Organic agriculture seeks to utilize the advances in technology that consistently improve crop yields (new varieties of crops, precision ag technologies, more efficient machinery) while avoiding herbicides, pesticides and synthetic fertilizers that can create pollution and an increased resistance to the very pests that have been targeted. Instead of using synthetic fertilizers or pesticides, organic farmers use crop rotations, cover crops, and natural-based products to maintain or enhance soil fertility. Organic farmers rely on biologically based products and sustainable farming methods to simultaneously limit pests while increasing the population of their natural predators. Genetically modified organisms ("GMO's") such as herbicide-resistant seeds, plants and product ingredients are not allowed in organic agriculture.
Secure our investors’ capital with a real asset - organic farmland. Farmland is not correlated with other asset classes or other real assets. As such it is a significant portfolio diversifier. According to The Economist, farmland has outperformed most major asset classes over the past decade with low volatility.
Provide our investors with a consistent return. Based on the current on-farm operating history of the acres already in organic production by SFP’s management team, SFP’s seven to ten-year target is to achieve a 4% to 8% average annual yield by the fourth year of ownership of each farm. Including the long-term appreciation from increases in land value, we anticipate a return of approximately 8% or higher. Exit values can be determined by capitalization rates or assumptions based on historic land value estimates.
Provide a consistent and measurable flow of organic grains from SFP farms to food manufacturers struggling to meet the demand of consumers for more organic and non-GMO products.
Deliver a triple net value proposition to our investors, to our farm operators and to every community where we make investments.
Converting the land through certified organic practices rehabilitates the soil, sequesters carbon, preserves and cleanses ground water supplies, removes synthetic chemicals from the food system and, because of much higher profits, it invigorates economic growth in our rural communities. It is a true triple-bottom-line investment that yields profits as well as tangible benefits to people and the environment.
Provide our farm operators an opportunity to purchase the farmland when sold to keep farmland in the hands of family farmers with the caveat that the farm remains organic in perpetuity.
SFP’s core team is made up of Iowa organic farmers with over 30 years of combined experience in converting conventional GMO-based farmland to large-scale USDA Certified Organic row crops. The crop focus is primarily on corn, oats, soy beans, other small grains, and hay. Together, as individual farmers, operators and managers (i.e., not under the Partnership’s ownership), SFP’s team brings the experience of managing 24,000 acres with over 6,000 acres in organic production. The remaining 18,000 acres are conventionally farmed. This represents approximately $200 million in Iowa land value. The team’s success in converting conventional farming to organic row crops has increased the net operating income (NOI) per converted acre through a reduction of input costs coupled with both non-GMO and organic premium prices. Our success and experience are the genesis for the Partnership.
Soper Farms currently has five farms of which three are in organic production, one is in organic transition and one remains under conventional farming. Representative of Soper Farms organic operations, the following example shows the 9-year transition of Farm 751 in Palo Alto County in Northwest Iowa, owned by Soper Farms and managed and farmed by SFP team members. This farm’s history shows the transition from conventional farming with a corn and soybeans rotation (2008-2009) through a 3-year organic transition period (2010–2012), into five years of organic row-crop production (2012–2016).
These numbers and the financials from other team-managed farms are the foundation for SFP’s organic row-crop production program.
- The two-year average net operating income (NOI) for the conventional GMO corn and soybeans rotation in 2008 and 2009 was $180.85/acre.
- In 2011, Farm 751’s low-income cover crop year of oats and alfalfa, the NOI was $165.98 per acre and equivalent to the conventional years of corn and soybeans. Transition years can be profitable if managed well.
- The organic certified years, 2012 - 2016, achieved a respective 5-year average NOI of $547.05, a 335% increase from conventional years 2008 & 2009. This represents a threefold increase in NOI for the certified organic crop rotation. This is typical of the two to threefold increase to be expected under the Sustainable Farm Partners organic farming model.
- Year-end farm management reports are available upon request.
Sustainable organic farming utilizes the technological advances that have been developed in agriculture over the last 60 years while avoiding the associated harms. Organic farms disallow the use of genetically modified seed, synthetic pesticides, herbicides, and fertilizers by utilizing natural methods such as crop rotations and intercropping to grow healthy crops while increasing soil health.
According to the Organic Trade Association (OTA) the organic industry continues to grow at a rate of 10%+ annually. The certified organic industry has grown from $1 billion in 1990 to an estimated $50 billion in 2017.
Our strategy leverages our past experience and is built on the following:
- A Focus on high-quality Farmland
- Selection Based on Strict Acquisition Criteria
- A Strong Team of Financially Committed Farm Managers
- Long-Term Focus on Increasing the Value of the Land
- Risk Management
SPF’s network of organic farmers, distributed across the state, will provide economies of scale for crop sales and input purchases. Each team member represents an organic zone where farm purchases will be targeted and additional team members recruited. Within the network, crops and related expenses can be aggregated to create economies of scale in purchasing and selling.
The Partnership believes that the need for healthy, affordable food is fundamental. Sustainable farming and organic agriculture provide for this fundamental need. According to the Organic Trade Association (OTA) the organic industry continues to grow at a rate of 10%+ annually. In addition to the nutritional value of organic foods that attracts many consumers, health concerns about GMO seeds and conventional agriculture’s heavy use of related synthetic fertilizers and chemicals are a major driver in the increased demand for certified organic food. Consumer reaction against foods with GMO contents has grown as independent research on the negative health impact of GMOs has become available. As consumers become increasingly concerned about the food they eat and are aware of the need to strengthen our food system, this Partnership represents a unique opportunity to take advantage of this rapidly growing market.
In the USDA’s report, consumer demand for organically produced goods continues to show double-digit growth, providing market incentives for U.S. farmers across a broad range of products. Organic products are now available in nearly 20,000 natural food stores and nearly three out of four conventional grocery stores. Organic sales account for over 4% of total US food sales, according to recent industry statistics.
Organic food is sold to consumers through three main venues: conventional grocery stores, natural food stores, and direct-to-consumer markets.
Organic price premiums continue to remain high in many markets as the demand for organic products expands while production does not.
Major food manufacturers and grocery chains, as well as non-food retailers, are scrambling to meet demand for organic products. Recent shifts to increase organic supplies include:
February 23, 2015: "Target aims at $1 billion in sales from organic, natural brands portfolio. Big-box retailer boasts 200 products in 2015 'Made to Matter' collection of brands. The Minneapolis-based big-box chain (NYSE: TGT) of 1,790 stores in the United States, after exiting the Canadian market, said it nearly doubled the number of brands in this year's Made to Matter – Handpicked by Target collection to 31, sold throughout Target's grocery, baby, beauty and personal care, healthcare and household product categories." See http://consumerist.com/2015/02/20/target-will-double-organic-sustainable-offerings-in-2015/.
February 24, 2015: Coca-Cola division rolls out organic, zero-calorie drinks. "Honest Tea also converting entire Fizz zero-calorie soda line to organic. Honest Tea, the top-selling US organic bottled tea brand, said Tuesday it will debut three new varieties of organic, zero-calorie beverages at natural food stores and in the natural food aisles of mainstream grocers next month. Bethesda, Md.-based Honest Tea's product lines include: ready-to-drink bottled teas; Honest Kids organic, thirst quenchers; Honest Summer Refreshers; Honest Freshly Brewed iced teas; and Honest Fizz organic, zero-calorie sodas. All drinks are certified organic and all tealeaf varieties are Fair Trade Certified." See http://www.bevindustry.com/articles/88239-honest-tea-to-launch-three-organic-zero-calorie-beverages.
February 24, 2015: "Kraft saw sales fall 6.6% during the fourth quarter in its meals and desserts division, which includes legacy brands such as Kraft Mac & Cheese and Velveeta dinners. Kraft said the decline reflects ‘changes in consumer preferences,’ which is likely a reference to the myriad studies that show Millennials are hungry for fresh food and are more concerned than previous generations with where their food comes from. In other words, a Millennial looking for an on-the-go dinner might pass on the gloppy cheese and noodles wrapped in plastic, instead opting for a fresh salad assembled at their grocery store’s prepared food bar. (Or perhaps even a made-to-order burrito at Chipotle.)" See http://www.washingtonpost.com/news/business/wp/2015/02/13/your-healthy-eating-habits-are-pummeling-the-packaged-foods-industry/
SFP establishes long-term contracts with multiple manufacturers of organic foods. Currently, our most prominent buyers are SunOpta in Hope, MN and Grain Millers in Saint Ansgar, IA.
Additional regional mills in the buyer’s network include Agricor in Marion, IN. Millers and feeders as distant as California are interested, including Multiple Organics in Hercules, CA and Mary’s Chickens (Pitman Family Farms) in Fresno and Scoular in Omaha Nebraska.
Farm production is not keeping up with demand and the gap is widening. This shortage has caused some food retailers to bypass some of their traditional supply lines and contact farmers directly.
Chipotle is an example. Despite their well-developed relationship with suppliers like Everbest Organics and Organic Bean & Grain, they can’t find enough farmers to supply these processors. As a result they are working directly with farmers offering a 5-year program to help subsidize them through the 3-year organic transition process with 5-year contracts to supply Chipotle with beans.
Increasing organic food production in the US is an issue of national economic interest and food security. As reported by US Department of State (http://www.state.gov/e/eb/tpp/), demand for organic food in the US is so high that the ratio of imported organic food versus US export of organic food is eight to one, making organic food an issue of US economic interest. This represents a negative to the US balance of trade of over one billion dollars per year. Given the 2015 Neilson Report “Healthy Eating Trends Around the World,” there is a growing demand for organic food outside the US as well. The US and global demand for organic foods opens expanding opportunity for SFP organic grain sales. See “U.S. organic corn, soy imports soar as domestic production sputters” in the Appendix.
Beyond US Borders
Another way to interpret the value and scarcity of arable farmland, in general, is to look globally. The picture painted worldwide is disturbing. The world supply of arable land has been capped at around 3.4 billion acres for a decade, while the population has increased by about 600 million people and is targeted to reach nine billion by 2050.
The United Nations, the Rodale Institute, leading scientists such as David C. Johnson, and the USDA have amassed a wealth of research on carbon sequestration through soil remediation.
SFP Board Advisor Dr. David C. Johnson was interviewed in Kristin Ohlson’s recent book, “The Soil Will Save Us: How Scientists, Farmers, and Foodies Are Healing the Soil to Save the Planet”. Johnson’s conclusion is that the world's entire excess of greenhouse gases could be captured in our soils. Johnson and the other NMSU researchers worked on a project to see if the Mars Curiosity Rover's carbon-measuring equipment could be used for quick and accurate analysis of soil carbon on Earth. They concluded in their report to Sandia [National Laboratory],
"The rate of biomass production we are currently observing in the system has the capability to capture enough CO2 (50 tons CO2/acre/year) to offset all anthropogenic CO2 emissions on less than 11% of the world's cropland. Over twice this amount of land is fallow at any time worldwide.” Ohlson comments that “if only 11% of the world's cropland — land that is typically not used — improved its community of soil microorganisms as much as Johnson and his colleagues did in their test plots, the amount of carbon sequestered in the soil would offset all our current emissions of carbon dioxide."
Jeff Moyer, SFP Board Advisor and Executive Director of The Rodale Institute, agrees with the premise but identifies a global solution with very simple remediation techniques:
"Simply put, recent data from farming systems and pasture trials around the globe show that we could sequester more than 100% of current annual CO2 emissions with a switch to widely available and inexpensive organic management practices, which we term ‘regenerative organic agriculture.’ These practices work to maximize carbon fixation while minimizing the loss of that carbon once returned to the soil, reversing the greenhouse effect."
The Rodale institute, 2013 White Paper on "Regenerative Organic Agriculture and Climate Change: A Down-to-Earth Solution to Global Warming"
The Rodale Institute was founded in 1948 to study and promote organic agriculture. The White Paper is the culmination of a 23-year study that began in 1989 conducting side-by-side comparisons of two methods of organic agriculture versus conventional farming methods on contiguous land.
The United States Department of Agriculture has weighed in with their own 19-year study, having achieved different results but agreeing that remediated soil does offer an opportunity for net carbon capture.
A net gain in agricultural carbon capture is all the more important due to the role that traditional agriculture plays in contributing to greenhouse gases. The following information is from GRAIN, a research foundation that contributed to the United Nations Conference on Trade and Development, 2013 Trade and Environment Review:
The CTX Carbon Trade Exchange was founded in London in 2009 after two years of extensive research and development. It now operates spot exchanges for multiple global environmental commodity markets, including Carbon Renewable Energy Certificates (RECs) and Water. At this point in time, any US-based exchanges would appear to need government incentives, i.e. legislated cap and trade programs, to be effective. As evidence, two carbon auctions that appear to be working are California's Cap and Trade Program [The Wall Street Journal, September 28, 2014, "How Cap-And-Trade is working in California: Carbon Program May Hold Lesson for Other States."] and the Regional Greenhouse Gas Initiative (RGGI) that covers the power industry in nine Northeastern states.
Evolution Carbon announced the results of the 27th RGGI auction:
Quebec has a reciprocity agreement whereby Quebec carbon emitters can buy credits from California and vice versa. The Clearing Price at the November 2017 California ARB (Air Resources Board) auction was $14.88 for 79,548,2896 allowance.
The SFP pro forma references Iowa State University’s annual survey of Iowa farmland values. The 20-year average (1997-2016) averages 8.03% appreciation per year. The 30-year appreciation average (1987-2016) is 8.04%.
Sustainable Farm Partners delivers a true triple bottom line. SFP's team of operators and managers has the experience and the capacity to implement farm conversions on a large scale. SFP can provide the financials from its team's current organic farms to verify the profitability of production organic agriculture. The Rodale Institute and Professor Johnson have conclusive evidence that no-till certified organic agriculture can produce up to 10.2 tons of carbon capture per acre which is the equivalent of 30 tons of Carbon Dioxide captured per year per acre.
People: Organic foods are healthier for people and create viable food systems.
Planet: Organic farming restores soil health, reduces erosion, cleans and preserves water.
Profit: Organic farming is more profitable than conventional farming. SFP anticipates being able to provide an annual yield of between 5% and 8% beginning in the fourth year of ownership of each farm, plus the appreciation of the underlying land.