Sustainable Agriculture Investment Poised to Surge

By Janine Yorio, Managing Director, NewSeed Advisors

Earlier this year investment guru Jim Rogers predicted that within the next decade farmers will be the ones driving Lamborghinis, while stock brokers will drive tractors or taxis – at best. The idea shed new light on agriculture investing and has fueled significant interest in the sector. But despite growing interest in agriculture investments, the majority of investment firms have yet to unearth the potential of one of the sector’s most promising niches: sustainable agriculture.

Unlike traditional agriculture, which requires vast quantities of water, petrochemicals and soil – natural resources unable to keep pace with the world’s ever-expanding population – the sustainable agriculture industry provides thousands of innovative solutions for conserving resources and preventing environmental damage.

Sustainable agriculture isn’t just about being green.  In 2006, when fuel and fertilizer prices began to soar, United States Department of Agriculture researchers noticed that farmers reduced their use of fertilizer, fuel, pesticides, and herbicides in an effort to keep costs down. In an environment where input costs are rising, the popularity of sustainable agriculture could have just as much to do with cost effective solutions as those that are eco-friendly

While peak oil is still believed to be decades away – the widely feared point in time when the ability to extract the maximum annual amounts of petroileum has past and the production rate begins to decline – other factors have already begun increasing demand for sustainable forms of agriculture.  Consumer demand for sustainably produced foods free of pesticides, hormones and antibiotics, along with retailers’ desires to lower production costs and their own carbon footprints, are just two of the reasons for a rising interest in sustainable agriculture.

As a result, major food conglomerates such as General Mills Inc. and Sysco Corp. have already been asking farmers to institute changes in the way they farm, from water conservation efforts to limiting their usage of pesticides.

And there are already strong indicators that sustainable agriculture is gearing up for a major growth spurt and is a sector ripe for investing.  When companies like Wal-Mart Stores Inc., The Kellogg Company and PepsiCo’s Frito-Lay North America division mandate subtle shifts in the way farmers produce food, the few producers able to meet their requirements are soon inundated with orders.

A few investment firms have already begun to take advantage of this trend. New York-based NewSeed Advisors invests exclusively in sustainable agriculture businesses.  Culling its business model from both the private equity investment world and the principles of “Slow Money,” NewSeed invests exclusively in businesses that make a significant contribution to sustainable agriculture.  By doing so, the firm hopes to provide investors with double-digit returns and a clear conscience.

Our goal is to find small companies –even companies just starting out, to make seed-stage investments and to guide them toward profitability.  It’s not a ‘beat them or join them’ proposition.  Agriculture is a $100 billion industry; there is room for everybody.

NewSeed is not alone in this thinking. Canadian investment firm Investeco has invested in sustainable agriculture companies such as Organic Meadow and Horizon Distributors and has managed to deliver attractive profits to its investors by doing so.  Black River Asset Management, a subsidiary of Cargill, also invests in sustainable agriculture companies as part of its broader mandate.

Private wealth managers are also getting into the socially-responsible investment game. “I’ve been approached by several clients interested in investing directly in local food production,” Frank Morris of Ecologic Advisors, a NYS Registered Investment Advisory, told me.  “The public is beginning to sense opportunities in local green investing.”

Sustainable agriculture investments are not limited to land-based agriculture. New York-based investment firm Aquacopia invests exclusively in open-sea fish farming, while San Francisco-based Sea Change Investment Fund invests in sustainably harvested seafood companies.

Despite predictions that more than $500 million is currently being raised for farmland investment funds, San Francisco’s Vital Farmland is currently the only fund offering investors exposure to investments beyond traditionally-farmed land. Vital is in the midst of a $100 million capital raising campaign to acquire farmland and convert it to organically certified farmland by remediating traces of chemical residues.

Farming today uses 80 to 90% of all the water consumed in this country, along with millions of gallons of chemical pesticides, hormones and antibiotics. After food is grown, processors and retailers ship it across vast distances before it reaches consumers. The result is a food system made up of a tangled web of farms, environmental runoff, oil dependency and highly-processed or unripe food laced with chemicals. But with strategic capital investments, changes can be made.  

Sustainable agriculture will be big business and big bucks, if you can carve out a piece of that pie.  While that may not mean a rash of Italian sports car dealerships in Des Moines anytime soon, the future for sustainable agriculture investment looks very bright indeed.

Soon, NewSeed will not be alone in this profitable pursuit.   Next week, on September 17, interested investors from across the country and around the world will converge in New York City to explore the prospects for commercial investment in sustainable agriculture at the Agriculture 2.0 conference.  Just as eager, entrepreneurs looking to raise capital will be flocking to the conference to meet investors.  The sustainable agriculture sector is about to pop.  You heard it here first.

Farmland LP at Agriculture 2.0

Catch Farmland LP at “Company Presentations, Part II,” Agriculture 2.0, 2:30 – 3:30 PM, New York City, September 17, 2009.

Farmland LP, a U.S. private equity fund, was created to deliver superior returns for its investors by acquiring conventional farmland and converting it to high-value organic farmland using sustainable agriculture best-practices. Sales of organic goods in the U.S. have grown 20% per year since 1990, and now exceed $24 billion growing at nearly $5 billion per year. And although many organic foods receive a price premium of 50% to 200%, the limit to market growth is supply.

Only 0.5% of U.S. farmland is certified organic, increasing at 8.5% per year. Farmers face barriers of cost, knowledge, time, and effort in converting from conventional to organic, including the three-year organic transition and certification process. Farmland LP provides its investors with the security of owning low-risk farmland while benefiting from the value added by converting to organic farmland.

Local Farm-to-Table, Tod Faces Sustainable Challenges

Tod Murphy, Farmer’s Diner, presents 9:30 AM – 10:00 AM, at Agriculture 2.0, NYC, Sept. 17, 2009. 

Tod is a rural farmer, but that’s not why he’s considered a local hero. Tod also operates the Farmer’s Diner in Quechee Gorge, Vermont. It’s a local eatery which specializes in using meat and produce from local farmers (within a 70 mile radious) to satisfy an ever growing number of customers. Tod’s completely sustainable restaurant concept is backed by an experienced hedge fund investor.  The Farmer’s Diner intends to build more diners, first in Vermont and then regionally, to continue the good work of reviving strong rural communities. Tod will discuss the challenges of sustainability as well as his experiences raising institutional capital to fund a sustainable agriculture business.

Yankee Magazine: (Tod) Murphy’s Law: Buy Local, Eat Local, and Prosper (Vermont’s Farmers Diner may just change how America eats)