The purchase of a 3,500-ton facility follows the acquisitions of two similar elevators in Canada and marks the start of Pipeline Foods’ efforts to assemble a supply chain for organic grains and oils.
Pipeline Foods has acquired a grain elevator in North Dakota from farming co-operative Cenex Harvest States.
Following its inaugural acquisition of two similar facilities in Canada last month, the deals mark the beginning of the Minnesota-based company’s effort, launched in February, to expand and strengthen supply chains for organic and non-GMO grains and oil seeds. Pipeline Foods is backed by AMERRA Capital Management, a New York-based agribusiness fund manager.
Located in the northwestern corner of North Dakota, Pipeline’s latest purchase is currently used to handle malting barley and has a capacity of 3,500 metric tons. The firm said its plans call for increasing capacity at the site to 25,000 tons by 2018.
The facility’s location provides access to a neighboring region of Canada with high levels of organic grain production and railways to facilitate delivery to the millers, bakers, processors and dairies that are to be its customers.
Pipeline chief executive Eric Jackson said that, when combined with two grain elevators the company acquired last month, the facilities constitute “the first primary collection point for organic grain, and the capability to connect this grain supply with food companies and manufacturers across the US.”
Jason Charles, Pipeline’s marketing director for North American grains, told Agri Investor that while grain elevators had traditionally been made from wood, beginning in the 1990s, they are now beginning to be built in concrete. All three facilities Pipeline has purchased thus far, Charles said, are wood-built varieties, which have survived in northern regions because of a lack of termites that would damage similar facilities in warmer climates.
“They are ideal for the organic space because of the segregation that is within the structure itself. They are small, hopper-bottom bins. It allows us to segregate, mix, blend and clean and provide a product that is needed at destination. Currently, that doesn’t necessarily exist in the space,” he said.
While Pipeline’s plans to deploy between $300 million and $500 million over the next three to five years to assemble its organic supply chain will likely include greenfield construction, Charles said that because many similar older facilities will be torn down if they are not re-purposed, the company will continue to look for opportunities to acquire older grain-handling infrastructure.
“There is certainly a cost-saving aspect to it, more than anything, its turnkey operations. We go in with our engineers, we do any maintenance and construction that is required, but for all intents and purposes the structure is there and ready,” Charles said. “We can get into the space quicker, rather than doing a 12-month build on a greenfield project.”
In looking to bridge the gap between organic demand and supply, Pipeline is addressing an issue raised in June at Rabobank’s Food Bytes conference in New York.
Speaking to Agri Investor at the event, Rabobank executives told of large grocery clients being frustrated by the inability to reliably meet growing consumer demand for organic food.
While venture capital has been the more natural fit for investments into the consumer-facing brands propelled by growing demand for healthy and organic offerings, the Rabobank executives said private equity-backed efforts are well-suited to facilitate the underlying agricultural and logistical changes meeting that demand requires.