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DGC exec: demand from individuals for direct agri exposure

David Garner sees big potential in bringing together high margin crops, underutilised land and individual investors.

David Garner is the founding partner of DGC Asset Management, a project developer and advisor focusing on the development of agricultural assets and business, and distressed real estate transactions. In 2014, the group launched Vaccinium, a company created to provide individual investors with direct exposure to farmland investment. Vaccinium currently has two blueberry farms under development in Oregon’s Willamette Valley, with 60 acres scheduled for harvest in summer of 2016, and plans to plant another 117 acres in spring of the same year. In the next year, the company plans to develop blueberry farms in Serbia and is currently considering projects in Chile.

What attracted your group to investments in farmland?

We spent a lot of time in focus groups. Almost all of them said exclusively that if they could, they’d go out and they’d buy a farm and have a farmer farm it. We’ve built on that and built an investment strategy around it.

We developed a mandate, which was to invest in under-utilised land for the production of high value crops. So, a good example of this is the McMinnville [Oregon] property which has a value of say, as raw agricultural land, maybe $10,000 an acre. You spend some money and put some blueberries on there and you have an instant uplift in value to say $20,000 an acre. And then over the next five to six years that value curve gets an almost exponential growth because each year the plants become more productive.

And so you cease to value that as a pure asset and you start to value it as a multiplier of income. For example, in year four or five when we’re producing say $25,000 or $30,000 worth of fruit [per acre], you’re not valuing it as a piece of land, you’re valuing it as a business that produces that level of income. By creating these kind of farms we’re not just buying farm land, storing our cash there and crossing our fingers we’re creating valuable businesses with an integrated supply chain attached to them, which adds an enormous amount of value.

 And is there a reason you focus on individual investors?

We found that if you’re going to talk with pension funds, these guys won’t talk with you unless you’re capable of deploying say $50 million dollars, and that’s just not possible. That’s not the kind of league that we play in. And yet you see the smaller investor who wants to get involved in agriculture, but he can’t afford to buy a farm because it’s too much of his portfolio. It’s too big an allocation and he doesn’t want to invest in a real estate investment trust, so there’s very few access points for the smaller investor to get involved in a good quality institutional project in terms of the quality of the assets and the quality of the business. That’s who we talk with.

How does operating at that scale change your approach?

Our clients want to become a lot more involved in the project. Most of the people that have invested in it have been at and stood on the property. We’ve taken them around and shown them the quality of the asset. They’re investing their own money. It’s not family money. It’s money that they’ve earned and it’s money that they don’t want to lose. So they want to check it out. They want to make sure the thing exists, and they want to make sure that the quality we talk about is there and is apparent.

 Is there a particular reason you chose Oregon for your first project?

Not many people are aware that Oregon’s one of the very, very few places in the world that has a free trade agreement with South Korea to sell blueberries, and whilst there are some constraints in terms of how you produce and process that fruit if you’re going to be able to rubber stamp it in the state and get it out to Asia – and there’s also some tax levy associated with it, but that tax liability decreases every year – but with all that aside, it means from Oregon we can access Asia.

With the blueberry market, one of the reasons we chose that particular crop to grow was we looked at the world and we know it’s performed particularly well price-wise during the financial crisis. Prices weren’t impacted that much in 2008, certainly not as much as your main staples; your wheat and your maize and so on. Also, 80 percent of consumption happens in North America. So you’ve got a nice solid market there. You’re always going to be able to sell your blueberries in America, 2.2 pounds of blueberries are consumed by around 51 percent of Americans every year. It’s a good solid base. But then you’ve got 5 billion people in emerging market economies that have just gotten onto the fruit; and that’s the market you really want to access.

Do you feel like there’s room for more players to get involved in this space?

Yeah, I would suggest so. There are a hell of a lot of accredited investors in the US and it’s a very under-serviced space.