Bill Reiman, a managing director at the REIT, warned that some organic farmers could take ‘a pretty good hit’ in the next economic downturn.
Gladstone Land Corporation has purchased a 746-acre organic farm in Walla Walla, Washington for $9.5 million.
The farmland REIT said that it assumed a six-year lease with the property’s unidentified operator. The farm is currently growing apples, wine grapes and cherries and its purchase marks Gladstone’s first permanent-crop-focused acquisition in Washington.
Bill Reiman, a Gladstone managing director responsible for its investments on the West Coast, told Agri Investor that the company does not specifically aim to purchase organic properties and that acquisitions are more likely to be motivated by price or the desire to work with a specific tenant.
That said, Reiman added that while organic premiums are not much of a factor in wine grapes, the company was happy to gain exposure to organic apples and cherries.
“Some crops have greater opportunity within organic than others, so it can’t really be a one size fits all,” he said. “Any of the fresh produce right now seems to have a really strong organic demand.”
Reiman said that for many farmers, the immediate financial impact of the three-year registration process required to transition to organic production is prohibitive. He added that Gladstone has investigated ways to help farmers through that process, but it, too, found investing in the conversion of farmland to be economically challenging.
Reiman said that when he underwrites organic farms, he factors in how a particular property would perform financially amid a significant drop in the consumption of organic produce.
“I think about what happens when organic demand is reduced by 20 percent,” he said. “Does this property go conventional? And then, at conventional prices in a downturn, will this property meet its return objectives? My guess is that in the next economic downturn, I’m sure there will be some folks taking a pretty good hit.”
Reiman said that he was aware of a June CoBank report suggesting the USDA create a distinct certification to support a reduced price premium for produce grown on farms transitioning to organic production, but doubted customers would pay a meaningful premium for such produce, especially in a downturn scenario.
Including the purchase announced Monday, Gladstone’s 72-farm portfolio is spread over nine states and valued at approximately $51 million.
On Gladstone’s second quarter earnings call last month, president and chief executive David Gladstone estimated that 35 percent of the firm’s fresh produce acreage was either organic or currently in the process of transitioning to organic.