PE has role in responding to consumer trends: Rabobank

Private equity can respond to consumer demand by helping encourage adoption of new technologies and conversion of conventional farmland to organic production, according to Rabobank.

Though venture capital has dominated early-stage investment  into new brands reflecting consumer focus on health, wellness and sustainability, private equity can play a role in encouraging the technological and agricultural changes those trends necessitate, according to Rabobank executives.

Speaking to Agri Investor on the sidelines of Rabobank’s FoodBytes conference in New York last week, Rabo Food & Agri Innovation Fund director Richard O’Gorman, the firm’s senior consumer foods analyst, Nicholas Fereday; and its global head of food and agribusiness startup innovation, Manuel Gonzalez described the funding landscape for new companies such as those highlighted at the event.

Young food brands looking for capital enter an emerging ecosystem populated by university research efforts, philanthropic institutions and private funds formed by large food companies looking to outsource research and development efforts.

O’Gorman said that growing focus on food and agriculture as an asset class is helping propel the necessary yield and sustainability improvements the food system needs.

“Given Rabo’s involvement in the space all along the value chain, we see as an institution the need for equity throughout, and in particular at the earlier and innovative stages of development,” he said.

In addition to the recently-launched Rabo Food & Agri Innovation Fund dedicated to early-stage companies, Rabobank has committed capital to several venture capital funds focused on the space, O’Gorman said. One such investment is in a fund managed by Rabo spin-out Anterra Capital, which has gone on to invest in gene editing, analytics and natural insecticides among other technologies.

O’Gorman added that there are technologies designed for use throughout the supply chain for healthy, sustainable foods and that private investment can help speed their adoption.

One area where a lack of investment has already started to impede efforts to meet consumer demand is organic produce, according to the Rabobank executives. Fereday said that Rabobank’s wholesale clients often report difficulty in filling orders for organic produce, a reflection of a supply imbalance between traditional retail and direct-to-consumer channels that CoBank highlighted in a report earlier this month.

Private equity funds such as Equilibrium Capital-affiliate Agricultural Capital Management’s ACM Fund II, which focuses on organic blueberries, citrus and hazelnuts, can encourage the production shifts necessary to meet growing organic demand, Fereday said.

“People are trying to have health and wellness funds and concluding that they have to go back to the source, get back into the land,” he said.

Funds devoted to conversions of conventional farmland into organic farmland could help encourage change among those farmers who might be reluctant to embrace consumer trends some see as temporary, Gonzalez said.

“The consumer trend is the consumer trend, regardless of what the farmer thinks,” Gonzalez said.  “You can like or dislike what’s happening, but it is happening.”