Pipeline Foods: Targeting the underdeveloped organic supply chain

AMERRA Capital Management helped form Pipeline Foods earlier this year to help strengthen supply chains for organic and non-GMO offerings. Pipeline chief executive officer Eric Jackson spoke with Agri Investor about the current state of those supply chains, the role Pipeline hopes to play in increasing organic acreage and attractive investment areas the firm has identified. 

What is the current state of the supply chain for organic row crop producers?

The current supply chain is made up of the same group of relatively small players that were there 20 years ago, trading truckloads, extracting as much margin as possible from each trade, but not dedicating assets or capital to developing a true supply chain. Food companies are frustrated because they have demand that sometimes goes unfulfilled, or gets filled with less assurance than they would like to see.

Why haven’t large agricultural companies filled the vacuum you describe?

They have spent decades creating large, fungible commodity operations that bring huge volume through very large facilities and pick up the advantages of scale. The problem is that those facilities, and the people running them, are geared in a different way than what’s needed in this market. They have not been trained to think about identity preservation, traceability or transparency. Quite the opposite, traceability and transparency are anathema to running a large grain terminal or crushing operation. Their assets are not built for downscaling to the relatively small volumes of the organic and non-GMO space.

In addition, low crop prices are causing strain across the supply chain and most of the large companies are on defense, not offense. The Cargills of the world will become more interested after somebody builds something to scale.

What specific areas within the existing organic/non-GMO supply chain are currently most attractive for investment? 

In our view, the least developed non-GMO and organic supply chains are in the grains and oilseeds. There is a fair amount of infrastructure lacking, and that is the specific opportunity to deploy capital. But the returns will be achieved through executing a holistic plan, not just building or buying assets. And it’s an international business that requires operations across several continents.

What do you see as a realistic and desirable balance between organic/non-GMO production and conventionally grown crops?

I am classically-trained in the conventional commodity world and had bought into the notion that you cannot feed the world organically, but I’ve come to believe quite the opposite. There isn’t an upper end to the scaling possibilities for organic because there’s nothing about organic farming that means it can’t produce the same or better yields as conventional.

Once you’ve gone through the conversion process and conditioned your soil to behave in an organic fashion, the transitional problems of pest control and weed management are very manageable. Science backs up the notion that healthier soils produce product that’s more nutritionally dense. If 10 years from now everyone has somehow been able to get to the organic stage, you would probably find that we are producing more of a better quality product.

What will farms have to do in order to join the Pipeline Nation network and how will they be monitored?

Today, organic farming in the US is a regulated activity monitored by third-party verifiers certified by the USDA. It’s not our job to do the verification or write the rules. There is no cost to becoming a member of the Pipeline Nation, and we’re happy to bring on anybody who’s already a non-GMO or organic grower of grains and oil seeds. Our job is to make sure that everything is working in our system so we can give the consumer assurance of the highest standard available.

Those producers who have already gone organic describe a difficult conversion process, but we are developing agronomic and economic resources to help farmers accelerate the conversion. Through a variety of incentive programs and specifications that we will enforce, Pipeline will monitor and help do the tracking, tracing and reporting required for the verifiers to do their job.

What are the costs and benefits of switching from conventional to organic from the farmer’s perspective?

Practically speaking, it’s a five-year investment that varies significantly depending on where you are geographically and in terms of crop mix, soil quality, and water resources. Roughly speaking, it costs between $1,500 and $2,000 per acre over the course of five years to go from a conventional to an organic system where you have normal yields and enjoy the premiums consumers pay for organic products. It might be less than that today with low conventional prices.

Those premiums also vary significantly for each crop and even in any given year can be very volatile. The market is probably most consistent in organic wheat but the premiums for organic corn have ranged from between two to four times conventional within the last three years. It’s not something you can put your finger on easily.