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Row crop recovery: a threat to organic?

Shortly after acquiring a 6000-acre farm in Washington state, founder Craig Wichner says the case for listing Farmland LP’s second vehicle, for which it is seeking $150m, may become prevalent in the future.

The appetite of US conventional farmers for switching to organic production could recede as row crop prices recover, according to the founder of Farmland LP, a manager focused on regenerative agriculture.

Speaking to Agri Investor soon after the firm’s purchase of the 6,000-acre Weidert Farm in Washington, Craig Wichner said that, of late, traditional farmers have become more open to the idea of switching to organic production. Still, he argued that this newfound appetite probably resulted from the downturn in commodity prices, suggesting that those farmers may not be ready to make the investments necessary to adopt the full-blown regenerative approach Farmland LP follows.

“You do have to make investments in crop diversity and you have to arrange for the proper off-take of those products as well,” said Wichner.  “Historically, the numbers have shown that not a lot of farmers have done that.”

Output gap

While the slow pace of such conversions and the fact that only about one percent of US farmland is currently certified organic do raise questions about supply, Wichner said, demand has continued to grow rapidly.

Relaying a story told to him by one of Farmland LP’s contracted producers, he said that a retail customer of one producer had purchased a large amount of conventional blueberries in 2016, hoping to fulfill spill-over demand at a time when the cost premium for organic blueberries was as much as 500 percent. After failing to sell the conventional blueberries despite the steep discount, Wichner said, the producer’s customer decided to only stock organic blueberries going forward.

“The market [for organic produce] has had a compound annual growth rate in the low teens for 20, 25 years, so nothing’s changed,” said Wichner. “Except, everything’s changed: Amazon bought Whole Foods and Costco is now the number-one organic retailer in the US. You do have things that are driving it, but the market’s been there and the growth has been there. The conversions have been slow.”

“For a $2.6 trillion asset class, for there to be only two publicly traded REITs doesn’t make a whole lot of sense”
Craig Wichner, Farmland LP

After closing its first fund on $50 million in late 2013, Farmland LP launched its second vehicle as a REIT, which is currently seeking $150 million and targeting low- to mid-teen returns, Wichner said. While there are no immediate plans to bring the vehicle public, he noted, the more the two existing REITs are able to make the broader investment case to the market, the more likely such a listing becomes.

“For a $2.6 trillion asset class, for there to be only two publicly traded REITs doesn’t make a whole lot of sense. There is row crop land in the Midwest, there is permanent crops, there are value-add opportunities, there’s international farmland,” Wichner said. “Why shouldn’t there actually be more farmland REITs to give investors ownership of a more specialized portfolio at scale? There certainly is the scale of assets to do that.”

Thus far, Farmland LP’s investors have mostly been family offices – including one from outside the US – wealth management firms and small institutions. Wichner said he has been encouraged in recent years as investors have started to take a much more “clear-headed” approach to making sure that financial investments also have a positive social impact; a change his firm has benefited from directly.

Alternative metrics

For example, Wichner said, he was gratified when Farmland LP was recently included on a list of recommended investments distributed by activists encouraging divestment from fossil fuels.

“We were one of the first investments that really naturally fitted under a mission umbrella. I really think it was because of our commitment to have a business that you could look at us both as a pure investment and as a pure mission component,” Wichner said. “It’s not 50/50, it’s 100 percent of both.”

In addition to the number of acres converted from conventional to organic, Wichner said, metrics Farmland LP uses to gauge its social and environmental impact include the amount of fertilizers and pesticides avoided, the number of pounds of food produced and the amount of carbon sequestered.

Farmland LP also received a $250,000 grant from the USDA for a study to quantify the ecological services the firm provides through management of its farmland. The resulting report is to be published next month, Wichner said, and shows that Farmland LP helped avoid $10 million in ecological harm while providing ecosystem benefits that researchers valued at $9 million.