Changes in bank lending and the organic strategies of food companies with which it had been discussing collaboration have forced a halving of the target for Sustainable Farm Partners’ fund to $50 million, according to the firm’s founder.
Harn Soper (pictured), who is also SFP’s director of farm affairs, told Agri Investor that after launching its first fund – Sustainable Farm Partners LLP, with a $40 million target in 2015 – the firm initially pivoted to a strategy utilizing debt to raise $100 million for the new vehicle.
“Many of those interested in what we we’re doing wanted to see a larger opportunity,” Soper explained.
However, after deciding on the leveraged strategy, SPF found that bank financing was harder to secure than had been expected, according to Soper. In one instance, the bank financing SFP’s purchase of a farm property in Iowa required Soper to personally sign on to the loan.
“This dramatic decline in conventional grain prices has put a lot of stress on mortgages and the banking industry has just clamped down on lending in ag,” Soper said. “It was a major change that just happened over the past two years.”
From debt to equity
Because SPF’s primary focus is purchasing Iowa farmland and converting it to organic production, Soper explained that the firm had also been in discussions with food companies, including General Mills and Nature’s Path, about accepting debt investments that would have allowed them to finance farmland purchases in compliance with the state’s anti-corporate farming laws. Here, too, the firm was forced to adjust after Nature’s Path opted to purchase in North Dakota and General Mills also changed it approach.
“Their [General Mills’] decision, in order to gain market share, was to buy organic food companies,” Soper said, referencing the acquisition of Annie’s Organic and participation in venture capital funding rounds for fledgling food companies at earlier stages of development.
After “hitting the reset button” and deciding to focus only on equity capital, Soper explained that SPF is now targeting $50 million for its fund and soliciting investments mostly from accredited investors and university endowments. The fund will target 17 percent returns over the 10-year life of the fund, according to director of investor relations Fred Richardson.
Soper said SFP will contract farmers to manage the land through the three-year conversion to organic production. After a 10-year investment period, which allows the firm to benefit from eight years of organic or transitional premiums, Soper said, the farmers then have right of first refusal to purchase the land they have been managing.
“Unlike some funds, the ground will be sold in 10 years,” Soper said. “Our whole program tries to build in the buyer at the end of the deal, so there’s less confusion.”