Sustainable Farm Partners raising $100m farmland fund

When family members told Harn Soper 10 years ago it was his turn to take over the family farm, he did it under one condition: “That we convert it all to organic.”

That decision was motivated as much by economics as health considerations, Soper told Agri Investor.

“I was watching how our prices were determined by speculators on the Chicago exchange and we had no control. Healthy food was also important to me, and I knew you could get a premium for organic food,” he said.

Soper is now CEO and director of farm affairs with Sustainable Farm Partners, a nascent Iowa-based fund manager seeking to raise $100 million for a fund that will invest in organic farms across several US states.

The SFP fund will purchase and transition conventional farmland – roughly 11,000 acres – to organic, with a focus on oats, corn, alfalfa and soybeans. Using the family farm, Soper Farms, as a blueprint, SFP is aiming to fill a gap in the market by supplying organic grains to food manufacturers struggling to keep up with upticks in consumer demand.

Though unable to comment on the fundraising status, Soper said the fund is on the cusp of making its first investment, the $1.3 million purchase of an existing organic farm in Jefferson County, Iowa – though existing organic farms coming up for sale are rare.

The fund is targeting 12-plus percent internal rates of return over a 10-year investment life. SFP intends to raise the $100 million within the next 18-24 months, employing roughly 50 percent leverage primarily through government-sponsored farm credits and, potentially, bonds and loans from banks and food manufacturing companies. “This debt structure is one way to attract more institutional capital,” Soper said.

In order to counterbalance Iowa’s strict anti-corporate land ownership laws, the fund will also expand its focus beyond the state’s sloping farms to include the additional Midwest states of Minnesota, Illinois, Michigan and Indiana.

Soper noted that while organic farming is more labor intensive, the seeds are less expensive. Savings result when fertilizers and herbicides are removed, and organic sells at a premium. Organic crops, contrary to popular belief, can yield more crops than conventional, he added.

SFP is using the performance of Soper’s family farm as a guide for future investments. The eight-year financial breakdown for the 390-acre Farm 751 in Emmetsburg, Iowa, part of Soper Farms, shows that the farm returned higher yields in 2016 than pre-transition and significant – threefold – jumps in NOI/acre (see chart).

“The rumors that you can’t get high yield from organic are false,” Soper said. “You’re hearing that from the Monsanto salesman.”

Meanwhile, he argued, there are a number of social and geopolitical factors weighing against conventional in favor of organic, including a potential blow to the ethanol industry from the Trump administration, a history of dispute with the Chinese on GMO restrictions and price inflation, and the general decline in the values of corn and other staples.

Agri Investor weighed the pros and cons of transitioning conventional farmland to organic in a recent column, noting that high demand for organic crops and price premiums could ultimately pay off for investors, but that the transition process is complicated and labor-intensive.

By no surprise, Soper believes the pros outweigh the cons: “If someone wanted to diversify their portfolio they might want to consider high quality farmland. And if you aren’t considering organic then you haven’t done your due diligence.”