Farm Grows ‘Organic’ Returns for Impact Investors

Posted on by Amy Bennett

It’s tough to find a better example of environmental stewardship and sustainable use than organic farming.

Indeed, the responsible growth of food that sustains us is pretty much the ideal picture of what the impact investing ethos is, and aims to be. With only an estimated 1 percent of farmland in the United States certified as organic, it’s an area ripe for growth.

For Iroquois Valley Farms, a restorative farmland finance company founded in 2007, that growth will be fueled in large part by next-generation farmers. As the nation’s first organic, family farmer focused Real Estate Investment Trust (REIT), Iroquois Valley is enabling the millennial generation to invest directly in healthy, organic food production. The firm, which has $50 million in organic farmland investments, has appreciated 10 percent per year since inception.

Speciality grains growing at Vilicus Farms in the Great Plains region of Montana. Vilicus Farms specializes in small and ancient grains, legumes, oilseeds, and more, while also focusing on conservation and native habitat preservation. Iroquois Valley Farms works with farmers in 13 states from Maine to Montana.

It’s a long way from the firm’s beginnings just prior to the mortgage-fueled Great Recession. At that time, Co-founder and CEO David Miller came in possession of a 10-acre piece of family property, which he transitioned to an organic farm. At the same time, Dr. Stephen Rivard, Miller’s college roommate, was observing the effects of the overexposure to herbicides and pesticides on agriculture workers

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“Dr. Steve, as I call him, and I got together and thought, ‘Why don’t we enable, effectively, the next generation of farmers to do it differently?’” Miller says. “My background is in corporate and real estate finance, so this is just a natural for me.”

The duo, along with 10 friends and family members, formed Iroquois Valley Farms, LLC. It’s a “farmer-centric business model,” meaning the farmers bring opportunities to Iroquois, not the other way around.

“We never go out and buy land and then try to find a farmer,” he explains. “That’s a non-scalable approach to being in business. Farmers bring us the opportunity, and we buy it and lease it to the farmer, with a goal of the famer having eventual ownership.”

An important point Miller emphasizes is the firm’s distinction from traditional private equity models, particularly in the way it ramps up.

Using the term “slower than slow money,” he saw the mistakes too many funds made by deploying too quickly (it was 2007, after all), lessons learned that remain today. Rather than raising “$100 million or $200 million” and immediately investing, they take their time, and for good reason.

“It’s hard to move too fast in organic farming, but if you try you usually make bigger mistakes,” he claims. “This is not a turnkey type business where you can just buy some land, shake hands with the farmer, come back in 10 years and sell it to pay everybody off. That’s a complete mismatch with what the farmers want to do. They want the land for the rest of their life, so from the get-go, we knew that we had to go nontraditional.”

In addition to “growing” slower with its committed capital, the firm is willing to work with individuals.

“Most of the funds you see starting up here or there, they start big and they start fast, and it’s mostly institutional capital. We connect with individual investors and individual farmers. Even though, right now, they’re all accredited investors, they can use their IRA accounts or family trusts. IRAs are long-term investment vehicles that fit with the time horizons of our model.”

The long-term horizon of the investment and the risky nature of the underlying business farming means Miller and his partners at Iroquois have to be innovative.

Main Street Project is the first nonprofit Iroquois Valley Farms financed. The Minnesota-based organization trains Latino immigrants in their poultry-centered permaculture model to create social, environmental, and food system change.

“We diversify everything,” he says. “We diversify our capital base, we diversify our farmers, we diversify our lenders. And a few years ago, we decided to go to our investors and borrow money from them. We offered 5- and 7-year term notes, which we billed as ‘Young Farmer Land Access Notes.’ And they were very successful and very desired by financial advisors for their clients.”

That success led to offerings of shorter-term notes, with the intention of bringing down the costs associated with a 3-year transition to Certified Organic status, traditionally the most difficult period for farmers. They called it a Soil Restoration Note, “because those first few years are all about restoring the soil.”

A certified B Corporation, Iroquois is also an investment option for donors to the ImpactAssets Giving Fund (a donor advised fund) and is included in the ImpactAssets 50, a resource that provides investors and financial advisors with detailed information about 50 of the most experienced impact investment firms and potential investment options.

Iroquois continues to innovate, forming the REIT earlier this year because “we’re moving toward offering our stock and our notes to non-accredited investors,” said Miller. “We care about social values. We believe it’s important to engage the next generation, so they can invest in this change. To confine ourselves only to accredited investors would be unfair.”

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Financing the 2.6 billion who survive on less than $2 a day

Posted on by Real Leaders

Root Capital confronts global poverty by investing in agricultural businesses that grow long-term rural prosperity for small-scale farmers across Africa and Latin America.

Over the next five years, Root Capital plans to triple the volume of its lending activities to reach 600 businesses, more than 1.7 million small-scale farming households and 10 million people. They will train more than 300 agricultural businesses to enable early-stage businesses to access finance for the very first time and then they’ll stick around to support their subsequent growth.

The typical clients of Root Capital are small and growing businesses (SGBs) that aggregate products from hundreds, and often thousands, of farmers. These agricultural SGBs traditionally connect farmers to markets, pay higher and more stable prices, and enable entire communities to prosper. Yet, despite their enormous potential to drive job creation and economic growth, these rural SGBs are trapped in the gap between microfinance and commercial banks.

Rural businesses that require loans ranging from US$25,000 to US$2 million are too large to access credit from microfinance institutions and are considered too small, risky, and often too remote, to secure financing from commercial banks. Moreover, these SGBs typically lack the financial management capacity needed to access a loan.

Of the 2.6 billion people who survive on less than US$2 per day, 75 percent live deep in the countryside at the end of dirt roads. Too often, they are relegated to a subsistence living that stresses the natural environment and makes it difficult for them to support their families. They typically rely on agriculture as their primary source of income, but are excluded from formal markets and constrained by lack of access to inputs such as seeds and fertilizers, market information, equipment, transportation, and credit.

As a result, they often resort to survival measures, such as illegal logging or slash-and-burn agriculture that degrades the environment, contributing to global warming and generating a cycle of ecological and economic poverty.

Agricultural businesses that aggregate hundreds or even thousands of small-scale farmers can create the economies of scale needed to overcome these barriers and put farmers on the path to long-term prosperity. Such businesses can reduce the vulnerability and anxiety faced by farmers who cannot otherwise count on having a well-paying market for their product.

By linking farmers to formal markets in efficient, stable value chains that pay a higher share of the end price much of this stress is relieved. These businesses can also help them invest in climate-smart practices that increase productivity and their incomes. Overall, the farmer and ecosystem can both become more resilient to climate change.

 

Financing the 2.6 billion who survive on less than $2 a day

Posted on by Real Leaders

Root Capital confronts global poverty by investing in agricultural businesses that grow long-term rural prosperity for small-scale farmers across Africa and Latin America.

Over the next five years, Root Capital plans to triple the volume of its lending activities to reach 600 businesses, more than 1.7 million small-scale farming households and 10 million people. They will train more than 300 agricultural businesses to enable early-stage businesses to access finance for the very first time and then they’ll stick around to support their subsequent growth.

The typical clients of Root Capital are small and growing businesses (SGBs) that aggregate products from hundreds, and often thousands, of farmers. These agricultural SGBs traditionally connect farmers to markets, pay higher and more stable prices, and enable entire communities to prosper. Yet, despite their enormous potential to drive job creation and economic growth, these rural SGBs are trapped in the gap between microfinance and commercial banks.

Rural businesses that require loans ranging from US$25,000 to US$2 million are too large to access credit from microfinance institutions and are considered too small, risky, and often too remote, to secure financing from commercial banks. Moreover, these SGBs typically lack the financial management capacity needed to access a loan.

Of the 2.6 billion people who survive on less than US$2 per day, 75 percent live deep in the countryside at the end of dirt roads. Too often, they are relegated to a subsistence living that stresses the natural environment and makes it difficult for them to support their families. They typically rely on agriculture as their primary source of income, but are excluded from formal markets and constrained by lack of access to inputs such as seeds and fertilizers, market information, equipment, transportation, and credit.

As a result, they often resort to survival measures, such as illegal logging or slash-and-burn agriculture that degrades the environment, contributing to global warming and generating a cycle of ecological and economic poverty.

Agricultural businesses that aggregate hundreds or even thousands of small-scale farmers can create the economies of scale needed to overcome these barriers and put farmers on the path to long-term prosperity. Such businesses can reduce the vulnerability and anxiety faced by farmers who cannot otherwise count on having a well-paying market for their product.

By linking farmers to formal markets in efficient, stable value chains that pay a higher share of the end price much of this stress is relieved. These businesses can also help them invest in climate-smart practices that increase productivity and their incomes. Overall, the farmer and ecosystem can both become more resilient to climate change.

 

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