Farm futures: private equity goes organic


0513 FarmFutures 01Can a private equity fund stabilize financing for small farmers while advancing cutting-edge sustainable agriculture?

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BY APRIL STREETER

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Farmer and Ph.D. biologist Jason Bradford takes a pasture-based approach to agriculture that puts livestock back on medium-size farms.
// Photo by Eric Näslund

While farmers may dream of rain showers on demand and lush pastures generating bumper crops, their nightmares are generally financial. Farmland LP, a private equity fund in Oregon, is upending the traditional (some would say dysfunctional) financial model that leads to those nightmares while practicing sustainable, organic and pasture-based farming methods to boot.

In spite of Oregon’s surplus of young farmers armed with optimism and a desire to work in agriculture, farming in 2013 is roughly divided between conventional, large-scale commodity crop farms that tend to get financing and subsidies, and smaller, sometimes struggling family-style farming operations that don’t. In addition, though organic cultivation entered the farming picture over three decades ago, conversion of land to organic is happening at a slower rate than demand for organic products, according to Cathy Greene of the USDA’s Economic Research Service. Add to this the advanced average age of the American farmer (59), and the rising costs of fuel and fodder, and it is a potent recipe for agricultural stagnation.

Farmland LP, the brainchild of farmer and Ph.D. biologist Jason Bradford and financial manager Craig Wichner, aims to break out of this paradigm and find a middle ground. Farmland is neither a typical agricultural farm venture nor a conventional financial instrument. It is a 4-year-old private equity fund based in both Oregon and California, with almost 90 investors, and is on its way to amassing $50 million in capital.

Instead of the typical U.S. model, in which larger acreages are passed on through family inheritance or owned by corporations, Farmland is two managers using investor funds to purchase conventional mid-size farms in both Oregon (around 1,000 acres thus far) and California (5,300 acres). Once converted to certified organic acreage, Farmland’s holdings are put into a newfangled land-management system that is actually based on a more old-fashioned rotation of plots between growing pasture, grazing livestock and cultivating different crops in order to boost soil fertility without chemical fertilizers. And unlike the one-man-one-tractor model of agriculture, in which a few farmers work vast swathes of land in monocrops, or the sustainable farm ideal in which a farmer takes a small patch of ground and coaxes multiple foods from it, Farmland’s model is novel. Different farming experts will ply their trades on the same plots of ground as these pieces of land are moved through rotation.


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After 4 years of searching, Neal (left) and Karen Wells (center) found a home at Jason Bradford’s (right) Corvallis-based Farmland LP location.
// Photo by Eric Näslund

Bradford and Wichner met in 2008 at a peak oil and gas conference, and quickly realized they had similar beliefs about the economy’s debilitating dependence on raw materials, whose price is rising as their scarcity increases.

“I was a small organic vegetable farmer frustrated by lack of access to capital, lack of access to land and lack of the ability to mix and integrate farming practices I thought were important,” 43-year-old Bradford explains. “I needed someone to help me buy a big farm so that I could put all my ideas together.”

At the same time, financial analyst Wichner was a new father searching for ways to truly create a sustainable future. When Bradford explained his goal of trying old-time, small farming methods on a larger piece of land, Wichner grasped the way rotational pasture-based farming might be a growth opportunity. Wichner could also see that the two partners needed to think beyond a single farm.

“Craig looked at the idea and said, ‘You don’t make a one-off, where you are the one precious example. You make it a model and you make it replicable.’”

Farmland’s model is to take time to convert conventional land to certified-organic, pasture-based production in order to get organic’s price premium, and they are counting on tenant farmers — whether sheep, chicken or veggie farmers, or producers of wheat, alfalfa or hay — to be able to pay a percentage of their profit to lease Farmland land.

Farmland’s is also a model where tenant farmers are specialized in their area of production but are long-term renters who will be moved around as the rotational model requires. These farmers, Farmland hopes, will do well because they get the benefit of pastured land where soil fertility is increasing year after year, and where input costs — for fertilizer and chemicals — will be lower. What Farmland farmers won’t have is the crushing overhead of a too-high mortgage, or the problem of trying to access expansion money in today’s hard-to-borrow financial environment.

“If you are a young farmer and want to diversify on 40 or 60 acres,” Bradford says, “the overhead cost on each unit of production ends up being very high. You can only have so many sheep, the cost of equipment for managing those sheep is high, and your intellectual capital — well, how good can you be in sheep while also trying to do chickens, veggies, grains?”

Bradford says this is the reason, along with difficult financing, that the idealized model of diversified and sustainable farms hasn’t spread in the United States.


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// Photo by Eric Näslund

That farm financing is difficult is not new. Plenty of local programs have tried to help young farmers get onto land, whether by providing matching savings programs and loan application help, such as Slow Money Northwest is attempting with their Farmer Reserve Fund program, or by creating listings to match existing land owners with land seekers, as Friends of Family Farmers is doing with their iFarm program. But traditional bank loans don’t flow easily to farmers. This makes iFarm land seeker and young farmer Aren Hinely curious about Farmland LP’s model.

“Early in [my] search in 2007 and 2008, financing was much easier, but as my family didn’t have much experience in farming at the time, our income-debt ratio was largely all that mattered,” Hinely says. Over time Hinely found a cheap-enough piece of land, but it came with compromises, including a smaller size in a less than ideal location with more land rehabilitation needed. Now that Hinely contemplates expansion, he still faces financing hurdles.

“Overpaying for land, or being in the wrong place, or not having sufficient water and soil quality can lead to compromises in the farming in order to make a mortgage payment,” he says. “I’m very interested in what Farmland LP is up to.”

Instead of leaving investment in farming to the banks, Farmland has found a group of individual and institutional investors who are willing to put money into the Farmland equity fund, in the hopes that returns will be as good or better than commodity cropland’s approximately 5% annual return (not including land appreciation). Farmland’s pasture-based organic and sustainable model has the added benefit of being catnip to socially responsible investors.

Portland-based non-profit Ecotrust is one of these, having followed Farmland LP from its inception. Richard Hervey, Corvallis city council president, is another.

“I really like the model,” Hervey says. “I wanted to move some of our money out of the stock market. Farm land is a fundamentally stable investment and Farmland LP is also a local investment.”


At Farmland’s 1,000-acre Corvallis farm, the sense of passionate engagement on the part of Bradford and his current tenant-farmer partners is palpable. He is slightly professorial, ready to deeply discuss soil fertility, portable henhouse design or the life cycle of lichens, all in the space of two hours. At Farmland, Bradford’s primary role is land management, and he uses Google Earth to demonstrate to his visitor how organizing land rotations is a bit like laying a puzzle, with some pieces functioning as paddocks for nibbling sheep, others as home ground for hundreds of laying hens in their portable henhouses, some lying fallow or growing new pasture grass (and grass seed), and others fostering grain or veggie crops.

Bradford says Oregon was the perfect place for Farmland to start looking for land back in 2009-2010, as the bursting of the housing bubble caused the state’s grass-seed and nursery industries to suffer setbacks (the Corvallis main acreage is a former grass-seed farm).

Part of Farmland’s attraction for investors is the focus on pastured production on a larger scale than what sustainable agriculture has been able to achieve. One of the most famous sustainable farm operations, Joel Salatin’s Polyface farm in Virginia, is 500 acres. One thousand acres is Bradford’s idea of a good start size.

Part of Farmland’s model hinges on finding farmers willing to lease with Farmland LP rather than own their own land. Those farmer-partners the company is now working with insist the deal is a good one. Karen Wells and her husband, Neal, spent four years searching for an Oregon property from which to launch their pastured poultry operation. As Neal was an accountant by trade, the pair was able to realistically run the numbers when assessing prospective land purchases. “We had the ability to do the financial analysis,” Karen says, “but the math never worked.” Karen says her family’s process made the ideal of land ownership less attractive.

“We know too many family farms going under … the next generation is not necessarily interested in farming, there’s a profit problem, etc.,” she says. “Now there are farmers out there saying to us, ‘But you are not going to own the land,’ and I say, ‘Exactly. It’s an albatross.’”

After realizing that farmers like the Wells also need seed money, Bradford and Wichner went back to their investor group and formed a separate LLC called Vitality Farms to invest in both livestock and product innovation on Farmland acreage.


After four years, Farmland LP is just getting to the point where profitability and returns for investors are in sight. On a sunny day in March, shepherd Mac Stewart is tending his flocks of sheep dotting some of the pastures. The Wells and Bradford show off the still-unfinished giant portable henhouse that will be home to 1,000 of the many free-range hens roaming underfoot, as well as the updated seed-processing barn where this year Farmland can turn out organic grass seed. At around year five — either at 2013’s end or in 2014, Farmland hopes to reach a point where enough of these different organic ventures equal profit and cash dividends to investors.

Chrissie Zaerpoor, an eight-year farming veteran at her Yamhill County Kookoolan Farm, which has a fine reputation for pasture-bred meats and eggs and prime CSA veggies, looks on the Farmland model with curiosity.

“Some things strike me as cool; a lot of young farmers would love to be doing this kind of work but don’t have the capital to get started,” Zaerpoor says. Having a single person concentrate on the rotational land-management plan, as Bradford does, is a luxury small farmers caught in the hectic day-to-day don’t get, she says. However, she adds that it remains to be seen whether Farmland’s model will truly benefit its tenant farmers in the long term.

“There’s an old expression that you can measure a farmer’s worth by the size of his muck heap,” she says. “In this model, that asset belongs to Farmland LP, not to the farmer. It is one of our own best assets, but as a tenant farmer, you can’t take those soil improvements with you if you leave.”

Farmland LP’s Bradford would likely agree with Zaerpoor, though he sees this as a positive for farmers.

“With this pasture-based, livestock model, we are taking on the input investment, so if you are a veggie or grain farmer with us, your input costs will be low,” he says. “And the rotation program takes care of a lot of your fertility. If you are young and getting started, this model lets you get in at a scale that your business is at.”

Bradford’s partner, Wichner, perhaps as any financial expert would, views Farmland’s task as proving economic viability.

The fund has one of the highest scores possible for a “B Corp,” a Certification signifying social and environmentally responsible practices, Wichner says. “But what I actually have to prove is that our business model works better than commodity-based agriculture. The social benefits of what we are doing? Well, our investors get those for free.”

April Streeter is a Portland-based freelance writer. She can be reached at [email protected].

Article appended: The following sentence, a quote from Farmland LP partner Craig Wichner, was changed to reflect additional context. “But what I actually have to prove is that our business model works better than commodity-based agriculture.” The original sentence did not contain a reference to commodity-based farming.