At Peak Prosperity, we talk a lot about the need for new models of doing business that will comport well within the growing economic, energetic, and environmental constraints of our global system.
Today, Chris talks with an entrepreneur attempting to do just that: Craig Wichner, the Managing Partner of Farmland LP. Craig and his team have developed a model that is designed to increase the economic yield of farmland through sustainable farming practices.
Their approach is notable in a number of ways. It seeks to improves the quality of the underlying land. To avoid use of fossil inputs. To increase the yield per acre. To enable the production of vegetables, grains, and meats on acreage that before was monocrop. To employ more farmers per farm. To be more profitable than conventional farming. To improve the food resiliency of the local community. To reduce its dependency on liquid fuel transport by serving local markets. To generate annual returns for its shareholders, plus appreciation on their share of the underlying farmland.
The team believes there is an arbitrage in value that can be unlocked by reversing the damage modern farming has done to the land:
People have a mistaken understanding of corn. They think it's incredibly productive.
The fact is, if you have a farmer who farms an acre of land in Iowa and then ships off all the corn, does all the work, puts in all the fuel, and the fertilizer, and the pesticide, and harvests all that corn and ships it to a feedlot. That feedlot will produce around 1,500 pounds of meat from the corn on that acre of land.
If, however, that farmer planted a pasture in that land and put a cow on it, and they owned the cow, they would also produce 1,500 pounds of meat from that grass. However, instead of just getting the value of the feed, they would also get the value of the cow. And that is really how agriculture used to be, for as long as agriculture went on. Agriculture was having livestock and vegetable crops in a rotation on the land. Unfortunately, over the past 60 years, we have geared towards this monocropping system of corn and soy. And we have really destroyed a lot of the soil fertility. We've reversed basically 8000 years of agricultural progress over the past 60 years.
And they strive to unlock this value by reverting to the land to its best natural state using sustainable agricultural best practices:
We buy conventional farmland and convert it to organic, sustainable farmland as an investment fund. It’s very similar to a REIT, a real estate investment trust. So as we raise capital, we buy farmland, and the investors have the benefit of owning this tangible, appreciating asset over a long period of time. And farmland, like other forms of real estate, generates cash flow. And that cash flow can be delivered in perpetuity over time, if it is managed sustainably, and that is what we specialize in. So we specialize in buying great farmland at great prices that is generating good cash flow, and then adding value to that farmland to increase the cash flow. And we add value in two primary ways: by converting it to certified organic farmland and using sustainable agriculture best practices.
We will buy 1,000 acres of land that may be growing corn today. And then my business partner, Jason, develops a land management plan, a sustainable agriculture management plan for that land. If you've been growing corn year after year on ground, it is really the worst thing for the land. You end up spending a tremendous amount of money on inputs on fertilizers, and pesticides, and you are losing topsoil and you are spending a lot of money irrigating. And after about five years of doing that, you're spending a lot more money on the inputs to grow than crops than you were if you had just managed it sustainably.
And so we take it through that conversion process — a kind of detox — wean it off of the chemical dependency that it is on and restore the soil carbon, restore the soil fertility. And we do that by planting perennial forages, basically pasture, on corn-quality land, and then bringing in expert sheep farmers, cattle farmers, and pasture poultry producers who grow eggs and meat. And we actually get great economics, even during the conversion period to it becoming certified organic farmland. And we're also restoring the soil fertility naturally. And then once that soil fertility has been restored over three to seven years, then we rotate it into vegetable farmers. After two to three years, they have used up that soil fertility and we rotate them onto the next piece of pasture and bring in either a grain farmer or put it back into pasture. So in this scenario, we are acting as the land managers. We are creating a tremendous amount of jobs for farmers to grow locally grown, organic, healthy food. And we're making better revenues.
So by bringing in these diversities of farmers, what we are doing is we are making sure that our agricultural practices and the farmers on the land are maximizing the soil fertility from a biological standpoint. By doing that, you are starting out with the returns on conventional farmland, growing commodity crops, basically crops that compete solely on price — and we're adding premiums to that. So, by getting it certified organic, our farmers are able to make extra revenue and we have profit sharing relationships with them. So we participate in that. Instead of just growing one crop, we grow, we have a sheep farmer, and a chicken farm, basically on the same piece of land, very similar to how Joel Salatin does it. That generates extra returns. And the fertilizer that they leave behind is a really big benefit to the vegetable farmer, and they generate additional revenues and cost savings from that. At the end of the day, we generate a premium cash flow from the same acre of land simply by using much more sustainable practices. It really is a case where you get premium returns for doing the right thing.
Farmland LP's first fund is still in its early stages, but we're excited that there are entrepreneurs like this team out there pioneering creative new models. It's innovation like this that will counter the fear many feel about the coming low-growth future and will enable us to step into it with optimism and grace.
Those who would like to learn more about Farmland LP's operations and/or fund should contact the company directly. Note that their fund is available to accredited investors only and that PeakProsperity has an existing business relationship with Farmland LP (full details will be provided when opening an account with the Fund or at any time upon request.)
IMPORTANT NOTE: This is NOT personal financial advice. The above information is shared for education purposes only.
As always, we recommend working with a professional financial adviser to build an investment plan customized to your own needs and objectives.
Suffice it to say, any investment ideas sparked by this report should be reviewed with your financial adviser before taking any action. Am we being excessively repetitive here in order to drive this point home? Good…
Click the play button below to listen to Chris' interview with Craig Wichner (36m:21s):
by westcoastjan