Private Equity Venture Sustains Farmers, Investors and the Environment
July 26, 2011 | Chuck Harvey
Based on rapid market growth in the organic sector as well as a belief that organic agriculture positively impacts the health and sustainability of our food system and environment, Illinois-based Working Farms Capital was incorporated in 2007 to generate new capital from investors to purchase and transition farmland from conventional to organic practices.
“We are not a fund, partnership, network of investors or a non-profit,” explained David Miller, President and CEO of Working Farms Capital.
Land to transition from conventional to organic farmland is initially purchased by an operating company that Working Farms Capital has set up called Iroquois Valley Farms LLC, which owns 600 acres of organic farmland in Northeastern Illinois. Investors purchase shares in Iroquois Valley Farms LLC through Working Farms Capital.
Miller added that the investors don’t actually own a piece of a farm, but rather a piece of the operating company. Recently the firm completed a new equity offering for $750,000 for Iraquois Valley Farms LLC that was oversubscribed. The minimum investment for accredited investors was $10,000.
Iroquois Valley Farms LLC is in the process of purchasing additional farmland. It plans to buy 78-acre Pleasant Ridge Farm in Livingston County, IL, an organic farm that produces corn, soybeans, winter wheat, alfalfa and clover.
Investors include people who want to diversify their IRA’s, educational endowment funds, pension funds, environmentally focused enterprises and mission-driven private wealth offices or institutions.
Leasing the land to farmers
In order to transition the land that it purchases from conventional to organic farmland, Working Farms Capital provides long-term leases to its farm tenants.
The company believes that long-term leases that connect farmers with the land are key to the economic sustainability of its operations. Leases range from five – 20 years with options to renew, which is contrary to most conventional farm leases that are a one-year term and have fixed rents.
The farmers run their own business operations, utilizing rotations of row and cover crops, small grains, vegetables and pastured livestock. Crops being grown by farm tenants include soybeans, oats, wheat, barley, corn, alfalfa, hay and grass mixes. Farm tenants also share in the revenue that they generate for the farm.
The company says that it offers such generous lease terms in order to retain existing farm tenants and their intimate and valuable knowledge of the land. Miller explained that by obtaining lease terms spanning multiple crop years, farmers are better able to focus on taking a sustainable approach to soil fertility and launching their long-term business plans.
“The key to our business is a long-term lease with a knowledgeable farm tenant,” Miller said. “We don’t expect to sell the farms.”
Instead, farm leases are typically renewed and the investor base is expanded. “This is different than a fund that usually has a limited timeframe and impact,” Miller said. “In fact, we are impact investors offering private equity with a social mission.”
Miller says that the more investors, the more the leases can be renewed.
Looking to the future
Working Farms Capital continues to look for new sustainable and organic opportunities including the changing of a traditional cattle farm to a grass-fed cattle operation. Miller recently traveled to western Iowa and Missouri to view grassland farms that graze livestock on permanent pastures.
He visited the farm of Tim Kelley in Elmo, Missouri. Kelly is selling his 200-acre Valley View Farm that is home to grazing herds of sheep and Black Angus cattle. Clinton Ohnmacht, who owns the cattle, wants to move into sustainable agriculture.
He is interested in changing to a grass fed operation and Valley View Farm fits nicely with his plan. Working Farms Capital is researching the possibility of acquiring Valley View Farm to help in the conversion.
“We will grow and raise more capital,” Miller said. “We will explore opportunities outside Illinois.”
Besides Iowa and Missouri, Working Farms Capital will look for opportunities in Indiana, he said.
“We want to diversify,” he added.