Private Equity Co. Connects Investors with Organic Farmland; Creates Land Access Program for Young Farmers
September 27, 2012 | Melinda Clark
In every deliberation one must consider the impact on the seventh generation – Great Law of the Iroquois.
In addition to getting its name from North America’s native ancestors, Iroquois Valley Farms also adopted this ancient wisdom as its impact statement. Says Iroquois Valley Farms cofounder Dave Miller, “that’s exactly what we want to have – a long-term generational impact.”
Begun in 2007 by Miller and cofounder Stephen Rivard, Iroquois Valley Farms is the first private equity company in the United States to connect socially responsible investors directly with organic farmland. The company acquires land in the Midwest and leases it out long term to family farms or young farmers who agree to transition it to organic. Since the company’s inception, it has purchased more than 800 acres of farmland, converted 300 of those acres to organic production, and nearly doubled the value of investments made in the initial private offering.
“The thinking really was driven by a lack of organic farmland in the state of Illinois,” says Miller. “The idea that this was a good investment to make, not only because it would be rewarding financially to the investors but because of the positive impacts on the environment and family farms.”
Iroquois Valley Farms leases the farmland for a minimum of five years in a variable rent lease, meaning that the tenants pay a base rent plus an additional rent based on the revenues generated on the farm. After a threshold level, one third of the revenues go to the company, and two thirds go to the tenant.
The company is currently implementing a Young Farmer Land Access program, and is in the process of procuring an 80-acre farm and a 121-acre farm for two young fourth generation farmers. They’re seeking another farm for a third young farmer, and maintain a growing list of young farmers who are looking to build their business and lease more farmland.
While so far Iroquois Valley Farms has mostly worked with midsize family farms growing standard Midwestern grain crops, next year they hope to add more diversity, working with smaller vegetable farmers and livestock operations.
“What we’re going to do is continue to diversify. Most of our farms are grain oriented. We can start buying in other states, we can buy in other locations with different farmers doing other things,” says Miller.
He adds that the Midwest is a great location for this type of program. “There’s a ton of opportunity here in the Midwest. That’s because there’s so much farmland here and so much is conventional.”
He adds, “That’s where we can have a huge impact. We can drive the change because we’re insisting that the land be farmed organically. The single biggest impact we can have in the farming communities is providing long term leases because it lets them do what they want to do…Most leases are one year. Are you going to go through a three-year organic transition if you have a one year lease? You just can’t do it. By giving these young farmers five year leases and telling them that we have investors that are long term – you may have a lease for the rest of your life – that enables them to make the changes that they want to make.”
The lease structure also includes an option to purchase the land after five years.
“We want someday to be able to sell the land to the young farm tenant. That’s an impact we want to have,” says Miller. “That’s a key part of that lease. We start with five year leases but they’re renewable. The goal is to renew the leases until they want to buy the farm, if they ever want to buy the farm.”
Iroquois Valley Farms is just starting to expand out of Illinois into Indiana and other neighboring states. Miller says that Illinois is one of the more difficult states in which to launch this venture, so he’s optimistic about spreading into other regions.
“We survived a lot by starting in this state and are very happy to expand into our neighboring Midwestern states, many of which have more organic farmland that we’re used to seeing. It will be a friendly expansion. We grow organically so it’s farm by farm by farm. We’re not looking for specific farmland. We’re looking for great young local organic farms that want to expand their business.”
He explains that the company – which now has almost 50 investors – is a little different than the standard investment opportunity. In addition to transitioning farmland, says Miller, “we transition investors, too.”
He says that much of the time, “they’re brainwashed to be trading-focused. And we provide the therapy to get through that brainwashing because there’s nothing short term about sustainable agriculture. It will yield returns to you over the long term.”
One unique aspect of the business is that new members aren’t allowed to vote until they’ve been an investor for seven years. That helps the company gain trust from the farmers while ensuring that investors are in it for the long haul.
Iroquois Valley Farms is always seeking accredited investors who want a long-term, triple bottom line investment opportunity.
Says Miller, “It wasn’t until 2011 that we were told we’re an impact investment company. This is just how we started and how we have evolved. The original idea was just a simple one: to grow healthy foods and also provide what we thought was a healthy investment for the marketplace. There are a lot of toxic investments out there and we wanted to do something different.”