It’s not FarmVille—it’s better! Crop farming meets crowdfunding on FarmTogether, a new online investment platform that is backed by Franklin Templeton Legg Mason, the global investment manager with $1.5 trillion in combined client assets.
FarmTogether gives accredited investors direct access to fractional ownership in U.S. farmland, a $2.5 trillion asset class traditionally owned by actual farmers or very large institutional investors, such as pension funds.
Founder and CEO Artem Milinchuk brings to bear more than a decade of finance experience in food, farmland and agriculture. Prior to founding FarmTogether, he was CFO/VP of Operations at Full Harvest Technology, a venture-capital-funded B2B platform for buying and selling produce. He also brings institutional investment knowledge, notably from the Ontario Teachers Pension Plan, commodity investor Sprott Resources Holdings of Canada, as well as E&Y and PwC.
In addition to Franklin Templeton Legg Mason’s lead investment, FarmTogether also counts venture capital from New York’s Blue Seed Collective, advisory help from BlackRock’s former Head of Liquidity Richie Prager, and board-level support from a former CEO of New Zealand’s Fonterra, the world’s largest dairy exporter.
Since launching late last year, FarmTogether has closed more than a dozen crowdfunded farmland deals—including one transaction that closed in just seven minutes—and Milinchuk says the disruptions of covid-19 likely only strengthened the appeal of farmland as a historically stable asset class.
More visibility—>Less volatility
“Stability or instability is a function of uncertainty,” he explains. “In farmland there’s not that much uncertainty, although there’s weather, changing food patterns, trade patterns…But, we all need to eat, we needed to do it yesterday and we need to do it tomorrow, regardless of what’s going on in the world.”
Besides the “gotta eat” long-term base case—rising population, improving diets, diminishing farmland supply due to climate change, urbanization, water issues, etc.— better insights into the biology of farmland offer increasing visibility into the cost and revenue profile of specific land parcels. This in turn has contributed to lower volatility in the “steady-as-she-goes” asset class.
Over the past 40-50 years, farmland volatility has measured below seven percent, much lower than the historic double-digit volatility of stocks, and slightly higher than bonds. From 1970 to 2018, farmland returns averaged 10.5 to 12 percent, composed roughly half-and-half between income and price appreciation. From 1992 to 2018, Milinchuk notes, returns averaged 10.5 percent while in the last few years farmland has shown healthy upper single digit growth of 7-8 percent.
Demand remains robust among investors who are concerned about inflation, who want diversification, and who are concerned about the possibility of economic recession and its impact on riskier assets like stocks.
Nuts
FarmTogether clients can build portfolios from a curated selection of top-tier assets, adjusting for specific crop exposure and risk preferences: investing, for example, with an affinity toward hazelnuts or almonds, or to capture a particular cash yields/risk-return profile. The company has built out a responsive customer support team and extensive webinar offerings to educate farming neophytes on the world’s oldest asset class.
Current platform offerings include a hazelnut farm in Oregon. Hazelnuts, he explains, are extremely well farmed in the state of Oregon and are increasingly in demand from global food and confectionary producers like Mars, Nestle, and Ferrero Rocher, who are diversifying some of their export supply line from Turkey—which still accounts for 70 percent of global hazelnut exports—to the Pacific Northwest state. The property is a 12-year, fixed-lease plus contractual buyback deal, with a 10 percent net IRR, which in the current environment, Milinchuk says, is “quite attractive.”
True to farmland’s profile as a long-term holding, prospective investors with FarmTogether should plan to hold their investments for ten years. Milinchuk says the firm is working on a secondary trading platform, and is planning a pilot transaction in Q4 of this year, for investors seeking to liquidate in a shorter time frame. An active secondary market for farmland shares is likely a few years away.
Bridging a gap
Milinchuk also explains that, while the U.S. farmland market is vast and (to date) fairly illiquid, it’s also very fragmented, and will probably (mostly) remain so. In the $2.5 trillion U.S. land market, 97 percent is owned by families, and 60 percent of that is owner operated. Overall, 70 percent of harvested cropland is concentrated in farms valued at less than $10 million in value. FarmTogether isn’t seeking to remake that landscape.
“Our mission is to provide farmers and landowners with access to capital and investors with access to farmland investments, whether it’s fractional ownership, or lease-to-buy model for a new farmer, whether it’s a royalty stream type model, we are agnostic,” he explains. “Our goal is to bring creative capital solutions and bridge the massive gap that exists right now in financing farmers and farmland.”
Rather than farmers seeking liquidity through fractional ownership or sale-leasebacks, some of the impetus for new investment is the “tectonic shift” in ownership as farmers retire.
Artem Milinchuk explains that much of the time, other farmers approach FarmTogether with potential deals, because renting farmland is a better return on capital for them than owning outright.
FarmTogether predominantly focuses on specialty or permanent crops, such as nuts and avocados—rather than row or commodity crops like soybeans and corn—owing to the higher returns of those crops, and favorable long-term trends. As a result of this permanent crop focus, he says, most deals are sourced on the U.S. West Coast.
California, he notes, grows more than half of all fruits and vegetables and close to 70 percent of all tree nuts in the U.S. Neighboring states like Washington, Oregon, New Mexico and Arizona are similarly in focus, driven by the right supply of farmland, a concentration of great operators, vibrant farmland ecosystems, adequate water and (critically) the right positioning for climate change.
Regenerative agriculture
Additionally, regenerative agriculture and ESG criteria are key to deal sourcing, which aside from being important to the firm personally, are simply good farming practice.
“It’s good for the planet, good for people, and good for profit,” Milinchuk explains. “You use less fertilizer, less extractive practices, [implement] practices that may have a short-term hit to your immediate yields, but improve the long-term productivity of your farm, improve the soil. What it means is, [by] using less inputs, the value of you soil has increased, which will increase the value of your land.”
The company is becoming a signatory of Leading Harvest, a sustainable investment compliance standard for land management, and will screen all platform deals according to Leading Harvest criteria.
Additionally, FarmTogether is looking to add more farms that use specifically regenerative practices in areas like livestock and planting operations, zero tillage, and covered crop rotation that enriches soil. In future, FarmTogether plans to sell carbon credits captured from regenerative agriculture—which Milinchuk calls the only (potentially) truly “carbon negative” industry on the planet.
