Analyst: Fresh produce continues to draw interest from investors
The planned sale of Bakersfield, Calif.-based Grimmway Farms to Teays River Investments comes less than two years after another carrot giant, Bakersfield-based Bolthouse Farms, sold to Butterfly Equity.
In the last 3-5 years, there has been a considerable amount of interest in the fresh produce space from investors, said Roland Fumasi, a veteran food and agribusiness research analyst and economist for Rabobank and the leader of the organization’s RaboResearch food and agribusiness team in North America.
Fumasi said two factors have driven the growing interest: weakness in traditional commodities like corn and soybeans and huge consumer demand for fresh, healthy food.
He explained that the appeal of investing in agriculture is often diversification.
“What’s been attractive in the agriculture space is you have some assets that are not necessarily correlated with the other assets in the portfolio, so that’s a good thing,” Fumasi said. “Also, when you look at farmland values in the U.S., that’s been a relatively stable, growing investment for decades, so that’s been a bright spot, especially when the returns to some of these other non-correlated assets have not been great.”
How private equity firms handle their new assets depends on a variety of factors, including the investment strategy of the firm and the performance of the company being acquired, Fumasi said. If a company is already performing very well, there tends to be good partnership between the owners and operators, with the owners acting as mainly another set of eyes and ears to identify opportunities to make the company even better. If a company that has been acquired isn’t doing as well, an investor may be more active.
“Overall, the collaboration has been positive in the industry between the investors and the operators,” Fumasi said. “It’s been positive and very collaborative.”
California agriculture faces no shortage of challenges, chief among them water availability and labor availability. Fumasi said private equity investment could help companies more effectively tackle some of those issues.
“The investment coming into the industry definitely can add a boost to some of the innovation that can take place out there ... that it can reinvigorate some balance sheets and cash flow to allow some of these operations to make some investments around innovation ... whether that innovation is around labor, whether that innovation is around environmental sustainability, all these things are trends that we’re seeing today,” Fumasi said. “I think it can help.”
