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SOCAP10: Jeffrey Steen, Ecosa Capital & citrus farmer


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SOCAP10: Jeffrey Steen, Ecosa Capital & citrus farmer

  1. 1. Ecosa Capital’s Agriculture Investment Vehicle • Attractive Returns • Capital Preservation • Portfolio Diversification • Manageable Risk • Inflation Hedge Potential • Leveraged Resources • Exceptional Team Naranj Investments 1
  2. 2. Three Trends Colliding on the Farm Land Under Pressure
  3. 3. Example: Product proliferation in apples Washington State Apple Production Consumers Demanding More Choice
  4. 4. Example: Product proliferation in lettuces 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Spinach Romaine & Leaf Iceberg US Lettuce per Capita consumption Consumers Demanding More Choice
  5. 5. Graying Farm Ownership As independent farm ownership ages agriculture land is increasingly concentrated in the hands of fewer large corporate entities seeking control of a scarce ecosystem resource…prime agriculture land • Average farmer is 57.1 years or older − 57.7 years in fruit and tree nut categories − California has the 4th oldest average age of US states (56.6 years) − 26.2% are over 65 − Average age has increased in every census since the 1970’s − Less than 15% of farms have 2nd generation succession in place • Percent of young people joining the profession is declining − 15.9% in 1982 − 5.8% in 2002 Note: USDA Census of Agriculture 2007
  6. 6. Losing California Farmland • What’s happened: – Between 1984 and 2006, CA lost 1.2 million acres of farm and grazing land (1875 square miles) – 461,000 acres of that was considered prime farmland – Essentially, we lost the geographic equivalent of Delaware • What may happen: – On present course, CA will lose ~5,500 square miles of farmland, open space and recreation areas by 2050 – Let’s throw Connecticut in with Delaware Note: “Vision California: Charting Our Future”, May 2010, Calthorpe Associates 6 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Value/Acre Historical Farm Land Values Continue to Rise
  7. 7. Implications Today’s farm ownership does not have access to the capital, or the expected lifespan, to reinvest in their permanent cropland • Yet consumers and the rest of the value chain are demanding new products, organics, increased service that require investment • So this cropland is being sold to: – Developers – Corporate “farmers” • Leads to: – Loss of farmland to development (short and long term) – Less sustainable farming practices • Short term mentality • Not worried about next generation
  8. 8. Farmland as Asset Class Ag Land has: •Income Return •Inflation Hedge •Capital Preservation and Appreciation •Managed Risk and Diversification
  9. 9. Asset Class Gaining Attention Investors seeing farmland as safer bet than stocks Wary of fluctuations on Wall Street, more wealthy Americans, private funds and foreigners are putting money into parcels of cornfields, fruit orchards and other U.S. agricultural products. Is farmland going to be the next gold? It isn't as implausible as it may sound. Forecasts are always a sucker's game, but there are good reasons why the next few decades could see a new boom in farm country—and big money for those who own the land. A catch-all phrase for environmentally beneficial farming, sustainable agriculture has long been the province of organic enthusiasts. But venture capitalists say a growing awareness of conventional agriculture’s contribution to climate change and concerns over its consumption of water and energy are creating markets for technological innovation to minimize those effects.
  10. 10. Why Invest in California Citrus California citrus is an attractive long-term investment: capital preservation, an income return component, low to moderate risk, and high diversification potential. • Income Return - Citrus is second highest valued U.S. fruit crop, behind grapes, in total US sales annually - Average annual net revenues from $4,000 to $9,000 per acre - Operating costs per acre vary from $2,200 to $2,800 per acre depending on variety, cultivation type (conventional versus organic), tree density, and maturity • Inflation Hedge/Capital Preservation - Citrus, and farmland returns in general ,have historically been good inflation hedges - Farmland supply is shrinking, adding value to the underlying asset • Managed Risk and Diversification - The highest quality citrus is grown in California - Rind protects citrus and allows for up to three months storage; citrus is used in many processed products - The many citrus varieties allow for broad diversification around seasons, varieties, and cultivation methods
  11. 11. Solution • Local knowledge • Strong management capabilities • Proprietary deal flow • Unique target markets • Interest in preserving farmland for future generations • Regeneration of ecosystems • Healthier products Merge local knowledge, strong management capability, proprietary deal flow, and a unique target market with truly sustainable practices to create an investment alternative for wealth managers and institutional investors Financial Success Sustainability Investment Opportunity
  12. 12. – Soil – High quality, San Joaquin Valley soils are some of the finest in the world, capable of growing an incredible variety of crops – Water – Water is a scarce resource in California, therefore a premium is paid when land has both high quality surface water rights and access to good groundwater – Climate – The San Joaquin Valley is climatically acceptable for any number of crop types, however there are micro-climates across various regions that make it imperative to choose location wisely – Varieties for an optimal portfolio will vary depending upon the locations/qualities of the individual ranches purchased. Primary Investment Criteria The appropriate combination of soil, water and climate will yield above average returns over time through superior production and quality as well as mitigate risk by allowing the owner to plant many different varieties/crops to meet changing market demand