OPN Connect Newsletter 43 · December 21, 2017

Grower Roundtable: Wall Street Wants Organic!

With sales of organic food representing just five percent of total food----but growing 13 times faster than the entire food category-----organic food companies are a very attractive investment to Wall Street.  One of the most anticipated sessions of the sold-out inaugural Organic Grower Summit, “Grower Roundtable: From Wall Street to Main Street, Organic Means Good Business,” explored the opportunities and challenges of public and private investments in this growing organic food category.

The keynote session was moderated by Scott LaRue, global co-head of investment banking and capital markets at Piper Jaffray. Panelists included three of the west’s most successful large-scale organic growers:  Jeff Huckaby, president of Grimmway Farms; Stan Pura, managing partner of Mission Ranches; and Vic Smith, CEO of the JV Smith Companies.

Organics Unlimited-April

Organic food companies and organic brands offer what traditional food companies and brands lack: growth. And that growth comes from being in the bullseye of consumer trends toward whole, fresh, real, clean foods — especially with millennials.  According to LaRue, in a recent survey of food industry CEOs, 71 percent said this group of consumers represent one of the biggest threats to their business, as changing trends create a risk of losing consumers and their brands becoming irrelevant.  According to LaRue, among millennials:

  • 81% want to know more about how their food is produced
  • 81% are willing to pay more for foods benefitting health
  • 73% are willing to pay more for sustainable brands
  • 51% check labels for social and environmental impact
  • 38% say fair trade influences purchase

While organic produce may be at the center of the whole-fresh-real trend, it presents challenges for public and private investors who are accustomed to brand-driven categories with bigger margins and predictable supply.

Panelist Vic Smith underscored the challenge, “I get concerned about the short-term focus of these investors. If there were people with longer-term views, it could work,” he said.

Charlies Produce

Investments have been made in organic produce, LaRue said, although less in the commodity players and more in companies that focus on organic, value-added offerings, packaging innovation, and convenience.

On the question of whether the growing demand can be supplied, Pura noted, “Better ground is coming into organic production and that’s a definite upside. And there’s a lot of waste in the system that we can still work on capturing. Grimmway’s done a great job of eliminating waste by focusing on getting everything out of one crop – fresh, juice, and purees.”

Yields for organic farmers are improving significantly, too. “Twenty years ago, we lost 20 percent of our crops to pest issues. Today it’s 5 percent and we can get below that,” Pura said.

Nature Safe

As the customer base continues to expand, growers of all sizes will continue to be needed to fill the supply pipeline – especially during the summer, when consumer desire turns to locally grown produce. “Growers of different sizes are complementary,” said Smith.

Regardless of size and geography, quality expectations from customers and consumers are high for all organic items. “Twenty years ago, customers were okay with some of the typical problems,” said Huckaby. “Now every item has to be picture perfect.”

All of the panelists agreed that maintaining consumer confidence in strong organic standards is an essential underpinning of continued organic food category growth. “Sonny Perdue (U.S. Secretary of Agriculture) recently came to visit us at Grimmway,” said Huckaby. “He wanted to understand organic and asked what our biggest issues were. I covered two issues with him: the labor shortage and organic standards. I emphasized that the integrity of organic standards cannot be watered down for this industry to thrive,” he said.

Organic Ag Products

Overall, given the consumer trends and demand for organic, “Public and private markets will continue to put money into the sector,” predicted LaRue. “[They] love organics and are actively seeking investible opportunities.”

Ocean Mist

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