Investing in food and farming.
8 Sep 2015
With a rise in calls for impact investment in sustainable food and farming, Julia Jackson and Emily Dowding-Smith explore the key issues driving the movement from both sides: the food system and responsible investment.
Lately we’ve seen an increase in crowdfunding for capital raising particularly in the food sector like Conscious Consumers and its Good Spend Counter. Last week Ooooby launched its equity crowdfunding campaign in a bold and novel move where investors ‘get a piece of the Ooooby pie’ and in doing so reinvest back into the local food economy, rather than having financial dividends paid out. We thought it was worth exploring the rather specific combination of impact investment in sustainable food and farming to see why it’s an important one to watch.
What is impact investment?
Impact investment is a mechanism for investing in commercial ventures that exist for a motive beyond profit only. It bridges philanthropy (donations to purely social or environmental causes) and venture capital (equity investment in early stage companies). Importantly, investors select companies to invest in primarily for the social (or environmental) impact that a business is creating, whilst expecting that it’s also creating its financial value as any business must. By doing so, impact investment enables ventures that are creating positive change to receive the financial support that they need to scale and grow, and investors to receive a return for that support.
Some of the key things to understand about impact investing are:
- Returns: when making any investment, there is an expectation of returns and impact investing is no different. However, because the primary purpose of the investment is for impact, the conditions of those returns could vary greatly. They may be in the form of social or environmental capital, could be lower or slower to pay back than you would expect from other investments, or returns may have to be reinvested in similar types of activities.
- Keeping capital in circulation: like most resources in the world these days, capital is constrained. However impact investment models that hope to provide a return on investment, whether that is in capital or by reinvesting into the communities that they’re operating in, mean that your investment has a cumulative impact.
- Supporting businesses doing ‘good’: all new businesses need capital to scale and grow, and many social enterprises struggle to compete for traditional funding, like venture capital, as often they are trialling new business models, products, technologies or ways of operating that are inherently risky. As impact investing moves the focus away from exclusively being about profit and dividends, the value of the business is quantified more broadly. Typically this would also lean towards having investors whose values are aligned with those of the company.
Why is this important in the food and farming sector?
Food businesses specifically struggle with these challenges because of the volatility in the food industry due to external factors such as climate and reliance on international markets for import and exporting. An often cited barrier for growth for good food businesses in New Zealand is investment. The following are examples of the types of activities that local food businesses are seeking funding for:
- Machinery or automation equipment to enable their business to scale. These are often small investments, but particularly for businesses who already have large mortgages or debt, the money required to make these purchases is too much for the business. However if they were able to access a loan then it would enable their business to be more profitable.
- New food producers: often smaller urban producers don’t have access to traditional loans as they don’t own property to secure the loan against, but without investment they can’t grow their brand, develop online platforms, distribution channels, regular production lines etc.
- Established farmers and food producers wanting to convert to more sustainable farming methods struggle to find banks that will finance this investment, as the payback is mainly environmental and based on avoided future risks, which is hard to quantify in dollar terms.
- Value added producers: access to funding for plant equipment, seeking independence and less reliance on contract manufacturers or facilities like the FoodBowl.
- Innovative social enterprises looking to solve consumer challenges or access to healthy food.
All of these types of activities play an important role in strengthening our food systems and also creating good food businesses and jobs in the food sector. By creating an impact investment industry and expertise in New Zealand we can start to assess the multiple forms of value created by the activities of a business.
Where can we find good examples of this?
There is a burgeoning movement of impact investment focusing on local sustainable food systems in the US and Canada (Young, 2015). Food Tech Connect has a comprehensive list of food and agriculture investment funds launched in 2014, spanning food-focused angel investment funds, US Food and Agriculture investment funds, and international investment funds, which is worth perusing.
Fair Trade International works on an impact investment model for sustainable farming with its managed fund, the FairTrade Access Fund to match investments with small holder farmers in cooperatives where it works.
Slow Money is another good example. Founded in 2009 by Woody Tasch, Slow Money seeks to catalyse investments in local, sustainable, and organic food and farming enterprises by providing a forum for food and farming communities to reconnect and come together to share information, resources and investment. It connects local or regional investors with projects needing investment, allows the parties to agree to the terms of the investment and holds networking events to update the community on the progress of the different food businesses.
New Zealand examples
While it is early days on impact investment in good food and farming projects in New Zealand, we do have a couple of examples that demonstrate there is a need to consider this as a part of our food and farming economy. Ooooby recently launched its campaign for investors on PledgeMe. It considers the time is right to invest with rising numbers of online shoppers and consumer awareness of where food comes from. It helps to have a savvy product solving a problem that many delivery box schemes struggle with, securely matching payments and orders with growers.
Its offering is interesting in that it requires investors to agree to reinvest any dividends they might get from their stake in Ooooby into the local food system. In practice that means that for investors, they’ll be paid in vouchers which can be redeemed either as Ooooby vegetable credits or put towards good projects, like a food hub, a community garden, a local grower’s need for machinery to expand or perhaps even an Ooooby piece of land to grow food locally. Pete Russell, founder of Ooooby, said at the launch in Auckland last week that the market’s growing for impact investment. Even though the business is a food tech start up, the ethics for the investment model are clear:
“Primarily it’s [the Ooooby offering] about getting behind something that is important to all of us. That is, getting a local food system off the ground,” Pete said.
The tagline of the launch is that Ooooby is “Exporting bits not bites”, which is a reminder that the export and the investment is actually in a software business. Ooooby is taking that software (the nuts and bolts of sales, distribution and supply of locally grown vegetables and fruit) to the world. The result of this tech export is that worldwide, local food systems could be strengthened in sales for fruit and vegetables. This innovative approach inverts the mainstream Kiwi business export model of exporting our produce abroad, instead favouring the local food system and reducing the food miles associated with that.
One of the challenges raised by potential investors is that there is currently no secondary market for the shares (i.e. if later down the track an investor wanted to get out of their investment for whatever reason), but this is something that all equity crowdfunding models struggle with and recently Syndex has launched to meet that demand in the market.
You can learn more about the Ooooby offering and its launch events around the country here.
We are happy to chat to you about any of the themes raised in this article and the work we are doing at the Sustainable Business Network.
Disclaimer: this article doesn’t offer any analysis or advice in regards to the quality of the investment in Ooooby or other organisations mentioned. The Sustainable Business Network recommends any individual, family or business who is thinking about investing in another company seek independent financial advice.
Julia Jackson, Transformation Leader Community, and Emily Dowding-Smith, Transformation Leader Restorative – Sustainable Business Network