Farmland LP Review 2023: Best Farmland Investment?

Key Points

• Farmland LP is a farmland fund focused on converting conventional commercial farmland to sustainable, organic produce farmland.
• They manage over 15,000 acres and have over $200 million in assets.
• Through their economies of scale and proprietary processes, they can efficiently convert farmland to organic, improving land value and efficiency.
• Farmland LP investors have access to two proprietary funds, with a third on the way. However, only accredited investors can invest with Farmland LP.
• Farmland LP focuses more on growth via farm repositioning and subsequent asset appreciation, rather than immediate cash flow.
• They prioritize sustainability and received a top sustainability award from HIP Investor Inc. in 2021.

Supply and demand are fundamental concepts for all investors. When more people demand something than there is supply, prices increase.

One modern-day case of this opportunity can be found in organic produce. Unfortunately, organic produce is less than 1% of all farmland use.

At the same time, over 4% of food consumption is organic.

There is a significant demand for organic foods, but the supply is limited. This is one of the reasons why organic foods tend to cost more than their non-organic counterparts.

But how can investors capitalize on this imbalance?

There are several opportunities available. One of the most promising is to convert non-organic farmland to organic. Through this, investors can capitalize on the advantages of owning farmland and the trend toward organic foods.

Farmland LP is the largest organic farmland fund manager in the United States. The company is focused on organic farm conversions and sustainability. In this article, we provide a complete Farmland LP review. So let's go ahead and get started.

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Farmland LP Review: Summary

• Farmland LP is a farmland fund specializing in organic farm conversions while focusing on sustainability
• By buying non-organic farmland and converting it to organic use, they can increase land value
• This process, however, often takes years which makes cash flow less of a priority
• Increased efficiency allows Farmland LP to be as much as 4x as profitable per acre of farmland
• Farmland LP investors have access to investments in two proprietary funds, with a third coming shortly
• Only accredited investors can invest with Farmland LP
• The fees on Farmland LP investments vary but typically include a management fee and an incentive fee
• Since its inception, Farmland LP has consistently outperformed expectations for the fund
• Farmland LP is an investment for those focused more on growth via farm repositioning and subsequent asset appreciation
• Investors with less to invest or those focused on immediate cashflow may find AcreTrader or FarmTogether more suitable for them

Click here to view current offerings on Farmland LP!

What Is Farmland LP?

Farmland LP is an investment fund specializing in converting conventional commercial farmland into sustainable farmland growing organic produce. The fund was founded in 2009 and has grown to over $200 million in assets. They currently manage over 15,000 acres.

By converting farmland to organic, the fund can improve land value immediately. Additionally, through their use of technology and proprietary processes, they can improve the land's efficiency.

For most farmers, converting to organic is a massive undertaking. The three-year process is enough to discourage many smaller farmers from even considering the change.

Through their economies of scale and experience, Farmland LP can do these conversions much more quickly. As a result, the fund capitalizes on the supply and demand gap in the organic foods market.

To make a profit, the focus is identifying land with significant potential for growth in California, Oregon, and Washington. These states fall under the management team's expertise and tend to have superior soil and water quality.

Once the land is purchased, Farmland LP immediately begins to pursue more sustainable practices that ensure the longevity of the land. This includes shifting from single-crop farming to a more diverse farming operation.

By rotating between specialty crops and livestock and avoiding chemicals, Farmland LP keeps the soil quality high, further improving land value.

However, since this conversion process often takes many years, immediate cash flow from the land is not the focus. Instead, the idea is to improve the value and then recognize the bulk of the return from asset appreciation or to sell the converted farm.

Farmland LP Investment Strategy

All potential investments undergo a strict due diligence process before being added to the funds on the platform.

Specifically, Farmland LP screens for locations meeting the following criteria:

• Water – Strong access and legal rights to high-quality water sources.
• Climate – Ranked based on scenario analysis through 2050 and 2100.
• Valuations – Based on production capacity and ability to improve the land.
• Economies of Scale – Consolidation of land across farms.

Once a location is identified, the following factors are used to determine suitable pieces of farmland.

• Soil – High-quality soils with the potential to improve future crops.
• Revenue – Significant upside potential by converting to organic operations.
• Value Enhancement – Ability to convert to permanent crops and cheap access to water sources.
• Infrastructure – Opportunity to upgrade existing infrastructure for immediate value-add.
• Tenants – Desirable tenant base of local farmers and operators.

The strategy revolves around increasing land value by making immediate improvements. These improvements increase the value of the land and the profit potential in the short term.

Farmland LP Sustainability

The improvements that Farmland LP is making to the land also serve to reduce the carbon emissions of farming operations and release fewer toxins into the earth. For socially conscious investors, this investing strategy is a win-win!

Another core philosophy of Farmland LP's investing style is introducing crop diversity. Many commercial farms will plant the same crops year after year, significantly decreasing soil quality.

By rotating crops and livestock, they can ensure that soil quality remains high for decades.

This also allows Farmland LP farms to respond more to changing market conditions. In addition, because they are not locked into a single crop, they can quickly pivot into more profitable crops.

Sustainability is at the core of all business endeavors for Farmland LP.

In February 2021, they earned the highest sustainability award from HIP Investor Inc, a leading ESG and sustainability-ratings firm.

The 82.0 rating (of a possible 100) places Farmland LP as #1 in HIP Investor’s worldwide corporate universe of 10,000 corporations and at the top of the agricultural real estate investment trust (REIT) category's closest comparable peer group.

Farmland LP Technology

Through its modernized technology, Farmland LP can further increase its efficiency and returns for investors.

Aerial Imagery – Through drones, Farmland LP can easily monitor their land and make decisions quickly. This increases the overall efficiency of operations and yearly yields. In addition, the resolution is fine enough to see individual leaves on plants.

State-Of-The-Art Farming Equipment – Farmers can tend to more fields quickly with the newest tech. This allows the funds to scale much faster.

Best-In-Class Varietal Selection – Modern crop varieties produce better quality foods and are easier to harvest. By staying on the cutting edge, efficiency is maximized.

Automated Harvesting – The ability to harvest with fewer humans keeps Farmland LP as profitable as possible. All the while, they can provide 3x of the jobs of other farms.

How Does Farmland LP Work?

Investors in Farmland LP have two options for their investment. First, they can invest in a limited partnership or a proprietary REIT.

The fund started only offering the limited partnership, hence the LP in the name. However, a few years in, the management team created a REIT to facilitate more investment opportunities. Both of these are private, non-traded investments.

Limited partnerships and REITs are treated differently in several ways, including tax consequences, legal structure, and regulation.

Click here to view current offerings on Farmland LP!

Tax Consequences

REITs pay out dividends to investors the same way a stock would. However, the tax treatment is a bit different. The majority of REIT dividends are typically treated as ordinary income. But any tips resulting from the REIT selling property held for over a year will be treated as long-term capital gains.

Limited partnerships pay out distributions to shareholders. These always receive ordinary income treatment and are taxed at the investor's marginal rate.

One significant benefit of investing in a limited partnership is receiving pass-through losses. In the early stages of many investments, there will be a loss period where more money is going into the property than is coming out of it. If this is the case, investors will get to deduct these losses from their tax returns.

Legal Structure

Limited partnerships are structured as pass-through entities, whereas REITs are corporations. The significant impact that this has on investors has to do with liquidity.

It's typically much more difficult to sell out of a limited partnership than selling out of a REIT. This is because the market for restricted partnership shares is smaller.

REITs have several regulations that limited partnerships do not. This makes them much more standardized investments than limited partnerships.

Regulations

REITs can either be public or private. Public REITs can trade on a major exchange and must meet specific criteria to maintain their status.

The REIT offered by Farmland LP is a private REIT that allows for more flexibility in how investors are paid. However, this inhibits some of the liquidity benefits REITs can offer.

With a publicly traded REIT, you can buy and sell shares on major exchanges like the NYSE. This gives them high liquidity. No such marketplace exists for private REITs. Therefore, it would be best if you were prepared to commit for the entire investment duration.

Limited partnerships face significantly less regulation and can be structured more creatively. As a result, limited partnerships typically have higher minimum investment requirements and require investors to be accredited.

Farmland LP Investments

The company offers investors access to private REITs. Since the company was founded, they have fully funded the Farmland LP I and II funds.

They are currently offering investors access to a property in Oregon that will serve as the anchor property for the Farmland LP III, launching later this year in 2023. Check out their website to learn more about the offering or invest in the opportunity.

Previous funds have had a minimum investment of $50,000.

Click here to view current offerings on Farmland LP!

Pros

• Ability to capitalize on consistent high returns offered by farmland as an asset class
• Take advantage of the supply and demand shortage for organic foods
• Track record of outperforming expectations
• Contribute to sustainable farming practices that reduce carbon emissions
• An investment strategy that makes immediate improvements to the land and increases land value
• Significant positive impact on the climate through avoiding chemicals and reducing carbon emissions

Cons

• No standardized fee schedule
• High investment minimum
• Only open to accredited investors
• Lack of liquidity in private investments

Farmland LP Review: Final Thoughts

If you are someone looking to make a positive impact on the planet through your investing, Farmland LP presents an effective way to do so while following a time-tested investing strategy.

Of the US's $2.6 trillion dollars of farmland, less than 1% is organic. With the rising demand for organic foods, there is a significant need for more organic farmland. By converting conventional farms to organic, investors can see an immediate increase in the value and profitability of their land.

However, this comes with some drawbacks. First, to get started, you'll need to be accredited and have $50,000 or more to invest. This is a significant barrier for many newer investors. Additionally, the seven-year minimum holding period means you'll need long-term support.

But overall, Farmland LP has carved out a niche with a lot of potential. A large group of investors is interested in socially conscious investing, and this opportunity is perfect for them. This is clear because the fund has already raised over $175 million and continues growing yearly.

The bottom line is that farmland is an asset class that has consistently outperformed the stock market and most other major asset classes. So, whether Farmland LP aligns with your investment strategy, diversifying investments into farmland is something to consider for many investors!

Click here to view current offerings on Farmland LP!