Why Fresh Produce is the Next Great Harvest for the Finance Industry
By Patrick McCullough, CEO @ ProducePay
The world of finance has long been dominated by tangible, non-perishable assets like real estate, stocks, and bonds. But what if the next big investment isn’t a piece of property, a share of a tech giant, or a precious metal? What if I told you the next big thing could be fresh produce? Yes, the $1.3 trillion fresh produce industry has largely been ignored by the finance sector, yet it represents a significant opportunity for returns – for investors, farming communities and the planet alike. In a world of 10 billion people by 2050 – requiring a 60-70% increase in food production, it is imperative that we make these investments today.
For decades, the fresh produce industry has been seen as too volatile, risky, and unpredictable for the kind of financial investment typically found in other capital intensive industries like transportation, infrastructure and energy. In fact, produce has an annualized volatility greater than 100% while crude oil is at 41%, the S&P at 21%, and soy and corn around 15%.
The perishable nature of fruits and vegetables, along with their vulnerability to weather, pests, and fluctuating prices, made them an unattractive option for traditional financiers. As a result, farmers, often viewed as high-risk borrowers, have struggled with limited access to capital, relying on land as collateral for loans – a model that has only limited growth. In Mexico alone, over 90% of farmers don’t have access to formal credit, and in the US, nearly three-quarters of farmers are underbanked.
Fortunately, the tide is turning. Advances in technology, coupled with innovative financial models, are beginning to reshape how we finance the growing and distribution of fresh produce. Crops are no longer just seen as risky, perishable goods—they’re being recognized as valuable assets with significant investment potential.
A shared risk model designed for all.
Traditionally, banks and investors have been hesitant to accept fresh produce as collateral due to its inherent volatility. It’s easy to understand why: the value of a crop can crash overnight, leaving both farmers and lenders in precarious positions. But this perspective is changing thanks to innovations like ProducePay’s Predictable Commerce Programs, with capital being the key component making this possible.
Scaling these innovative models will require behavioral changes across the industry.The first step is shifting from a grower-risk model to an industry-shared risk model. We’ve gotten used to the grower bearing all the risk, from weather and yields to pricing and market shifts. Growing produce has always been a risky business, but today – with more weather and supply chain disruptions– this model is no longer viable, and farmers are at greater risk of insolvency. And as farms fail, so to do the businesses – distributors and retailers – who depend on these growers.
We’ve started moving risk off the growers while not compromising their buyers’ business by introducing more predictable pricing. Surprisingly the vast majority of produce is still sold on the spot market, t, where prices can change quickly, and contracts can be hard to enforce. This leaves the grower vulnerable to shipment rejections and provides them with no bankable off-taker relationship like those found in more mature markets. By securing pricing and volume directly with buyers, we ensure committed volume and stable pricing for multiple growers. This model provides farmers with income stability and offers retailers a predictable supply, mitigating the unpredictability that has long plagued the industry by eliminating the unnecessary middlemen and speculation.
But what can we do about volatility? We can’t control weather, diseases, pests, or even supply chain disruptions due to political or social conditions. No, but we can mitigate those risks. We can tie these contracts to crop insurance and use technology and agronomists to help de-risk those investments by providing farm-to-buyer visibility that ensures consistent delivery of high-quality produce. With greater certainty of delivery, buyers reduce the risk associated with the committed contracts.
The next step in financing produce
After stabilizing the industry with bankable contracts and greater supply chain visibility, one of the most promising developments is the securitization of fresh produce. Much like how mortgages are bundled and sold as securities, portfolios of produce-related financial products could be created and traded. This would allow investors to gain exposure to the agricultural sector, providing a new avenue for investment while offering growers more access to capital.
Allowing farmers to use their produce as collateral for loans and other financial products, not only provides growers with the capital they need to invest in their operations but also opens up new opportunities for investors seeking to diversify their portfolios.
For example, a portfolio might include investments backed by specialty crops such as avocados, blueberries, or grapes—commodities that have shown high demand and that are starting to build strong, resilient and more stable supply chains. This spreads risk and offers attractive returns, not only benefitting investors but also providing farmers with more stable and reliable access to financing.
The integration of fresh produce into the financial world represents a significant evolution for both industries. As innovative financing models gain traction, they promise to enrich the agricultural ecosystem by providing the necessary capital to enhance productivity, adopt new technologies, and implement sustainable practices.
A growing world requires thriving growers. The financial community has an opportunity to not only secure healthy returns, but to invest in a critical industry that is feeding a growing global population with nutrient-rich and sustainbly-grown food. It’s time for the financial world to take a fresh look at fresh produce.
An esteemed global business leader, ProducePay CEO, Patrick McCullough, brings to his role more than 25 years of corporate experience and deep expertise in international business development, structuring and joint ventures from leadership positions held at startups and Fortune 500 companies such as Ford Motor Company, Berkshire Hathaway and Just Energy. Prior to becoming CEO at ProducePay, he was a board member for two years, playing a vital role in ProducePay’s capital raising and more than quadrupling the platform’s gross merchandise value to almost $4 billion during that period.