Silicon Valley Insider: Harvest Returns Applies Tax Advantaged “Opportunity Zone” Investing to Agriculture
In the Silicon Valley Insider, we’ve covered companies in the agriculture space that reduce phosphorus nutrient pollution with hi-tech fertilizer and use fermentation to manufacture CBD. We are familiar with the innovation path for startups like these, to create something valuable and get funding from VCs and angels to build their platform. But what happens when the farmer wants to follow a similar path, seek higher profits by planting new crops like hemp or organic sugar beets. Can they follow the path of the startup? In my interview with Chris Rawley, Founder and CEO of Harvest Returns in Texas, I learned it’s a bit more complicated than that.
Rawley’s company is raising $25 million for their Opportunity Zone Fund, which helps support farmers in their innovative pursuits and uplift rural communities, all the while providing tax-advantaged returns to their investors. They are focusing on US Department of Treasury Qualified Opportunity Zones, or economically-distressed communities where new investments may be eligible for preferential tax treatment. This is a unique approach, as these tax-advantaged strategies are usually utilized by commercial real estate investors in urban areas.
Rawley grew up in the 80’s, when TV dinners were the norm and there was little concern with where food came from or how it was sourced. A far cry from the emphasis we place today on organics and food traceability. It was in the Navy that Rawley realized how important farmers were in the fabric of society, “I’ve traveled to more than 50 countries and seen modern countries, urban areas, war-torn, poverty-stricken … people everywhere are reliant on agriculture.” This perspective stayed with him as he went into commercial real estate, the tech sector, and investing.
“I wanted to invest in a farm,” Rawley said, “but it’s a challenging thing to do. Farms need a lot of capital and a lot of know-how, and it’s inaccessible to the average investor.” In 2016, he put together Harvest Returns to streamline investments in agriculture. They’ve spoken with more than 400 farmers that want to raise over a billion dollars. Rawley noted there are over 8,700 opportunity zones across the US and ~40% of them are in rural areas. There are a number of farms in these zones, creating an opportunity for impact and tax-advantaged investment.
He went on to explain that farmers today receive financing in the same way their fathers did, 50 years ago. Bankers and Farm Credit Services of America are the traditional routes, both of which are highly regulated and focus on traditional crops and large scale farms. Financers might not be as familiar with organic practices or new technologies like hydroponics, which limits a farmers versatility in what they can plant. This new fund should help support innovative practices and help farmers meet the growing demand for things like organic food, which now accounts for 5.5% of all food sold in the US.
“It’s a way to make an impact while capturing tax benefits,” Rawley explained. Those benefits range depending on the length of time invested but can include paying $0 on any appreciation in the investment if invested for 10 years.
Rawley and his team have identified 35 potential investments across the US and Puerto Rico. The $25 million being raised would allow them to invest in four to five of these farm projects. We at Impakter look forward to following up with Chris and Harvest Returns in the future to learn of their impact, and fund performance.
In the Cover Picture: Tractor in a Field. Credit: Scott Goodwill on Unsplash.
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