There is something very attractive about the idea of investing in “good” assets such as bees, macadamia nut trees and even lettuce. We know these are healthy for us to eat (plus bees are great for the environment) and we can make a decent return at the same time. It is a win-win.

Investing in agriculture is becoming popular in South Africa. There are several platforms providing investors with an alternative income-generating asset, while bringing a crowdfunding solution to farming.

In essence, it allows an investor to earn a return from farming without needing to know anything about farming. It has the added advantage of upskilling smaller farmers and improving food security for South Africa.

Impact Farming by financial services group Fedgroup, is an example of how crowdfunding can provide a sustainable alternative to single ‘mega-farms’.

Listen to Maya discussing this topic on the My Money, My Lifestyle podcast.

Impact Farming allows investors to directly purchase agricultural assets such as a blueberry bush, solar panel or beehive and earn the income that the asset produces. It recently added additional agricultural assets to its range, including macadamia nut trees, moringa trees and even lettuce.

Farming is becoming increasing reliant on technology and data which improves output while reducing wastage.

“There is a big difference between farming and farming with great outputs, ” explains Grant Field, CEO of Fedgroup.

“If I was to take a blueberry bush and plant it in my garden and speak to it every day, I would not be able to get the returns these farmers are able to get. We are talking 30 to 50 fold better yields than traditional farming.”

Value creation through crowdfunding

The level of capital and skills required makes it challenging for smaller, new entrants. Yet by creating an ecosystem, new entrants can be trained and upskilled.

“It is not only a crowdfunding platform, but a crowd value-creation platform – an ecosystem of partners rather than a conglomerate that owns everything. We are talking about multiple investors, with multiple experts and even multiple landowners,” says Field, who explains that there is an entire value chain of partners. These partners include investors, landowners, technology suppliers and farmers – all of whom provide upskilling and work opportunities.

Having launched its first range of products three years ago, across all the assets, the average returns achieved in the first three years are in line with initial projections.

Fedgroup is confident that the internal rate of return targets of 10% over the lifetime of the assets will be met.

“We have been fastidious in working through every detail when creating the model, including due diligence on the farms,” says Field.

“We have put our own money into the products and have paid our school fees to improve the model.”

To date over 13 600 investors have invested in 350 000 blueberry bushes, 6 500 beehives and 19 500 solar panels.

Late last year macadamia nut trees, moringa trees and lettuce stacks where added. These new assets have been extremely popular and Fedgroup has put limits on purchases. For example, only customers with existing investments of R75 000 will be able to purchase lettuce stacks.

Field says tranches of additional moringa trees and mature macadamia nut trees are secured and scheduled to be released to meet demand.

The company currently has an estimated 400 000 blueberry bushes in the growth phase and additional beehives have been secured. These will be placed on the platform once successfully swarmed.

Field says this will provide investors with a greater range of assets to invest in and will also ensure that at least three to four assets will be available on the platform at any given time to give investors choice.

Solar panels are the most popular asset so far, and with demand outstripping supply, Fedgroup has responded by placing newer generation panels on its App.

“While this increases the upfront investment cost, it also increases the potential return,” says Field. Larger panels allow for a higher yield of power.

The best way to ensure you are in line to the next release is to download the app, become a client and receive notifications.

What you need to know

The Fedgroup app is easy to use and explains the concept well, providing the necessary details on the assets. The graphs on the app show how income distributions are made.

Income varies

Your income will not be consistent over the period. In the case of blueberries, for example, it takes time before they bear fruit and reach their maximum yield. You get paid based on the amount of berries that are harvested. For example, in your first year, you would only earn R18 (7%), but in year eight you would earn R72 (24%) per bush.

A beehive would give you R180 (4.5%) in the first year and R1 120 (28%) in year ten, and solar would give you R400 (8%) in the first year and R1 600 (32%) in year 20.

There is no capital gain, only income

At the end of the period, your plant, tree, hive or panel has no value so there is no capital paid out. The returns illustrated on the app are an ‘internal rate of return’ to illustrate the profitability of the investment.

In the case of the solar panel, the internal rate of return is 12% pa at the end of the investment term. This is determined by subtracting your initial purchase price from your total projected returns. Keep in mind that your actual rand income will be higher as you are also paid for the depreciation of the asset.

In the example of the beehive, you would invest R4 000 and receive back R9 000 as income over ten years, so theoretically your return, less the capital invested, is R5 000.

If you do not need income, then you could re-invest the income either in an interest-bearing account or buy more farming assets and build your portfolio. This would boost your total return as it would have a compounding effect.

Income intervals

Income is tied to the yield of the asset and when it is harvested. Some products pay monthly and some only once a year.

Long-term investing

As you are buying an actual plant, hive or panel, you are locked in for the full lifespan of that asset which can range from three years to 20 years, depending on the asset.

Fedgroup is creating a secondary market for those who need to exit, but ideally you should only invest if you can remain for the full term.

Risk profile

As the assets are insured, the risk of losing your money is low. The risk is on the income generation as it will depend on the yield of the asset and, although managed by experts, there is never a guarantee when it comes to farming.

Also keep in mind that the income builds up over time, so this is not an investment for someone who needs a regular income every month. Ideally you should build up a portfolio of assets which provide a diversified income stream, and re-invest a portion to maintain a capital value.

The numbers that matter

The internal rates of return given below are annualised returns over the full period. It does not indicate that you get this return every year, because the yield increases over time.

Lettuce stacks:

• Initial investment: R7 000
• Income: monthly
• Internal rate of return: 13% to 15% pa
• Duration of investment: 7 years

Solar panels:

• Initial investment: R6 000
• Income: monthly
• Internal rate of return: 10% to 12% pa
• Duration of investment: 20 years

Beehives:

• Initial investment: R4 000
• Income: twice a year
• Internal rate of return: 10% to 12% pa
• Duration of investment: 10 years

Macadamia nut  trees:

• Initial investment: R3 000
• Income: once a year
• Internal rate of return: 11% to 13% pa
• Duration of investment: 8 years

Blueberry bushes:

• Initial investment: R250
• Income: twice a year
• Internal rate of return: 10% to 12% pa
• Duration of investment: 8 years

Moringa trees:

• Initial investment: R100
• Income: twice a year
• Internal rate of return: 10% to 12% pa
• Duration of investment: 3 years

This article first appeared in City Press.