A cross-border team from Norton Rose Fulbright recently advised Australia-based high tech agribusiness Sundrop Farms on a significant capital injection from global private equity powerhouse KKR.
Partners Andrew Rankin and Tom Young were fascinated by what they learned about Sundrop Farms while advising on this matter, and sat down with John Phinney, the Managing Director Australia, to learn more about this innovative business.
To start with the basics, for those who haven’t heard about you before, what does Sundrop Farms do?
Sundrop Farms is a developer, owner, and operator of high tech greenhouse facilities that primarily rely on nature’s abundance of sunlight and saltwater to produce high-value crops. Our technology has allowed us to operate these food production facilities in non-traditional locations that typically have little or no access to arable land, fresh water sources or grid energy. Given the growing global population and pressure on our planet’s finite resources, our innovative agribusiness model aims to benefit people, planet and profits.
In addition to ‘growing highvalue crops using seawater and sunlight’, we understand you are a pesticide-free operation. Is it true you have bees and ‘pirate’ bugs in your hydroponic greenhouses? What do they do?/h3>
A controlled greenhouse environment allows us to limit our exposure to damaging pests, however it is imperative we continue to consider and integrate solutions that deliver the best outcomes for the produce we are growing.
The procedures we have in place at the facility are very similar to those of a laboratory environment to ensure the crops aren’t exposed to harmful pests or pollutants. With this said, natural processes still play an important role in our operations. For instance, we typically use bees as a natural way to pollinate plants, which is a common practice in the industry. We also use an integrated pest management system which involves the introduction of ‘white hat’ insects which work as a natural defence mechanism against any ‘black hat’ insects which find their way into the greenhouse.
As part of your process, you turn seawater into fresh water. Can we ask, what do you do with the salts and minerals you extract? Are they another product you sell?
Our operations are wholly focussed on selling fresh produce. When it comes to by-products, such as salts and minerals, our research and development team are investigating the feasibility of using these as nutrients within our fertilisation process, rather than seeking an additional revenue stream.
Have you been involved with Sundrop Farms from the start? What is your background and what made you make the move into agribusiness?
I joined the Sundrop Farms team around the time the business was transitioning from the pilot to the commercial phase of the project. What appealed to me most was the business’ ability to combine multiple industry facets that were complementary to my own experience across sustainable design, real estate and agricultural development.
What’s more, as a generalist with an entrepreneurial spirit, my role at Sundrop Farms allows me to share my skills and knowledge while, at the same time, learning from individuals who bring valuable and diverse talents that are integral to our innovation and growth.
How long did it take to move into commercial production from when the company was founded? What were the main challenges you faced?
We were in the pilot stage for five years, which was a really important period and involved a lot of trial and error as we explored the best ways to make the farm commercially viable. From this preliminary ‘commercial laboratory’ phase, the biggest challenge was determining how to integrate various technological platforms and, ultimately, turn the pilot into something that would be economically sustainable on a large scale.
Where do you currently operate? Why did you choose these location(s)?
Our first commercial scale facility is currently under construction in Port Augusta, South Australia (see photo below). This facility represents a scale up of 100 times from the pilot facility we’ve been operating for five years just down the road from the new site. Port Augusta was an ideal location for us as it is one of the sunniest places on earth, has relatively low humidity and is conveniently located near seawater – vital elements that match perfectly with our technology platform.
In addition to this, Australia has a transparent economy and is certainly a stable place to do business. To have such sound support from local and state government, for what is ultimately a new industry, has made the journey leading up to where we are today a good one.
How big is the Sundrop Farms team? What sort of skills do you look for? How do you keep up the lines of communication as you grow?
At this stage our team comprises about 20 people. Moving forward, the workforce at our Port Augusta facility will expand from 10 to 200 people over the next 18 months.
The company has certainly evolved, particularly in terms of the skills we seek in line with different phases of the project. In the early days, a diverse set of skills across technology, agriculture and finance was important in establishing the business and its operations, but as we get closer to establishing our first commercial scale facility, we are adding individuals with more specialised capabilities.
Retaining strong lines of communication is very important, and senior management communicate frequently on a formal and informal basis, combining complementary skills and backgrounds that enable us to operate effectively as a team. Furthermore, when launching something that is unique in its own right, it is crucial to have a team made up of individuals with the same tenacity, optimism and entrepreneurial spirit upon which our business was founded. Despite our rapid expansion, we still see ourselves as a start-up, and it’s this determined attitude that continues to drive us, leaving no room for complacency in anything we do.
You recently partnered with a large Australian supermarket chain – do you have any guidance for other producers looking at taking this step?
It’s really important to understand the needs of a potential or existing partner to ensure you are effectively delivering a solution that fills a business gap for them. With Coles, our business model perfectly aligns to fill a gap in their supply of truss tomatoes throughout the year. Ultimately, it’s about being aware of, and satisfying, the shifting expectations of these two sets of customers. In our case, we can provide the high quality produce that customers demand in the consistent and reliable manner that is so important to our supermarket partner.
You recently received a capital injection from one of the leading private equity firms KKR – why did you take this step?
The facility we operate is capital intensive and, therefore, we proactively pursued an equity partner that was willing to fund our distinctive horticulture formula which benefits people, planet and profits. Being given the opportunity to partner with an investment firm that has a global footprint was ideal, as it complemented our aspirations to become a global business. KKR are arguably the bestplaced private equity partner for a business like ours and we are extremely happy to be working with them.
Do you have any guidance for other producers looking at raising private capital?
I think the key is understanding what drives the counterpart you are approaching to ensure you are offering a solution that best suits them. Consider closely what questions they would ask and ultimately, what success looks like to them. More importantly, before you even consider proactively seeking an investment partner, be sure to have a robust business model in place that presents you in the strongest position possible. The five year investment and time spent in our pilot facility was both necessary and valuable to ensure we could get it right and at a level that made Sundrop Farms investable.
Further information about Sundrop Farms is available on their website.