Dr. Jim White, Ph.D., CEO Insider.
May 20, 2020
In the rapidly changing economic landscape under COVID-19, one thing remains true: investors, hoping to mitigate losses from the plummeting stock market, are searching for promising new avenues for their investment dollars, especially since traditionally strong sectors, such as travel, retail, and energy, have tanked.
There is a viable option … and it could be as simple as a crisp head of lettuce.
A little-known but potentially lucrative arm of the agricultural world is an asset class built around the post-harvest of produce: pre-cooling and cold storage. After vegetable crops are harvested, the quicker they are cooled, the longer their shelf life and better their quality. The longer they last, and the better they taste, the higher the profits for growers. Pre-cooling is the process of removing the heat from freshly picked fruit and vegetables to prevent the growth of microbes, which hasten the decay process.
Truck delivering pre-cooled produce to temperature-controlled warehouse.
Once perishables are successfully pre-cooled, they are transferred to and stored in a cold warehouse, the turnover is quick as produce remains in storage for no more than seven days.
There is continual movement in and out as field trucks transport newly-picked crops to the cooling campus comprised of pre-cooling equipment and a giant cold storage warehouse. Then, long-haul trucks continue the vegetables’ journey to market.
Of course, to be successful, facilities of this type must be located in close proximity to the growing regions of the country. Those regions with a robust agricultural economy include northern California (Salinas is called the “salad bowl” of the country, known for a wide variety of fruit and vegetables), Arizona (which grows leafy greens, melons, dates and nuts, tomatoes), and Florida (famous for its citrus).
Cooling facilities require a large footprint: typically 100,000 square feet or more, which is a challenge. Another challenge is the highly-trafficked trucking routes.
“So, where is the opportunity here?”
Right now, not many cooling facilities are commercially run; most are small operations, privately owned by the growers/shippers for their own use. Of the two thousand cold storage facilities dotting the U.S., at least half were built prior to 1980 and are fast becoming functionally obsolete. There’s room for a savvy commercial pre-cooling/cold storage operator to step in and redevelop cooling operations within this asset class.
Post Harvest Technologies, Inc. (PHT) was incorporated in 1989 in Salinas, California with the goal to manufacture the pre- and post-cooling equipment and sell it to GIC, as well as other companies in the Ag industry.
Investors can take a direct road into this sector through Qualified Opportunity Zones and Qualified Opportunity Funds. In the past three years, and especially since the coronavirus hit, high-net-worth individuals and institutional investors are taking a hard look at the benefits of investing in Qualified Opportunity Zones, a bipartisan initiative originally introduced in the Jobs Act and Tax Cuts passed by Congress in December 2017. The strategy channels investors’ unused capital gains through Qualified Opportunity Funds and into opportunity zones, that is, some 8,800 communities nationwide identified as “distressed” due to poverty, unemployment, population decline, and failing infrastructure. Of these zones, 40 percent are rural.
Some 35 million people reside in opportunity zones. Their hardships have magnified under the pandemic; on top of job and financial insecurity, millions of these residents must contend with ancillary issues like drugs, crime, and lack of access to healthcare.
Using opportunity funds to bolster struggling Americans is a breakthrough approach to directing long-term private sector investments into low-income rural and urban communities, many of which haven’t seen an influx of capital in decades.
Investing in opportunity zones is a win-win, win-win for investors: they benefit from the initiative’s capital gains tax breaks; they make money, possibly even an outsized ROI; they have a means of reducing their exposure to equities; and they can use the strategy for multigenerational long term financial planning.
Investors save 10 percent of any capital gains if invested in a qualified opportunity zone business before December 31, 2021, and have until April 15, 2027 to pay any capital gains owed. Moreover, they can receive annual dividends, and any appreciation on the investment after ten years is tax free, making it a solid investment strategy.
As it happens, there is a flourishing pre-cooling and cold storage industry within rural opportunity zones. Such specialized industry growth, which ultimately benefits the growers in rural America, can help reinvigorate entire communities. The end result would be a healthier, more diversified portfolio for investors… and fresher produce on our dinner tables.
There has been a consistent uptick in the demand for healthy, fresh food, and that demand grows as the U.S. population increases. Intensified public education on nutrition, from First Lady Michelle Obama to the CDC, is urging us to cut down on animal products, refined sugars, and fast food and load up instead on fruit and vegetables. Even the on-trend “farm to table” concept is featured on menus across the country.
All of this makes American agriculture and its ancillary services enticing for investors. In practice, of course, the reality behind “farm to table” is that there are necessary stops along the way when the nearest farm is hundreds of miles from our kitchen. The logistics require pre-cooling and cold storage.
Recently, the conversation about the need for warehousing for e-Commerce has intensified: online retail mammoths like Amazon, eBay, and Walmart have an obvious need for product warehousing. Likewise, the explosion of e-Grocery requires an equal expansion of cold storage warehousing, as online grocery sales soon could top $1 billion, according to experts.
The pre-cooling and cold storage warehousing of our fresh fruit and vegetables is an industry that is not only rapidly expanding but has the potential to do so in a way that will benefit the entire country, including its most vulnerable citizens.
Though the logistics of these operations may be challenging, they are certainly not insurmountable. In fact, in the last two decades the nation’s cold storage warehouse industry has experienced a 43 percent increase in capacity… making cold storage an asset class ripe for consideration.
Jim White, PhD is Chairman and CEO of Post Harvest Technologies, Inc. and Growers Ice Company, Inc., Founder and CEO of PHT Opportunity Fund LP, and Founder and President of JL White International, LLC. His new book is a heartfelt rallying cry for investors: Opportunity Investing: How to Revitalize Urban and Rural Communities with Opportunity Funds, launched March 31, 2020.
Dr. White was raised in South Carolina. He holds a BS in civil engineering, an MBA, and a doctorate in psychology and organizational behavior. He acquires struggling businesses to revive and develop them into profitable enterprises using his proprietary business turnaround strategy. To date, he has generated more than $1.8 billion in revenue.
Dr. White is hosting his regular Webinar Series. His next webinar goes live on May 26th at 6:30 PM EST. The topic of the webinar is “Critical Thinking – During and Post COVID-19, Part III.” Register now to join the conversation.