Sundrop Farms uses concentrated solar power to create heat, electricity and desalinated water needed to feed and power its growing operations. It will produce more than 15,000 tons of vegetables annually for markets across Australia from its agricultural innovation hub for arid climates in Port Augusta.
With both KKR’s capital investment and access to KKR’s global platform, Sundrop Farms now plans to expand into the Middle East, North America and other supply-constrained markets around the world.
CEO Philipp Saumweber spoke with SharingValueAsia on how business can address global development challenges and the importance of collaboration.
What are the competitive and strategic advantages of Sundrop Farm’s business model and how is it congruent with sustainably addressing global development challenges?
At the core of Sundrop Farm’s operations is that we can grow food in harmony with people and planet. We are focused on ‘restorative agriculture’ that provides enhanced, sustainable and long term profit. It’s the natural result of taking a radical shift toward the triple bottom line and holistically accounting for things that other businesses may not to create a competitive advantage.
The industry needs a disruption, yet over the past 50 years the propensity to try anything new has been low. Asset rich, cash poor and risk averse, the agricultural sector has also suffered more broadly from significant brain drain. Agriculture remains incredibly resource intensive. Something drastic needs to happen in the industry for us not to hit a wall completely in the next 20 years. It is reliant on fossil fuels, incredibly extractive in regards to water and other environmental practices, and has a record of questionable labour practices.
But now, led by consumer requirements based on production methods, sustainability, sourcing and ethics, smart people are returning to agriculture and corporates are changing their business models. This is putting a lot of pressure on the supply chain, but there is not enough innovation to match it.
As you cannot be everything to everyone, addressing all these issues is possible only in a very niche part of the agricultural value chain. Today, we are now the lowest cost producer of tomatoes in Australia and because of this we can be a better employer. We also perform better on all environmental accounts. This enhances our low cost producer value position that is attractive to both business and consumers.
What are the common challenges and misunderstandings that you have had to overcome in seeking capital to build your operations?
Throughout the entire development process there was an element of David and Goliath. We were a small disruptor with a new business model based around completely different values relative to traditional agricultural models. We were viewed with an incredible amount of scepticism. Only by staying true to the model we were able to gain ground.
Most of the time spent was on educating people why our model was a win-win for all stakeholders throughout the value chain. This was the same process with accessing capital. We had to break people’s pre-defined silos of capital. We weren’t the traditional agriculture play, nor infrastructure, technology, or energy. This was undoubtedly the biggest common challenge we had. Finally the supermarkets got it. We were not just a low cost producer, we were a low cost producer that brought incredible social, environmental and economic value to their end customer.
How important has collaboration and partnership between businesses been in the development of Sundrop Farms?
This has been critical. One of the most important means of getting a project off the ground is to de-risk the development process and you can de-risk a project by working with premier partners.
When we first started out we were very wary of other people’s technology, but we quickly realised that if we were not going to leverage off others’ work our development timeline and budget would go through the roof. We accordingly spent a lot of time on partnerships.
Even those that have not worked out directly have been beneficial. We have had multiple MOUs with companies, including GE. While we did not end up doing any work with GE directly, one of our largest solar subcontractors on a build in Australia is a GE subsidiary company. Our linkages meant that there was no requirement for an extensive, expensive tender process. Consequently, the company was able to offer us a more competitive price.
In the same vein, our supermarket contract to provide vegetables under contract was not unique. It was, however, predicated on the fact that we were very transparent, were willing to share directly with them partnerships that we had in the seed space so that they could see exactly what they were buying and they ended up helping us select the right seed stock. We ended striking a unique deal in terms of price stability and tenure. Because we had that contract we attracted KKR growth capital, the best possible debt financing and negotiated a fully performance guaranteed EPC construction deal with one of Australia’s premier contractors, John Holland
Beyond capital, KKR partnered with us as a “solutions investment”, which bringing capital to a business that is addressing a societal challenge. This enabled Sundrop to transcend the traditional investment silos – ag, infrastructure, energy, growth, etc. – and thereby offer a much more tailored partnership approach that understood the Sundrop triple bottom line business.
For every start up I would advise that they work with the best possible partners from the very beginning – forget the David and Goliath mentality.
How does the capacity for risk compare between business, government and the development community?
Everyone perceives risk. In order to green light a project you have to mitigate risk as much as possible, but also break people’s pre-conceived notions. It is all part of the continuous education process. This was our experience with suppliers, financiers, contractors and potential hires. We wanted to create with them not business relationships but partnerships. This takes a longer time to build, but is well worth the time and effort.
It comes down to trial and error and it is of little surprise that any form of business incubator, able to provide advice and connections at the state or national level, is invaluable to business. It compresses the development timeline and mitigates risk. It is also dependent on finding the right partner with whom you have the right chemistry.
Just how important has government policy proved to be as an enabler of innovation? What recommendations do you have for other governments that want to create innovation catalysts?
In our experience, government has made a big difference. Our innovation hub is now based in South Australia due solely to their efforts. The state government there has been very bold in picking a few winners and attracting them to their state across several sectors following the decline of their traditional industries. As we are able to take a largely barren area and transform it into an agricultural hub without being reliant on heavy resource extraction, they were always very receptive to the Sundrop approach.
From day one we received a case officer from the Department of Trade & Manufacturing, who helped us through countless issues including planning, development, finance, and sourcing. They also moved quickly to fast-track us to executive levels where decisions could be taken. That service was an invaluable asset, one that we had not seen with any frequency in many other regions around the world, notably Asia. But Australia’s rule of law was also a highly attractive prospect despite the fact that it created a larger regulatory burden.
Now, our innovation hub is based in South Australia and the switching, relocation costs would be massive. We are entrenched. Also, global water experts and senior members of the Qatari and Saudi government are travelling to Adelaide to visit our facility. All our training for future projects, whether in the Middle East or other regions, is taking place in Australia. It is a win-win for all. But in order for business and government to come together around their respective development goals, they both need to question everything they do.
Only by setting bold goals we will all find more business opportunities, greater profitability and make business more resilient in the process. That’s where our opportunities and breakthroughs lie in the next 20 years.
Philipp Saumweber will be addressing the 2015 SharingValueAsia Summit that will be held October 1 at the Fullerton Hotel, Singapore. Follow him on Twitter @SundropFarms
For more information on the 2015 SharingValueAsia Summit, to view the full agenda, confirmed speakers and to register visit the summit site