How to invest in agricultural projects – is the topic of today’s Explore Crowdfunding interview. Interview with Artūrs Ābols, customer service specialist at Lendsecured.
When it comes to investments people need to follow the second investment rule and keep their portfolios diverse. In crowdfunding people usually look for high-tech industries and often forget about fundamental industries like agriculture.
Fintech and other tech will come and go but agriculture will stay forever which makes agriculture a very interesting investment, but people should not forget about the first investment rule and invest in industries they understand.
To explore how agriculture works and what risk it brings for your investment, today we have an interview with Artūrs Ābols, a customer service specialist at Lendsecured.
Hello Artūrs, thank you for joining us today, please tell us a bit about your experience and Lendsecured.
Hello, Jevgenij thank you for inviting me. I have a bachelor’s degree in agriculture and joined LendSecured at the end of 2021. LendSecured is a crowdfunding platform that focuses on the agricultural sector and offers small and medium-sized farms loans for seasonal funding, purchase of machinery, and farm expansion/modernization. We started operating in 2020 and since then we have issued more than 2 million euros to local Latvian farmers, and now we are looking to expand to other European countries.
What makes agriculture a good investment industry?
The agricultural industry provides first necessity products, grains, vegetables, meat, dairy etc. This makes investing in the agricultural industry a lot safer than buying some luxury companies’ stocks, which can drop in value overnight, but with the growing human population and food industry, agriculture eliminates these aspects of risk, with the growing demand for agricultural products.
What are the main risks when investing in agriculture projects?
The risks vary from the type of collateral. For example, if the collateral is next year's harvest, there are risks of bad harvest that include pest infestations, weather conditions, and disease. When the collateral is machinery, it might be stolen, or broken down which affects production productivity. For land, risks are lower, but the main thing that can affect borrowers’ business is price volatility for commodities like fertilizers, fuel, seeds, etc. But here at LendSecured, we evaluate every borrower’s financial situation, the cash flow of the company, their track record as a farmer, and past harvests. Our acceptance rate is around 5% of all applications, so we can offer the lowest-risk investments possible for our investors. We make sure that the harvest and machinery are insured against mentioned risks. Also, for lowering the risk for our investors our LTV does not exceed 60%, which means even with some unforeseen difficulties there is a safety net with collateral to loan value, and the investor funds can be recovered in full amount in the unlikely event of the loan defaulting.
How can people evaluate those risks and what data do they need to do it?
The agricultural sector possesses protentional production risk, credit risk, personal risk, and environmental risk. I would put production and environmental risks in the same basket, as they are deeply connected, but the environmental risk is hard to predict as nature so often is completely unpredictable, but I suggest that people to read the project descriptions to be sure that the next harvest has been insured. Credit risk has been evaluated by us doing a deep financial analysis of the farmer, but investors can always check companies’ financial situation in public records that are available online. Personal risk as risk may result from such events as death, divorce, injury, or poor health of the participants in the firm. All of these are hard to predict, but I would like to say that farmers are one of the toughest people out there and they will stand and fall for their business because quite literary they are the ones that put bread on the table.
We at LendSecured do an in-depth analysis in order to offer our investors the lowest-risk investments.
What are industries’ key performance indicators and how to evaluate/ calculate them?
Here at LendSecured, we evaluate – estimated production protentional, yield per ha, field utilization rate, profitability, cash flow, and average sales period.
By using the yield per ha we can gather information about the production potential. Yield per ha differentiates from cultures that are grown, regions where the farmer is located, and farming type – biological or conventional.
With profitability we take into account the culture and estimated time of harvest because grain prices are subject to change according to the time of sale, the later the harvest can be sold the better prices are offered, this indicator complies with the average sales period, where we evaluate if the farmer has an opportunity to store the harvest, or the sale is made as soon as the harvest leaves the field.
How do people evaluate an agricultural company’s future potential? Or what are key factors for growth and success (technology, tools like crop insurance, partners?)
First of all, we talk with farmers, we listen to their stories, past experiences, and plans for the future, and we also keep this in mind as part of the evaluation.
The potential in the future relies on the possibility to expand the farm or modernize it and increase efficiency. And of course, the fact farmers have the option to insure the harvest, herd, farm, etc., and also fixate the price for the grain with the buyers. All of these factors are great potential for the growth of the company.
What would be your advice for people who want to invest in agriculture?
My best advice is to invest in loans that are collateral-backed. The next step is to personally evaluate risks.
· Term (Long, short)
· Experience of the farmer (is there any information provided)
· Information that the platform provides
· Avoid too high interest rates
It is very important to evaluate P2P platforms as a whole. I would suggest gathering feedback from social media, e.g., telegram groups, checking out posts by different bloggers, watch out for unbelievably high interest rates, because if something seems too good to be true, it usually is. See what platforms offer, buybacks, auto-invest, secondary market, collateral-backed loans, and segregated accounts for invested money, it all comes down to the safety of your investment, reach out to platforms to ask questions that interest you before you make investments.
Artūrs thank you very much for the interview, I believe that this will help a lot of people to understand how to invest in agriculture and make some good returns.
Thank you for having me, I hope that my insight into the agricultural field helps people make a decision and diversify their portfolios.