In what ways is Rising Farms disrupting the Mexican agriculture industry?
MAURICIO RICAUD: If I could sum it up, it would be that the industry didn't have enough real estate scalability to really have operations grow fast, and not necessarily organically. The problem in the industry, not only regarding agriculture, but real estate is twofold: On the one hand, there’s the level of sophistication required. Normally, agriculture in Mexico does not form a corporation or focus on talent and processes to really become scalable and sustainable at a corporate level. But on the other hand, it doesn’t focus on CAPEX for scaling up based on the requirements necessary for the type of installation on land either. Our vision from the outset, then, is to bring in real estate dynamics that exist in other sectors such as the retail, production, and hospitality industries that combine incentives from different types of investors. When you put the two together, you create something it is not very scalable. But when you separate them, for instance, as in the case of Rising Farms Group which has operations separate from real estate—a real estate investment trust that attracts real estate investors with real estate risks, returns, and incentives—capable of taking care of their facilities and land. The operations area is a company that is not so deeply concerned with the management of assets and that only deals with the leasing of such facilities. A real estate investment trust (REIT) in Mexico is called a FIBRA. When you have a real estate trust—which we have and operate privately—that can be scaled up publicly and even internationally, all that is required is the land, the facilities, and the lease contracts, and then the business can be scaled up infinitely. So, when they are kept separate like this, we can have the real estate investment fund that keeps adding square meters to the operations portfolio, less the conflict of having an eventually capped financial balance. And this is something nobody else in this industry is doing besides ourselves.
PABLO RICAUD: When you talk with real estate investors who are serious about REITs, it makes a lot of sense to them; they really like it. The problem is that agriculture has a bad reputation in Mexico, in that it is sporadic, risky, or unsophisticated and predominantly comprised of small farms. The pandemic changed the game. Nowadays, people work from home and doesn’t go to stores that much. As a result, real estate portfolios are in serious trouble. When we introduce an alternative green real estate asset that focuses on a sector that doesn’t go into decline, is essential, and is the future of food provision and sustainability because it produces so much more with less, you’re introducing a highly attractive dollar-converted asset to the real estate industry, which nobody has in their portfolio. Which is what we offer.
What are main gaps in the agriculture industry that Rising Farms is working to close?
MR: Above all, our vision is to have a completely vertical corporation which owns the different companies that service one other. The real estate part, with its incentives, servicing the operations part. Then, the operations part will scale up to the point of outsourcing operations to allow for the participation of entrepreneurs and businessmen to partner with us. Those would run such facilities through a wide range of services from Rising Farms such as know-how, processes, implementation, human resources and so forth, and beyond that, distribution. That ecosystem offers numerous possibilities, so that the people need neither funding, nor extensive know-how or connection with the industry to get started in this industry. Our ultimate vision is to be able to fully offer this real estate investment trust with which any entrepreneur may partner to run facilities with all services being provided by Rising Farms, be it installation, know-how, loans, distribution,
PR: We would buy their production and distribute it, because we’ve also observed this wide gap in agriculture in which for the past 20 years in Mexico, technology in this sector has stagnated. Also, the way agricultural products are sold, for instance, involves a middleman who is a distributor, to whom you sell your product in, say, Texas, who then distributes it. That intermediate role originates from the low sophistication of Mexican farmers who are unable to deal directly with stores in the US. They are limited either by the language barrier, they lack the infrastructure, for example. We are wholesalers, so how could we manage without intermediation? We cannot compete with those huge distributors from the US, but we could perhaps access other niche markets that cater to a different industry such as food service. Perhaps, the future lies in processing tomato, fruit or vegetables to bring added value to the product.
MR: We are wary of the way foreign distributors, whether they are from Canada or the US, treat Mexican farmers because it is always the farmers who bear the cost of the market price point. Inflation rates are not factored in by such trade relations, and it’s not 50/50 deal. It is always based on what the client in the US says and you have to go with it. We could build market strength by uniting all suppliers to those markets.
In what ways can your technology help reduce CO2 emissions?
MR: Indoor agriculture is essentially already sustainable because it employs drip irrigation, for example, which enable huge rates of accurate through the use of a computerized central control system. Thus, irrigation can benefit from a water waste reduction of up to 90%. On the topic of sustainability, one recent Oxford study revealed that the average CO2 emissions of tomato operations worldwide equals 3.6kg of CO2 per kilo of tomato produced. At Rising Farms, we are at the 0.4kg level. There’s an evident difference between 3.6kg and 0.4kg. Obviously, it is not fair to compare with greenhouses in Canada where the weather gets cold, but I think that only goes to tell us of the opportunity that Mexico and Latin America may have to produce in a more sustainable way by taking advantage of their geographical situation, and also by means of using just the right amount of technology. And I’m not saying that Rising Farms is on a mission to save Mexico, but that we believe that with relatively small measures we can make a difference.
PR: We should be aware of predatory practices, done at the expense of employees, the environment, and so on. Beyond the commercial imperative both the environmental and human aspects are crucial. So, we have to work towards a balance that considers all aspects of the business.