As the agriculture sector and farmers look to innovate and upgrade their operations, one company CommStream is offering a new way for producers to secure debt free capital. A popular concept in the mining industry, commodity streaming is a way to give farmers upfront cash in exchange for a portion of what they produce.

Chief operating officer Simon Skerrett from new investment start up CommStream said the company enters into a contract over a five to 10 year period with a farmer, paying money in exchange for a percentage of their production.

“A portion of the funds are an upfront payment with the balance paid annually on delivery of said produce,” Skerrett said.

“Commodity or produce prices paid by CommStream are set following an analysis of long-term averages of a contracted commodity in a particular region. CommStream also takes on downside price risk and shares in any upside once benchmarks are met and these commodities (grain, cotton, cattle etc.) are sold at a time for maximum profit,” he said.

CommStream raises its money directly from investors and lends this capital to farmers, so there is no debt component. According to Skerrett agriculture is viewed as a very traditional investment class by many Australians.  

“A lack of understanding of production agriculture by our national investor base I would say is the number one reason there are not more alternative funding models available,” he said.

“Investors’ in other countries get the long-term opportunity agriculture represents due to food security concerns globally, but locally we struggle with the concept.”

However, the co-founder of CommStream said Australia was beginning to see a change in sentiment with much of the talk around foreign investment paving the way. 

“This change in sentiment by Australians toward an investment in our food producers and productions assets will provide new opportunities for Australian farmers as funding models present themselves,” he said.

From the small amount of marketing done by CommStream so far, it said the commodity streaming concept had been well received by farmers.

“We spent the first 12 months testing the model to ensure it’d work in Australian agriculture for Australian farmers. In 2016 we successfully executed our first contract with a grower near Moree and took delivery of our first commodity the end of 2016. This year we’re looking to expand the model and continue to execute streaming contracts with farmers as funds are raised.”

For producers considering the commodity streaming approach CommStream suggests farmers reach out to the company directly to find out how alternative finance option may work for them. 

CommStream said its ideal farmers are progressive producers interested in innovation, technology and efficiency. The investment company said they are looking for deals valued between $500,000 - $1.5 million, however said they are happy to look at cooperatives of smaller producers as long as all internal security and governance requirements can be met.

“Streaming was not designed to be used as a source of last-resort finance to troubled farmers, but to help progressive innovative farmers grow and expand using alternative finance,” Skerrett said.

“CommStream will only seek to take up to a 20 per cent exposure to a farmer’s long-term average production, thereby allowing the farmer to market the majority of their commodity through traditional channels.” 

The commodity streaming company is also looking to invest in Australia’s agricultural supply chain both through farmers and independently.

“We see an investment in the supply chain as an extension to our business model, as we strive to achieve the same efficiencies and control over the commodity we take delivery of, as many farmers are striving to achieve,” Skerrett said.

“For example in livestock we would consider leasing land from farmers to background and grow out weaners,” he said.

CommStream said it may also make sense to invest in larger infrastructure such as a feedlot down the track. “In the grain sector, storage and logistics may be bought for marketing purposes and to reduce some supply chain costs.”