ProducePay was founded with the idea to help Latin American farmers export their produce to the United States. Since its foundation back in 2014, the company has been investing in growers by providing pre-season working capital and trade financing. "We provide short-term working capital that farmers can use to pay for input and harvest costs. Depending on the size of the deal, working capital advances of 10 to 30 percent are provided," says Pat McCullough, CEO of ProducePay. Most of the working capital is being advanced in South America and Mexico. By the end of 2023, Peru and Mexico each represented about 35 percent of ProducePay's market. The U.S., Chile, Colombia, and 15 other Latin American and European countries rounded out the rest.
From balance sheet to service provider
Up until recently, the company, together with debt partners, always used its own balance sheet to finance and fund farms. "However, we didn't necessarily want to be in the balance sheet business, and we weren't the lowest cost provider of money either. In fact, it has always been our goal to find lower cost capital for the farmers we work with," McCullough shared.
The ideal plan was to develop a financeable structure and recovery mechanism, allowing outside parties to invest in working capital for farms. "We are proud to share that we've been able to accomplish that and hope to close the first big deal this quarter, going fully off-balance sheet." While ProducePay has done some smaller deals off-balance sheet, this deal that involves hundreds of millions of dollars would be the first one of this magnitude." If this model becomes successful, ProducePay will go to market as a service provider. "That has always been our dream and our strategy, but this is the first time we'll be able to do it."
Expanding into Europe
While South America and Mexico have been ProducePay's main focus regions up until now, McCullough sees huge opportunities in Europe as well. "Europe is the largest produce market, and the retail sector is much more fragmented compared to the U.S. for instance. This new deal provides us the capability to address European businesses."
"Our primary role going forward is to be a service provider." Every work activity ProducePay performed prior to this pivot will still continue. "We have to do the selling or the originating, the structuring of the design as well as the underwriting, ensuring the deal is safe. We will also continue to monitor and maintain our data in the field, and we have to collect for the benefit of our counterparties." In other words, ProducePay continues to do everything it already did, but is making produce working capital bankable. We've created conservative working capital designs to ensure that any investment partner who takes over the balance sheet role will flourish and doesn't carry any risk."
Visibility platform
In all of this, McCullough is most excited about the visibility platform the company has created. It includes transparency on produce quality, shipping details, and order management. The farmer can see how much they were paid and what the deductions were whereas the retailer has insights in the quality of produce coming from a certain farm. As an example, in 2021 and 2022, retailers were rejecting 8.5 percent of table grapes at their distribution centers. "Upon rejection, these grapes either get discarded or sold for pennies on the dollar, but as a result of our visibility platform, rejection rates were reduced to 0.5 percent in 2023, shared McCullough."
The platform has been extremely well received by marketers and retailers, even before ProducePay had developed a standalone product. "Now, we are racing to build something the industry can use without the working capital products. This is particularly important for Europe due to the continent's reluctance to use debt. Due to our experience on the financial side and our presence at the farms, we understand what's going on and will be able to provide more transparency in the industry. Our attempt is to sell this business model on the transactional level and be associated with the end product."
For more information:
Pat McCullough
ProducePay
[email protected]
www.producepay.com