Private equity fund Proterra invests in battling hunger

Rich Gammill of the private equity fund Proterra Investment Partners might have mentioned "feeding the world" a half-dozen times in an hour, as he talked through where his firm puts its money.

Return on investment didn't come up at all.

Proterra is a fund manager in a competitive niche, and if Gammill and his partners leave a half-billion dollars of their investors' money lying at the bottom of a pig manure lagoon, that's the end of their firm.

Yet Gammill's passion for working on the humanitarian problem of producing enough wholesome food is clearly genuine, leading to about as hopeful a conversation as it's possible to have with a professional investor.

And maybe he didn't have to point out that if Proterra manages to make even a micro-dent on that hunger problem, it will have made a lot of money.

Proterra, based in Minneapolis, is a new fund manager that got its start as part of a financial unit of Cargill Inc. It's been on its own since early this year, and it's clear Proterra has a lot of Cargill's DNA.

When Cargill executives give a speech they sound a little like Gammill, talking about what has to change to be able to feed the roughly 1.7 billion more people our planet is expected to have by 2050.

When Gammill talked about options to feed more people, importing food was just one of them, along with conserving soil and water and a long list of others. To meet the growing need, he explained, "it kind of has to be all of the above."

The option Proterra has chosen is investing in local farms and food producers, just not here where agriculture is already so productive. Now at about $2.2 billion under management, including some of Cargill's money, Proterra has a minerals and mining fund but most of its capital is for farming and food production in places like Brazil, India and China.

In a way, what Gammill and his partners are doing is a form of export. What they are shipping abroad is capital and food production know-how that was developed here.

As for business opportunity, there are many mouths to feed in countries like China, he said, describing the Chinese pork market in particular as "astonishingly large." The problem is that food production there is highly fragmented and not very efficient.

Finance guys from Minnesota, though, can't easily become pig farmers in China. Gammill said they tried and failed to find a Chinese partner before bumping into staff from a company called Pipestone Holdings. That company turned out to be based a few hours' drive from the Twin Cities in the southwest Minnesota town of Pipestone.

The firm's staff first went to China nearly a decade ago at the invitation of an American grain export group, according to Luke Minion, a veterinarian and Pipestone's CEO. They were asked back by local swine producers looking for consulting help.

Minion said he's taking proven American farm practices to China by joining with Proterra to build and run big pig farms, now at about 12,000 sows with plans for many more.

Some Midwesterners might object to that kind of transfer of know-how, he said, yet he sees the rapidly evolving Chinese market as an opportunity. Hopefully, there will even be a chance soon for Pipestone's American farmer partners to invest in Chinese swine production.

"Agriculture in the United States, through our land-grant research universities and just the entrepreneurial spirit of farmers, it's unlike anywhere else in the world" in its productivity, Minion said.

It was a simple deal in China: Proterra brought the capital, corporate governance and strategic planning while Pipestone supplied the operating know-how, including how to keep baby pigs and their mothers strong and healthy.

It was also common to see manure slipping into streams rather than being collected and then put back into the soil as fertilizer. Chinese farmers made up for the loss of soil nutrients by buying lots of chemical fertilizers, in turn making the water quality problem even worse.

Much like it tried with its swine operation, Proterra sought to get into the Chinese dairy business by acquiring a local partner. When no good candidates were found, Proterra linked up with a producer in Indonesia.

Now AustAsia Modern Dairy Farm Co. milks thousands of cows, and the total investment in dairy operations so far in China for Proterra and its partners is about a half-billion dollars.

Among the common sense applied here was choosing highly productive Holsteins from herds in Australia. "This isn't genetic engineering," Gammill wryly noted, "it's taking a cow from Australia and putting her on a ship."

These AustAsia cows when milking produce about 36 liters of milk per day, or about 9 gallons. That's not quite what a milking cow at top dairies in Wisconsin and Minnesota gives every day. But it's still more than twice the average milk yield in China.

Any business that basically doubles the production of local competitors should be making money in food production.

But this is also how a private equity firm in downtown Minneapolis helps feed the world.