August 26th, 2019

Q3 Kick Start Update – Sales and Operations Choreography

Dax CookeAs we pass the half-way point of the year, our snowball of a business continues to build momentum and I get that sense that we’re heading down the mountain, fast! The climb up has been a long and slow foundation-building process.

 

 

Recently, during my trip to Europe, I had a little time to reflect during the long plane and train rides, and I was thinking about my time living in Colorado in my early twenties. I worked for Vail Resorts during the ski-season and spent my off days hiking around the Vail Mountain Pass. There was one particular mountain in the range that used to eat my lunch: Mount Royal. It had a vertical face that might as well have been Mount Everest to me at the time.

Mount Royal

I remember every time I hit the base of the mountain, my energy was high and I would climb for about two hours straight in full snow-shoe attire before the lack of oxygen would set in. I refer to this as the blue flame phase. The little voice in my head would tell me it was too far to reach the top, but I kept going, keeping my head down and focusing on just taking the next step. After another 2-3 hours, I would look up and see the peak. At this moment, adrenaline usually took over, and my tiredness somehow disappeared because I knew the peak was in reach. Those hikes taught me so much about myself and, more importantly, the mental process of getting to the top of any mountain. As we enter the 3rd quarter of this year, I can see the summit and I can feel the adrenaline flowing as we see our products coming to market.

Panama Golden Pineapple

As we returned from our India/Holland trip in May, I found my head spinning with so many new ideas and new possibilities for the future. It seemed everywhere we looked there were new opportunities that have amplified the upside of what we set out to do with Farmfolio—integrate the supply chain and offer investors the opportunity to participate at each link in the chain, from seed to shelf. At the onset, I was sure we could do this at the farm level and even at the packing and processing level; however, beyond that it was mostly theory. We had yet to explore what kind of profitability we would find on the purchasing side of the chain. I had always been told that the margins were thin and competition was fierce. It was time to put our model to the test.

With our new partnership with the La Dona brand secured, our team has been quietly preparing to launch Farmfolio BV, a Dutch company established to import La Dona products (and eventually Burroteka products) in Europe. Why the Netherlands? In addition to being the largest port in Europe, Rotterdam is one of the EU’s most business-friendly environments and houses a large community of fruit traders who import and distribute to customers across Europe and the Middle East. I like to think of it as “Silicon Fruit.”

Following an intense month of June to get Burroteka SAS set for launch, I boarded a flight to Europe for a 3-week journey to launch La Dona Fruit in France, Spain, Germany, and Scandinavia. After a quick stop in Greece to witness the matrimony of Taylor Kern, a great friend and the oldest son of Farmfolio’s very own Peter Kern, I began the La Dona crusade in Marseille. I spent the previous month identifying each regional market in our target area and my objective was to visit as many of those markets as possible during this two-and-a-half-week journey to establish the La Dona brand with all Tropical distributors. Simultaneously I was interviewing local sales representatives in each market. To be competitive in Europe we must employ a localized approach in addition to having a quality product and consistent supply.

While the primary purpose was introducing the brand, this trip was also very important for understanding the demand and preferences of each market. In the pineapple business, size matters! At PGP, we will produce five different sizes of pineapple, which are classified as sizes 5-10, 5 being the largest and 10 being the smallest. The sizing code correlates to how many pineapples will fit in a box. With our focus on the premium market, which consists of air, ready-to-eat, and high-color container fruit, we have to know each market preference so we distribute to and quote local sellers accordingly. Physically walking the markets allows us to pick up on the localisms not published online and size-up our current position in the market. My SWOT analysis revealed the following:
Strengths: The quality of La Dona fruit is as good or better than any premium fruit available. The reputation of the product is positive; many sellers already knew the product by name and were very willing to do trials direct from our farm. Shelf life is better than initially thought. I found one pallet in Rungis that had been harvested in May and still had decent internal characteristics.
Weaknesses: Our packaging can be improved. We should use a higher ply on the box in order to maintain integrity during transport. Black boxes should be used for all premium fruit.
Opportunities: We did not see any competition from growers in the market. All fruit is sold by importers and there is little emphasis put on the actual source of fruit. This presents a big opportunity to promote the origin of Panama—a name already connected to premium quality.
Threats: Pineapple pricing tends to be lower in summer months as there is significant competition from summer fruits.

Burroteka

We are very excited to announce the official launch of processing at Burroteka! As of July 1st our machines finished installation and initial processing commenced under the supervision of Mebor representatives, who will be on hand through July 8th training our local team. In addition, our procurement team has already delivered 800 cubic meters of timber to the log yard, which are awaiting transformation. Things are finally falling into place and we appreciate the patience of everyone during this hectic development schedule. Despite the delays in permitting, construction, and machine delivery our team has managed to build, staff, source and develop global distribution channels in less than 1 year of breaking ground. During our visits to India and Europe we have already secured buyers with long-term commitments and plan to enter US and Vietanameese markets in the coming months. At this stage we are projecting to process 1200 cubic meters of timber monthly, which equates to approximately 30 containers of transformed wood monthly. In the coming months will be moving to phase two of the development, which will be focused on more finished products, such as dried timber and cutting boards. Keep in mind this facility is a first of its kind in the region and will be the epicenter of teak transformation in the coastal region of Colombia. There is huge upside with this facility and we very proud to open our doors to the world this month.

Pietrasanta

The rains are back and our coconuts are blooming! As previously reported, we witnessed the first flowering in our Principio lot in late January and despite a very dry January-March, the flowering has continued as much-needed rains re-energize the plantation. Many of our investors have emailed us with questions about the widespread droughts throughout Central and South America. It is important to understand that coconut trees are extremely resilient and can withstand severe conditions. Drought conditions are not ideal, however, our team has managed to mitigate the effects and minimize mortality. Our trees held up well through the drought and only the very young trees planted in September of last year were affected more than normal. Our team re-planted approximately 3,500 trees in the Balsal, Barcelona, and Central America lots last month, which represents 8-10% of the total plantation that needed to be replanted. This is still within the normal mortality rate of new plantations, so we have no reason for alarm. The reservoirs are also beginning to build momentum and holding water nicely as we enter our first full year of accumulation. So far we have accumulated over 9,800 cubic meters of water
As we approach the three-year mark of the arrival of the first seeds to Pietrasanta’s nursery, we are beginning the all-important Global GAP certification process as well as harvesting and planning for 2020. During the month of June, we welcomed Fernando Culma to the farm as our new head of coconut operations. Fernando has 15 years of experience in palm and coconut development and is well versed in all phases of palm cultivation, maintenance, and harvest planning. Fernando’s focus for the remainder of the year will be getting the Principio lot to its first commercial harvest. It is anticipated that at least 50% of the initial lots will be in floriation by the end of the year, which should time production approximately 8 months later. The GP agro team is setting up for trials of our new coconut peelers, which arrived from China in early June. We are now preparing local sourcing to begin production in Q4. The expectation is to use local conventional production to establish a small team and operating facility which can be scaled as Pietrasanta’s coconuts come online.

Written by Thomas Connell, Head of Investor Relations


La Dona Pineapple – The Spearhead of Panamanian Exports
Written by Thomas Connell, Head of Investor Relations

Every time I am asked to write a few words, I sit at my computer with a blank sheet and try to gather my thoughts in regards to all that has happened since our last update. I go back through my notes, check my calendar to remember where I’ve been, and then panic sets in as I feel I will never have enough space on the page to cram in the content. The pace has really picked up in 2019.

So like all good stories, let’s start at the beginning and go back to our last update in May. Dax, Oscar and I were in Rotterdam in the early part of the month. This is the single most important hub for fruit distribution in Europe—arguably the world—and I’ve spent a lot of time there this year securing our distribution, working with freight forwarders, and establishing La Dona Fruit Co. so we have the capability to cold store our fruit and then distribute through various channels.

We continue to strengthen our presence in the region and I act as the link between the farm in Panama and the importers and distributors here. With all the hard work that went into capital raising, developing the farm, and harvesting and transporting the fruit, it is immensely satisfying to see La Dona pineapple being so well received in terms of taste and quality in the major markets—something that was never in doubt to us from the outset. This is and will continue to be, an important outlet for La Dona pineapple.

No sooner than I was back in London, I was packing again and heading for South Korea. With only 200 miles separating Seoul from Pyongyang, the capital of North Korea, I was tempted to do a border cross, but that thought soon passed. Our friend Mr. Trump has been quite the statesman this year and without having access to my own Air Force One, I did not want to fall foul of Kim Jong-Un and end up on the Amnesty International list.
I’ve travelled extensively throughout Asia but this trip was a first for me. We had been invited as part of a delegation from Panama to attend the Seoul Hotel and Food Expo at the KINTEX (Korea International Exhibition Center). This was a 4-day event at which we were joined by other groups from Panama that included watermelon growers, artisan coffee and chocolate producers, and some frozen seafood specialists. Panama Exporta, a joint collaboration between the Department of Agriculture and Department of Trade and Industry, did a great job of introducing us and providing networking opportunities in the region.

Much of the pineapple supply in this part of the world comes from the Philippines and Thailand, so you may be asking why we were there. First, since the widening of the Panama Canal in 2016, transit times have reduced down to 17 days, which is in-line with shipping times to Europe.

Second, although these countries are large producers of pineapple, they are also large consumers, so there are gaps in supply at various times in the year. This is also a country where consumers value quality and are prepared to pay a premium. Altogether, these factors make this an attractive region for us.
I met with several interested parties during the event and we reached an agreement with a well-known distributor to start with a trial container, which is going out this week. Provided the fruit arrives in good condition, this will increase to 1-2 containers a week through the end of the year.
An interpreter helped navigate the language barrier as I conducted all my negotiations. We continue working to identify a local agent we can work with as we push further into this new and exciting market.

One area of the supply chain we are really excited about is online platforms that connect producers directly with distributors, eliminating middlemen. In general the fruit industry is playing catch-up with other sectors and the days of handshakes and bits of paper are coming to an end. There are a number of startups swimming around in these waters and it is not for the faint-hearted. You need deep pockets to build out these platforms. However, if you get things right, you can dominate the market. One such group we believe in is Tridge. I have been using them for some time as a resource for pricing and other valuable information. We have been accepted as a verified producer and I’ve been working with them recently on an article, which is to be published next week, entitled: “Rising Demand for High Quality Pineapples from Panama.” We will circulate this to all our investors and readers.

Next up for me is a flight to Hamburg on Sunday to attend a guided tour of the market at 5:45am on Monday morning. That afternoon I fly to Copenhagen to meet with distributors and then on to Helsingborg in Sweden, returning on Wednesday evening. Our efforts thus far have centered on Holland and the Mediterranean region. With an overall reduction in volume of around 12% coming out of Costa Rica this year, demand for alternative supply has been high. Further reductions in land under production in Costa Rica over the next few years and a challenging environment in terms of overall costs at the farm level and logistics have left European distributors scrambling to secure supply. We have earned trust among European importers and continue to seek new partnerships around the world.


HIGHLIGHT

Congratulations to paul Vergara PANAMA GOLDEN PINEAPPLE, COO on his new role as part of the board of the PANAMANIAN FRUIT EXPORT ASSOCIATION. The group is the most powerful lobby association for fruit industry: melon, watermelon, pineapple, pumpkin, and other tropical fruits. Edna Vergara (LA DONA), Paul’s mother was President and Vice President before. Now paul follows on Edna’s steps and continues her legacy. This mayor milestone gets us to have a closer relationship with other growers and top government officials in the country of Panama.


Panama Golden Pineapple Farm Update
Written by Paul Vergara, Panama Golden Pineapple, COO

The summer (dry season) is gone and rains have begun with furious intensity. Two months into the rainy season, we are seeing how the plantation recovers after 5 months of intense summer. Irrigation at the farm helped immensely to minimize impacts of the dry season, but nothing beats pure rainfall. It is great for plants’ development, for the soil, and for our product (the fruit). The mixture of rainfall that occurs during this period is ideal for plant development and fruit development. New areas planted in early 2019 (Lot 13 and Lot 14) are progressing well with all the rainfall received at the beginning of this rainy season.

Last month we began shipping large amounts of air freight fruit. We are now averaging 7,000 kilos per week. In June alone, we shipped 28,000 kilos of air freight fruit to France, Germany and Amsterdam. Our expectation is to easily double this monthly volume of fruit in the next two months. By the end-of-the-year (November/December) peak period for air freight fruit, we could be exporting more than 70,000 kilos per month. Air freight fruit generates close to 54% more gross revenue than sea container fruit for us for every kilo that we ship.

Fruit quality and customer acceptance of this high-quality, premium product has been very good. Our goal is to continue building this business as much as possible. Sea container fruit is leaving weekly, and we are now approaching 45,000 cases exported from February-June of this year. A total of 540,000 kilos was shipped during this period. During the second part of the year, our volume more than triples this amount from July-December, as we begin to harvest the bulk (70%) of the farm.

From July-December, we focus on intense harvesting of the 2019 harvest and soil preparation for the 2020 plantation. Like last year, most of our new plantation will take shape in the second half of the year. We planted around 18 hectares in the first part of the year (January-June) and the remaining 39 hectares will be planted from July-December.

There is lots of work ahead, but that is truly the most rewarding and greatest part of the job: seeing the fruits of our labor from the past 16 months. It is a great time at the farm.


Opportunity, the Elusive Prey
Written by Oscar Baracaldo, Farmfolio’s Co-founder – Head of Operations

Quite often in today’s day and age, it becomes increasingly more difficult to locate opportunities. In life, as in business, finding the right opportunity requires literally (and figuratively) going to new places, as well as the vision to consider an outcome that is yet to be realized—to stay in the right mindset to catch opportunity before that elusive prey escapes in the blink of an eye. Equally as important, it requires a team to share that vision and have the tenacity to bring it to fruition.

The interesting thing about vision is that it continuously changes shape as we further educate and improve ourselves. During this process, parts of the original vision often become less important, and parts that were not that important take a surprisingly key role in the mission set forth. Hence, in order to render the vision, opportunity must continuously shape the mission.

As we kick off Q3, we find ourselves launching not only the La Dona Fruit brand, but also Burroteka, our teak-specialized sawmill. For the purpose of this report, I will focus on Burroteka, a project which was once one of the lesser puzzle pieces of Farmfolio’s vision for Colombia, but has since become a greater part of the picture.

Let’s rewind to April 2016 when Pietrasanta—the 1,200 acre farm located in Monteria, Colombia encompassing a diversified opportunity including +200 hectares of coconut plantation development and an existing 64 ha teak forest—was launched for investment. During that year, we focused on coconut development as the centerpiece of the opportunity. At the same time, we commenced pruning and maintenance of the teak forest—an asset that although very valuable, did not require a big amount of our attention.

By September of that same year, we realized what great potential the teak business had and thanks to close advisors, investors, and market validation, the idea to develop what we all know today as Burroteka took shape. A year later, after developing the business plan, the launch of a second capital raising round took place starting in October 2017 in order to develop the sawmill—an opportunity that became equally as important as the main opportunity: coconuts.

After locating the right property and achieving the project permits, a process that took 4 months, we initiated construction of the facility in October 2018. The big opportunity lies in adding value by creating logistical efficiencies. Since most of the teak leaving the country of Colombia is in log or rough block forms with little or no consistency, the opportunity to create a more consistent and transparent process presented a gap for us to fill, taking the shape of a centralized teak market with an unparalleled value-add for innovative players across the supply chain.

Burroteka Key Upsides

  • Access to over +10,000 hectares of mature teak forests.
  • Direct access to distributors and wholesalers across the US, Europe, and Asia.
  • First centralized log and dimensioned teak yard located in the center of Colombia’s teak region.
  • Transportation advantage—Colombia’s main maritime ports are located just 4 hours by truck from the facility.
  • Technical advantage—top of the line equipment outputs high-volume, precise cuts in both AD (air dried) and KD (kiln dried) forms.
  • Palletized timber products targeted to consumers equipped to take advantage of said logistical upside.
  • Ongoing promotion and development of distribution network involving stakeholders across the supply chain.
  • A multidisciplinary team with more than 35 years of collective experience in the space.

Rendering this opportunity has been by no means a straight line. On the contrary, it has tested our very fiber. The planning, construction, customer relationships, development, forestry auditing, and team building of this project has required us to constantly be on our feet in order to fulfill the task at hand.

Originally set to launch the third week of March, Burroteka officially opens its doors today, with orders already being fulfilled to meet 15 containers during the month of July and 25 monthly containers for the remainder of the year. This represents a monthly average of 40% output efficiency as initially reported on our original projections. Delays are mainly attributed to construction and more heavily weighted towards the fact that the factory from which we purchased our equipment overextended construction of part of our line by three months due to overcommitments from their factory as reported by Mebor. Needless to say, we are doing everything possible to work together with Mebor and hold them accountable for the delays in orders this creates for Burroteka.

As bitter as delays are, we are happy to report that after hard work, trust from our investors, and the resolve of the Burroteka team, this original idea continues to shape our mission to grow and create upsides for all stakeholders involved, staying true to Farmfolio’s mission to connect stakeholders across the agriculture supply chain.

Please stay tuned as we share information on dispatches going out during July and the rest of the year.


Pietrasanta Update
Written by Jessica Valencia

During the last 3 months, we focused applications to control of mite in the most limiting areas of the crop that are rows 1 through 40 located in EL PRINCIPIO LOT (50ha) Since the beginning of June applications have required several activities for the control of the mite and the scale. As of the beginning of June, 10.2% was affected but thanks to applications we are lessening the affected area in order to aid palm trees to improve sunray intake and accelerate the growth rate. Since the rains were delayed this year we’ve also opted to include sulfur-based products in our applications in the case of presence of predators (Beetles mostly).

In the case of the collection and management of predators (beetles), reinforcing inoculants has been an activity that has taken place and developed within large areas like the VISTA HERMOSA lot (80ha).

The solution is filtered and applied every 4 liters of broth per 100 liters of water with the help of a manual back pump; it is applied within 30 days after the preparation of this product. This application is being carried out not only for the control, but also to biologize mineral materials, which assists in the recovery of the soil around the plants and prepares them in the case of attacks from insects (beetles). Making use of sulfates aids by dehydrating the soft zones of the predators.

These changes were presented with preventive management and directed to condition the plant for the reception of the fertilizer, this includes, the management of coverages. Waste disposal in lots which has greatly reduced the presence of predators in pilot lots, paired with inoculation, has produced the expected results. These measures have manifested excellent results in affected plants as showcased in the image below.

2019 Plantings

According to the censuses during past days and the follow-up that has been done to the new plantings, we have detected water accumulation after constant verification in the lots planted during May. Although little is affected, we’ve decided to transplant these plants to a more adequate sector in order to mitigate yellowing in some of these plants. This is, however, a standard practice performed in older lots which are currently yielding positive results

These type of practices are recurrent during the rainy season especially when it comes to young plants which are susceptible to water accumulation which produces rotting. The team is currently redirecting water accumulation in order to mitigate the risk of rotting and minimize transplants. We are keeping a close eye as these plants reach maturity.

Aside from these events which represent a small part of the new plantings we are happy to report that we have reached completion of our planting schedule for the year. We will be reporting the development of the new plants as the year advances.

2018 Plantings

Maintenance work has begun on the different plants planted during 2018. The weeding process has commenced which improves the growth rate of the palm trees, reduces labor, and improves the organic matter area near the plants. Our goal is to reach 2 meters in radius in order to reduce manual weeding labor on the base of the plants and allocating the team to upcoming activities regarding phytosanitary and pollination processes.

 

Incorporation of organic matter into the base of the plants is also providing additional moisture which is very useful given this year’s heatwaves.

2018 Plantings as of Today!

Please stay tuned and reach out to us if you have any questions or ideas!

Sincerely the Farmfolio Team,

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