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Amy Or | August 23, 2013
The Associates Wades Into Water-Based Farming
Hong Kong private equity firm the Associates is putting into action the phrase “from farm to table.”
The firm, founded by former Carlyle Group Director Edward Man, has made a minority investment in Urban Farms Ltd., a Hong Kong-based hydroponics farming company that grows vegetables and fruits in water, instead of in soil, for commercial use. It also provides consulting services to companies looking to establish such farms.
Terms of the investment weren’t disclosed, but the Associates–which doesn’t have a fund and raises money on a deal-by-deal basis–writes equity checks of between $5 million to $30 million per portfolio company.
Lifestyle investment firm the Associates earlier this year invested in Spanish restaurant Catalunya, a 5,000-square-foot restaurant in the Wan Chai district. Catalunya brings back the chefs that ran Michelin three-starred Catalonian restaurant El Bulli near Barcelona, which closed in 2011.
Catalunya uses the produce from Urban Farms, as do other high-end restaurants in the city, such as Italian restaurant Otto e Mezzo Bombana in Central and Cafe Gray Deluxe at the Upper House hotel led by chef Gray Kunz, whose Manhattan outpost closed in 2008.
Mr. Man said chefs like the freshness, safety and proximity of Urban Farms’ produce.
“The next best alternative or the status quo is European import. Often times, they are unstable in terms of delivery and quality, as whenever you ship from Europe it takes two weeks from farm to table and there’d be 30% to 70% wastage,” he said.
An added plus for water-based agriculture is that there isn’t any silt.
“For Urban Farms, the produce don’t need to cleaned. Whereas for a bag of import, one needs to trim it, wash it and dry it. It’s very time-consuming,” Mr. Man said.
The Associates’s investment thesis in Urban Farm is twofold: growing food demand and consumers’ taste for protein.
According to the U.S. Department of Agriculture, a combination of a 2.3 billion increase in global population by 2050, increased meat consumption–where seven pounds of feed is needed to produce one pound of beef–and the use of some crops as raw materials for biofuels has pushed food prices higher and threatens food security, especially for lower-income consumers in food-deficit countries.
Hydroponics farming takes away the limitations of traditional farming. Viable even in a factory setting, water-based farming, with water recycling, requires 90% less irrigation water and is nonintrusive to the ecosystem. As this type of farming can be done in any environment with the right lighting, water and air filtration systems, crops can be grown between 15 to 20 days and at places that are closer to consumers, thus leaving smaller carbon footprints from their transportation.
Established in 2011, Urban Farms was founded with the acquisition of a Japanese company that had done research on water-based farming. The company has since built two tomato and strawberry greenhouse farms in Japan and an indoor cleanroom vegetable farm in Hong Kong. Mr. Man said the 15,000-square-feet facility in Hong Kong has the capacity to feed 1,000 households of four every day.
Proceeds from the Associates’ investment, and that of potential new investors the private equity firm may bring, will be used to acquire permanent farmlands in Hong Kong and elsewhere. Mr. Man said the new facility–which will add at least 125,000 square feet–will expand the company’s production capacity and act as a showroom where potential growers and customers can see hydroponics in action.
The company has already secured a partnership with the government of Hokkaido in Japan to introduce high-tech farming to areas affected by the tsunami in 2011.
Urban Farms also intends to expand to markets with heavy pollution and a shortage of farmlands but still have a wealthy urban population that cares about having a healthy diet.
“The society has embarked on an organic movement, which is going back to primitive farming based on having a clean environment. But our environment is no longer clean, and it’s hard to ensure the entire chain of production is organic,” Mr. Man said.
Hong Kong, Singapore and major cities in China, Japan and Thailand are touted as possible locations to expand into, the Associates said.