ProducePay, a digital platform designed to bring greater transparency to the $1.5 trillion fresh produce industry, is shifting from a capital-heavy fintech business toward an agtech and data services model, says CEO Patrick McCullough, who expects the firm to become profitable by the year end.
The Los Angeles-based firm, which historically made most of its money by advancing working capital to farms and produce buyers, recently announced $140 million in new equity (led by Avenue Capital and Astanor) and financing capacity. This includes a new facility backed by outside investors that will reduce the amount of ProducePay’s own capital required to finance growers.
“We think this is just a monster pivot that sets up the right strategy and ultimately the right financial returns for our investors,” McCullough tells AgFunderNews.
ProducePay previously peaked at around $800 million in annual advances to growers and has deployed roughly $2.5 billion over its lifetime, according to McCullough. With its new capital structure in place, ProducePay should be able to advance $1 billion next year while layering a growing technology business on top that integrates payments, financing, visibility, and program management across the fresh produce supply chain.
“We think 2027 will be a breakout year.”
“By combining technology, data and financial solutions, ProducePay is creating greater transparency and predictability across the fresh produce supply chain.” George Powlick, partner, Astanor
From balance-sheet capital to outside investors
Under the new structure, ProducePay retains only “a little skin in the game,” while bringing in outside investors via a new lending fund supported by The i80 Group, AgAide, Thiele Capital Management and Millenium Capital to provide most of the equity capital underpinning the facility.
ProducePay says the facility could ultimately reach $300 million, with another capital provider expected to join shortly.
Under the new facility, around 15% of the capital sits in what McCullough calls the “haircut equity layer,” supplied by AgAide, Millennium and a small contribution from ProducePay, with i80 Group providing the remaining 85% in debt financing.
That equity layer takes the first losses if growers default, providing protection to i80, McCullough explains. “There’s no such thing as a zero-risk deal. But most of the risk is worn by haircut equity.”
To persuade outside investors to back the model, ProducePay was able to show them 11 years of performance data detailing every dollar advanced to growers and every dollar repaid, he says.
“Occasionally there is a default which we have to write off,” he acknowledges, but claims losses have historically been very low.
“Every back leverage, every debt provider to this facility in the history of our existence, has been repaid their full principal and their full interest. No one’s ever lost a dollar on this asset. They also see that when we were in the haircut equity position, we’ve made double digit equity returns or better even in the worst year.”
That track record has transformed short-term working capital for perishable crops into something mainstream financial institutions can invest in, he claims.
“We’ve created what we believe is a financeable asset class.”
Turning farm-level data into a new revenue stream
But the financing model is only part of the story, he says, with ProducePay’s future lying in the data and technology infrastructure “we originally built to defend our own capital.”
Because it was funding crops before they had been harvested by providing advances to growers, effectively pre-buying the crop, ProducePay deployed agronomists into fields to monitor how its money was being used and whether crops were progressing as expected.
By 2023, he says, “We realized we could really benefit ourselves and our customers by structuring that data and solving problems with it,” a revelation that powered the firm’s data services to large clients such as berry supplier Fruitist and table grape specialist Four Star Fruit.
For example, agronomists can photograph grapes in the field, take sugar readings and assess whether the fruit meets retailer specifications before it is harvested. That information can then be shared with importers and retailers.
In one case, McCullough says Costco examined data provided by ProducePay and agreed to accept grapes early although they did not meet one element of its normal specification, because supply was tight.
“We were able to send that signal digitally from the field in real time. Costco said, ‘Harvest early. It meets my spec everywhere but length, and I don’t care about length. I don’t have any fruit, so I’ll waive the tier one spec on length and I’ll give you tier one pricing.’”
Who pays for what?
Retailers want three things above all else, says McCullough: supply 52 weeks a year, consistently high quality, and price stability. And that requires greater visibility at every part of the supply chain. “It doesn’t even have to be the lowest price; we’ve seen retailers pay 5x normal pricing when there’s no supply and we’ve seen growers destroy fruit when there’s oversupply and no market.”
To address the lack of visibility, ProducePay has developed tools to track produce at invoice and pallet level, monitoring factors including location, temperature, humidity and vibration and tracing product back to the farm and field.
Generally, says McCullough, “we see the farmer paying for the capital and the importer paying for the intelligence. It’s a new line of revenue for us that’s just getting off the ground, but we are optimistic.”
While in some cases ProducePay can help firms streamline supply chains by connecting stakeholders and taking out the middleman, in most cases it’s more about aligning parties along the supply chain, he says.
“We see some categories where farms should be able to sell direct to retail, but in most categories the farm needs a re-packer or a cross-border transactor that deserves to exist. We’re just anti speculators and arbitrage houses who don’t really add value.”
Fresh produce ‘in a constant state of instability’
ProducePay is now trying to unbundle its offerings, says McCullough. “We think our real role in the future is an agtech service provider, not a capital provider. We really believe this is a data play at the end of the day.”
The strategy reflects the unique volatility of fresh produce, which creates financing challenges for growers and inefficiencies across the supply chain, he says.
Unlike cereal, meat or other food categories where production can be adjusted more readily in response to demand or products can be stored until market conditions change, the supply chain for watermelons, tomatoes, and table grapes is “in a constant state of instability,” he observes.
“We learned a couple years ago that there is 117% annual price volatility [in fresh produce]. That’s more than cryptocurrency. That’s more than oil and gas. That’s more than any category.”
The problem is exacerbated by the fact that fresh produce remains largely a spot market, he argues. Unlike grains, livestock or even electricity, there are few mechanisms enabling growers and buyers to lock in prices far in advance.
“We haven’t organized our industry to have fixed forward pricing to take the price volatility out. This chaos I’m describing, unfortunately, is why produce farms are on the brink of death every other year.”
What’s next?
The firm, which has historically focused on Latin American producers supplying buyers in North America, is now expanding into Europe, Africa and the Middle East, says McCullough.
The basic model is largely transferable, although legal structures differ, while European buyers place particularly strong emphasis on pesticide residues and food safety.
Ultimately, he says, “We’re making the market for capital because of our know-how, but we think a lot of people can provide capital.”
What differentiates ProducePay is “having agronomists all over the world turning non-digital information into structured data and doing something intelligent with it.
“Eventually [I can envisage] a blockchain that brings real-time supply and demand together, or fixed pricing on a go-forward basis for perishable produce. Those are big goals that we aspire to play a role in accomplishing. But we can’t do it all ourselves. We need the whole industry to play ball.”
