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Q&A: Following a $38m raise, ProducePay discusses growth, partnerships, and the boogeyman of the supply chain

February 21, 2024

Often nowadays, supply chain tech discussions mention “cutting out the middlemen,” those intermediaries that sit between growers and retailers. This group has garnered a slew of negative labels in recent years, from inefficient to exploitative.

Keely Wachs, senior VP of marketing at ProducePay, says this negative characterization of middlemen is unfair, and that instead of targeting them, agrifood needs to reckon with the real boogeyman of the supply chain: the volatile nature of produce.

During a recent catch-up session with AgFunderNews, Wachs explained how the current supply chain makes already-delicate produce crops even more vulnerable, short-changing all players involved from retailers right down to the growers.

ProducePay has put a lot of muscle into fixing these challenges, growing its platform that gives growers access to financing and distribution. Wachs says 2023 was an especially momentous year that included a high-profile partnership with Four Star Fruit, one of the world’s largest growers and shippers of table grapes.

Early in 2024, the US-based company raised a $38 million Series D led by Syngenta Group Ventures.

Below, Wachs (KW) discusses the company’s growth and how it relates to the problems and solutions of the fresh produce supply chain.

Image credit: iStock

AgFunderNews (AFN): Get us up to speed on your biggest milestones from the last year.

KW: 2023 was an incredible year for us. We brought on a new CEO [Patrick McCullough] at the very end of 2022. But Pablo [Borquez Schwarzbeck], our founder, continues to be the heart of the business. We started as a way to help farmers and we exist today to make farmers successful.

Last year alone I think we did close to $6 billion in terms of GMV [gross market value]. What that means is, in terms of working capital, we were able to support $6 billion worth of harvest, making sure that ultimately the growers get paid. Up until last year I think we had done close to $3 billion for all of the first nine years of our [company’s] life, so we basically doubled it in one year. That gives you a sense of the scale of how our business really took off.

It took off in two ways. One was selling our standalone services, which is our Pre-Season Financing, our Quick-Pay Financing and our Trading.

But what really changed last year was we started building programs in partnership with integrated suppliers.

For example, with our Four Star program, we bundled all of our services and in doing so we really found a completely new way of building fresh produce supply chains.

AFN: The Four Star partnership garnered a lot of attention. How is that helping the fresh produce supply chain?

KW: The way things have always worked, you would have a grower and a buyer. That buyer [worked] most likely with some intermediary: a distributor or vertically integrated supplier.

The grower gets no line of sight and what happens to their produce after they sell it. They may or may not even get paid because the produce may be rejected. The grower historically has borne all of the risk in the entire supply chain: pre harvest, during harvest, and then post harvest.

Through these programs [with Four Star and others], we’ve created what we call a new shared pricing risk model.

The large retailers want year-round supply of high-quality produce, so when you and I go into the store, those grapes better be there and be perfect every single time. If they’re not, that’s a problem for retailers because fresh produce is a basket maker for them. They differentiate with their produce.

If you go into a store and the good grapes aren’t there, or they’re not fresh, you’re probably going to go to another store. [The problem] is not a lost sale on those grapes. The problem is the lost sale — another $150–$200, you’re spending on everything else. So retailers want fresh, high-quality produce year round. That’s really hard to do.

[What retailers are doing now] is partnering with Four Star, the largest producer, grower and distributor of fresh table grapes in the US. They said, “Four Star, we want you to build this 52-week supply chain for us and we don’t want any headaches, we just want to ensure you’re going to have great table grapes at delivery when we want them.”

Then Four Star was like, “We only produce in the US and a little bit in Mexico, what are we going to do for six months out of the year?”

So [Four Star] came to us to tap into our network of growers in Mexico, Chile and Peru and form this 52-week program.

We use our pre-season funding to plant varietals and help growers grow more. We use Quick-Pay to make sure that the growers get paid right away, which is a big deal. We want to attract all those growers to participate in the program. Lastly, we are going to use our agronomists who are on the ground to make sure we can say with confidence that when produce is ready to ship, it’s meeting that quality spec.

A view of ProducePay’s platform. Image credit: ProducePay

AFN: Any sense of how effective that partnership has been?

KW: The largest retailer in the US typically had about a 9% rejection rate [of grapes]. That’s millions of dollars in grapes. We brought it down to 0%.

How it worked was, we had our agronomist on the ground saying, “Here’s a grape, it’s undersized, do you want it or not?” The retailer has the right to choose, and if they don’t want it, we find a secondary buyer for that grape.

The grower knows that they have a party in us that’s enforcing that spec and quality along the way. If it’s shipping from Peru or Chile it could be three to five weeks, less for Mexico. They know they’re going to get paid because there’s been assurance of that the entire way. Then we use Quick-Pay to pay them.

It’s really exciting because it’s hard, because we’re asking for behavioral change. But when you sit down and talk with all the stakeholders involved and you clearly articulate the value proposition to them, it kind of just blows their mind.

It’s been a huge shift for us because our mission has always been around sustainability and addressing food waste. In aggregate we were doing that to some level, but with these programs, it is immediately measurable.

AFN: ProducePay’s recent raise suggests there’s increased interest in supply chain tech. Why is this accelerating now?

KW: The volatility [of produce] is getting worse. A lot of that is [because of] climate change. You saw what happened in California with grapes.

All of the supply chain is being massively disrupted. How we stabilize it is critical for everyone, from consumer to grower.

The other driver is consumer demand for sustainable products. We can address food waste, carbon footprint. Also, in order for us to fund any growers, they have to meet stringent ESG standards. Last year we rejected 18 deals because the grower couldn’t meet those standards.

AFN: What about the middlemen? Should we cut those out, as some folks in agrifood suggest?

KW: When you add all the intermediaries in the middle to the process, what you really get is lots of speculation. And speculation is a boom-and-bust game. The grower sells to some intermediary and the intermediary holds purposely to try to maximize profit. That’s a contributing factor to food waste.

Also, the industry has gotten so sophisticated in the use of cold-storage technology, that a product is sitting in cold storage somewhere for six months, moving around to different places, before it’s ever consumed. It takes a lot of CO2 to keep fresh produce from perishing. So if we can eliminate a lot of that speculating to eventually get to market, we eliminate a lot of that waste.

There’s been a lot of conversation creating some negative perceptions around these middlemen. I think it’s unfair. These are just people that are trying to do right.

All of this intermediary infrastructure has been built up in response to the true boogeyman: the volatile nature of produce and the unpredictable nature of produce.

By pricing, fresh produce is the most volatile commodity in the world. It has about a 100% price variability on any given year — and that’s on average; some are 300% or 500%.

For context, crude oil has about a 41% price volatility. Soy and corn are 16% and 15%.

There are a lot of reasons [fresh produce] is highly volatile. One, it’s highly perishable. Besides the cold storage (which works in some ways and in some ways doesn’t), there’s no way of storing it like you can with other commodities.

So all these middlemen came into the world to help kind of address that perishability and unpredictability of demand. But in doing so, they’ve added to the waste and the carbon challenge, not by design but just kind of as a byproduct. Of course the speculative nature also contributes to and kind of worsens that volatility.

We’re really focused on addressing the volatility itself, the source of the problem.

What’s next for partnerships?

KW: We’re in advanced stages on several other commodities, and we’ll be announcing those in the coming months. We’re getting incredible feedback from the retailers and other integrated suppliers that want to do similar things.

In 2024, we’re going to be pushing into Latin America, into Europe, into other parts of the world where folks are farming and growing. What we see is that the boogeyman volatility has always existed globally.

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