Streaming Toward Success

By adapting the metal-streaming business model for agriculture, Input Capital is changing the way farmers access funding

Brad Farquhar 2014_v3
“We got started because we were willing to look at things differently, and we capitalized on relationships with investors, partners, and farmers.” —Brad Farquhar, Executive VP, CFO & Cofounder

The meeting wasn’t going well. Brad Farquhar was making his pitch to an investment banker in Toronto and could tell that he was losing ground. “His eyes were glazing over because he didn’t understand our world,” Farquhar recalls. After testing different models over several months, he was in the bank trying to secure funds to create a company to change the way that farmers fund their working capital. To help his pitch, Farquhar—who had recently become a shareholder in a silver-mining company—turned to that industry for an example. That’s when a lightbulb went on. Mining had demonstrated a successful transactional model known as streaming. In that moment, Farquhar realized he could adapt streaming for the world of agriculture.

A landowner who discovers gold on his property needs to build a $50 million mine via public share or debt. Companies such as Silver Wheaton employ an altruistic and alternative method through which they prebuy a miner’s silver by-product at a fixed rate and then resell it later at market rates. “We looked at streaming and knew that we could make a big up-front payment to a farmer and then pay him when he delivers the crop to us,” Farquhar says. “Canada is the world capital of canola farming, and we are essentially the world’s first canola-streaming company.”

5 Questions
with Brad Farquhar

What does innovation mean to your company?
Thinking outside the box and taking unconnected facts and connecting them in new ways.

Is there a technology, trend, or idea that’s driving your company forward?
The idea that started our company continues to move us forward, and that’s a new model in agricultural commodities. We just want to scale what we’re doing, but we are also always thinking about new and interesting ways to apply what we’re doing.

How do you innovate on a day-to-day basis?
You make sure that you don’t get stuck thinking that what you’ve got is the best it can be.

How do you cultivate innovation within your workforce?
We have 10 people in the office and 4 salespeople in the field. It’s a careful balance because, to some extent, you don’t want too much freelance innovation taking place in sales. They need a solid product, but they have to know that they have the freedom to meet a need in a new way. We tell sales not to say no right away but to instead investigate new ways to meet a need.

How can a company encourage innovation without breaking the bank?
Innovation hasn’t been about R&D. It’s been much more of creating a new idea to structure a deal in a new and creative way that meets a need.

Farquhar was never the obvious candidate to innovate in agriculture, but foundational experiences taught him to look at everything in a new way. He grew up travelling Europe and the Caribbean as his father took overseas contracts. By the age of 19, he had visited 35 countries. He returned to Canada and started a career in public policy, financial planning, and communications. Along the way, he completed a master’s degree in election administration. In 2003, Farquhar’s boss—the favourite to win—lost a major election. It was time to change careers.

That’s when Farquhar and his partner Doug Emsley struck a deal to buy farmland. “We knew it was cheap and undervalued but would rise in price eventually,” Farquhar says. They formed a company, raised $3 million, and purchased 12,000 acres of land. Between 2006 and 2013, the duo expanded the portfolio to 120,000 acres, which later sold to the Canada Pension Plan for $128 million and earned early investors just under 20 percent annualized over eight years. This early success became the foundation for Farquhar’s canola-streaming company, known as Input Capital Corp.

For the model to work, Input would have to create a large network of farmers. Farmers don’t go public themselves, and every generation needs to recapitalize so that children can buy out their parents when they need to retire. Usually those farmers mortgage the land and borrow money for inputs from a grain elevator that buys their production. When they use trade credit, funds become available at the last minute, when a farmer needs to buy fertilizer and seed, but at the highest price of the season. If that farmer had cash, he could take advantage of seasonal discounts.

Farquhar, Emsley, and a third partner, Gord Nystuen, approached the farmers who rented land from Farquhar and Emsley’s first company and struck a deal. “We got started because we were willing to look at things differently, and we capitalized on relationships with investors, partners, and farmers,” Farquhar says. With one foot in capital markets and another in agriculture, he helped Input raise $111 million through private investors and a public offering. Input Capital uses that money to provide up-front cash so that farmers can buy fertilizer and seed at a discount while optimizing their working capital. The farmers, in turn, deliver a portion of their yield to grain elevators, and the grain companies pay Input Capital. “We’re large enough that we can negotiate better pricing with grain companies than farmers can alone,” Farquhar explains.

The model is working, and Input Capital has the attention of markets and farmers alike. In the fourth quarter of 2014, the company doubled its clients from 21 to 42. With fewer than 50 farmers, Input Capital’s potential is huge—Canada is home to more than 50,000 canola farmers—and its leaders recently announced the largest capital deployment quarter in the history of the company. In a market that produces $10 billion in annual exports and one quarter of all farm cash receipts in Canada, Input Capital is finding its niche.