Organic grower finds green in the desert

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The Deming-based organic vegetable operation Preferred Produce is raking in the green with a new $20 million contract to supply high-quality specialty vegetables to a national distributor.

The buyer has agreed to finance a two-acre expansion of the Deming greenhouse operation in 2015 to provide capacity to grow $4 million worth of produce annually over five years exclusively for its distribution business, said Preferred Produce founder and CEO Matthew Stong.

In addition, if the first expansion and supply contract goes well, the customer plans to finance four more two-acre expansions each year after 2016, potentially growing the value of the contract fivefold.

Organic tomatoes ripen on the vine in one of the Preferred Produce greenhouses in Deming. (Courtesy of Preferred Produce)

Organic tomatoes ripen on the vine in one of the Preferred Produce greenhouses in Deming. (Courtesy of Preferred Produce)

“Every two acres of greenhouse expansion adds another $20 million to the contract, so in five years we could be at $100 million,” Stong told the Journal . “This is a long-term contract with automatic extensions of up to 40 years.”

The specialty produce is ultimately consumed by health-conscious consumers looking for particularly nutritious, hard-to-get vegetables that often have medicinal benefits, Stong said. The distributor sells fresh produce wholesale and also refines it into food and health supplements for retailers.

Distributor under wraps

The identity of the distributor is confidential for another three to six months, until it locks in contracts with retailers to buy produce and supplements derived from the agreement with Preferred Produce, Stong said.

That’s because competition is intense among suppliers of these products, which are particularly popular among Asian markets in the U.S., and contracting a domestic producer to grow them represents a new strategy.

“The company imports its specialty vegetables from other countries,” Stong said. “They came to us to start growing it here so they don’t have to import anymore.”

The distributor is based in the Northeast U.S. and has been in operation for about 100 years, Stong said.

Preferred Produce founder and co-owner Matthew Stong, left, meets with Guo Anping and Wang Qiang visiting from China. (Courtesy of Preferred Produce )

Preferred Produce founder and co-owner Matthew Stong, left, meets with Guo Anping and Wang Qiang visiting from China. (Courtesy of Preferred Produce )

“They don’t want us to sell to anyone else,” he said. “They made a long-term agreement with Preferred Produce so they won’t have to worry about competitors getting produce from us.”

The company sought out Preferred Produce because of the Deming operation’s strategy of delivering fresh produce to market within a maximum of 48 hours after harvest and usually as soon as eight to 12 hours. That greatly increases the nutritional content and flavor of produce.

In addition, southern New Mexico’s climate is uniquely suited to grow some of the specialty vegetables that the company distributes.

“New Mexico is an ideal place for many of these products,” Stong said. “We have the right altitude and humidity here. In fact, for some things, this will become only the second place in the entire world where that type of produce is grown.”

Path to growth

Workers construct a new greenhouse at the Preferred Produce operation in Deming. (Courtesy of Preferred Produce)

Workers construct a new greenhouse at the Preferred Produce operation in Deming. (Courtesy of Preferred Produce)

The contract provides a solid growth path for the future, said John Chavez, president of the New Mexico Angels investment group.

The Angels, together with New Mexico Community Capital and New Mexico Mezzanine Partners, have invested about $1.45 million in Preferred Produce since spring 2012.

“This deal provides a long-term, stable revenue stream to continue growing the business in Deming and in other states,” Chavez said. “It makes Preferred Produce a bankable company. Now, it won’t need to go out and raise high-cost capital to expand.”

The company began operating its first one-acre greenhouse in Deming in 2011. It opened a second one-acre operation there in the fall after the state completed needed inspections for an occupancy permit. That license had been held up for about eight months, because Luna County officials only had provided a residency permit to Preferred Produce, rather than a commercial permit, but the issue was resolved by August, Stong said.

Meanwhile, the company opened two more greenhouses in northern California and Virginia last year, and it’s planning to launch operations in Missouri and Minnesota.

Its revenue grew from about $600,000 in 2012 to $1.4 million last year, although it would have earned about $800,000 more had its second greenhouse in Deming opened in early 2013 as planned, Stong said.

Terry Brunner, state director for the U.S. Department of Agriculture’s Rural Development – which awarded a $50,000 grant to Preferred Produce in 2012 – said the company is carving a green niche in the desert.

“It’s a very unique operation,” Brunner said. “They’re using brackish water (highly saline groundwater) to grow fresh produce in the middle of Luna County – one of the driest places in the state. It shows that agricultural production can happen even in New Mexico’s arid areas.”