The Latin American plans of Frutura, the firm that bought the Chilean Subsole
"You only make an investment once you feel comfortable with the associated risks," says biologist David Krause, who heads Frutura, the US investment company that has specialized in the fruit business. Based in Los Angeles, the firm has made Latin America a strategic area for its growth. "We did the corresponding analyzes and we feel quite comfortable with Latin America."
A few days ago, the executive with a long career in the fruit sector in his country finalized the acquisition of Subsole, Chile's largest exporter of table grapes to the United States, Europe and Asia. This company adds to the acquisitions that he had already made: in June 2021 he had bought Agrícola Don Ricardo from Peru and Dayka & Hackett, from California. In October he added the also American TerraFresh Organics. The most recent had been a few weeks ago: in mid-March 2022, it announced the acquisition of the Uruguayan Citrícola Salteña, known for its Caputto brand, after extensive financial problems that led the firm to an auction between creditors, for an amount of US$36.4 million.
Frutura, founded just in 2021, is a subsidiary of Renewable Resources Group (RRG), a financial group dedicated to the creation of private equity funds for agricultural assets, land, conservation, water and renewable energy.
In an exclusive interview with Redagricola, Krause, who took over together with the founding of the firm, explains why they bet on South America and the plans with their acquisitions, also ensuring that they will maintain the organizational structures and cultures of the acquired companies, without intervening in what the returned virtuous. He also comments on the complex global context due to the logistics crisis affecting ports, the armed conflict in Europe that has triggered input prices, and the political uncertainties in Chile and Peru.
When and why did you decide to invest in Subsole?
Subsole and Frutura were in talks before I joined Frutura. So it has been a very long courtship, but we both knew that it was going to be strategic for both companies. Subsole has an excellent reputation, a fantastic management team. They have everything we wanted for our platform from the Chilean perspective. So for us it was a natural alternative and they represent a great acquisition. It is someone we know and with a reputation big enough to have scale in the crops that we like and that we are going to manage. It just made sense to us.
How does it operate and how did Frutura finance itself to acquire these companies?
The easiest way to understand it is that Frutura is an independent platform, with a governing board of directors. We don't disclose our full list of investors, but Frutura's funding comes mainly from Renewable Resources Group (RRG), and they are directly involved, obviously at board level, but Frutura operates independently. Although we are a young company, one year old, we are not “young” because the businesses we have acquired have long and deep histories and excellent customer relationships. So our return holding company is new, but the businesses we own are not.
Do you have plans to continue growing in acquisitions in South America or are you also looking at other parts of the world?
The short answer is both. We love Latin America from a productive base. You have great crops, wonderful businesses, and we believe we have a unique opportunity to add value to supply by bringing several different companies together to have a much more powerful supply for our customers, both in North America and in other parts of the world. But we also have other growth plans.
How do you plan to integrate the operation of these companies, as a single entity or independently, understanding that Agrícola Don Ricardo and Subsole have similar products or services, but at different times of the year?
The strategy is first and foremost to buy big companies with the products we like and then figure out how we connect them. So, Agrícola Don Ricardo in Peru and the Peruvian window supply have similar crops for the transition that are then transferred to Chile and Subsole. And then we go back to Dayka & Hackett in California, and so we become a virtuous circle of supply fifty-two weeks a year to any one of our customers. That is the power of Frutura: to add all these different businesses. Although we will not integrate them in the classic way, but rather we will be a collaboration. I would call it a collaboration, because they will operate independently, but we collaborate to jointly serve our clients through the platform.
Will it then be about synergies rather than a rigid direction?
First of all, Frutura is made up of less than a dozen workers, including me, because our design is like that and for the same reason we seek to acquire mature companies. What one could imagine are the opportunities that exist within the Frutura platform to work together in purchasing, to work together in maritime transport, in how we aggregate and provide better service to our customers by aligning our products and supply for a better shipping, but we are not going to dictate to any business unit that “you have to do this, this and this”. We want to work together, but each will run their business independently. This is an interesting concept, because the idea is to buy good companies because they have great teams, a great culture, and very often you make the mistake of bringing them together and changing their cultures, and you finally break that wonderful magic. The secret ingredient of our model is to not do that at all, just to let them continue to do what they do best, but to create relationships between sister entities that they may not have had before.
Will they focus on adding or suggesting new possibilities to these companies in the region in terms of production?
We intend to continue in more or less the same. We have six to seven crops that we really like and are focused on. Our biggest position is table grapes, obviously with Agrícola Don Ricardo and Subsole. And we have a fairly important citrus position. Then blueberries, avocados and mangoes. And finally, cherries are very interesting for us with the acquisition of Subsole. I don't think we will expand beyond those crops unless new opportunities come along. We have these six crops that we are very focused on. But that does not mean that if the market gives us a signal, as long as it is an emerging crop with good growth and consumption, we will definitely evaluate it.
Does that also imply thinking about growing in the varietal offer of genetic improvement programs?
In fact, all the plans that we have made in the companies that we have acquired are planting new varieties of blueberries, new varieties of table grapes, and we are planting new orchards all the time to ensure that our product mix is optimal for customers.
Will there be a reconfiguration of the export plan, new destinations?
We do not plan to make any major changes. We'll be looking to make small incremental changes where we can optimize with customers, maybe, but there won't be any mainstream changes. With our Frutura platform, if a client really wants to do business because we have Peru, Chile, Uruguay, they can do business with a company that has multiple units, and that allows us to expand our business with that particular client. But there will be no general changes as to whether we will go to the UK market, Asia or the US. Companies will continue to supply the customers they already have.
Peru and Chile are experiencing periods of political uncertainty. Did you see the risks of investing in Chile and Peru despite the turmoil in the region?
The question is very timely given the environment in which we are living. But I will say this to start: I live in the United States and our politics is not much healthier. In every transaction we do, we assess the risks, and the risks come from a number of different factors, but you only invest once you are comfortable with the risks associated with that investment. In our case, we feel quite comfortable with Latin America. Yes, there are risks. There is a changing political landscape, but it is not our role to comment on that; We are not citizens of the country, but we want to be good stewards in the countries where we do business. We understand that there is risk and we are perfectly comfortable with it. And again, the opportunities with this type of business are wonderful, we have to keep looking for opportunities and keep moving forward.
The focus on sustainability has been key for you, but can you keep understanding that there is an armed conflict between Russia and Ukraine, as well as a logistics crisis that has triggered the prices of shipments and supplies?
We are looking at everything and we believe there are opportunities to improve many areas of the business in what we would call environmental, social and governance (ESG) responsibility. We are analyzing all the aspects and we believe that there are opportunities to improve in each one of those areas, we are trying to seek and obtain the B Company certification for Frutura. We are looking at everything and everywhere. We want to be an exemplary employer, we want to treat our employees and have excellent benefits, we want to be socially responsible, we want to be conservators of water resources worldwide. That's why we present the best practices we know. We want to be early adopters of those practices and implement them across the platform. It is really important not only for our parent company, but also for Frutura that we are leaders in this space and show a path of forward thinking. It is not easy in the current environment, there are pressures everywhere. Increased fuel costs, logistical challenges. But you have to stay committed to doing the right thing, and that's what we plan to do.
One of the inputs most affected by the crises that are shaking the world today are fertilizers. How are you approaching this? Are you looking for alternatives?
We are already using and deploying many of these bio-inputs, such as using compost, which is very good for the planet, recycling organic material for gardens, which is offsetting and reducing our need for traditional nitrogen. Our irrigation systems supply very precise amounts of water and therefore reduced amounts of nitrogen because the plant absorbs what we give it. So we're already focused on that. Is there an opportunity to improve? Safely. And this gives us a great incentive since the cost of fertilizers is increasing enormously. We are now even more focused on how we optimize this area.
Subsole invested in solar energy to power its operation. Is this the kind of thing you're looking for as a company?
If you look at the businesses we've acquired, they already believe in these practices. Therefore, it was very natural for us at Frutura, because they already believe in the same things that we do. We see opportunities to improve and grow that, whether it's solar or other alternatives that benefit nature. But there is a unique opportunity to be better. So it's key for us to buy or acquire companies that already believe in these things and that we can easily expand.
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