Global demand is rising while US production is falling. Can this niche crop deliver long-term, reliable returns?
If there’s one thing I’ve learned from writing for Alts, it’s that people love agriculture investments.
At first, that surprised me. Growing food isn’t as ‘sexy’ as investing in private stocks or film finance.
But arguably, that’s agriculture’s greatest strength – it’s tangible, intuitive, and with a straightforward investment thesis that anyone can appreciate.
Today, we’re exploring one of the most intriguing agriculture investments I’ve seen to date: The Walnut Fund.
Walnut production is dominated by China and the US. But this team is taking advantage of prime growing conditions to build plantations in their native Serbia.
Walnut Fund CEO Milan Zikic standing proudly by some of The Walnut Fund’s young saplings.
Led by expert agronomists and entrepreneurs, The Walnut Fund has already developed two plantations.
Now, they’re raising capital to fund a third plantation, offering investors the opportunity to participate in the profits.
In this issue, we’ll explore the ins and outs of The Walnut Fund, looking at:
How health-conscious shoppers have accelerated global demand for walnuts,
Why declining US walnut production could create the opportunity for new entrants,
How investors can effectively analyze an agricultural opportunity like this,
And the potential risks & rewards of The Walnut Fund itself.
We are considering launching an Altea SPV with the Walnut Fund.
Today, this market is mostly dominated by two nuts: almonds and pistachios.
But demand for one overlooked nut has actually grown faster than either of these two.
That's right — walnuts.
Global consumption of walnuts has grown 4.2x since 2001, compared with 3.0x for pistachios and 3.2x for almonds. Data: USDA FAS
Global walnut demand has grown sharply. But global walnut supply remains highly concentrated.
Together, China and California produce over 90% of the world’s walnuts. That means even minor disruptions in these areas can have huge impacts on global supply.
As a result, California walnut production is estimated to have fallen 19% YoY.
Yes, China has stepped in to fill this gap. But most of the country’s walnut production is consumed domestically. They only recently became a net exporter of the product.
Here’s the bottom line: there’s an intriguing opportunity for more diversified global supply to help feed the world’s ravenous walnut demand.
And it’s exactly this opportunity that The Walnut Fund is built to address.
Farming walnuts in Serbia
The Walnut Fund is an agricultural investment firm focused on developing and managing walnut plantations in Serbia.
They’ve already successfully raised over $2 million in funding to develop two plantations, located in Rekovac and Molovin.
Now, they’re raising capital to fund a third in Panonija, having already secured $1.4 million for the site.
The Walnut Fund was officially launched in 2020, breaking ground on their first collectively-funded plantation in 2022.
How it works:
The Walnut Fund raises funds from investors.
The team uses this money to plant walnut saplings, develop irrigation systems, buy fertilizer, and generally develop the plantation.
After ~5 years when the trees start producing nuts, The Walnut Fund sells them wholesale, splitting the profits with investors.
And this isn’t a one-time deal. Investors get to participate in the walnut profits for a 40-year period.
The team expects all saplings to be in the ground by the end of the year, with walnut production at the site starting around 2030.
Recently, I was able to speak with Milan Zikic, CEO and co-founder of The Walnut Fund.
Interestingly, Milan said the idea for the fund came to him almost by accident.
Years ago, a friend asked Milan for help planting a backyard walnut tree, offering some of the walnuts in return once the tree matured.
A born entrepreneur, Milan began crunching the numbers and realized how lucrative nut farming could be.
Some more research uncovered that Serbia actually has a terrific climate for walnut farming. The country is already estimated to have around 2 million walnut trees.
After joining forces with two expert agronomists from the University of Novi Sad (both named Milos), The Walnut Fund was born.
The fund is rounded out by three other team members focused on marketing and business operations.
The fund focuses specifically on Chandler walnut trees, which are notable for their high productivity and long lifespan.
Although the fund’s plantations are still too young to produce nuts, Milan anticipates the first sales to take place by 2027.
When that occurs, 100% of the fund’s profits will go toward recouping initial investor capital.
After investors break even, profits will be split 50/50 between the fund and investors.
Additional details:
Each tree costs $200, although investors can get 1 tree free, bringing the effective price per tree to $180. There are ~12,000 trees remaining for sale at the Panonija site.
All trees are fully insured in the event of natural disasters. If an investor’s tree fails, the fund will replace it at no additional charge.
If investors want to cancel their tree purchase, they have up to 30 days to get a full refund.
Finally, at the end of the 40-year profit period, the fund will sell the trees as timber. Investors will also participate in that sale 50/50.
And, of course, investors are free to visit the plantation at any time – get in touch with Milan to set up a visit!
On their website, The Walnut Fund advertises 20% average annual returns – but the reality is more nuanced.
We’ll start with the actual cash flow forecasts that the fund provided us, taking these numbers as given.
The forecasts assume a $1.08 million upfront investment made in year 1 to purchase 6,000 trees, with walnuts being produced in year 5 and reaching full maturity in year 11.
Based on the plantation’s anticipated income and expenses, the fund projects roughly $258K in annual investor dividends when the trees reach maturity (under the ‘realistic’ scenario). That translates into an annual yield of ~24% on the initial investment.
However, this is an incomplete way to calculate projected returns.
The biggest reason why? Investors don’t get their capital returned at the end of the investment period.
As a result, we need to use an IRR approach to effectively calculate returns.
The Walnut Fund offers a 40-year return period. Assuming that the trees generate a set amount of revenue annually once they hit maturity, The Walnut Fund’s projections show an IRR of 13.23% under their baseline scenario.
Under the fund’s ‘optimistic’ and ‘pessimistic’ scenarios, projected IRRs are 22.67% and 7.32%, respectively.
Note: the trees do have some salvage value at the end of the period when they can be sold as timber, which I’ve included. But this value isn’t very high.
The Walnut Fund estimates the approximate salvage value per tree at about $7.21 for use as firewood, and investors are only entitled to half the sale price.
According to Milan, it’s possible that the trees might fetch a higher price if they can be sold for furniture production.
Is the 'realistic' scenario realistic?
The Walnut Fund refers to this projection as the fund’s ‘realistic’ scenario – but how realistic is it, anyway?
The analysis assumes two key variables:
An annual walnut yield of 25kg/tree at maturity, and
A consistent sale price of $4.00/kilo.
25kg is roughly in line with estimatesI’veseen for Chandler trees, and might actually be conservative.
What about $4 per kg? This seems plausible, although perhaps slightly optimistic.
The value of inshell walnut exports from the US averaged about $3.50/kg last year, although this also includes costs like inland transport and insurance.
Meanwhile, the Merlo Farming Group lists Chandler inshell sale prices for growers at just ~$2.20/kg
Most US walnuts are exported from California, and the average value of these exports has climbed in recent years Data: USITC DataWeb
A more realistic sale price might be $3/kg. That would drop projected returns to 10.73%.
And there’s one final issue to consider – taxes.
In Serbia, foreign investors have to pay a 15% capital gains tax. (Not tax advice – double-check with your own tax pros.)
After an investor has recouped their initial capital, this tax comes into effect, dropping IRR to 10.01%.
Moreover, the fund doesn’t withhold these taxes. Investors will have to settle them on their own.
There’s no guarantee actual performance will match these projections. And we’d need to consult with an independent walnut expert to vet our assumptions.
But this IRR analysis is the right way to think about the returns of an investment like this.
Want to conduct your own analysis? The Walnut Fund provided a copy of their cashflow projections for investors to explore. Download it below 👇
When I spoke with Milan, he was candid about the risks involved in this project.
Yes, the potential returns could be lucrative – but there’s still a lot that could go wrong. Walnut prices could drop, yields could be lower than anticipated, or unexpected weather could disrupt tree growth.
The Panonija plantation reportedly gets an average of 195 days of sun each year – but weather can be fickle. Image: The Walnut Fund on Instagram
Those are the straightforward investment risks. But there are also some operational risks worth considering:
1) Investments are structured as a loan
In a traditional fund with this type of profit participation, investors purchase Limited Partnership interests, a form of equity ownership.
But The Walnut Fund is different. Instead, investments are structured as an interest-free loan to the fund itself – technically, investors are creditors.
I asked Milan about this, and he explained that it would be too administratively complex to have thousands of shareholders in the company and that the loan format is easier to scale.
Frankly, this structure appears unusual to me. It could also open up some unnecessary operational risks.
For example: If The Walnut Fund raises a new round of debt capital in a first-lien position, existing investors could be pushed down the capital stack, potentially impairing both their security and income (a not uncommon strategy in distressed debt situations).
It’s important to stress that the contract jurisdiction is in Croatia, an EU country, and that I’m not saying such a scenario is likely to happen.
But being a debtholder definitely isn’t the same thing as being a shareholder.
2) Walnut earnings are net of expenses
Second, it’s worth emphasizing that walnut earnings are shared with investors net of the company’s expenses.
This isn’t necessarily unusual – it’s the way investing in every single public stock works, for instance.
But investors don’t simply earn a royalty on walnut sales. So if the fund’s expenses climb, returns could suffer.
Milan confirmed that expenses at the company’s two previous locations aligned with previous expectations.
Even so, there are line items that I’m surprised not to see in the projections.
For instance, we know that the fund has a head office in Serbia. But I don’t see rental expenses listed anywhere.
Neither do I see any salaries. It’s not at all unusual for startup employees to work mostly for equity, but effectively zero labor expenses (aside from ~$20k annually for “Maintenance & Agro Consulting”) is somewhat surprising.
3) Institutional & environmental factors could pose risks
The Walnut Fund’s plantations are located in Serbia.
At the risk of understating things, Serbia doesn’t have the strongest track record when it comes to either political stability or institutional transparency:
Serbia ranks high on scores of corruption perception, in the range of countries like Algeria and the Dominican Republic.
While Serbia is still a democracy, think tank Freedom House notes that Serbia’s ruling party “has steadily eroded political rights and civil liberties” in recent years.
In fact, student protests are currently underway calling for fresh elections in the country. All this paints a complex picture of the security of property rights for foreign investors.
Meanwhile, climate concerns in the region only add to these political considerations.
Drought frequency in Serbia has already doubled over the last 60 years. While The Walnut Fund has a proprietary irrigation system, water scarcity could lead to crop failures or unexpectedly high costs.
Droughts have become a more common occurrence in Serbia, as evidenced by the increasing frequency of extreme drought (ED) or severe drought (SD) conditions. Image: Djurdjević et al
Closing thoughts
In the intro, I discussed why agricultural investments are so appealing. But they can also be a double-edged sword.
See, it’s rare for agricultural firms to have a genuine ‘competitive moat.’ These are commodity products, after all. One bushel of wheat (or bag of walnuts) is basically the same as any other.
As a result, most sellers are effectively price takers. If pricing is strong, profits will flow. But if not, returns can disappoint.
Here’s why this matters for The Walnut Fund: We can talk all day about whether walnut prices will rise or fall, but this is largely outside anyone’s control.
As a result, the fund’s biggest differentiators will likely be in terms of cost control, crop efficiency, and operational execution.
And that’s exactly why we spent so much time today on careful analysis and due diligence. Commodity products just don’t leave much margin for error!
This due diligence we’ll continue as we explore whether investing in The Walnut Fund makes sense through an Altea SPV. 🌳
This issue was written by Brian Flaherty and edited by Stefan von Imhof
The Walnut Fund was able to review an early draft of this article. Brian and Stefan made final editorial decisions.
Neither the authors nor Alts currently holds shares or interest in The Walnut Fund.
We are considering launching an Altea SPV with the Walnut Fund.
Big thanks to Alts Community member Dr. Tigran K for helping diligence this opportunity
This issue is a sponsored deep dive, meaning Alts has been paid to write an independent analysis of The Walnut Fund. The Walnut Fund has agreed to offer a deep look at its business, offerings, and operations. The Walnut Fund is also a sponsor of Alts, but our research is neutral and unbiased. This should not be considered financial, legal, tax, or investment advice, but rather an independent analysis to help readers make their own investment decisions. All opinions expressed here are ours, and ours alone. We hope you find it informative and fair.
