A heavy loss in Fidelity’s pursuit of the perfect tomato
To the list of concerns facing Ned Johnson’s Fidelity — say, rising interest rates, higher oil prices, a slowdown in China — add this: whiteflies.
It has been a summer of discontent for Backyard Farms, the mutual fund magnate’s beloved tomato business, which suffered a mammoth infestation that forced it to destroy all 420,000 plants last month.
The farm, which is primarily owned by Fidelity Investments employees, grows 27 million pounds of tomatoes year-round in a pair of greenhouses stretching 42 acres in a tiny mill town in Maine. The nine-year-old business has fast become New England’s largest purveyor of premium tomatoes, sold by about 30 retailers, from Walmart to Whole Foods. The Magellan Fund isn’t the only thing that Johnson did well.
The whitefly, which resembles a small white moth, is a common greenhouse pest, darting in through windows and vents. It snacks on foliage, coating the leaves with a sticky white residue that shrivels them and attracts black mold to the fruit. The result is a mess.
Heading into the summer, workers began noticing the scourge and followed a standard procedure of releasing predator pests, such as the Encarsia wasp, into the greenhouses, as well as spraying pesticides.
This protocol usually works, though not this time.
So they gave up, stopped watering the plants, and watched them die. Destroying an entire crop is unheard of in the industry.
“Somebody messed up,” said Gene Giacomelli, a University of Arizona agriculture professor and one of the country’s foremost experts on greenhouse technology.
Employees of Fidelity were early investors in Backyard Farms, back when it was a mere PowerPoint presentation.
The storied Boston-based financial institution is best known for managing $4.2 trillion in client assets. But for decades, it has operated a separate arm, Devonshire Investors, giving Fidelity executives an outlet to build or acquire companies beyond their core financial empire.
Included in this portfolio are the Seaport Hotel, home building supplier ProBuild, and, until recently, livery service BostonCoach, which was just sold. The story goes that Ned Johnson started the service after being frustrated by the long waits for cabs at Logan Airport.
Legend has it that Johnson’s interest in Backyard Farms grew out of a love of tomatoes and a quest to grow the perfect one. The 83-year-old Fidelity chief executive and chairman developed a taste for an exquisite orb while stationed in Europe as a young soldier in the Army in the 1950s.
Is Johnson obsessed with tomatoes?
Not so, says a Fidelity spokesman, who described the chairman as focused on all his investments, be it tomatoes, technology, or stocks and bonds.
It has been a while since Jody Adams, the chef-owner of Italian restaurant Rialto, has seen Johnson eating at her Cambridge establishment, but she is well aware of his craving for a palate-pleasing tomato.
“Tomatoes for a New Englander have always been a precious kind of commodity, and also the Proustian experience of summer,” Adams said. “It’s exciting to have someone who has a very sophisticated mind in business and finance and can think about improving the quality of local food.”
Money has been no object in Fidelity’s pursuit of the perfect tomato, which Adams describes as “bright in color,” “full, plump, but not firm,” with “a little bit of give when you touch it.” So far, Fidelity executives have sunk an estimated $70 million into the operation, according to people familiar with the enterprise. Johnson has made several visits to the Maine farm, a four-hour drive from Boston.
“He is a passionate guy,” said Backyard Farms’ founding CEO, Paul Sellew, who has since left to start another company. “He wants everything done to the best and highest standards.”
If Johnson is seeking perfection, he picked the right formula: greenhouse hydroponics. It’s a high-tech way to grow a plant in a controlled environment where the temperature is always warm, 60 to 80 degrees, light is always plentiful, and the plants grow in water.
The tomatoes are harvested year-round, even when there’s two feet of snow, meaning they taste as good in January as they do at a Fourth of July cookout.
A walk through the Backyard Farms greenhouses is described as an unforgettable, even magical, experience. Vines stretch toward what appears to be the open sky for as far as the eye can see in all directions, row after row revealing tomatoes in all different stages of life. The plants grow an average of two inches a day, and they flower with the help of 48,000 bumblebees. A full cycle, from launch to harvest, takes about eight weeks.
“When I looked out, it almost looked like ‘The Wizard of Oz’ and you see the Emerald City,” recalled a former Maine governor, John Baldacci, of his first visit to Backyard Farms. His administration approved tax breaks and grants that helped the company set up shop in Maine. Cheap land, cheap electricity, and plenty of labor also sealed the deal.
The business model is as appetizing as one of the farm’s beefsteak tomatoes. Greenhouse tomatoes are bred to grow faster, and conditions yield harvests 10 times as big as field- grown tomatoes. Backyards produces three varieties: traditional TOVs (tomatoes on vines), cocktail, and beefsteak. They are picked red and ripe, shipped still on the vine, and are in stores within 24 hours. No bland, green tennis balls here.
For sure, the production costs are higher in a greenhouse than in a field, what with construction and all the electricity, but the fruits of the labor command premium prices. Last spring, Backyard Farms cocktail tomatoes cost $5.99 a pound, $2 to $3 more than others. It crushed tomatoes from Florida and Mexico, winning a Globe food section taste test in March. Judges described the Backyard Farms offering as “sweet and juicy,” with “some pleasing tomatoe-y scents.”
Consumers have eaten up the new-age produce, perhaps recalling languorous summers in every bite of a tomato raised in a glass house.
Backyard Farms is part of a $3 billion greenhouse produce market nationwide, with greenhouse tomatoes accounting for 70 percent of the US retail market for fresh tomatoes, up from 35 percent from around 2005, according to Rabobank International.
But as Johnson and Fidelity are discovering, even the climate-controlled environment can be as risky as betting on a hot tech stock.
Backyard Farms won’t say how much the infestation has cost it, and it’s not clear how soon it will replant. Are the whiteflies really gone? Nobody really knows.
It’s not just the stock market that’s unpredictable these days.