Final Report for CNE08-053
Project Information
The objectives of the Pilot Investment Project were to provide financing to at least two farmers, but more important, to use the process to inform the creation and design of alternative financing programs. We planned to provide debt financing, test the farmer application process, and begin to establish relationships with lenders and investors. These objectives have been met. We are pleased to report that we moved beyond pilot financing, as originally envisioned, and established an alternative financing program, the Microloan Fund for New England Farmers, in partnership with Strolling of the Heifers and Chittenden Bank. We have completed one round of financing. As of June 2009, five farmers have received loans averaging $8,000, and we are preparing for a second round at the end of 2009 and for expansion of the program to other parts of New England. The report Lessons Learned: 2009 Microloan Fund for New England Farmers is the result of a midyear evaluation of the program.
In order to accomplish the objectives of the project, outlined in the summary, The Carrot Project set seven different performance targets:
1) Establish interest, likelihood of commitment, and financing parameters from investors to finance a deal in the range of $25,000 to $75,000, with a return on investment of between 1 percent and 5 percent for each pilot;
2)Review farmer application process, modify as necessary, and finalize;
3)Partner with farm support organizations and lenders to set up financing services;
4)Begin application process, including a short initial application, and for chosen applicants, a detailed business plan with budget projections, collateral, and cash flow;
5)Complete application process, including business plan reviews, feedback to investor, possible phone conversation with farmer, investor, and member of reviewing team, and possible site visit by The Carrot Project staff, accompanied by the investor;
6)Decide on and finalize financing agreements between farmer, lender, and investor;
7)Draft Lessons Learned report.
Cooperators
Research
The methods changed early in the project because of the change in goals from pilot financing of two farms to establishing a financing program. This change was in response to two different situations. First, The Carrot Project had completed sufficient research and gained as much knowledge as was likely from continuing with the pilots. The Carrot Project Advisory Board agreed that the organization should stop research and proceed with setting up financing programs, and developed a working model for such a program. Second, The Carrot Project was contacted by Strolling of the Heifers, which was seeking a partner with which to establish a microloan fund for small farmers unable to access traditional financing.
The goal of the established loan fund, the Microloan Fund for New England Farmers, is to address the difficulty that some New England farmers have in obtaining credit for projects that improve their operations and increase their income, as well as to meet emergency needs. The loan fund’s primary focus is on loans to small-sized farms that use sustainable or organic methods (or are moving toward them), and that are selling at least a portion of their products to local markets. Eligibility is limited to farms with 250 or fewer acres in active production, and annual gross revenue of $250,000 or less. Loan applications for amounts ranging from $1,000 to $10,000, for terms of up to five years, are accepted.
To manage the project, the original project team was expanded to include staff from Strolling of the Heifers and Chittenden Bank. After several months of negotiation, the roles of each organization were established and described in a partnership agreement, which — combined with an investors’ agreement and the mission statement of the Microloan Fund for New England Farmers — provided the timeline and structure for the program. A Program Oversight Committee was set up to oversee program design, implementation, and evaluation. The committee included staff from Strolling of the Heifers and Chittenden Bank, and staff and a board member from The Carrot Project. Though all three partners were involved with program development and oversight, the project built upon the strengths of the different organizations. For example, Strolling of the Heifers was responsible for general publicity and for producing benefit concerts to build the assets of the fund for the loan loss reserve account; Chittenden Bank handled loan underwriting, loan closings, and documentation, and providing insured-deposit accounts for investors; and The Carrot Project was responsible for coordinating and facilitating the program, including recruiting volunteers for the Loan Review Committee, farmer outreach, and securing investor commitments.
The other key committee is the Loan Review Committee, which comprises six members selected to represent farmers (both produce and livestock), agricultural lenders, and agricultural business technical assistance experts. The role of the Loan Review Committee is to review prequalified applicants to the microloan fund and refer qualified borrowers to Chittenden Bank.
Because we have just begun to use the relationships and processes set up for the Microloan Fund for New England Farmers, it is difficult to assess its ultimate impact. However, based on the performance targets for the project, the loan fund has had a greater impact than was predicted for the proposed pilot project.
The first performance target was to establish interest and likelihood of investments in the range of $25,000 to $75,000. Because the capital needed to establish a loan fund is different from that for carrying out pilots, we secured a larger amount of capital, and the mechanism of the investments’ use has changed. Strolling of the Heifers has raised $50,000 in donations for the program and expects to continue holding benefit concerts to support expansion of the program. These donations are used for a loan loss reserve account that is important for investor participation because it acts as a buffer between the investment and any potential borrower defaults. The Carrot Project has secured investments of $110,000 (total) from five private investors. The investments are for terms of either three or five years, and each investor is receiving a market-rate return through a certificate of deposit at Chittenden Bank. The interest rates to investors range from 1–2 percent, reflecting deposit date and maturity of the CD. The total amount of donations and investments slightly exceeded the goal of $150,000, which positions us well to expand the program to other regions and continue beyond the first year.
The second performance target — to review the farmer application process, modify as necessary, and finalize — is complete. Modifications of the process, from the 2007 pilot investment carried out by The Carrot Project, were minimal. We have established loan review committees for both Vermont and Western Massachusetts, and the application is available online at www.thecarrotproject.org/for_farmers. The Loan Review Committee includes members who will review applicants from both states; they are Poppy Davis, a farm business specialist; Jon Jaffe, First Pioneer Farm Credit, committee chair for both Massachusetts and Vermont; Lee Straw, Straw’s Farm, he was the farm participant in our first pilot investment in 2007; and Dorothy Suput, The Carrot Project. The Massachusetts Loan Review Committee also includes Rick Chandler, Massachusetts Department of Agricultural Resources, and Benneth Phelps, Enterprise Farm. The Vermont-based committee includes Morgan Greenwood Rilling, Yankee Farm Credit, and Helen Robb, Robb Farm. After the first round of loans, the Loan Review Committee has suggested a few changes to improve their ability to review loan applications, but the general process and format remain intact.
The third performance target was to partner with farm support organizations and lenders to set up financing services. This step is complete. We have a service agreement with Strolling of the Heifers and Chittenden Bank to administer the Microloan Fund for New England Farmers. We are making loans for $10,000 or less, for terms of up to five years. In 2009, applications will be limited to farms located in Vermont or in four Western Massachusetts counties (Berkshire, Hampshire, Hampden, and Franklin). The Carrot Project has also begun discussions with lenders to expand the program to other parts of New England, likely Eastern Massachusetts and Maine, for 2010.
The fourth, fifth, and sixth performance targets — to carry out the application process, review, and then close loans — are complete. In January 2009, the application process was opened and farmer outreach and publicity began. In March 2009, the Loan Review Committee reviewed loan applications and The Carrot Project completed site visits. Approved loans were then forwarded to Chittenden Bank and the first five loans were closed in April and May of 2009. The primary difference between what we originally planned and what occurred is that the current program makes loans on an ongoing basis, and each investor is not involved in finalization of the financing agreements with the farmers. Instead, each investor has authorized the microloan fund to use deposits to secure loans, based on the loan program criteria.
The immediate impact of this project is a revolving $150,000 microloan fund for small farmers in Western Massachusetts and Vermont that is set up to increase in value and to expand to other parts of New England. Five farmers have received loans, averaging $8,000, for terms from nine months to five years. The farms included three CSAs, one goat dairy (which produces cheese and other value-added products), and one small dairy-and-greenhouse operation. All farms had both retail and wholesale accounts and three were certified organic.
All applicants applied for financing for capital improvements or equipment. Financed projects and the expected outcomes include: 1) building of a cold room (equipped with a ColdBot cooling unit) and a timber-framed farmstand close to a parking area to increase flexibility around harvest days, optimize harvest schedule at peak ripeness, enable short-term storage, improve the CSA pickup routine, and create a “storefront” open to the general public; 2) purchase of a Cole Planet Jr. seeder, Buddingh wire basket weeder, potato planter, and three-bottom plough to improve labor efficiency and soil conservation; 3) purchase of two commercial ranges to increase production of goat-milk caramels; 4) capitalization and purchase of a new tractor to help realize improved profitability by expanding production and sales in CSA, wholesale, and farmers’ markets; and 5) installation of a septic system and bathroom facilities required by building codes, and reroofing of 2/3 of a barn (not yet restored), to advance the goal of establishing an onsite micro dairy plant.
Lessons Learned: 2009 Microloan Fund for New England Farmers the final performance target of this project provides initial reflections on implementation of the Microloan Fund for New England Farmers. The report provides insights into program setup and implementation for others doing similar work. It reflects evaluation comments from farmers that applied and received financing; farmers that inquired about the program, but didn’t apply; Loan Review Committee members, and the Program Oversight Committee, and is organized into sections related to the functions and results of the Program Oversight Committee, the Loan Review Committee, and the application process. Implementation of the program went exceedingly well, yet there is room for improvement in administrative processes and documentation, farmer outreach (especially in Massachusetts), strengthening technical assistance, and the loan application and process (by lengthening the application period and possibly modifying some of the application questions to better understand a farmers debt position.
There are two major accomplishments to date: first, our movement from launching a limited pilot program to the establishment of agreements for an alternative financing program that can grow and continue after the end of the granting period. The second is positive feedback from participating farmers, saying they would recommend or already had recommended the microloan fund, without hesitation, to other farmers. In the words of one farmer that received financing, “There is a generation of young people eager to farm, however they do not know where to turn; a good place for your program.”
Education & Outreach Activities and Participation Summary
Participation Summary:
Lessons Learned 2009: Microloan Fund for New England Farmers provides initial reflections on implementation of the Microloan Fund for New England Farmers. The report was completed immediately prior to filing this final report; active publicity has not begun as of this writing. However, we plan to begin publicizing the report, as indicated in the project proposal, during the summer of 2009. Part of the outreach plan is to seek general publicity for the project and to participate in panel discussions that offer the opportunity to speak about this work. At this time, an environmental network of New York and New England public radio stations is in the process of interviewing participating farmers and representatives of the three partnering organizations to develop a story for broadcast. The deadline for the story is the end of June and the broadcast schedule is unavailable at this time. The Sustainable Agriculture and Food System Funders Network has asked The Carrot Project to participate in a topical conference call late this summer about financing for beginning farmers. As part of this presentation, we will have the opportunity to share aspects of the Lessons Learned report. We have also requested to do a workshop at the Massachusetts Northeast Organic Farming Association Winter Conference, and are planning an educational workshop for farmers this fall, probably in Amherst, Massachusetts. These presentations will not focus on the lessons learned, but will be specifically designed for farmers who are interested in learning more about business and financial management technical assistance, and/or considering whether financing is an option for their businesses. The content of these workshops will reflect implementation of the lessons learned resulting from this project. We cannot assess the effectiveness of these efforts at this time.
Besides the work to be carried out in the project Incubation, Expansion, and Learning: The Microloan Fund for New England Farmers, The Carrot Project is aware of another need. We will work to coordinate more efficiently, and increase the availability of, non-course business technical assistance in Massachusetts, and to supplement the existing trainings and resources in Vermont and Massachusetts with information to help farmers decide if credit is in their best interests. Business planning courses are primarily focused on the development of a business plan and financial management tools. A training gap exists — helping farmers answer why and how to access financing programs.
Project Outcomes
There are two major accomplishments to date: first, our movement from launching a limited pilot program to the establishment of agreements for an alternative financing program that can grow and continue after the end of the granting period. The second is positive feedback from participating farmers, saying they would recommend or already had recommended the microloan fund, without hesitation, to other farmers. In the words of one farmer that received financing, “There is a generation of young people eager to farm, however they do not know where to turn; a good place for your program.”.
Potential Contributions
In addition to the potential contribution from the Lessons Learned report, which will increase knowledge in this area and assist others interested in doing similar work, the project will likely have other positive impacts. As the first loans were made just this spring, it is too soon to say how the resulting improvements will affect the farms’ customers or surrounding communities. We intend to follow up with the farmers a year after the loans closed, at an intermediary point, and again when the loans reach maturity, to understand how these projects impact a farm’s viability and its larger community.
This work is described in the project Incubation, Expansion, and Learning: The Microloan Fund for New England Farmers, funded by a 2009 NESARE Sustainable Communities Grant program. In addition, expansion of the project to different regions of New England will provide a more nuanced understanding of setting up and operating financing programs with different types of lenders, and varying degrees of lender involvement and availability of business technical assistance. Careful documentation and analysis of information and lessons learned will contribute to the availability of better knowledge in this area. Other aspects of this project that have potential for broader impact include: 1) mechanisms to involve new sources of capital to support small farms; 2) establishment of a program that can grow to serve a greater number of farmers by increasing the capital available and by expansion to other regions; 3) increased evidence of the need for a second loan fund providing larger amounts of financing; and 4) the organizational knowledge and track record to make such a loan fund more likely.
Future Recommendations
Besides the work to be carried out in the project Incubation, Expansion, and Learning: The Microloan Fund for New England Farmers, The Carrot Project is aware of another need. We will work to coordinate more efficiently, and increase the availability of, non-course business technical assistance in Massachusetts, and to supplement the existing trainings and resources in Vermont and Massachusetts with information to help farmers decide if credit is in their best interests. Business planning courses are primarily focused on the development of a business plan and financial management tools. A training gap exists — helping farmers answer why and how to access financing programs.