Getting a Handle on the Barriers to Financing Sustainable Agriculture

Final Report for LNC00-200

Project Type: Research and Education
Funds awarded in 2000: $69,043.00
Projected End Date: 12/31/2003
Region: North Central
State: Minnesota
Project Coordinator:
Carolyn van Schaik
Land Stewardship Project
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Project Information


The almost 600 results of surveyed sustainable farmers, agriculture educators, and agriculture lenders in Minnesota and Wisconsin suggest that farmers are more optimistic about their enterprises than lenders are about financing them. Most farmer respondents felt they are at least as profitable as conventional counterparts, though just 2% said they keep enterprise records to prove it. A third of lender respondents and a quarter of the educators felt they didn’t know enough to judge the profitability of sustainable farming; most of each group had not been to a sustainable agriculture-related training in the past five years. Lenders and educators alike indicated they were open to working with alternative farmer/clients, but the majority of farmer respondents indicated they weren’t getting that message at the bank and few said they sought financial help from educators. Follow-up round table discussions punctuated the interest in smarter financing along with needs ranging from the particulars of cheese-making to those of business plans. A separate study confirmed a glaring dearth of benchmark information related to rotational grazing and organic management.



Lack of financing for sustainable agriculture is a big problem, if anecdotal evidence from farmers, bankers, and agricultural educators is a fair indication. Family-sized farms make significant contributions to the economic and social fabric of a community, and bankers are a vital part of those same small towns. Successful farms managed in a sustainable fashion are a function of value-added, locally-based entrepreneurship. However, lenders say that farmer/entrepreneur business plans are poorly written with little track record or substantiating data to show the viability of a new way of making the farm pay. Farmers charge that lenders don’t know about alternative farming methods, telling them, instead, to get bigger or find a job in town.

Some bankers are beginning to acknowledge that their assumptions about agriculture are problematic. Portfolio analyses suggest that the larger, conventional farming enterprises are no longer necessarily the good credit risks they once were (internal report). With significant numbers of farmers leaving the business (1997 Census of Agriculture), a few lenders suggest this is a good time to look beyond the high-input corn and bean farmer and the loan threshold s/he represents (personal communication). Similarly, in some rural communities - suffering from the loss of their traditional agriculture base - Main Street is moving over for the products of innovative farming that contribute environmental and social capital as well as real dollars into a local economy. Thus, with farmers, bankers, and their towns poised to do things differently, facilitated dialogue, current information, and stronger relationships might help ensure positive change.

This project built upon related SARE-funded work in Wisconsin (Grazing Education for Educators and Bankers, ENC 98-036.1) by proposing an attempt to unearth finance-related myths and misunderstandings affecting the sustainable agriculture and new- farmer communities. Lenders and farmers alike face difficult economic realities that shape their respective decisions, but what keeps them from conducting mutually fruitful business? Is the problem simply one of language, or of ‘wearing the other shoe’ long enough to understand its owner? Does the unfamiliarity of grass-farming or cheese processing, for example, make a loan application a non-starter? Is it the lack of enterprise data? Is the loan simply not profitable for the bank? Or as one farmer proposed, is it that lenders are informed by conventional agriculture press as opposed to publications describing more sustainable, or at least alternative, means of farming?

These questions set the stage for an exploration of the real problems behind sustainable agriculture financing, which can build soil, contribute to the economy, and as one of many multiple benefits, even be an asset at the local bank. The issue is likely to continue to be problematic, given the overwhelming strength of conventional agriculture. But this seemed a good, if overdue, moment to address its roots and therefore the sources of solutions.

That there are biases, assumptions, and myths about the accessibility of financing for alternative agriculture enterprises seems evident from an informal survey of farmers, lenders, agriculture educators, economists, and others who work in the sustainable agriculture field. Farmers understand relatively little of bankers’ needs, and most bankers have incentives to handle only what represents traditional agriculture. Language -- bank jargon, farmer talk -- is a barrier. The specifics of alternative, family-sized farming are unknown to lenders, and the inside of a bank is a daunting destination for many farmers, including those with a low-input mindset.

However, we assumed that:

Farmers would do a better job with their business plans if they knew how.

Bankers would be interested in non-traditional farming enterprises if they had supporting data to consider.

Worsening conditions in the banking and farming communities offer a window of opportunity for each to look the other over again.

Bankers and farmers are vital parts of their respective communities and have much to learn from and teach one another.

Project Objectives:

We proposed to unearth some of the myths and assumptions behind the presumed low rate of lending to alternative agricultural endeavors. In the short-term, we sought a better understanding of banker and farmer needs, the language of each group, what questions each needs to ask and be prepared to answer, and the role of perhaps unfamiliar farming enterprises at the bank, on the farm, and in the community.

From this work in the long run, bank portfolio analyses will reflect greater activity in sustainable agriculture categories and these enterprises will be stronger because of sound business plan preparation. The environmental and social benefits of a financed sustainable agricultural community will be evidenced in its improved natural resource base and strengthened rural network.

To do this well, principle activities included:

a. three targeted surveys of lenders, farmers, and agricultural educators in Minnesota and Wisconsin to identify credit barriers in a substantive way;
b. facilitated round-table discussions on key findings of the survey and what-next scenarios;
c. the compilation and dissemination of existing benchmark data on alternative agriculture enterprises;
d. and incorporation of a soon-to-be-released manual on business plans, sample plans, data, resources, and success stories in presentations.

This project assumed that stewardship of our agricultural resource base is best done in partnership: as much as a truly sustainable agriculture is increasingly a matter of small businesses, bankers and family farmers would be better off understanding one another. The motive driving this work was – and still is -- a desire to help bankers view alternative farming ideas as opportunities and to help farmers address the expressed needs of their would-be lenders so that money flows toward good stewardship on working farm land.


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Materials and methods:

Three targeted surveys were delivered by post or e-mail beginning in April 2002 to approximately 1,550 sustainable farmers, agriculture lenders, and agriculture educators in Minnesota and Wisconsin. The Farmer Survey was 27 questions long; the Lender Survey was 37 questions long; and the Educator Survey was 32 questions long. Questions were presented in a variety of styles, including choosing a single answer, choosing all that apply, and short fill-ins. Some questions appeared on all three surveys; other questions were asked in different ways within one survey to differentiate or clarify. Answers included an option to reflect the inappropriateness of the question so that the analysis reflected maximum information and minimal assumptions.

A subcommittee of the steering committee designed each survey. Surveys then passed the muster of target audience readers, the University of Minnesota Human Subjects Review Board, and statistical design rigor. Readers were disqualified from taking the final survey. The University of Minnesota review were kept current until all analysis was complete.

Recipient address lists were gathered with appropriate permission from the following groups:

Coulee Region Organic Crop Producer Pool/Wisconsin dairy farmers
Land Stewardship Project farmer members
Pride of the Prairie participants
Independent Bankers Association of MN
WI Farm Service Agency (FSA)
MN Farm Business Management Program instructors
WI Farm Business and Production Management Program instructors
MN Extension Service
WI Extension

Each survey was accompanied with a cover letter from the project coordinator explaining the details of the survey, issues pertaining to confidentiality, and contact information. The host organization also provided a letter of support. Surveys were coded so that a second round could be sent just to non-respondents. This second round significantly improved the response rate in each group. As a side note, the e-mailed surveys did not garner a significantly different response than did those surveys conducted by mail. They were, however, less costly due to savings in postage and some printing. E-mailed responses still had to be printed in order for the data to be entered, but recycled paper was employed for this purpose.

A coding manual was designed for each survey to facilitate data entry. Descriptive analysis has been conducted for each survey.

The Farmer Survey garnered a 39% response to 750 mailed surveys to Coulee Region Organic Crop Producer Pool/Wisconsin dairy farmers, Land Stewardship Project farmer members, and Pride of the Prairie participants. The Lender Survey received a 31% response to 566 surveys sent by mail to the Independent Bankers Association of MN and to WI Farm Service Agency (FSA), and by e-mail to MN FSA. The Educator Survey received an approximate 38% response to approximately 290 surveys sent by mail to MN Farm Business Management Program instructors and by e-mail to WI Farm Business and Production Management Program instructors, MN Extension Service, and WI Extension. The approximation is due to as-yet unconfirmed numbers of surveys e-mailed to Wisconsin educator groups by their administrators.

Three round table discussions took place in April 2003. Two of the invitation-only events were held in Minnesota and the third event occurred in western Wisconsin. Participants were found by word-of-mouth and stringent attempts were made to get all three targeted groups to each table. Nearly 90 participants reviewed the survey results at these sessions, discussed their own roles in the larger question of credit, and met members of the other two groups over coffee and rolls. In Minnesota, the sessions were held at a farm and above a local restaurant; the Wisconsin event was hosted by an Extension agent at his office building.

A “Report on the availability of benchmarking statistics for sustainable farm management practices,” was researched and prepared by a consulting economist. The goal was to research and document statistical sources of data that can be used by both farmers and lenders alike to develop projected cash flow and income statements - the basis of most loan applications and business/marketing plans. The review targeted two sustainable management practices -- rotational grazing and organic farming. It will be used extensively in follow-up trainings and field events and will be put on LSP’s web site.

Two press releases to date have been issued with considerable coverage on a local and national scale. The project coordinator co-wrote a lengthy piece with University of Minnesota agricultural economist Richard Levins that was published in the American Bankers Association Journal of Agricultural Lending. The overall project led to successful funding of a grant to provide training for farmers, lenders, and educators.

Research results and discussion:

(NOTE: “Key Points at a Glance” accompanies the paper version of this report. All survey findings can be found at

With more than 80% of surveyed lenders and agriculture educators in Minnesota and Wisconsin putting their money on biotechnology as the wave of the future, where does that leave sustainable farmers, two-thirds of whom said they feel bright about their future?

Not getting loans at the bank, unless some practical education takes place on all fronts. Smarter credit goes for both lenders and the farmers who want it, but where does anecdotal evidence part ways with reality in understanding how best to get there? Land Stewardship Project and partners turned to a series of surveys to learn more.

Nearly 1600 sustainable farmers, agriculture educators (Extension and Farm Business Management/Production (FBM/P) instructors), and agriculture lenders have been surveyed since April 2002. The goal was to unveil and substantiate some of the ideas that these groups have about farming beyond conventional agriculture and related lending issues. The long-term goal is a more enlightened approach to credit by farmers who live by more than one bottom line, their would-be lenders, and the educators who service them both. Partners in this work include Extension, FBM/P, lenders, and farmers in both states, as well as a consulting economist, the Minnesota Institute for Sustainable Agriculture, and several students.

Organized round table discussions this April continued to fuel the topic, but it is the 567 survey respondents themselves who have best quantified their needs:

Exposure to sustainable farmers and enterprises.
Record-keeping and written business plans.
Databases of sustainable farming/marketing financial numbers.
Common ground on the topic of profitability.

Let’s take the key questions of profitability, record-keeping, relationships, and the future to illustrate some of the findings in the three surveys.

Nearly 90% of responding farmers were enthusiastic about their profit-making capabilities relative to conventional operations. About half the responding educators shared this conviction. Lenders were even less sure: one in three deemed sustainable methods to be equally as competitive and another third said they were less so. The remaining third felt they didn’t know enough to judge. A quarter of the educators took this stance also.

Farmers include the concept of profit in their self-described definitions of sustainable farming, but always with such caveats as, “making money with only the necessary inputs,” “adequate,” and as part of “a perpetual gain of soil and production.” Further, they aren’t necessarily keeping the records to substantiate their convictions - one in three farmer respondents keeps records just for tax purposes and two in 100 keep enterprise budgets.

In contrast, most lenders said they want to see at least three years of historical financial statements beyond what is needed for tax purposes. They aren’t getting what they want from most farmers - lenders said that an average of just four in 10 of all farm loan applicants prepare financial statements, and fewer than two in 10 prepare a business plan. Sustainable farmers who go to the bank might be the exception to record-keeping clients: eight in 10 surveyed farmers who had applied for a loan to an independent local bank, for example, included financial statements in their application.

Cash flow, equity, and credit concerns have to be satisfied by all applicants, lenders said, but marketing/business plans, markets, and management skills were also required by more than half the lenders in their consideration of sustainable farming or marketing applicants. These are unfamiliar enterprises and therefore a risk, much like livestock or sugar beet enterprises, lenders explained at the round tables.

“Lenders don’t discriminate against sustainable farmers,” said one banker, “but if it’s new, we need to know a little more.” Interestingly, according to a Farm Service Agency loan officer, the failure rate among her sustainable farming clients is no different than how conventional enterprises manage.

Lenders and farmers alike spoke to the importance of relationships, though only about half of each group said they had positive relationships with the other. The majority of lenders (82%) said they were open to financing such enterprises but fewer than four in 10 farmers said they got that impression from their lender. Educators made a more positive assessment of their relationships with both sustainable farmers and lenders. In contrast, very few farmers said they turn to educators for information about finances but more than half the lenders said they rely on educators for information on sustainable farming.

Then there is the future. Two in three farmers have a bright outlook for their methods of farming but only one in five lenders shared that conviction. Asked a different way, lenders showed some confusion about the future of sustainable agriculture: most indicated it was here to stay and grow, on a par with organic farming, women-directed enterprises, and greater ethnic diversity on the farming landscape. Three-quarters of responding lenders felt there would be fewer new farmers. Most (82%) said that biotechnology was the big growth wave of the future.

One round table participant noted that it would be difficult to feel confident in lenders when lenders have a dim or conflicted view of their future and little faith in the profitability of their choices. One Extension educator said during a round table gathering that the emphasis on biotechnology bodes well for sustainable farmers who could offer a clear choice for non-bio-engineered food. Several bankers acknowledged concern for who would be their borrowers in the next five years.

In a separate activity, the “Report on the availability of benchmarking statistics for sustainable farm management practices,” confirmed an early hunch and anecdotal complaints about the lack of such data. The report concludes that, “there is a glaring lack of benchmarking statistics available from the government at both the state and federal level, and few plans to begin collecting it.” The report includes a table of 10 information sources, indicating what each provides and how accessible it is.
(NOTE: a copy of the report accompanies the paper version of this report.)

Research conclusions:

The work to date clearly is having an impact in that the conversation is on the table and continues to forge unlikely partnerships united by a passion for, or at least a passing interest in, stewardship farming.

This particular phase of the work is not tangibly measurable, except that participation was concrete. Organizations did not automatically refuse and in some cases were generous in their enthusiasm and assistance. Subsequent press releases ran in both regional and national publications and in some cases provided the basis for original stories. One leading agriculture newspaper used the surveys as a springboard to a pro-sustainable farming editorial. The surveys led to two pieces in national banking journals. We continue to receive requests for the data, including from abroad. Some survey recipients have called the coordinator personally to talk about the issues. The work is constantly referenced at gatherings of farmers, policy makers, agents, non-profits, and consultants. Discussions have emerged about the relation between farm program and bank lending qualifications. The survey questions themselves are inevitably going to be thought-provoking on a personal basis. Their results, when properly disseminated, will be grounds for awareness and action, or at least another round of conversations until the time for awareness and action is come.

From this work in the long run, bank portfolio analyses will reflect greater activity in smaller, sustainable agriculture categories and these enterprises will be stronger because of sound business plan preparation. The environmental and social benefits of a financed sustainable agricultural community will be evidenced in its improved natural resource base and strengthened rural network. These are lofty goals and the process is very slow, one easily dismissed by skeptics as operating on the fringe of agriculture. This steering committee was willing to move forward despite such accusations toward smarter credit for sustainable farmers.

Participation Summary

Educational & Outreach Activities

Participation Summary:

Education/outreach description:

1. 2 targeted press releases with accompanying graphs
2. survey instruments and all results at
3. “Key Points at a Glance”
4. “Lender attitudes toward organic and sustainable farming,” Richard A. Levins and Caroline van Schaik. 2003. American Bankers Association Journal of Agricultural Lending; 16:4. p. 17-22.
5. “Report on the availability of benchmarking statistics for sustainable farm management practices,” will be available online at by summer 2004. Individual copies may be requested of the project coordinator.
6. See discussion above for details on three round table discussions held in April 2003.

Project Outcomes


Areas needing additional study

The four primary needs to surface as a result of these surveys have formed the foundation for new work funded by SARE. Judging by the response so far, the subject continues to be a timely one to address. We are launching Business Planning Workshops (Feb.-Mar. 2004), participation in the Farm Business Management Program (Spring 2004), credit liaison training, Whole Farm Training, on-farm field events, and several other activities designed to get lenders and educators on-farm and farmers keeping better numbers.

Both the survey project and the round tables showed up distinctly muddy ground where myth and bias intercept. Participants denied the latter, preferring to rest on present-day enthusiasm and quantified out-datedness or worse. So the need for hands-on hand-holding is alive and well on all fronts. Farmers of all ilk desperately need to get serious about business plans and their useful components. Those engaged in training beginning farmers need themselves to recognize the power of a business component in the agenda – and at the same time, those who embrace Holistic Management and those who reflect conventional banking thought need to sit down together – each is missing a realistic view of the other and neither is gaining from this omission. Agricultural lenders need to get on-farm to see what their would-be clients are doing – they themselves agree that it is their responsibility to learn about what their clients want credit to accomplish. We need to get farmers at banker meetings and vice versa.

As to the matter of educators – what is the matter with so many educators that they know the language of both camps (sustainable farmers and bankers) and yet surveyed bankers have a fair to lukewarm relationship with them and surveyed farmers have nearly none? Surveyed educators said they have a strong hand in shaping research agenda and then resort to calling themselves mere vehicles for what their academic institutions choose to emphasize, thereby abrogating responsibility for a proactive role in furthering sustainable agriculture on the landscape. They are superbly positioned to serve as important liaisons between farmers and lenders, and while they protest to the contrary, their survey responses indicate a remarkable unwillingness to do so.

The surveys allowed us to pull aside the protective curtain of distance from some serious issues related to credit and sustainable farming. While it is not all ugly, the picture that emerges suggests that myth and bias were not too strong for the barriers that stand in the way. Always, always, myth and bias are conquered best by up-close and personal time between those who would hold the barriers in place rather than remove them for the painful but rewarding journey forward.

Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.