The Carrot Project: Farmers' financing needs assessment

View the project final report

Commodities

Practices

• Farm Business Management: economic/marketing

Will is a thoughtful beginning farmer in Central Massachusetts who, after seven years of running his farm business, is ready to increase the size of his operation to boost his on-farm income. Until now, his certified organic, diversified vegetable operation has been mostly self-financed. He rents land and equipment from a non-profit. Using a little seed money he had set aside, Will has slowly built his operation and reinvested in the farm, and has developed a good mix of direct and retail markets. Over time, his operation has started to provide an income. In his efforts to increase his acreage and move toward a livable income, Will sought to move his operation to leased land owned by a land trust, but was disqualified for a loan for operations because of limited collateral. The American Farmland Trust (AFT) Farmland Information Center receives many phone calls from farmers with pressing questions about how to become independent or expand their operations. Because it is so expensive to get started, farmers assume that plenty of grants or loans must be available, states Don Buckloh of AFT. These farmers’ experiences are not unique: like so many other small, limited-resource farm operators, they cannot find the financial assistance they need to maintain or improve their productivity. TCP has found scant research on the roles of debt and financing gaps as they affect smaller farms. The following information provides some sense of the situation. A 2002 Cornell University study indicated that 39 percent of New York farmers responding to a survey about factors important to small farm success used a variety of different approaches to secure outside capital for their farms’ operations. A 2005 USDA Farm Service Agency (FSA) study in Vermont found that insufficient capital or credit was an obstacle to 63 percent of start-up artisan or farmstead cheese-makers. The rate dropped to approximately 20 percent for operations and expansion of farm businesses. The average need ranged from $140,000 to $35,500 to $135,000 for start-up, operations, and expansion, respectively. Nearly 70 percent of farmers responding to Self-Help’s 2004 survey of North Carolina farmers viewed a lack of capital and low-interest loans as a barrier to sustainable farming. USDA’s FSA is the ideal ally for beginning farmers and limited-resource farmers because it provides high-risk agricultural loans and guarantees for farmers unable to meet the requirements of traditional lenders. Farm Credit also has programs designed to serve smaller and beginning farmers. Despite the existence of these programs, financing gaps persist. Farmers’ financing dilemmas are affirmed by lenders and organizations providing technical assistance. According to Jon Jaffe, a member of The Carrot Project Advisory Board and Vice President and Farm Business Consultant/Farm Tax Specialist at First Pioneer Farm Credit, ACA, first- or second-position liens providing adequate collateral are needed for farmers who lack the equity to secure the financing they need. John Harker of the Maine Department of Agricultural Resources states, “Unfortunately, I know too many people who might fit that category [those who can’t find financing]. I see a number of farmers in my business-planning class that need financing, but for one reason or another, cannot get it.” A low-interest loan pool would be helpful not only for the farmers with whom John Harker works, but also for the immigrant farmers participating in the numerous new entry-farming programs across the region.

TCP was organized to narrow (or eliminate) financing gaps for small- and medium-sized farm enterprises, particularly those with limited resources, so that these farmers can meet their needs for entry, operation, and expansion. TCP was created to develop solutions to creditors’ understandable bias toward the largest loans; to attract toward production agriculture investors interested in a return on investment (ROI) of between one and five percent; and to address gaps left by government support programs. TCP wants to lower the risk and costs of entry for interested investors by creating or modifying financing mechanisms to take advantage of the fact “that dedicated investment vehicles do not exist for investors seeking community investments in this area,” according to Eric Becker, Vice President, Trillium Asset Management and member of The Carrot Project Advisory Board. His experience is supported by Eliza Erikson, Senior Investment Officer, Calvert Foundation, who wrote that Calvert has no “sustainable agriculture investments other than those in the coffee sector.”

The project for which we seek support, the Farmers’ Financing Needs Assessment (FFNA), is a critical component of our work. The idea for the assessment evolved when the concept for The Carrot Project was first developed. TCP found scant research on the role of debt and financing gaps as they affect smaller farmers’ abilities to meet business goals and maintain or improve productivity. This absence of data, in conjunction with the lack of appropriate investment vehicles, makes it imperative that TCP undertake an assessment of farmers’ needs. The assessment is necessary for us to understand both the financing gaps and how those gaps affect farm operations. With this information, it will be possible to design the best financing services to meet the needs of smaller sustainable operators, focus resources, and attract the desired investment.

The FFNA will be successful because of the expertise TCP brings to the project, and the depth of experience, knowledge, and perspective brought by Working Group members (see description that follows), Partners, and consultants. Oversight for TCP’s work is provided by its Advisory Board, all of whose members have experience in providing meaningful guidance and governance for non-profit organizations. (For a list of TCP Advisors, see Attachment A.) TCP’s founder and executive director has the proven ability to plan and implement successful programs, and to work with a variety of organizational partners. The FFNA will be further supported by an Assessment Working Group that will include 2–3 farmers and representatives from at least two organizations. All Working Group members will be involved as the team is assembled and throughout the project’s planning and implementation phases. The farmers will play a significant role in drafting the survey questions and the online survey instrument. In addition, we are working with Duncan Hilchey, independent consultant and Senior Extension Associate with the Community, Food, and Agriculture Program at Cornell University, to assist with survey design, population identification, and survey questions. We have also secured the pro bono assistance of online survey design experts at Work-Learning Research, Inc.