Getting a Handle on the Barriers to Financing Sustainable Agriculture

Project Overview

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

Annual Reports


  • Agronomic: barley, corn, oats, soybeans, grass (misc. perennial), hay
  • Fruits: apples, berries (other)
  • Nuts: hazelnuts
  • Additional Plants: native plants, ornamentals, trees
  • Animals: bovine, poultry, goats, rabbits, sheep, swine
  • Animal Products: dairy


  • Animal Production: feed/forage
  • Education and Training: technical assistance, farmer to farmer, focus group, networking, study circle
  • Farm Business Management: new enterprise development, budgets/cost and returns, agricultural finance, whole farm planning
  • Production Systems: agroecosystems
  • Sustainable Communities: new business opportunities, analysis of personal/family life, social capital, sustainability measures


    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.

    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.