Getting a Handle on the Barriers to Financing Sustainable Agriculture

Getting a Handle on the Barriers to Financing Sustainable Agriculture

Summary

Surveyed sustainable farmers and agriculture lenders in Minnesota and Wisconsin suggest that the farmers are considerably more optimistic about their enterprises than lenders are about financing them. Most farmer respondents feel they are at least as profitable as conventional counterparts, though a third of them only keep records for tax purposes. A third of lender respondents feel they don’t know enough to judge the profitability of sustainable farming. Lenders indicate they are open to working with alternative farmer/clients while an uncharacteristically high number of farmer respondents hedged on whether they felt their loan officer was knowledgeable enough to do so. A separate study confirmed a glaring dearth of benchmark information related to rotational grazing and organic management. Agriculture educators are just completing their survey.

Objectives/Performance Targets

We propose to unearth some of the myths and assumptions behind the presumed low rate of lending to alternative agricultural endeavors. In the short term, we seek 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. The connection between innovative financing, sustained farmers, and vibrant rural communities will be clear to banker, farmer, and agricultural educator participants.

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.

To do this well, principle activities include:
three targeted surveys of lenders, farmers, and agricultural educators in Minnesota and Wisconsin to identify the lending barriers in a substantive way;
facilitated round-table discussions on key findings of the survey;
the compilation and dissemination of existing agricultural statistics on alternative agriculture enterprises;
and incorporation of a soon-to-be-released manual on business plans, sample plans, data, resources, and success stories in presentations.

This project assumes 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 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.

Accomplishments/Milestones

ACCOMPLISHMENTS

Surveys – Three targeted surveys to approximately 1,550 sustainable farmers, agriculture lenders, and agriculture educators in Minnesota and Wisconsin have been written, delivered by post or email, and largely received and entered into data bases. A subcommittee of the steering committee worked hard for many months to design useful instruments that pass the muster of readers, the University of Minnesota Human Subjects review board, and statistical design rigor. It was an arduous procedure, combined with finding recipient lists, that continues with appropriate coding manuals for each survey, data entry, and descriptive analyses of each survey group.

The Farmer Survey garnered a 39 percent 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 percent response to 566 surveys sent by mail to the Independent Bankers Association of Minnesota and to Wisconsin Farm Service Agency (FSA), and by email to Minnesota FSA. The Educator Survey has been sent by mail to Minnesota Farm Business Management Program instructors and by email to Wisconsin Farm Business and Production Management Program instructors, Minnesota Extension Service, and Wisconsin Extension. Educator surveys continue to be returned until mid-January. A full count is not yet available for some protected lists but approximately 250 educators will have been reached.

Descriptive analysis is underway. Some initial findings from the Farmer Survey are included.

Outreach has come in several usual as well as unorthodox forms. The work is represented as part of a Land Stewardship Project (LSP) display and has been written about in LSP’s bimonthly newsletter. It has been referenced repeatedly at many meetings, including one by the Independent Bankers Association. It has been presented to one of Minnesota’s regional partnerships, which helped fund a graduate student. It has been studied and then presented by two other graduate students at the University of Minnesota as their service learning project. Beginning in late January, an undergraduate at Macalester College joins the team to spend time with the Round Table effort. Judging by the response rate among farmers and lenders, and the thoroughness with which especially the farmers to date have filled in the survey, the work is generating piqued interest among those groups in particular.

Existing statistics – A “Report on the availability of benchmarking statistics for sustainable farm management practices,” is in draft stage with completion expected within 30 days. This resulted from considerable research to 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–and confirmed an early hunch and anecdotal complaint 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 ten information sources, indicating what each provides and its accessibility. It will be part of the Round Table discussions.

Impacts and Contributions/Outcomes

The work to date is clearly 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.

While the work to date is not tangibly measurable, we have received requests for the report. Some survey recipients have called the coordinator personally to talk about the issues. The work is frequently referenced at gatherings of farmers, policy makers, agents, non-profits, and consultants, and has provoked discussions about the relation between farm program and bank lending qualifications. The survey questions themselves are designed 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. We expect the Round Table discussions to be telling in a more measurable fashion.

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. This bodes well for everyone.

Collaborators: