Farm Financing: Measuring Profitability and Success

Farm Financing: Measuring Profitability and Success

Summary

The Carrot Project is working with 31 farmers who desire both business and financial management technical assistance, and financing, with the goal of focusing on enterprise development, and improved economic viability and profitability. Each applicant is paired with a technical service provider for the duration of the project to track enterprise changes over a two-year period. Based on registration year, the farmers are in Group 1 or Group 2. There are six farmers in Group 1 who have submitted historical and first-year financial data, and have completed their first Winter Check-in. There are 24 farms in Group 2 who have submitted historical financial data. We are checking and modifying our financial tracking spreadsheets based on Group 1’s information, and are starting to look at changes in financial position and aggregated data. A report, case studies, and presentation materials — describing when financing is appropriate, and useful in increasing a farm’s economic viability — will result.

Objectives/Performance Targets

The Performance Target for this project is that 30 farmers without access to conventional credit will successfully complete enterprise plans; many of those 30 will complete applications for loans totaling an estimated $300,000 ($3,000 to $35,000 each). The farmers will use the enterprise plans and financing, if applicable, for projects to increase profitability and economic viability. An estimated two-thirds of farms will increase net farm income by 10% over two years; in dollar amounts, such an increase would represent approximately $150,000 in enhanced revenue by the end of the project (an average $7,500 increase per farm X 20 farms = $150,000). All participating farms will provide evidence thereof through unaudited financial statements, tax forms, and follow-up interviews.

Milestone 1: 250 farmers learn about financing programs and request information by Fall 2013 (125 in both 2012 and 2013); surpassed in March 2013.

Milestone 2: 70 farmers decide to apply for loans and begin loan applications by Fall 2013 (35 in both 2012 and 2013) — this number is too high and will not be reached. As the project unfolded, the critical role of technical assistance prior to financing decisions demanded increased focus (in addition to the original lending focus); this revealed the original target number to be unrealistic.

Milestone 3: 30 farmers (of the 70 that begin loan applications) obtain or participate in business and financial management technical assistance to develop enterprise plans by Fall 2013 (15 in both 2012 and 2013); reached in Spring 2013.

Milestone 4: 50 farmers (of the 70 that begin loan applications) implement enterprise plans, and 40–45 of that group also accept financing by Winter/Spring 2014 (25 in both 2013 and 2014) — to date, six participating farms have received loans totaling $110,500.

Milestone 5: 30 farmers verify changes in economic viability and profitability by May 2015 (15 in 2014 and 2015, respectively); on track to meet this milestone; to date we have collected all expected data.

Despite the fact that two of our five milestones don’t support meeting our performance target, we remain optimistic about the final outcomes of the project, in part because progress on the three most important milestones is very good.

• Skinny Dip Profile DEC 2013

Accomplishments/Milestones

Our approach is an 11-part process designed to meet the five Milestones and Performance Targets. Below each milestone is an update on the steps taken to reach it.

Milestone 1: 250 farmers learn about financing programs and request information by Fall 2013 (125 in both 2012 and 2013). Milestone 1 was surpassed in March 2013.

• Finalizing Financial Tracking and Interview Tools: The financial tracking and interview tools are complete and we have started to use them. We are making adjustments to improve our ability to measure and analyze results, based on review of the historical and year-one financial data from Group 1.

• Farmer Outreach and Initial Farmer Contact: At least 4,200 farmers have learned about Measuring Profitability and Success and/or financing through various outreach activities, conducted electronically and as part of presentations or information exchanges. Approximately 30 farmers received information in one-on-one meetings or conversations with program coordinators. These conversations were initiated through a variety of means.

Most farms that have registered have done so as the result of an ongoing relationship with a program coordinator or after more than one meeting. Electronic communication alone is not sufficient to register participants. If this were a completely new program with no pre-existing relationships and standing (on the parts of both The Carrot Project and our project partners), it would have been extremely difficult to register sufficient numbers of farmers.

Milestone 2: 70 farmers decide to apply for loans and begin loan applications by Fall 2013 (35 in both 2012 and 2013).

After the grant was awarded, it was decided to emphasize technical assistance (in addition to financing) and its impact on a farm’s financial viability. This has meant that this milestone is not applicable as written. In addition, the need of many farmers for technical assistance before deciding if financing is necessary adds to this milestone’s lack of relevance. Therefore, the target of 70 applicants is clearly too ambitious. To date, more than 55% of participating farms have received or are interested in financing.

Milestone 3: 30 farmers (of the 70 that begin loan applications) obtain or participate in business and financial management technical assistance to develop enterprise plans by Fall 2013 (15 in both 2012 and 2013). Milestone 3 was reached in Spring 2013.

• Thirty-four farmers registered to obtain or participate in technical assistance; two have stopped participation, and one of those has gone out of business. We are collecting information from and meeting with 31 farms regularly.

Milestone 4: 50 farmers (of the 70 that begin loan applications) implement enterprise plans, and 40–45 of that group accept financing by Winter/Spring 2014 (25 in both 2013 and 2014).

The target number of farms designated in this milestone is an artifact of trying to project participant behavior based on insufficient historical information, therefore, the number is too high. Performance on this milestone is also affected by the inapplicability of Milestone 2.

• Six participating farms have received loans to date totaling $110,500. One additional participant was approved for a loan which did not close. Given that 55% are interested in financing (based on the initial survey results), other farms may seek financing during this project.

Milestone 5: 30 farmers verify changes in economic viability and profitability by May 2015 (15 by 2014 and 2015, respectively).

We are on track to meet this milestone, and to date have collected all expected data. The status of each of the remaining steps that will allow us to reach this milestone follows.

• Six-Month Check-in: these have occurred and continue to occur, as needed.

• First Winter Check-in after Loan Is Received (Group 1): The First Winter Check-in of Group 1 is complete, irrespective of whether or not a loan was obtained.

• Second Winter Check-in (Group 1) and First Winter Check-in (Group 2) are being scheduled.

The following two steps have not occurred:

• Second Winter Check-in (Group 2)

• Final Report, Presentation, and Case Studies

Impacts and Contributions/Outcomes

We cannot assess the impacts of this project at this time. We have collected information that we have started to compare, primarily for the purposes of modifying our tracking tools. We have not yet drawn any initial conclusions; we are determining whether or not anything can be inferred about the multiple changes that must occur for profitability to increase.

Collaborators: