Farm Financing: Measuring Profitability and Success

Farm Financing: Measuring Profitability and Success

Summary

The Carrot Project is working with 29 farmers who desire both business and financial management technical assistance, and financing, with the goals of focusing on enterprise development and improving economic viability and profitability. Each applicant is paired with a technical assistance service provider (project coordinator) 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. Five farmers in Group 1 have submitted all required documents and have completed the program. There are 21 farmers in Group 2 who have submitted all required information — both historical and Year 1. Three farmers in Group 2 have documentation pending. We have modified financial tracking spreadsheets based on Group 1’s information, and have completed farm analyses for Group 1. A report, case studies, and presentation materials — describing when and how financing and TA are 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 per-farm increase of $7,500 X 20 farms = $150,000). All participating farms will provide evidence thereof through unaudited financial statements, tax forms, and follow-up interviews.

Accomplishments/Milestones

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 projection was too high.

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. Due to attrition, we have 29 farmers (just short of target) enrolled.

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, nine participating farms, or 31%, have received loans, or other forms of financing, totaling $174,000.

Milestone 5: 30 farmers verify changes in economic viability and profitability by May 2015 (15 in 2014 and 2015, respectively); we’re on track to meet this milestone. We have five farms in Group 1 that have verified changes, and 21 from Group 2 that have verified changes for Year 1. We have partial information for three farms in Group 2.

The following Milestones changed. A more-detailed description of the changes is available in the 2013 Annual Report.

Milestone 2: 70 farmers decide to apply for loans and begin loan applications by fall 2013 (35 in both 2012 and 2013). As the project unfolded, the critical role of technical assistance prior to or in addition to financing demanded increased focus on business technical assistance first; this revealed the original target number to be unrealistically high. Though this doesn’t affect the “30 farmers” figure in Milestone 3, it does reveal that the reasoning behind establishing the milestone and the intermediary numbers was faulty.

Milestone 3: Thirty-three farmers registered to obtain or participate in technical assistance; four have stopped participation, and one (possibly two) of those has (have) gone out of business. We are regularly collecting information from and meeting with 29 farmers.

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

All steps (activities) to meet the milestones (as described in the proposal) have occurred, except: Group 2 Second Winter Check-in, which is being scheduled, and the Final Report, Presentation, and Case Studies.

Impacts and Contributions/Outcomes

The following breaks down the performance target into its constituent aspects, indicates progress toward meeting them, and discusses how farmer beneficiaries are responding, meaningful changes, and lessons learned to date.

The Performance Target (PT) for this project is: 30 farmers without access to conventional credit will successfully complete enterprise plans. Thirty-three without access to conventional credit completed enterprise plans. Twenty-nine are enrolled or have completed the program.

In the proposal, we did not account for attrition after farmers were enrolled; this was an oversight. However, by chance, our initial re-enrollment was higher than needed (to reach our target); this has ”kept our numbers up” even as farmers have dropped out of the program. One of the farms went out of business, another is likely to do so, and the others were unable to maintain the commitment to record keeping and communication with program coordinators.

PT: Thirty farms will complete applications for loans totaling an estimated $300,000 ($3,000 to $35,000 each). To date, nine participating farms have received loans, or financing, totaling $174,000. One additional participant was approved for a loan that, ultimately, did not close.

The $174,000 includes loans or financing through alternative lenders, such as The Carrot Project and CEI (Coastal Enterprises, Inc.), through private investors (a result of connections made through The Carrot Project), and via crowdsource and other fundraising campaigns aimed at building equity. The financed amounts range from $5,000 to $56,000. It is not surprising that fewer farms have applied for financing than originally proposed; the shift in emphasis to both lending and technical assistance as tools to support economic viability is a likely explanation. Given that 55% of participants expressed interest in financing, based on initial survey results, and 31% have received financing to date, it is possible that the amount of financing will increase when all information from Group 2 is included. In many cases, financing did not make, but may, over time, as a farm grows, gains clarity about its priorities, and strengthens its financial management capacity.

PT: 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% (on average) 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 per-farm increase of $7,500 X 20 farms = $150,000).

For all farms to date, we can report a total change in net farm income of $99,500 or $3,431 per farm. This is less than projected, but does not include Year 2 data for the 24 farms in Group 2. The average increase in net farm income for farms that received financing was $10,300. A higher amount for farms that received financing could be expected as those farms are in a strong enough position to seek and obtain financing.

PT: All participating farms will provide evidence thereof through unaudited financial statements, tax forms, and follow-up interviews. Participating farmers are providing evidence of changes in farm operation and performance through unaudited financial statements, a post-survey, and periodic meetings with the program coordinator.

The program coordinators work closely with farmers on their financial projections and reviews, as reported in their Winter Check-ins. These relationships, along with unaudited financial statements, were determined to be of greater use than tax forms for the purposes of this study.

From the perspective of the program coordinators, farmer knowledge and the status of farm record-keeping systems at the beginning of the project determined subsequent farmer ability to engage in deeper analysis of the business. At the end of the project, we can test whether this holds out for ability to meet stated business goals and achieve changes in financial position.

Four out of five Group 1 farms saw the benefit of spending time on planning and analyzing farm records. In the words of one Group 1 participant:

“I have a much firmer grasp on evaluating budgets/cash flow. I still need to invest time in understanding the tools that will help me, such as Quick Books and Excel. I can now more quickly evaluate where my time is best spent regarding marketing and record keeping.”

Collaborators: