RECYCLED – Finding Funding For Farms

March 14, 2011 at 9:09 am

Jerry McGeorge, David Spear, Jack Hedin and Laura Sova

Jerry McGeorge, David Spear, Jack Hedin and Laura Sova

It turned out that the catastrophic flood of August 2007 that destroyed the organic crops of Featherstone Farms was a blessing for Jack Hedin, who was introduced at last week’s Family Farmed Expo as a “rock star farmer.”

While the image of an aspiring 4H club member in his bedroom late at night playing an air hoe and fantasizing about raising kale came to mind, no young vegetable grower wants to imagine pools of water rotting away the late-summer harvest.

But that’s what risk is about. Many businesses have to deal with the issues of hiring and training inexpensive labor, acquiring cash, buying and maintaining equipment and anticipating demand before the product is made. Farmers have the added difficulties of doing most work outdoors, subject to the whims of an indifferent Mother Nature.

Calculating the risks organic vegetable farmers face is foreign to many banks who typically finance corn and soybean harvests and know exactly what they’re getting into, said Gary Matteson. Matteson is a VP of the Farm Credit Council, a co-op of farmers (many are borrowers themselves), who comprise the nation’s Farm Credit System. Matteson focuses on loaning money to small and startup farms as well as offering assistance to young farmers (including 4H members, who have borrowed money to buy a few chickens).

At the Financing Farms, Farmers and Farmland seminar, Matteson insisted that new farmers or startup food companies seeking financial assistance must behave like responsible entrepreneurs and treat their concerns like a business. Any sensible creditor willing to lend money is going to want to see that the farmer has experience and a solid business plan, which includes an analysis of the demand as well as an understanding of the risks involved.

In Hedin’s case, the flood forced him to rethink his business plan as well as reorganize Featherstone’s loans. What was notable about the seminar was how many ways there are for novice food producers to find money. Whole Foods Market, for example, is a major buyer of Featherstone’s Minnesota-grown produce, but also will loan up to 80% of a producer’s expansion costs. Seeking to build relationships with local food suppliers, Whole Foods forager, David Spear, looks for farmers and food companies that have solid business plans and are buying new equipment, land or buildings. Spear’s goal is to keep the store’s shelves stocked and then to entice customers to empty them by publishing tales of local food producers. To that end, his local producer loan program offers up to $25,000 for companies to expand their production. He also trains local stores to work with their producers to ensure a steady, reliable supply. “Steady and reliable” are nowhere to be found on a farm when unpredictable rains keep coming down at the wrong time of year.

“Farmers are change managers,” said Matteson. They change virgin land into crop land, fertilizer and compost into vegetables, and they watch seeds change to food while the price at which they can sell their food fluctuates with the supply, the costs of distributors and other middlemen, as well as the tastes of a fickle public.

Few farmers endure the whiplash of watching the rollercoaster ups and downs of their sell price as much as dairy farmers. Just last year, painful stories of milk cows being culled because their upkeep costs exceeded the value of their milk were enough to curdle cream. While the price that conventional (meaning that they inject synthetic hormones and use technology invented in the past 50 years) dairy farmers get for their milk has generally risen, it remains below what organic dairy farmers earn (although organic costs offset much of that extra income). However, the organic farmers have not suffered the painful oscillations of milk prices, said Jerry McGeorge of the Organic Valley Co-op. A huge (his word) marketer of organic milk and dairy products, the co-op started in the 1980s when seven small organic farmers banded together in the shadow of the farm foreclosure crisis. Now, with more than 1,000 farmers, the co-op not only ensures a steady supply of organic products to retailers and consumers, but offers help to farmers willing to undergo the difficult transition (change management again!) of converting from “conventional” to organic. During that three-year shift when they’re not yet certified, their costs begin escalating, but they must still sell milk at the lower, conventional price. Joining the co-op not only finds them a ready buyer, but gets them financial and educational assistance from experienced farmers who are willing to lend a hand.

“Your budget tells your story,” said seminar moderator Laura Sova, executive director of The Land Connection, which trains farmers. If so, Hedin’s story focuses on his relationship with his customers. After starting the farm in 1997 by borrowing money from family and friends, Featherstone found 20 CSA customers. Two of them later loaned the farm $30,000 to expand operations. In 2001, Featherstone secured a bank loan and later worked with Whole Foods to acquire even more seed money. Today, just a few years after the devastating flood, Featherstone’s CSA provides 900 members with fresh organic produce and employs 30 people on 100 acres in southeastern Minnesota.

As the crowd of financiers, wannabe farmers and spectators listened to the experts speak, I noted how Hedin’s business plan differed completely with my assumption. I had always figured that to make a living farming, you had to either own your land mortgage-free or inherit a fortune. Featherstone owns virtually none of its land. As sprawl in the Minneapolis-St. Paul region continued driving real estate prices up, Hedin and his partner figured it makes more sense to use his cash for equipment and buildings and continue to lease the acres. With their modified business plan in hand, Hedin (who shared his balance sheet with the crowd) was able to locate new money and raise Featherstone out of the flood and on to continued success keeping his customers well fed with organic local produce.