RECYCLED – Financing From Farm to Fork

February 29, 2012 at 8:35 am

Editor’s Note: Very soon, and a full panel of experts will present the 4th Financing Farm and Food Business conference at the UIC Forum.   A few years ago, Beetnik, Brad Moldofsky, did this profile of the conference.  We though you’d enjoy reading it again in anticipation of this year’s conference on March 15.  For more information on this year’s event, check out the schedule.  Expect more from us here too.

In one of his non-silent moments, President Coolidge famously uttered “The business of America is business,” to praise the consumer-driven industrial economy and profitable bull market he observed*.  But President Jefferson thought America’s business should be farming, respecting the slow, steady cycles of nature by growing food (and tobacco) from the vast and fertile soil that makes up our nation.

Are these two notions irreconcilable? Certainly farmers must run their operations like a business, acquiring capital to buy equipment, seed and land, and seeking out the best price for their harvest so they can pay expenses and save enough to plant next year. Conversely, so many food-related businesses—processors, grocery stores, distributors, as well as commodities exchanges—rely on the work of America’s farms. In between that, there are the banks, investors and government agencies who help fund the system, ultimately deciding what gets planted and where by picking and choosing where to place their money. Sometimes it’s a stormy relationship, but it doesn’t have to be. There is still common ground between the desires of capitalists and the needs of farmers and food and beverage firm. As locavores, we need to understand that if the goal is to make locally obtained food more available, there’s got to be funding for it.

“If we’re really going to bring this mainstream and increase the volume of local food reaching Chicago,” says entrepreneur Irv Cernauskas, “it’s going to take some capital investment.”

What the F!

The FamilyFarmed Expo’s Financing Farm to Fork Conference (and financing fair) is an opportunity for small to medium-sized farms as well as companies that sell food- or beverage-related services or products to make their case to potential investors on March 11 at the University of Illinois Chicago Forum.  The FFFFF event is part of the greater Expo being held from March 11 through March 13.

Patient capitalists and “angel” investors can find chances to invest in artisanal farmers, organic food craftspeople and startups who deliver local, organic food to meet the growing demand for healthier, conscientious alternatives to our industrialized food distribution channels.  Part of their incentive may be a matter of putting their money where their values are, but part may be because local and organic foods are a growing area.  Responsible investors need to know all they can about startups before putting down their money. president, Jim Slama says investors may also see these opportunities from a “slow money” perspective.

And while farming or food processing may not have the glitz of an Internet startup, notes Cernauskas, “it’s relatively straightforward to value a plot of land or a herd of beef compared to the vaporware produced by a dot-com company.”  For those with money to invest food or farm companies could be a more conservative and potential investment than a lot of other opportunities.

Seeking Help to Buy the Farm

Much has been said about the relationship between American farms, banks and the middle men upon whom farmers rely to deliver their goods to market and then the dinner plate. Somewhere between the farm and the fork, a lot of money changes hands and lubricates the engine that brings the food from the ground and makes it palatable. How much the farmers ultimately pocket is a controversial subject, but an important one, since they, and companies seeking to sell organic food, very much need cash to organize and run their businesses in the initial years, and then again to grow or change direction to follow the public’s fickle tastes. Some farms turn to CSAs to earn cash directly from their customers while co-ops and farmers’ markets seek grants from non-profit organizations that must offer a portion of their funds to sustainable businesses. But farms are usually in rural regions and the big money is often in a skyscraper in metropolitan areas.

But the point is, there are many ways for food- and agriculture-related businesses to find money, and there are many places for investors to plant their money in anticipation of future growth. There’s got to be a better way to get these contingents in one place at the same time.

Bootstrapping as Financial Tool

One recent startup, and a member of the Farm to Fork advisory board, is Cernauskas, who founded Irv and Shelly’s Fresh Picks in Niles. When he and Shelly began their eponymous online grocery delivery service four years ago, they borrowed money and dipped into their savings accounts to “bootstrap” themselves into business. Since then, they’ve applied for USDA grants that have yet to appear, but there are other seldom tapped sources of money. Jim Slama points out that the conference will help entrepreneurs observe the full range of opportunities. At this forum, investors and business owners can meet and get to know one another, unlike in, say, a commodities pit where options traders buy and sell anonymous bushels of corn or sides of beef, having no knowledge of the farmers or businesses that grew them.

“Traditionally, farmers were pretty self reliant and didn’t want or need investors,” Cernauskas points out. “They might have gone to the bank, but they were reluctant to give up their sense of independence. So working with investors is a relatively new concept.”

New, trendy, and getting more media attention. A story on NPR’s All Things Considered last year cited a New York organic dairy farmer seeking to raise $700,000 by appealing to his customers with the promise of 6% interest on a $1,000 loan. CSAs are another great example of producers skipping the middle men and appealing to the consumers who believe in the product and have every desire to make the business succeed. While traditional loans have their place, this model doesn’t work for every business.

“Some people don’t want to finance through banks,” says Slama. And for those of us who have ridden the roller coaster of Wall Street investing, enduring the nauseating plummets as well as the exciting jolt of accelerating rises, the notion of slow money—of modest but sustainable growth—has its charms.

Also, most banks are familiar with the cyclical ritual of, for example, a soybean farmer’s sequence of acquiring money, buying or repairing equipment, purchasing seed and petroleum, buying and applying fertilizer and pesticides, paying for labor, praying for good weather, harvesting and selling their commodity crop before repaying the loan. It’s a well-documented process and banks understand the security and risk of a given farm on a given plot of land in a given area, says Cernauskas. Small organic vegetable farms, on the other hand, may befuddle a typical banker, who lacks the mountain of experience in studying this sort of food model.

Oh the Farmer and the Broker Should be Friends

All this will be discussed at the conference, which also includes workshops by successful food entrepreneurs as well as investors looking for opportunities in local foods. Slow Money author Woody Tasch will be there, as well newsman/rancher Bill Kurtis and Eli’s Cheesecake CEO Marc Shulman. The Expo will present an array of options.  Venture capitalists including Maroon Capital and Hopewell Ventures will be there to explain to hopeful business owners what food financiers are looking for when considering their investments. Jim Schultz will be on hand representing Open Prairie Ventures, which invests in “early and growth-stage Midwest-based companies in the ag-tech and life science sectors.” Also speaking will be Andy Whitman, formerly of General Foods and Kraft, but now running 2x Management, which, along with other companies, has helped fund the natural pet food maker, Wellness/Old Mother Hubbard, and Eagle snacks.

The three main tracks of seminars include business, farming and community food and topics include “adding value on and off the farm,” “taking food & beverage businesses to scale” and “innovative organization forms for sustainable food businesses.”

Running a business or operating a farm (same thing, remember?) as well as finding quality local food require dedication and passion. Making both those endeavors easier requires a flow of money that is often overlooked in the discussion about bringing producers and consumers together.

“There’s all kinds of people who have interests in investing for all kinds of reasons,” says Cernauskas. “My sense is that investors may care a lot about what we’re trying to achieve and are driven by values, while others are just looking for business opportunities and see organic and local foods a healthy growth sector and can see opportunities to make money at it.”

In mid-March, we’ll see if the confluence of capital, consumer and entrepreneur can come to terms and make a small change in the way we grow, find and buy our food.

The FamilyFarmed Expo, including the Farm to Fork Financing Day runs from March 11 through March 13.  Each day will go from appximately 8 AM to 5 PM, with a Financing Fair and reception afterwards on March 11 and FamilyFarmed’s signature event, Localicious on March 12.  The Expo is being held at the UIC Forum at the corner of Roosevelt and Halsted (directions here).

*Shortly after, the nation and the world plunged into a decade of Depression followed by a vicious war that killed tens of millions, ending with two nuclear blasts. But we can’t lay all that on Cal.