Eating Our Own Farm Financial Cooking

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One winter evening in 1999 I was sitting in on a Farm Beginnings class being held in the southeast Minnesota community of Plainview when a local banker stood up and made a statement that about knocked me out of my chair. “We need to eat our own cooking,” said the banker, Dean Harrington. The statement wasn’t about food, at least not directly. It was about how we look to ourselves instead of Wall Street when investing in the future of our rural communities. A few weeks ago, I had a chance to chat with Harrington at another  LSP meeting. As the podcast that came out of that conversation demonstrates, he’s still banging the same “home cooking” drum. Radical economic theory? Actually, it’s as no-nonsense as a banker’s gray three-piece suit.

Harrington is a fan of David Brophy, a long-time business professor at the University of Michigan who uses the phrase “eating our own cooking” as a metaphor for putting our resources into local enterprises rather than national and global investment markets.

“What we need to do is figure how how to capture more of the dollars that would normally flow out of a community,” says Harrington. “It’s not that we can produce everything that we need—that’s not realistic. But I think there are more things that we can produce and finance locally if we’re alert to them and are willing to work at it.”

And there’s nothing more local than farming enterprises based on producing food that’s consumed within a few miles of the field or barn. That’s why Harrington is excited about the economic potential that could be had if more lenders recognized the potential of diverse, small- and mid-sized farms that are using innovative production and marketing techniques.

In fact, he sees such farms as a way of avoiding risk, something lenders are always (or at least should be) on the lookout for. That’s why it’s no accident that the LSP meeting I ran into Dean at recently was focused on how we can get more innovative beginning farmers on the land in communities like Plainview. Just by his presence, the banker was making it clear he sees more farmers, not fewer, as the key to long-term community health.

We maybe have trouble valuing the characteristics of mid-size farms and smaller farms in a financial sense, and that’s what I’d like to see us work on is valuing those elements that really are stabilizer type elements,” Harrington, who is president of the First National Bank in Plainview, told me. “One of those is diversity — we should be able to value that as something that does reduce risk.”

He concedes that banks and other lending institutions tend to shy away from anything considered “new” or untested—and sustainable farming practices still fall into that category for many. In some ways, not much has changed since 2002, when LSP surveyed farmers and agricultural lenders on the subject of credit. Lenders polled in Minnesota and Wisconsin were overall skeptical of organic and other sustainable farming practices, and most had only vague ideas of what these practices were even about, let alone the profits and other benefits they can produce in a community.

To be fair, back then some of the lenders’ views were colored by pessimism about the future of  agriculture in general, not just the alternative kind. Such negative attitudes about conventional ag have switched a bit lately, given the profitability being generated by high commodity prices.

Harrington feels lenders are starting to warm up to alternative farming systems as well. He hearing from a growing number of farmers utilizing sustainable systems who have excellent relationships with bankers and other creditors. He’s not alone. Recently, I’ve run into a slew of situations where farmers involved in everything from pasture-based livestock production to organic vegetables talk about the positive role lenders are playing in their businesses.

And it’s not just banks and similar credit firms that are opening doors to sustainable ag—increasingly the USDA’s Farm Service Agency is getting a reputation for having an open mind on what kind of farming enterprises it will help out financially.

As we’ve mentioned in this blog before, one of the more exciting examples of lenders seeing the potential of farming that’s a bit out of the norm is in Wisconsin’s Jackson County. In that area, agricultural loan officer Loren Rausch has been won over by organic grass-based dairying because of its ability to reduce the cost of a major input—feed, in this case—and it’s ability to garner premium prices in the marketplace on a consistent basis.

“With organics you can build your cash flow and build a marketing plan,” Rausch told me. “Initially, people thought organics was going to be a fad, but there’s a real demand in the market sector. That’s what you look for.”

“These [organic dairy] loans cash flow very well—they are building equity,” says Paul Dettloff, a Wisconsin veterinarian who serves on the board of directors of the bank Rausch works for.

The lending community’s willingness to give sustainable ag a fair shake can be partially traced to recent research that is documenting the profitability of such systems. A study done by the University of Wisconsin’s Center for Dairy Profitability found that on average organic dairy farms retained 21 percent of their business earnings, once the bills were paid (extensive use of managed rotational grazing increased earnings even more). Conventional confinement dairy farms retained 14 percent of the farm’s total income, according to the study.

And the results of a long-running Iowa State study released just a few weeks ago show that on average, organic cropping systems return roughly $200 per acre more than their conventional counterparts. Started in 1998, this particular study is one of the longest running replicated comparisons between organic and conventional cropping systems in the country.

Agricultural lenders pay attention to such research, and don’t underestimate the power of a farm town banker when it comes to influencing what kind of production systems are adopted and continued. A U of M Extension educator in the Red River Valley once told me that bankers were the ones who started encouraging farmers to approach experts like him about alternative cropping systems such as organics. These lenders were frustrated with financing unprofitable conventional operations perennially wracked by disease and volatile markets.

But a lot of this thaw in relations between lenders and sustainable farmers has to do with good old-fashioned one-to-one relationships. Rausch says he loaned money to one young organic farmer because he had a good business and marketing plan, but also because the banker sensed this guy “had what it took” to be a successful farmer and good member of the community.

In the end, that’s what really counts. If ag lenders only cared about numbers, then they’d all pack up and move to Brazil, where they could loan millions to operations that measure their soybean rows by the linear mile. No doubt some have taken their cues from Wall Street and have such a myopic view of the relationship between agriculture and credit—and look where that has gotten us.

But the ones like Dean Harrington who live in the rural community they do business in have a vested interest in making sure the money they loan out supports the long-term health of their hometown. And increasingly diverse, innovative farms with smart business plans and a growing demand for their product look like the kind of operations that can not only offer a good home-cooked meal, but make sure as many local folks as possible enjoy its results.



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