Page 3: Finance

According to the Council of Development Finance Agencies food systems are not well organized to attract investors and lenders. They say that “Investors perceive the food system as loosely defined and poorly organized, encompassing a multitude of disconnected food-related endeavors.”

This means that “Traditional development finance tools, such as bonds, tax increment finance, and revolving loan funds, are seldom used in food system finance despite the opportunity to do so.”

To evaluate and respond to CDFA observations, we invite investment professionals, foundations and government agencies to discuss the application of CDFA-type financing in regional organic food systems for the Missouri Valley. We are particularly interested in forming local public/private partnerships on development bonds for:

• Local organic production cooperatives to reduce costs
• Processing for regional retail markets
• Regional marketing for farmer-owned retail food brands
• One or more organic farmland trusts to finance succession plans

We are in discussions with professional marketers, engineers, government agencies and licensed securities experts on using CDFA-type financing to help develop a regional organic food infrastructure.

Business Model

Our model includes four structural elements designed to create economies of scale in production, processing, marketing and finance. We are planning to organize a demonstration project around a farm that we own near Massena, Iowa. This project is introduced below and explained in more detail on page 5 of this website. A diagram of the RF business model is available here.

We will start by incorporating local organic production cooperatives. These independent entities will group farms together to supply Raised Free and other brands . Organic farm management and related services will be delivered by contractors through these production co-ops. A regional land trust (see below) will assist with capital and operating funds.  

Existing beef, pork and poultry processing operations are sufficient for market research purposes (please see page 5 on this website). However, modern processing cooperatives will be needed to meet regional consumer demand.

Third, a regional, producer-controlled marketing co-op will support commodity marketing programs. This co-op will also coordinate production, processing and marketing for producer-owned retail brands. Services will include audit trails and accounting for transitional and certified organic products.

Fourth, and perhaps most important, we believe that producer-controlled, regional organic farmland trusts are needed to facilitate producer-investor relations and farmland succession.

Organic Farmland Trusts

Once organized, these trusts will help finance economies of scale in regional organic marketing, production and processing. With trust assistance, qualified investors could use tax-advantaged funds with “impact investment” strategies to finance land, equipment and livestock. In these cases, a local trust would act as a “match maker” for agreements among investors, lenders and producers. Except as explained in the next paragraph, these private, fee-based trusts would not participate as shareholders or lenders in these agreements. Their primary role is to bring the parties together in return for a “finders fee”. The trusts would not own or control any of the assets that underpin the contracts between producers, lenders and investors, except when families cannot afford to pass land to the next generation. 

In these cases, we anticipate that the local trusts will lease or purchase selected farms and ranches when the owner(s) cannot afford to pass her/his land to a young family member(s) or neighbor. This process would also work with landowners who do not have children with farming interests. In both situations, the local trust would hold selected properties for future lease and sale to young producers who meet certain requirements.

Young producers will be required to: 1) Join or organize a local production co-op, 2) Negotiate lease/purchase agreements with families or neighbors that include succession plans with financing options, and 3) Agree to supervision by an experienced family member or neighbor. The trust board of directors will oversee this process.

Financing Producer-Owned Brands

There is very little profit in organic and conventional commodities shipped out of the Missouri Valley. Increasing farm profits in the Valley, and around major cities requires consumer support for high-profile, producer-owned brands. Given the lack of free cash in local farm economies, product and market development for these brands depends on investor support from within the region.

In turn, investor support requires sound business practices with good accounting and regular financial reports to producers, investors and landowners. This market information system outlines the accounting process. Marketing co-op staff will use these data to prepare annual business plans and host local meetings where shareholders negotiate returns to land, labor, capital and management.  

Demonstration Project

As of this writing, I am in discussions with potential partners on work plans, budgets and schedules to demonstrate the Raised Free business model. The demonstration will begin with market research on the demand for organic beef by wholesale and retail buyers in an area that includes Des Moines, Omaha and Kansas City. The research results will underpin business plans for the demonstration. The initial calf crop will be raised on our Massena pasture, and on participating farms in the area.

A summary of the research work plan is available on page 5 of this website.

Posted: 02-17-2020, Revised 05-17-2020