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
• An organic farmland trust to finance succession plans
We are in discussions with professional marketers and licensed securities experts on using CDFA-type financing to develop Raised Free and other farmer-owned brands for regional retail markets.
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.
Next, existing beef, pork and poultry processing operations are sufficient for market research purposes (please see page 5 on this website). However, processing cooperatives could be linked to consumer demand and regional production in order to minimize capital and operating costs.
Third, a regional marketing co-op will support local commodity marketing programs and manage retail marketing. Audit trails and accounting for transitional and certified organic products will be managed by this cooperative.
Fourth, and perhaps most important, we believe that a producer-controlled, regional organic farmland trust is needed to facilitate producer-investor relations and farmland succession.
Organic Farmland Trust
Once organized, the proposed trust 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, the trust would act as a “match maker” for agreements among investors, lenders and producers. This private, fee-based trust would not be a party to these agreements, and it would not own or control any of the assets that underpin these contracts.
However, we anticipate that the trust will lease or purchase selected farms and ranches in cases where families cannot afford to pass land to a young family member(s) or neighbor. It would also work with landowners who do not have children with farming interests. In these cases, the trust would lease and/or buy selected properties for future lease and sale to young RF members who meet certain requirements.
To ensure that trust assets and services help increase organic farm and ranch profits along with the number of organic acres controlled by RF members, potential members 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 would oversee this process. If the proposed trust is organized, my family will lease a half-section of pasture to a qualified operator who agrees to these requirements. This pasture is located south of Massena, Iowa. As consumer demand increases, we will work with our neighbors and the trust to buy and lease additional land near this farm for future sale to a young producer(s).
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 this data to prepare annual business plans and host local meetings where shareholders negotiate returns to land, labor, capital and management.
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 2-19-2020