Page 3: Finance and Farmland Succession

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:

• Farm and ranch succession plans within communities
• Food processing for regional retail markets
• Open source market information for farmer-owned retail brands

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. A diagram of essential regional food system components is available here.

We will start with 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.  

Next, modern processing facilities are planned. Although existing beef, pork and poultry processing operations are sufficient for market research purposes (please see page 2 on this website), local and regional brands cannot be developed without efficient processing operations that offer safe working conditions and living wages.

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

Most important, a producer-controlled organic farmland trusts will be incorporated to facilitate producer-investor relations and farmland succession.

Organic Farmland Trust

This trust will help finance economies of scale in regional organic food systems by facilitating new processing along with farm and ranchland succession. With trust assistance, qualified investors will use tax-advantaged funds and “impact investment” strategies to finance land, equipment and livestock. In these cases, the trust will act as a “match maker” that links investors, lenders and producers. Except as explained in the next paragraph, this private, fee-based trust will lend to producers and processors. Its primary role is to bring the parties together in return for “finders fees”. The trust will not own or control any of the assets that underpin the contracts between producers, processors, lenders and investors – except when families cannot afford to pass land to the next generation. 

In these cases, the trust will participate in lease/purchase agreements for selected farms and ranches when: 1) The owner(s) cannot afford to pass land to a young family member(s) or neighbor, and 2) The landowner(s) does not have children with farming interests. In both situations, the trust would lease or buy selected properties (or partial interests) for future sale to qualified farmers or ranchers.

The trust will require a lease/purchase contract with the new operator, where: 1) All parties agree to all contract terms, 2) The contract includes a firm succession plan with financing options, 3) The producer joins or organizes a local production co-op, and 4) The producer agrees to supervision by an experienced family member or neighbor. The trust board of directors will oversee this process and conduct annual compliance reviews.

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. The data requirements are outlined here. 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.  

Posted: 02-17-2020, Revised 07-15-2020