Warren Taylor is a 60-year-old, Ohio-born entrepreneur who used to work at Safeway’s Dairy Division Headquarters when the grocer was the world’s largest milk bottling company. In 2007, he and his wife Victoria decided to mortgage family-owned rural land to start a business to process and distribute products sourced from cows that graze the southeastern Ohio countryside. The plan was to capitalize on consumer demand for products raised through environmentally sustainable agricultural methods and bring jobs to one of Ohio’s poorest counties.
Five years later, Snowville Creamery has more than 30 employees and a million-dollar payroll. Its 2012 projection is for $5 million in sales to regional grocery stores and an ice cream company. In recent months, Snowville began turning a profit. In recent days, five more employees were hired.
Today, Warren Taylor plans to drive to the state capital. The U.S. Deputy Secretary of Agriculture Kathleen Merrigan is scheduled to keynote a Columbus forum entitled, “Ohio Grown: Local Food Creating Local Opportunities.” Taylor intends to advocate for the idea that dairy processors like Snowville can be the foundation for community-based agricultural economies nationwide.
A key challenge, Taylor recognizes, is local food entrepreneurs’ access to affordable credit, land, and related financial services. That’s why he’s pleased to learn of a new federal regulation requiring Farm Credit System (FCS) to do a better job of serving small and beginning farmers.
Thriving networks of small farm businesses are essential to the success of the many companies nationwide that want to supply wholesale channels with products sourced from nearby farms. Taylor’s experience is that FCS “skews” its financial services toward industrial agriculture.
FCS would say it’s evolved with the marketplace. As recently as the 1970s , FCS consisted of more than 900 local lending associations headquartered throughout rural America. Today, 84 direct lending associations remain. They are “independent and privately owned cooperatives controlled by the producers who are our customers,” says Mike Mason, communications director for Farm Credit Council, FCS’s national trade group.
Congress requires FCS lenders to have programs designed to serve young, beginning and small (YBS) farmers and ranchers—and annually report YBS lending volumes to their federal regulator. Despite the boom in local farm economies, FCS’ loans to YBS demographics actually declined in 2011.
I recently wrote here about the new regulation underscoring the statutory obligation of FCS to support all agricultural producers. Drawing on my experience from 2004-2010 as a consultant for Farm Credit Council, the story generated numerous inquiries about how FCS can accelerate local food system development.
First, FCS is not just another agricultural lender. It was created by an act of Congress in 1916 when many farmers and ranchers feared commercial banks would not meet their needs. FCS was envisioned as a financial institution that would be there for agriculture in good times and bad. Over the last century, FCS has become a vital asset to agribusiness—and an enigma to many of the other people it was created to serve.
Commercial and community banks say FCS uses its advantages as a government sponsored enterprise (GSE) to dominate ag lending. The implicit guarantee of federal taxpayers is part of the story that FCS tells when selling bonds on Wall Street. In other words, agriculture’s GSE can access lendable capital at a very low cost. In turn, FCS lending associations pass on savings to their borrowers—as well as other advantages, such as federal tax exemptions on real estate loans. In 2011, those exemptions totaled an estimated $600 million, contributing to FCS’ profits of nearly $4 billion.
Starting in 2013, the federal regulatory agency Farm Credit Administration (FCA) will require each FCS lending association to create annual marketing plans documenting service to all segments of agriculture—including producers in the local food marketplace. In addition, each institution will be required to develop a “human capital plan” for diversifying its workforce and management.
“The same concept of understanding your market also refers to understanding who lives in your area and who could be potential employees,” explains Mark Johansen, FCA’s special adviser for YBS and Local Food Systems.
Johansen says the diversity and inclusion marketing plans will become a tool for FCS associations to tailor products and services to better meet the needs of all “eligible” and “creditworthy” borrowers. (The Farm Credit Act determines eligibility for loans, with a key current determinant being an ag producer or farmland owner.)
“Once eligibility is determined, then it can be decided if there’s a basis for credit,” Johansen says. He says FCA’s role is oversight on “safety and soundness,” including whether “loans are structured so that borrowers are able to repay what they owe and that the System is able to repay the investors that bought notes and bonds.”
Johansen encourages local food constituencies to “interact” with their nearest FCS office. Indeed, the new rule creates an impetus for FCS personnel to better understand the business needs of small farmers.
Bryn Bird works as field outreach coordinator for the Washington,D.C.-based Rural Coalition. She and her brother also run Bird’s Haven Farms—a community supported agriculture (CSA) vegetable operation near Columbus, Ohio.
“Our biggest impediment is the lack of local food infrastructure, such as a central packing and distribution center,” Bird explains. “We can grow the food but we spend too much of our time handling individual orders with restaurants, grocers, and other venues and transporting small orders. A lot of businesses who want to purchase locally cannot because we just cannot manage so many different orders.”
Such challenges also concern Joe Logan. A partner on a fifth-generation northeastern Ohio family farm, Logan is Ohio Environmental Council’s agricultural program director. He looks forward to exploring effective implementation of the FCS regulation can benefit Ohio, noting “local food systems represent a great opportunity to diversify the state’s farm economy in and around our 15 major metropolitan areas.”
With Ohio’s electoral votes potentially deciding the outcome of November’s presidential election, both the Obama and Romney campaigns would be wise to take notice. FCS could play a role in boosting local food systems, and in the process help revitalize America’s Main Street economies.
The potential to build partnership with FCS piqued interest recently at Florida’s fourth annual Small Farms Conference, according to Sharon Yeago. She’s immediate past president of the national Farmers Market Coalition and a newly elected member of the board of directors of the fledgling Florida Food Policy Council.
Yeago admits to not knowing much about farm finance, but adds, “I think this new regulation is a great opportunity to combine ‘big ag’ know-how with the needs of the smaller producers and local food entrepreneurs. It also provides an opportunity for direct- and intermediate-market farmers and local food advocates to share their knowledge with Farm Credit of the challenges to get food directly from the farm to the table”
“Farm Credit could help Florida do a better job of feeding Florida since most of Florida’s products are shipped out of state,” Yeago says. “This new support system would be a huge help to farmers in Florida where it counts: at home.”