Financing measure could boost farm production in food deserts

August 2, 2011

Source: Regional Food Solutions
Author: Bob Heuer & Patty Cantrell

First Lady Michelle Obama’s campaign against childhood obesity moved forward July 20th with her announcement that grocery chains have agreed to open or expand 1,500 stores in urban and rural “food deserts” nationwide. She did not say who would be growing all the anticipated fruits and vegetables.

Many believe local farmers and businesses could help supply these retail outlets, and grow new jobs in the process, provided more business development support. America’s largest farm finance network, the Farm Credit System (FCS), is considering a proposed regulatory rule that could help deploy such expertise. In 1916, Congress established the FCS to ensure that farmers and ranchers have reliable access to financing.  In 2010, FCS institutions owned $231.3 billion in total assets and generated a $3.49 billion profit. 

Within tight-knit agricultural circles, the FCS is an indispensable industry asset.  But its federal regulator, the Farm Credit Administration (FCA), says the 84 borrower-owned and locally controlled lending associations aren’t doing enough to meet their federal mandate to deliver financing and “related services” to young, beginning and small farmers.

To prompt action, the FCA has proposed a “diversity and inclusion” rule. If approved by the FCA board, every FCS institution would be required to create plans to diversify their workforce and market services to all potential “creditworthy and eligible borrowers.” The proposal states that the FCS must “commit to embracing diversity and inclusion in lending, employment and governance” or “risk losing…relevance in the marketplace.”

Food Desert Farming?
The growing diversity among farmers and significant changes in their markets, such as rising demand for local products, are among factors the FCA cites in its call for more innovation in how FCS operates internally and externally.

Farming to supply food deserts, places where residents cannot easily find fresh, affordable produce, is among the local market opportunities.

Food desert farming wasn’t in Michelle Obama’s script Wednesday. But the concept intrigues people who are trying to find market-based solutions.

One of the initiatives the First Lady announced is the California FreshWorks Fund—a $200 million public private loan portfolio. The California Endowment selected NCB Capital Impact to underwrite the credits and manage loans that will be made available to grocers, farmers markets, corner stores, and farm-to-table programs.

NCB Capital Impact is a nonprofit Community Development Financial Institution (CDFI). CDFIs are financial intermediaries that supply capital for health and elder care, housing, and education in low-income communities. Food system work is new to their portfolio. But a new nationwide training program for CDFIs through the Obama Administration’s Healthy Food Financing Initiative (HFFI) puts them at the forefront of efforts to finance the supply chain from urban and rural farms to needed retail outlets.

NCB Capital Impact’s chief operating officer, Annie Donovan, believes that FCS could bring strong farm financing expertise to this farm-to-food desert work in lower-income communities. “All the pieces of the food system puzzle are there. Maybe Farm Credit System could help CDFIs put them in place.”

Institutional Change
The FCS’ Washington-based lobbying arm is Farm Credit Council. Its CEO, Ken Auer, says: “If there is a desire for FCS to get more involved, then there may be a need for both regulatory and legislative change that would provide the System with greater flexibility to fully serve the market.”

Auer contends that legislative and regulatory constraints impede FCS’ ability to deliver financial services for the local food marketplace. For example, only farmers can qualify for loans, and full-timers qualify for more credit than do part-timers. Farm-related processing and marketing businesses must have farmer ownership and other farm-related service businesses have limited eligibility. 

But the FCS’s sole purpose is not to book loans. Federal law specifies that the FCS should also supply young, beginning and new farmers with “related” financial services. FCS also secures its funding through capital markets. As such, federal tax dollars wouldn’t be needed to support FCS investment in programs that help make fresh and affordable food more readily accessible to low-income consumers.

To do that, advocates say FCS needs to take further those efforts it is already making to reach young, beginning, and small farmers. “Farm Credit should be partnering with organizations like Extension, community colleges and non-profit agencies to develop seamless business training programs that help new farming populations develop the skills they need to qualify for loans,” says Juan Marinez, Michigan State University Extension’s point person for Hispanic farmers and ranchers. 

Support is coming from local food advocates who belong to the National Sustainable Agriculture Coalition (NSAC). In an NSAC action alert, policy director Ferd Hoeffner says Farm Credit, which supplies nearly 40 percent of all U.S. farm financing, “has the capacity to bring badly needed capital to local food producers, and to leverage other sources of capital for the task of rebuilding our local and regional food system infrastructure.”

The Healthy Food Financing Initiative is an important avenue, says Rebecca Flournoy, associate director at PolicyLink—a California-based national research and action institute. “HHFI is a proven model that has generated great results in states like Pennsylvania.” She says Farm Credit’s participation in the agricultural production side of the equation would help build Congressional support for further investments in urban and rural redevelopment.

Bob Heuer is a public policy and marketing consultant based in Evanston, Illinois. Patty Cantrell of Regional Food Solutions LLC is a journalist and community organizer based in Beulah, Michigan. This was originally posted on Regional Food Solutions.