- Published On: April 6, 2021
- Author: AgriSecure
Ask a farmer what’s keeping them from transitioning to organic row crops, and you may be surprised to hear a common answer. Finances. It’s often a struggle to find organic farming loans tailored to their needs.
Yes, organics offer excellent premiums and can bring long-term profitability. But first you have to get through the 36-month transition process.
During this time you’re likely to have a lower yielding crop, which you’re still selling at conventional prices. You may need to make some investments in equipment, like a cultivator or rotary hoe. And you may not get the support you need from your traditional lender because they have a short-term view.
But there’s good news: that’s changing. Some banks are introducing loan options for the organic transition. Then there are farmland investors who offer rental agreements specifically to organic farmers to help scale their businesses. Some companies are offering grants.
And there’s also new types of funders who want to see greater adoption of organics. One of those is the Perennial Fund, a project by Mad Agriculture.
We talked to Brandon Welch, Director of Radical Capital, at the Perennial Fund. He shared the program’s ambition, the loans they’re offering, and the additional ways they support farmers during transition.
Images courtesy of Mad Agriculture / Perennial Fund
Helping farmers re-envision their future
A non-profit based in Boulder, Colorado, Mad Ag’s mission is to reimagine and restore our relationship with the Earth and each other through agriculture. One way of achieving that is by helping farmers adopt regenerative organic farming practices. Brandon says regenerative organic is organic farming that keeps soil health in mind.
They do that by working with farmers through their three-step, whole system approach to land and business planning.
The first step is working with the farmer to help them see past the barriers that keep them in the status quo. ““They might not have enough money, the right tools, or maybe they don’t have the right support network,” Brandon says. “We try to make them comfortable with the idea of thinking, ‘Where would their farm be if they had unlimited resources and could realize their vision in 20, 30, 50, or 500 years?’”
The next step is to identify potential changes that are under their control. You can’t control the weather or geography. But you can change your infrastructure, cultivation practices, crops or livestock, and even your soil.
Finally, they evaluate how outside factors like capital, markets, and the culture around the farm influence the operation. That’s when Mad Ag discovered organic farmers weren’t receiving the lending support they needed to finance the transition.
There are many organizations trying to find the right mechanisms to help farmers go organic. Brandon says Mad Ag saw an opportunity to help farmers make the transition and that led to the creation of the Perennial Fund.
Organic farming loans provide long-term support
The Perennial Fund was created to provide long-term financing to farmers making the transition to organics.
“Our intention is to create the financing vehicles organic farmers need to effectively transition more land, and then steward that for decades to come,” Brandon says.
It all starts with a commitment to long term financing, over 5 to 8 years, he adds. This ensures farmers get through the transition and can build up their equity and cash flow.
The commitment also comes with a clear understanding the farmer is likely to see a loss on their transitional acres.
If Perennial Fund lends $100,000, the farmer may only pay back $60,000 or $70,000 in a season. So the balance gets rolled over to the next season. Then once a grower is certified organic, they move to a previously agreed-upon payback scheme (typically a term note). This could be a typical APR amortized over five years or a revenue share.
The Perennial Fund can finance almost anything that helps farmers grow and then sell organic crops. They currently offer:
- Long-term working capital and operating loans
- Term loans
- Equipment loans
- On-farm infrastructure loans
“We do an assessment with each farm and we lay out all the different ways that we can work with them,” Brandon says. “It’s a long term partnership. We are not trying to sell them a product.”
Regardless of the loan, the end goal is the same: give farmers the financing they need to make the leap.
Providing support beyond organic farming loans
Mad Ag understands that securing financing is only the first step for success with organic row crops. Farmers also need markets that buy their crops.
That’s why Mad Ag has a full-time crop marketer to help their farmers get a value-add on their products. One way they hope to do that is by building relationships with multinational brands and small consumer packaged goods companies. Once their farmers are certified organic, they’d have collective selling power.
The Perennial Fund also recognizes that farmers need more than just organic farming loans. Another goal is to create a community of farmers who are transitioning. They hope to foster opportunities to discuss successes, failures, what’s working, new markets, and more. The fund plans on holding quarterly meetings and creating group text messages so organic farmers can communicate regularly with each other.
“If we can help facilitate them getting together or going to each other’s farms once a month to start building that community, that will be key. It’ll help us all keep moving in the right direction,” Brandon says.
A values-aligned partner
The Perennial Fund launched in 2021. And they issued their first loan in mid-February to a farmer in southern Minnesota.
While Mad Ag has primarily worked with farmers in Colorado, they’ve found a lot of interest in regenerative organics in the upper Midwest. The region they’ve chosen to focus on includes Minnesota, Wisconsin, Iowa, Missouri, Illinois, Indiana, and eastern Nebraska. Around a dozen farmers were working with the fund in the first months of 2021.
“If any farmers are interested in working with a values-aligned partner that’s in it for the long haul and brings more value than just finance to the table,” says Brandon, “we’re a pretty good option.”
AgriSecure can help
At AgriSecure, we know the challenges of securing organic farming loans during the transition period and how necessary it is to have a partner that understands the long-term commitment. With the Perennial Fund’s financial support and AgriSecure’s organic expertise and MyFarm platform, growers will have the plan, cash flow, marketing support, and recordkeeping necessary to reach certification and start operating profitably.
To learn more about the Perennial Fund, visit https://www.theperennialfund.org/. For guidance on the transition and whether organics is a good fit for your farm, contact AgriSecure today for a free consultation.
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