The next generation of farmers is here. From vibrant gold tomatoes at ACME to bundles of fragrant garlic scapes at the farmers’ market, today’s consumer wants fresh, local produce and young farmers everywhere are springing up to give it to them. These farmers face a whole host of unique challenges.
Fox MC has worked with various agricultural organizations to support this segment. From economic development corporations to land trusts, non-profits to cooperatives, any organization hoping to support next generation farmers should be aware of the unique challenges and opportunities they face.
The Opacity of Risk
A few years ago, Fox MC consulted for the Mid-Atlantic Farm Credit (MAFC). This cooperative that offers credit and financial services to farmers in the mid-atlantic region has recently struggled to meet the needs of the new wave of agriculturalists.
The challenge for MAFC hinged on risk assessment. In the past, farmers bought large tracts of land, passed down through generations, as collateral to bear on their loans. Today, many young farmers are the first in their families to pick up the spade, renting land or farming on smaller plots that don’t offset the value of the loans they seek.
Risk assessment gets further complicated by the business model used by young farmers. Traditional farmers grew their product and sold it off to a distributor; as long as their potatoes made it on the truck, they got their money, with no further risk involved.
Many newer farmers are selling directly to consumers through Community Supported Agriculture (CSAs), farm stands, and other avenues. They assume 100% of their risk, from crop failure to product spoilage, logistics issues to low product demand. With so many more opportunities for something to go wrong, lenders like the MAFC have a hard time determining the viability of a loan, which limits the capital available to young farmers.
Thankfully, MAFC is committed to serving young farmers and, with the help of Fox MC, implemented an adapted credit model to better address their needs. But for those small farmers without access to a proactive lender, capital remains a significant barrier to growth.
The 24/7 Straw Hat
Marilyn Anthony, an assistant professor of Strategic Management at Fox, has served as project executive for several Fox MC projects within the agriculture industry. She notes that farming is a uniquely comprehensive vocation. “Every small business person wears a lot of hats,” Anthony says, “but they don’t necessarily wear them 24-7. The farmer does.”
Part of the difference for farmers is their set cycle of production. If a baker burns their boule, they make a new one. If a farmer’s crop fails, they may have to wait an entire year to try again. This increases the pressure on farmers during the growing season, and concentrates all their needed resources into a few-month-period each year.
Farming also requires a unique mix of skills. Every small business owner is part accountant, lawyer, handyman, and marketer. But, as Anthony explains, “For small farmers, production itself requires such extensive skill that it leaves very little space and time for all the other business skills.” The challenge for next generation farmers is to either gain business skills themselves or outsource them, leaving them free to focus on farming.
Think Like A Business
For all the things that make small farms unique as small business enterprises, many of their challenges come from not focusing enough on the business piece.
Bill Kitsch is the vice president and agricultural lending manager at Ephrata National Bank. He has spent his whole career in the agriculture industry working with financing.
His story of becoming a passionate supporter of alternative farming methods began not with concerns for the earth or fears about GMOs, but from an ardent desire to see farmers capture more of the value of their produce.
“I was watching farmers invest in the newest technologies,” Kitsch explains. “They’d see an incremental increase in their yield, but no increase in their profits. They were just sending the extra money out to the technology companies. I was watching farm families deteriorate because of it.”
When organics began to take hold in the early 2000s, Kitsch saw an opportunity for farmers to finally capture more food dollars for all of their hard work. “If the consumer is willing to pay more for organic,” he says, “then that’s fine by me.’”
Many green farmers dive into farming, purchasing equipment on credit and choosing a business model that appeals to them. Instead, Kitsch recommends farmers begin like any other small business: assess the need, critically think through strategic steps for addressing it, and only begin investing resources once a business plan is in place.
“A lot of this comes down to record keeping,” says Kitsch. Farmers should know what their expenses are, where they intend to sell their product, and what ROI they can expect.
Farmers also need to think about diversification of revenues. The most successful farmers are selling through a number of different avenues, whether wholesale, to restaurants, through a CSA, or at their own markets.
The takeaway for organizations trying to support next generation farmers is to facilitate access to business skills and resources. Many farmers will benefit from training on the basics of running a small business, and can translate that knowledge into better marketing, planning, and record keeping.
Some farmers do not want to become accountants, or don’t have the skillset to be successful marketers, and even the most entrepreneurial farmer will have limitations. Organizations can offer support services for these farmers, centralizing record keeping, offering consultation in business models or web expansion, and facilitating connection with other business professionals who are knowledgeable in working with and supporting this segment.
Whatever the combination of resources offered, finding ways to help small farmers think more like small business owners is a big step in ensuring their success.
In addition to his work funding young farmers, Kitsch served as a project executive last fall with Fox MC for a team working with the Chester County Economic Development Council (CCEDC) to evaluate the viability of CSAs as a business model. What they learned flew in the face of common farming practices.
Many young farmers kick off their business by starting a CSA. While CSA’s are viable “long-term financial vehicles,” according to Kitsch, they are about the worst initial venture for farmers just starting out.
CSAs are highly complex. They involve 30 to 40 different products, depend on strong marketing skills for creating demand, and have uncertain financial returns. As Anthony puts it, “Why would you start your business at a place with the highest demand for all of these skills?”
Kitsch recommends that new farmers instead begin with a high degree of wholesale and a low degree of marketing. “Over time you’ll reverse that ratio,” he explains, “but the key to every farm is to utilize 100% of your assets, every inch of your farm in revenue generation.”
New farmers running an operation as complex as a CSA simply don’t have time to ensure they’re hitting their capacity, and as Kitsch points out, that’s a critical oversight. “In farming, your return on your assets is only 1% to 1.5%,” says Kitsch. “If you decrease your utilization by even 5%, it’s fatal.”
The most successful farms Kitsch has seen often begin their efforts by focusing on one or two products. They can sell to a few restaurants or at a farm stand, and move up the learning curve at a lower risk level.
This method not only simplifies growing and marketing for the farmer, it also makes financing easier. “If a farmer knows who their market is, I can find a way to finance it,” Kitsch says. Finding a market for a single product is much easier than managing an unpredictable CSA membership base.
For organizations trying to support next generation farmers, helping them determine the best use of their resources and even steering them away from a CSA to start can be a big support.
A final support organizations can offer to next generation farmers is the development of infrastructure. Kitsch gives the example of the mushroom cluster in southeastern Pennsylvania. Several mushroom farmers there realized that their fresh mushrooms were an imitable advantage, and banded together to create a factory for canning, diversifying their revenues and insulating them against risk.
Infrastructure that helps farmers deal with their “seconds,” produce that is not pretty enough for sale as is, helps farmers capture more of their food dollars and get closer to 100% capacity utilization.
Support infrastructure can come in the form of factories, farmers markets, and networks of local restaurants that purchase regional produce, or collaboratives that help centralize distribution. Needs vary depending on the farmer and the region. Organizations should look for the collective benefit farmers in their particular region need and coordinate to provide it.
Next generation farmers have a dynamite product. Kitsch himself regularly benefits from locally raised hogs, sweet silver queen corn, and pesticide free strawberries.
The key for organizations stepping up to support these farmers is helping them get out their product in a way that not only leaves the consumer sticky and smiling, but also fills the farmers pockets to fund delicious edibles for many years to come.