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Wanted: Financing for 'Food Desert' Farms

Farm Credit System could help farmers grow for neglected markets

July 28, 2011 | By Patty Cantrell
and Bob Heuer
Great Lakes Bulletin News Service

Please credit Northwestern University
  It is very difficult to purchase quality, fresh food in many areas of urban and rural America.

First Lady Michelle Obama’s campaign against childhood obesity moved forward last week with her announcement on Wednesday that several grocery chains have agreed to open or expand 1,500 stores in urban and rural “food deserts” nationwide.

But Ms. Obama did not say who would be growing all the anticipated fruits and vegetables.

Many believe local farmers and businesses could help supply these new or expanded retail outlets, and grow new jobs in the process, if they received more business development support. America’s largest farm finance network, the Farm Credit System (FCS), is considering a proposed regulatory rule that could help.

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 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 that make up FCS aren’t doing enough to meet their federal mandate to deliver financing and “related services” to young, beginning, and small farmers.

Earlier this week, a 60-day public comment period for the FCA’s proposed “diversity and inclusion” rule ended. If approved by the FCA board, it would require every FCS institution to create plans to diversify their workforce and market their 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?
In its critique, the FCA cited the growing diversity among farmers and significant changes in their markets, such as rising demand for local products, as reasons it called for more FCS innovation, both internally and externally.

Farming to supply food deserts—places where residents cannot easily find fresh, affordable food, particularly produce—is among those new local market opportunities, even though “food desert farming” wasn’t in Michelle Obama’s script last Wednesday, when she announced the grocery story initiative.

But the concept intrigues people who are seeking market-based ways to get nutritious, fresh food to people who can’t buy it easily, if at all.

One of the initiatives the first lady did announce was the California FreshWorks Fund—a $200 million public-private loan portfolio. NCB Capital Impact will underwrite the Fund’s credit and manage its loans, which 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 them. But a new nationwide training program for CDFIs, launched through the Obama Administration’s Healthy Food Financing Initiative (HFFI), puts them at the forefront of efforts to finance the food supply chain—from urban and rural farms to the badly needed retail outlets.

NCB Capital Impact’s chief operating officer, Annie Donovan, believes that FCS could help out by bringing strong farm financing expertise to farm-to-food desert work.

“All the pieces of the food system puzzle are there,” Ms. Donovan said. “Maybe Farm Credit System could help CDFIs put them in place.”

Institutional Change
However, the CEO of FCS’ Washington-based lobbying arm, the Farm Credit Council, thinks that, for that to happen, its client must shift gears a bit.

“If there is a desire for FCS to get more involved,” said Ken Auer, “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.”

Mr. Auer contends that current 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. Farmers must own farm-related processing and marketing businesses, and other farm-related service businesses have only limited eligibility. 

But the FCS’s purpose goes beyond booking loans. Federal law specifies that the FCS should also supply young, beginning, and new farmers with “related” financial services. Because FCS secures its funding through capital markets, it does not need federal tax dollars for investments it might make in programs that help make fresh and affordable food more readily accessible to low-income consumers.

To support those programs, advocates say, FCS needs to expand its current efforts to reach those young, beginning, and small farmers.

“Farm Credit Systems 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,” said Juan Marinez, Michigan State University Extension’s point person for Hispanic farmers and ranchers. 

Support for that idea is already coming from local food advocates who belong to the National Sustainable Agriculture Coalition (NSAC).

In an NSAC action alert, policy director Ferd Hoeffner said that Farm Credit Systems, 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 Obama Administration’s Healthy Food Financing Initiative is an important avenue for doing that, 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,” according to Ms. Flournoy. She said Farm Credit System’s participation in the production side of the agricultural equation would help build Congressional support for further investments in urban and rural redevelopment.

Patty Cantrell, a journalist and community organizer based in Beulah, Mich., founded the Michigan Land Use Institute’s Food & Farm Program. She now heads Regional Food Solutions LLC. Bob Heuer is a public policy and marketing consultant based in Evanston, Ill.

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