By Ellie Winninghoff
Looking to invest in ways that help scale the supply of fresh local food and build regional food systems?
The Carrot Project, a Somerville, Mass.-based nonprofit that specializes in small farm finance, has developed three loan funds in partnership with different financial institutions that offer operating capital to organic farmers in Vermont, Massachusetts and Maine. And RSF Social Finance, a San Francisco-based nonprofit financial services company, has two funds that include businesses that support regional food systems.
"Access to capital is one of the most challenging issues for farmers," says Gray Harris, director of sustainable agriculture at Coastal Enterprises Inc. (CEI), a community development finance institution, or CDFI, in Wiscasset, Maine. CDFIs serve minority and low-income people, and CEI has partnered with The Carrot Project to offer operating capital to Maine farmers through the Maine Farm Business Loan Fund.
In Vermont, The Carrot Project and the Vermont Community Loan Fund, a Montpelier-based CDFI, have partnered to develop The Carrot Project Agricultural Loan Fund. And in Massachusetts, the nonprofit has partnered with the state's finance and development authority to develop the MassDevelopment/The Carrot Project Small Farm Loan Program. It is launching the Greater Berkshire Agricultural Fund later this year.
These programs are open to individual investors. They don't have to be accredited, but they need to invest a minimum of $25,000. The interest rate on Carrot Project investments range from .75%--roughly the same as a market rate CD-to up to 2%.
Prime The Pump
According to a study conducted by The Carrot Project in 2007, 25% of the 700 farmers surveyed had trouble accessing loans. The problem, says Carrot Project founder and executive director Dorothy Suput, lies with both farmer and banker.
She says many farmers do not understand how to communicate with bankers or how to write business plans and thus require technical assistance before they are "investment ready." And while banks originate and service loans, they usually do not hold those loans in their portfolios. This means there is less emphasis on judgment and more emphasis on conforming to industry standards.
Suput adds that most banks do not understand the business model for small organic farms focused on sustainability. "To be sustainable, these farms are more diversified, which adds to operational and marketing complexity," she says. "Most of the farmers that are part of this new wave are focused on retail and value-added farming. They do not sell to mainstream commodity markets."