Agricultural Community Development Financial Institution (CDFI) Q&A
Responses by Reggie Knox, Chief Financial Officer, California FarmLink, and
Poppy Davis, Agricultural Business & Policy Adviser
Resources:
Questions & Answers
Q: You mentioned RCD. What does that stand for?
A: Resource Conservation District. Click here for a description of RCDs in California. In Washington State, Conservation Districts are the comparable type of program. These types of districts exist across the country and were originally established as part of the now defunct NRCS Resource Conservation and Development program (RC&D).
Q: What would be a good way to find organizations doing agricultural CDFIs in Washington State?
A: Some options for learning about CDFIs in Washington State:
- In Washington State there are a number of CDFIs that are doing some food and farming but none that are heavily concentrated in agriculture.
- CRAFT3 lends in Washington State. They have a focus on food businesses and do some ag lending. They lend to fishing businesses.
- Meet CDFIs interested in agricultural lending at the Opportunity Finance Network annual trade association meeting.
- There are examples of CDFIs working on local food and farming projects but that does not mean the have an ag focus or specialty. See for example the Industrial Credit Union in Whatcom County lending to farms in partnership with the Community Food Co-op.
- Refer CDFIs to California FarmLink if they have an interest in agricultural lending. We have a strong business model and can share how to combine the various sources of funding.
- There is a pot of funds within CDFI funds called “healthy food finance” and that is focused primarily on retail store development in food deserts, so it has a food access focus, but the CDFIs that work with that pool of money have branched out into other kinds of food systems infrastructure including food hubs, distribution, and aggregation. But again, very few CDFIs are doing lending directly to farmers.
Q: I’ve been following news coverage of State Farm Insurance ceasing their insuring of homeowners across California because of risk exposure. In my own experience farming on a small scale, I had trouble getting insurance I could pay for. I’m curious whether you are starting to run into farmers having trouble getting insurance coverage because of climate change-related issues, and whether that is a space FarmLink has thought about moving into.
A: Yes, we have a significant proposal out right now to significantly expand our work on insurance for just this reason. Insurance is a huge issue for us. On the education side we get lots of questions about where to find an agent who will work with small farms. Similar to what we see with lending – farming is just a bit too different for insurers to specialize in. Most mainstream businesses have a lot in common and farming is an outlier.
We have a crowd-share document that we have created through the Northwest Resilerator, and we ask farmers to share info when they find an insurance agent who speaks farm.
We could underwrite more if there was more insurance. Most of the farmers we serve – diversified small farms – historically have not been able to access crop insurance. Farmers, like homeowners living in wooded areas in California, are impacted by the same inability to insure their structures for fire. I know the state has backed a lot of homeowners who lost their insurance, but I don’t know the extent to which the state is also backing commercial businesses.
One of the reasons some lenders in other states might not make a loan to a new farmer is if the farmer isn’t able to access crop insurance. The Whole-Farm Revenue Protection insurance plan is supposed to serve diversified farmers, but it’s still out of reach of most small farmers that we serve.
Regarding this whole area of risk management: One of the reasons we talk to farmers about working with an agricultural lender, as opposed to a different kind of lender, is that once we are together in a loan, we are partners (in the lay sense) in the business venture and are both on the line for losses. So we are both interested in risk management.
We require property insurance on a property that is securing a loan.It’s not that hard to insure a tractor and get a tractor loan. It’s really hard to insure frozen meat inventory. That is an emerging issue. Farmers have a very substantial investment in frozen meat inventory. It’s a lot of money. Farmers themselves may not have the inventory procedures to know the value of their meat so they overlook it in their mental calculus. When the fire comes, they lose power, and they lose their inventory due to the fire, but not due to the flames taking their inventory. The fire insurance doesn’t cover that. When they go to seek product insurance, that is extremely specialized and hard to find. Most of them are basically uninsured. The same goes for trees. You can lose all your fruit and nut-bearing trees and there is no property insurance for that. And honey bees. There are a million ways you can lose beehives and there is almost no way to insure that property the same way you would insure a barn.
Credit is part of a risk management strategy. If you are going to be uninsured for a large item, and there is a more than one in ten chance that a disaster is going to take out that item, what do you have? Your credit score, and your ability to access and manage credit is a key part of a risk management strategy. We provide either new credit, or help to farmers to renegotiate and use their existing credit in strategic ways.
During the pandemic when a lot of people were going to go out of business, one of the main relief programs coming out of the CARES package was the Paycheck Protection Program (PPP). Because we already had a relationship with the Small Business Administration as a guaranteed lender, we registered as a PPP lender. We proceeded to make about $4.5 million in forgivable PPP loans over the next two years, which were instrumental in keeping people going through that period. At the same time, we had received a $2 million grant from Wells Fargo, which we committed to making 0% loans to farmers for economic recovery. We used our own existing reserves of capital to make the forgivable loans, and once the paperwork was completed, the government reimbursed us so it turned into a grant for the farmer. With the philanthropic capital from Wells Fargo, we started to grow this 0% loan program within our lending that we have now shifted over to help farmers with economic recovery, recovery from fires, and recovery from floods and severe weather.
Q: Please share more about your work with community land trusts.
A: We haven’t worked a lot with community land trusts but we’re always exploring how to apply these models. They just haven’t gotten a lot of traction.
The main wealth-building strategy for a farmer is for them to own a piece of property as an appreciating asset. When they are able to manage the risk of a downpayment on the land, we typically fund 80% of the loan and the farmer funds 20% or sometimes less than 20%.
We have a lot of interaction with land trusts that are not considered community land trusts. We have two substantial long-term project to explore some of the legal mechanisms for advancing a community land trust model into agriculture. It’s like how housing co-ops and Habitat for Humanity work to create quality land tenure opportunities using those mechanisms, but in agriculture there are other zoning issues. My analysis is that we would have to create an entirely new zoning mechanism at the state level and then deploy that mechanism at the county level before we could actually implement some of the things that are now theoretical.
We have worked with land trusts where we’ve had investors put up designated capital at very low interest to California Farm Link (0-1%) and the restriction on that capital is that we use it to help farmers buy easement protected land. So we can greatly reduce the interest rate to a farmer who is buying land that has been protected by a land trust. It’s a three-way partnership with the farmer or investor, the land trust, and California FarmLink that is providing the low-interest capital. That is a model we would love to see grow.