Jason Bradford and Stephen Heuffed are improving their operations with a lot of financial help, but much of it didn’t come from traditional banks.
They received their funding directly from investors and others who want to nurture agriculture in addition to earning a return on their money.
Bradford is making costly improvements to 2,000 acres of farmland in Oregon and California. His company, Farmland LP, will obtain organic certification on the properties and install irrigation equipment, fencing and other amenities in hopes of attracting farmers to lease the land.
“We make all that investment up front,” Bradford said. “There’s an infrastructure investment that’s needed to do that.”
Hueffed, a Doty, Wash., sheep farmer and cheesemaker, is also making upgrades, though on a smaller scale. His company, Willapa Hills Cheese, recently revamped its production facilities to speed up manufacturing and extend his product’s shelf life, allowing for distribution to new geographic markets.
“It opened up a huge potential for customers,” Hueffed said. “It’s a total game changer.”
Bradford’s and Hueffed’s projects vary in size and nature, but both have been made possible with funding from invest-ors and other forms of “slow money,” an um-brella term for alternative forms of financing that farmers and others in agriculture are using.
Most of the $12 million Farmland LP has used to buy land was raised from investors who expect to earn a return over time, as the properties are leased to organic growers.
Hueffed helped fund his upgrades with $100,000 in loans from a private investor and Whole Foods, a grocery company that sells his products.
Both companies were able to find investors through Slow Money Northwest, the regional affiliate of a national movement aimed at linking investors with food and farm companies seeking alternative modes of financing.
“The crucial thing is bringing the right people together in the same room, and that is what they are accomplishing,” Hueffed said. “That’s what I couldn’t do on my own.”
The movement sprang from a 2009 book, “Inquiries into the Nature of Slow Money,” by Woody Tasch, who managed philanthropic and community development funds. His concept is to invest in environmentally and socially beneficial agriculture companies for long-term returns.
Though consumer interest in sustainable and organic farming has been increasing, many growers trying to get started in the sector have trouble with funding, said Garry Stephenson, small farms extension specialist with Oregon State University.
They often rack up credit card debt to get their small companies
off the ground, he said. “It’s been
one of the techniques because it’s been tough for them to get financing through commercial banks.”
Apart from identifying venture capital for food and farm companies, Slow Money Northwest recruits financial professionals who offer their expertise to nascent businesses, said Tim Crosby, the regional group’s director.
“It’s about more than money,” he said. “We let them help each other.”
For example, accountants, attorneys, marketers and other experts can help farm businesses understand why they’re falling short of commercial bankers’ expectations, Crosby said.
New food and farm companies often lack the business experience to qualify for a bank loan, said Matt Mylet, vice president and commercial relationship manager with One PacificCoast Bank, which is partnering with Slow Money Northwest.
“They don’t have a track record,” Mylet said.
Banks are generally able to help with financing once companies have reached a certain level of profitability and have a solid understanding of their own cash flow cycle, he said.
For example, a company with strong demand for its product can still have problems if its money is tied up in accounts receivable, Mylet said. “It is cash intensive and can put a strain on a company.”
Once those financing requirements are met, the support of a bank can make it easier to attract other investors, Crosby said. “It makes for a more compelling arrangement because you’re jumping on something where the bank has already done its due diligence.”
The idea is also to pool money from several investors willing to each provide a smaller portion of the total request, thereby diminishing the financial risk to any one person, he said.
Crosby, who invests in such ventures himself, said investors are generally motivated by enthusiasm for small local farms. However, they don’t see their contributions as charity. “In the end, these have to be viable businesses,” he said.
Because some farmers are leery of giving up any ownership in their land or company, Slow Money Northwest is also trying to develop modes of financing other than the equity model, Crosby said.
For example, an investor may receive a royalty payment per unit of product that’s sold, which is unusual for food but has worked for intellectual property, he said.
“It’s not debt. It’s not equity,” Crosby said. “It’s not new to business.”
Such arrangements would be negotiated by the farmer and investor.
For acquiring property, farmers may be able to connect with land and conservation trusts that buy development rights from landowners, he said. The property then becomes more affordable for agricultural use.
“It drops the price of the land down to get people onto it,” Crosby said.
Craig Wichner, a partner in Farmland LP, said his company wants to allow investors the chance to diversify into organic farming without actually having to buy land and grow crops themselves.
“It’s a challenging field to get into as an investor,” he said. “There’s really no way to invest smaller amounts of money in agriculture.”
Wichner and Bradford got the idea for starting a fund to buy farmland when they were trying to buy property for themselves. They soon realized they’d need more land to make their plans possible.
“It wouldn’t have been a sustainable business,” Wichner said. There’s a demand for organic products – and thus certified organic acreage – but the conversion process is too time-consuming to be feasible for some growers, Bradford said.
“We set up opportunities for farmers to come on,” he said.
Farmland LP is a limited partnership that’s also certified as a B corporation, a type of business formed to address environmental and social issues, according to the website of B Lab, which certifies the companies.
Hueffed, who grew up in Seattle, said alternative financing methods will become increasingly important as people from nonagricultural backgrounds return to farming.
The investor who lent his company money grows fruit and other crops and felt inspired to invest in another farmer, he said. Hueffed wants make that a tradition.
“I hope 10 years from now, I am in the room funding somebody,” he said.
This story originally appeared in Daily Astorian.