Climate change and the pandemic are turning more investors’ minds — and their money too — toward building resilient food supply chains across Canada, according to two experts in social financing.
“There are more and more people who recognize that local, social financing is a bit of a vaccination against what’s happening with the global food supply,” says Linda Best, a founder and managing director of Farmworks Investment Co-operative Ltd.
Farmworks is based in Nova Scotia and currently has close to 130 loan clients, including farmers, food processors and restaurants. It’s a Community Economic Development Investment Fund (CEDIF), operating under a provincial program in which investments in local enterprises are RRSP-eligible and investors receive a 35 per cent provincial non-refundable tax credit with a five-year hold, and credits of 20 per cent and 10 per cent for subsequent five-year holds.
“We’ve grown wholistically and organically — each year, we’ve had more money come in and more loan clients, and most of our directors are very involved in providing business advice and mentoring to those clients,” Best says, adding that this year, they made a small profit.
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Funds that are collected from investors are loaned to local businesses that must show at least a 10 per cent increase in output and productivity over three years, and there are strict guidelines for measuring and reporting outcomes. A total of $783,300 was invested last year, with the average individual investment at about $6,000. Best was hoping to get to $1 million this year.
Loan repayments — which total about $50,000 to $60,000 a month — are plowed back into the pool for lending out to others.
During the pandemic, loan payback terms were extended for some clients, and Farmworks only lost two businesses over the course of 2020-21.
Nova Scotia’s CEDIF model has proven successful. An economic impact study published this year by the Co-operative Enterprise Council of New Brunswick showed that, in 2019, an investment by the provincial government of less than $700,000 produced a $2 million investment by the province’s residents. The 116 businesses that were helped — most of which were in the food and beverage industry — maintained 1,200 full-time jobs, generated $52 million in wages and salaries and contributed $25 million in taxes.
Ontario model
In Ontario, the Fair Finance Fund (FFF) was launched in 2018 under the auspices of the Local Food and Farm Co-operatives (LFFC) and subsequently spun off into its own non-profit social finance fund. FFF is now set to raise $2 million by the end of 2021.
“Listening to members of LFFC, the thing that always came up was the need for access to capital,” says project manager Sally Miller.
A discussion paper was developed and circulated to members including the Ecological Farmers of Ontario, National Farmers Union, Sustain Ontario and others. They determined that the non-profit structure for the fund was the best fit.
Fair Finance Fund sells community bonds — currently at an interest rate of two per cent for $5,000 bonds and 2.95 per cent for $50,000 bonds — to individuals and institutions. Since 2019, the fund has invested $850,000 in farms, food and beverage processors, restaurants and others, resulting in more than $3 million in increased local food sales.
“Every bit of capital we raise goes to clients,” Miller says, adding that last year, they were able to lift the cap on the amount they loan out to $200,000.
Currently, the fund’s terms include $20,000 to $200,000 loans over five years at 5.25 per cent interest. There are no collateral requirements up to $100,000, an optional three-month grace period and no fees.
“It (the cap increase) is really a game changer, because now we can support underserved farmers and communities to buy land.” Loans are also available for equipment, working capital, buildings and other purposes like marketing and transportation.
Many of the FFF loan recipients are people who have been in business for a few years and are looking to buy land or a piece of equipment, or to add processing capabilities to their farm business.
“Because they’re diverse and sell direct to consumers, they don’t fit the traditional model and therefore can’t get access to capital,” Miller says.
The other advantage she says of social financing is that her loan clients want to deal with FFF because they know that the money they pay back will go to someone else like them.
Moving money to address social concerns
Growth in the social-impact investing sector is picking up speed.
“There have been huge developments in social finance funds in Canada in the last three years,” Miller says. “The federal government announced $755 million for the sector and there are many different organizations and structures — even within funds, targeting different investors.”
The Social Finance Fund was announced by the federal government in late 2018 as a 10-year program aimed at providing charitable, non-profit and social purpose organizations better access to financing via credit unions, private equity firms and community loan funds. In August 2021, Ottawa issued a call for expressions of interest for one to five social finance wholesalers to administer the fund.
“We’re getting larger investors who want to move their RRSPs out of fossil fuels,” Best says, and she adds that the socially responsible investment sector is growing, and that people recognize they should invest in what’s going to support them down the road.
“Early on it (social financing) was driven by renewable energy, affordable housing and real estate innovations,” says Miller, who calls Linda Best and Farmworks her inspiration for developing the Fair Finance Fund for the farm and food space.
“A lot of our investors are new to purpose-focused investing — and they’re not big investors — but they’re concerned about climate change, so they want to contribute to fighting it and reducing greenhouse gas emissions and soil erosion and so on.”
Miller says that the typical FFF investor is a foundation that either has a policy to allocate money to mission-driven investments or is thinking about it.
Both Farmworks and FFF also offer business mentorship and advisory services.
Many of Farmworks board of directors members provide one-on-one help to budding businesses, and FFF’s REAL Assist program links local farm and food enterprises with seasoned experts to provide them with hands-on help to reach their business, social and environmental goals.
Future facing
Best says that she’s preparing to lobby the incoming Nova Scotia government about raising the current cap of $6 million under the CEDIF program to $10 million.
“If you have a board of directors that’s working really well, it doesn’t make a lot of sense to have to set up a whole new board to achieve the kind of results that we’re achieving,” she says.
Miller, meanwhile, says the FFF will be holding regional and sector-specific information sessions across Ontario to get a feel for what needs to be addressed.
It isn’t only farms, she says. “The future of the restaurant industry is especially uncertain, and we’re in a good place to help.”
Both Best and Miller spend a lot of time talking to their social financing counterparts across the country about what works and what doesn’t and sharing ideas about development plans.
“It’s a really exciting sector to be in at this time,” Miller says. “People are generous with their time and their templates and their thoughts. We’re all trying to make this work together.”
