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Social financing

Helping investors offer low-risk loans for farm projects that big lenders won’t take seriously

A new fund is being developed in Ontario to help farmers and small food processors obtain local financing to grow their businesses.

Sally Miller.
photo: Supplied

“Better access to capital comes up all the time when we ask our members what they would like us to do for them,” says Sally Miller, project manager with Local Food and Farm Co-ops (LFFC), a non-profit organization that provides support, resources and training for 75 farm and food co-operatives throughout the province.

Miller has worked for many years researching alternative and social financing, and has found that they could provide much-needed help for both organic and conventional farmers wanting to increase their productivity and profitability.

While things are slowly changing, larger financial institutions don’t understand smaller agri-food business models and consider them high-risk investments. There’s also a gap when the financing that the farm needs is too large for micro-investors and too small for the big banks.

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To fill the gap, the Fair Finance Fund is being developed by LFFC along with the Rural Agri-Innovation Network (RAIN), which is part of the Sault Ste. Marie Innovation Centre.

The idea is to extend loans of $25,000 to $75,000 that could either fund smaller projects or be used as leverage to obtain larger amounts from other institutions for, say, buying farmland. Funds would be directed to commercial operations. An example would be a vegetable grower who has been selling at farmers markets for four or five years and would like some help to get into wholesale.

Provincial government seed funding will be used to kick things off, and the vision is to create a self-sustaining pool of money which attracts investors from the community. In July 2018, Miller was surveying and talking to other social fund managers, investors and potential participants to find out what terms would work and how best to structure the fund.

“Decisions about the structure will be made in early fall, and the fund should be launched in late 2018, just when the farmers are coming back in off the fields,” Miller said.

In the May 2018 announcement of the Fair Finance Fund, the LFFC stated, “Social finance funds in the local food and farm sector have shown high payback rates (95 to 98 per cent) and returns on investment that are comparable to many market investments. And the rewards go deeper, in strengthening communities, increasing access to healthy food for everyone, and creating new jobs in sustainable industries.”

Variations on the model are up and running in several other provinces including Manitoba, Quebec, New Brunswick, Prince Edward Island and Nova Scotia.

In Nova Scotia, FarmWorks Investment Co-operative Limited has loaned $2.5 million to more than 80 farm- and food-related local businesses since it was launched in 2011. As loans are repaid, the funds go immediately back into the pool to be loaned out again.

An advantage that FarmWorks has over any potential Ontario model is that it’s a Community Economic Development Investment Fund (CEDIF). Investments in FarmWorks are RRSP eligible and 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. They are exclusively used to support Nova Scotia’s food and farm economy and rural communities. Ontario currently doesn’t offer these kinds of incentives.

At FarmWorks, businesses that apply for loans must be food-related, for-profit, have a strong business plan and show at least a 10 per cent increase in profitability and productivity over three years. Members of the board of directors evaluate applications, do site visits and approve the loans. They also offer mentoring services and business advice.

Among the loan recipients are All Sauced Up, which uses local ingredients for cooking sauces, salad dressing and condiments; Fenol Farm, which develops and sells botanical medicines and high-value extracts; and Meadow’s Brothers’ Farm, which produces maple syrup, lamb, hay and eggs and was launched by Thian Carman, Family Business Atlantic’s young entrepreneur of the year for 2018.

Linda Best, a director and founder of FarmWorks, says that while the tax advantages from the province are important, she figures about half of investors would participate even without the “carrot.”

Linda Best.
photo: Supplied

“They invest because it’s in their communities’ interest,” she says, adding that most of the current 391 shareholders understand the importance of connecting farmers and eaters. They also tend to be older investors, and they are concerned about climate change.

They’re also loyal. Just under 40 per cent of shareholders have reinvested from two to seven times.

As an economic development driver, the co-operative is a success because, Best says, “about one-third of the businesses (they fund) would not exist if it weren’t for FarmWorks.”

Still, Best isn’t satisfied with the progress and wishes they had more support from the provincial government.

“I don’t think they understand the tremendous potential for food production,” she says, adding that maintaining focus, working hard and being persistent are key to making the organization work.

“You have to be totally invested yourself in order to persuade others to invest,” she says, adding that of all the current shareholders, there are only about 10 per cent of them she doesn’t know personally.

Both Best and Miller are passionate about supporting farmers and sustainable local agri-food economies. By supplying new, targeted tools for the financial toolkit, these women are building stronger bridges between the people who produce food and those who purchase it, as well as strengthening Canada’s rural communities.

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