Rabo AgriFinance has announced a new loan product that can make it more financially viable for farmers to seek organic certification on all or part of their crop operations.
With guidance from Pipeline Foods, Rabo AgriFinance has developed a financial framework that gives farmers the flexibility to receive the capital needed for upfront costs associated with changing production practices. Farmers can schedule repayments when they receive the additional revenue from selling certified organic goods.
The U.S. Department of Agriculture requires a three-year transition period for farmers to certify their land as organic.
“During that period, farmers often experience yield loss in comparison to conventional production, and they cannot begin to collect organic premiums for that land’s production to compensate for the lower yield,” explains Shawn Smeins, deputy head of Rabo AgriFinance. “This challenge has created a financial barrier, especially after several years of tight margins and decreasing cash reserves, to many farmers who may be interested in entering into organic or expanding their organic footprint.”
Leaders at Pipeline Foods, a specialty grain supply chain company that operates up and down the supply chain, partnered with Rabo AgriFinance because they saw how difficult the transition could be for farmers.
“There is demand from consumers and food companies for organic food and ingredients, but farmers repeatedly run into a wall trying to pencil out how they are going to survive the transition period,” said Eric Jackson, founder and chairman of Pipeline Foods, which also assists farmers navigate and manage the certification process. “This loan offering is the type of solution the industry has been waiting for.”
The U.S. has been importing 9 million to 12 million bushels of organic corn and 12 million to 16 million bushels of organic soybeans per year, according to the U.S. Department of Commerce. “Those numbers demonstrate that demand has grown faster than domestic production,” said Stephen Nicholson, senior grain and oilseed analyst with Rabo AgriFinance. He expects demand growth to continue, supporting price premiums, which have settled into a range of 110% to 130% over the price of conventional soybeans and 120% to 150% for corn according to estimates by the RaboResearch Food & Agribusiness team at Rabo AgriFinance.
“Transitioning to organic production is a diversification strategy that holds promise for increased profitability, more stable markets and an increased likelihood of successful farm transfer to the next generation,” said Erin Heitkamp, senior vice president of agriculture and public affairs for Pipeline Foods. “By providing these financial tools, farmers not only see, but are able to pursue the organic opportunity.”
One of the largest lenders to U.S. farmers and ranchers coast-to-coast, Rabo AgriFinance partners with leading operations that grow a diverse range of conventional, organic and other specialty crops.
Pipeline Foods is a client of Wholesale Banking North America (“Rabobank”), a sister company to Rabo AgriFinance. Pipeline Foods is the first U.S.-based supply chain solutions company focused exclusively on organic, non-GMO and regenerative food and feed. In September, Rabobank led the renewal and syndication of Pipeline’s Green Loan. It was defined as such for its contribution to the achievement of global environmental objectives, observance of no harm principles, and adherence to the ICMA Green Loan Principles and EU standards.
“Working with such innovative front-runners further strengthens our ambition to be a leader of sustainable commodity finance in the U.S. and globally,” said Lionel Autret, senior relationship manager at Rabobank Trade and Commodity Finance.
Now for U.S. farmers, the unique collaboration spanning the food supply chain and financial industry may help them farm for specialty premiums.