Maine local food movement inspires credit union focused on small farms

By Darren Fishell, BDN Staff

WHITEFIELD, Maine — The 100-acre organic farm that Rufus Percy and his wife started working a decade ago is mix of leased land, family land and mortgaged land.

Finding used farm equipment took them as far as Ohio. The barn where they raise about 100 hogs a year was built with the help of a grant from the Farms for Maine’s Future program and a federal grant.

“Most people aren’t that lucky though, as far as getting started,” said Percy, 35.

He’s one of the young farmers leading a resurgence in the industry that aims to re-establish more local food systems in the state, where Maine is leading the way. But before that really takes off, he said, the state needs to put its money where its mouth is. More specifically, more accessible funding needs to be available to the folks who grow food that Mainers put in their mouths.

“If we want to encourage a lot of young people to get into farming — be it small medium or large — we have to figure out how to make it not only attractive but possible,” Percy said. “If only Trustafarians can farm, then we’re all going to go hungry.”

A trustafarian is “a rich young person who adopts a bohemian lifestyle and lives in a nonaffluent area,” according to oxforddictionaries.com.

Percy’s one of the young farmers Sam May and Scott Budde want to support. The two men are leading an effort to launch the first new credit union in Maine in 25 years, focused on helping small farms acquire land, equipment and lines of credit.

Maine, where young farmers are on the rise and agricultural sales grew by about 24 percent from 2007 to 2012, is the place to give it a go.

“Here’s a sector that’s growing, and in some places very rapidly. Everybody likes it, it’s got broad support and there are financing gaps that people are talking about, so why wouldn’t you have this?” Budde said.

It’s the question that started his research about two years ago into financing that could support New England’s small farms. Last year, that converged with May’s investigation of the same concept in Maine.

They settled on the nonprofit credit union model — led by a board of directors and voting members rather than shareholders — and recently settled on the name Maine Harvest Credit Union (in organization), a website and a logo. In January, they will start seeking about $1.4 million in grants.

Budde had started his research while managing social impact pension funds for the New York-based TIAA-CREF, which now manages about $800 billion, primarily for academic institutions and hospitals. He and his wife — who met at Bowdoin College — moved to Maine about a year ago.

May, a Rockport native, previously worked at US Bancorp Piper Jaffray as a managing director and research analyst. He now serves on the Maine Organic Farmers and Gardeners Association board of directors and the steering committee of the local food investment group, Slow Money Maine.

Those backgrounds informed the more than two years of research they’ve put behind a credit union providing what they said small farms in the state need: mortgages between $100,000 and $500,000, equipment loans between $5,000 and $50,000, and seasonal loans between the same amounts.

Their goal, May said, is to be part of the “relocalization” of Maine’s agricultural system with a focus on economics and health.

“We have a serious health problem that results from the over-industrialization of our food system,” May said. “The relocalization of our food system has a lot of benefits that are easy for people to intuit.”

Budde and May expect getting a state charter (to get rid of that “in organization” from their name) will take about two years.

Within five years after that, they expect such a credit union could be sustainable, reaching about $10 million to $15 million in deposits by year eight. It would serve members of MOFGA and the Maine Farmland Trust, groups they estimate have a combined 1,000 agricultural producer members and 10,000 potential depositors.

Across 693 of those small farm and business members, they estimate a loan demand of $185.4 million, about $90 million of that in land-related financing needs.

Reinvigorating rural economies

John Piotti, head of the Maine Farmland Trust, said affordability and financing are the biggest barriers to farmland access. And farms, in turn, are linchpins of the state’s rural economies.

“It’s the only realistic economic engine for large swaths of rural Maine,” Piotti said. “You can’t have sustainable rural economies without sustainable agriculture.”

Piotti, who previously managed agricultural lending programs for Coastal Enterprises Inc., estimates that of Maine’s 1.4 million farmland acres, about 700,000 acres are cultivated. He estimates about 400,000 of those acres belong to older farmers and will change hands in the next decade.

“I think that additional models of financing is really the right thing at the right time,” Piotti said. “There wasn’t a huge demand for loans about 20 years ago … and there weren’t new farmers trying to enter the profession.”

The number of Maine farmers age 34 and younger grew by about 40 percent from 2007 to 2012, from 396 to 551. Nationally, the number of farmers in that age group increased about 1.5 percent.

Jessie Dowling, who started Fuzzy Udder Creamery in Whitefield in 2011, is one of those farmers. She participated in Maine Harvest’s feasibility study.

Her Farm Service Agency mortgage requires her to produce at least 50 percent of her dairy products on-site, when she’d prefer to make closer to 30 percent, buying the rest from local dairy producers and focusing most of her attention on cheesemaking.

“Value-added is where the markets in Maine need to move so that we have room for growth,” Dowling said. “If I can take a gallon of milk and get $20 worth of cheese, then that’s a part of the economy that needs to be supported by [Maine Harvest].”

Among the small farms Maine Harvest surveyed, FSA mortgages were not common and bank or credit union mortgages even less so. About three of the farms had mortgage arrangements similar to Dowling’s and seven of the group had used FSA for any borrowing. Two of the entities took out mortgages through banks or credit unions.

Dowling said her farm and others are changing the business model ahead of changes in the financial system to better support it.

“In a lot of ways, we’re reinventing marketing structures and we’re really reinventing the wheel from what the industrial [farming] system developed,” Dowling said.

Farm-specific funding formula

Of the 36 farms they surveyed, with an average of $155,000 in annual revenue, May and Budde found 61 percent of revenue came from sales directly to consumers, through farmers’ markets, community supported agriculture (CSA) programs and other methods.

That can complicate the calculation for traditional lenders.

“Traditional business lenders don’t necessarily understand some farm operations, particularly those that are highly diversified and selling to direct markets,” Piotti said.

But with expertise in that particular segment of the agriculture market, Budde said there’s opportunity.

“This is a risky sector to lend in and we recognize that, but we think there are parts of the market where there is rational lending to be done,” Budde said.

In particular areas of the state, a density of farms has prompted lenders to develop that expertise, according to John Murphy, head of the Maine Credit Union League, but he said his group is “very impressed” with Maine Harvest’s research to date.

“If your sole focus is on a specific group, then you can provide programs that have the most value to their potential members,” Murphy said.

May and Budde said they’re not hoping to duplicate credit union services, but offer another way for people to support local agriculture. And in that there’s potential upside for other credit unions in the state as well.

“They’ll have more faith in participating in a transaction to the extent that we’re involved and can show leadership and knowledge about the risk parameters of that information,” May said.

In turn, Maine Harvest would use the shared statewide credit union network to serve as its branches, benefiting also from a shared information technology system that would allow them to offer online banking.

In credit union-heavy Maine, that network consists about 61 branches and has grown in recent years to about 650,000 members, as of June, out of the state’s population of about 1.3 million.

That would allow them to operate out of one main office staffed by Budde as CEO, with a chief lending officer and an operations manager. May would be chairman of the credit union’s board of directors, which they expect to be the same as its advisory board, with representatives from other credit unions, farmers and finance professionals.

“We’re going to own the knowledge base on what’s going on out there with the relocalization of the new food economy,” May said. “If it [continues to scale up], you need financing options and that’s what we hope to supply.”