PHOTO: RANDY COLE

Finding funds for farmers

SYLVAIN COMEAU | Why is farming such a precarious way to make a living? In North America, the answer is not drought or pests, but a more familiar threat: bank debt. Agricultural economics professor Laurie Baker and graduate student Sacha Sabih recently completed a study into an alternative to bank debt for farmers. Baker and Sabih examined the feasibility of the Community Supported Agriculture (CSA) approach to financing organic farming. In CSA, consumers (called member/investors) agree to provide financing for the farmer's operating capital, and periodically receive a share of the harvest in exchange. The technique started in the 1980s, and is slowly gaining acceptance. "This is a way of cutting out the middleman, of getting producers and consumers together. The public gets to participate much more directly in agriculture; in fact, in some cases, member/investors agree to do some work on farms in exchange for their share," says Baker. "CSA is used quite widely in Japan and Europe, and there are about 500 farm units in North America -- 50 in Canada -- which use it. So it's very marginal, in the context of total food production, but CSA has received a disproportionate amount of press coverage." While CSA appears to be gaining momentum through wide publicity, very few studies have taken a good long look at the financial benefit to both parties in the contract. "This is one of the first studies which looked at the financial aspect of CSA. We wanted to determine whether the member/investor is receiving value for his money, compared to alternative investments, and, for the farmer, how this form of financing compares to a bank." Baker conducted a case study, in which Sabih paid $180 for 12 "payments" of a bag of vegetables per week from a Montreal-area organic farm. He would then price the equivalent vegetables on the store shelves of local supermarkets. "It turned out that, as a consumer, he was getting a financial benefit, versus both the non-organic and the organic store." The farmer in the study saved money on bank interest and benefited from already having a guaranteed market for his produce. "In this specific case, at least, the CSA agreement is a win/win situation. Both parties benefit." The downside is that the farmer would have to charge over $400 to each member/investor to cover all his costs. The difference with CSA is that the farmer loses substantially less than through the traditional bank debt route. Baker suspects that the situation is typical of organic farms, which are often run at a loss. Organic farms, which eschew the use of chemicals in fertilizers or pesticides, are often run for largely idealistic reasons because of their association with health and the environment. "Based on my correspondence with them, I would say that organic farmers are motivated by emotion rather than economics -- the economics tends to fall to the bottom of the list. Often, these people are subsidizing their farms through other income, although some may not realize just how much they are, in fact, subsidizing it." To help them gain a realistic assessment of their finances, Baker and Sabih have created a spreadsheet program, which runs on Excel, and which will be available on their web site. "The program will help farmers set the price of the shares, which is crucial to their financial success or failure. It also gives them a better idea of how to price their product to recoup their costs. Most organic farmers don't set their prices high enough to cover enough costs to keep them in business. "We are not saying that farmers must necessarily break even or make a profit. Some, like the farmer in our case study, have another, full-time job which allows them the luxury of following their hearts. But we have given farmers a tool by which they can keep better track of their expenses, and help them stay afloat in a difficult business." Baker and Sabih presented a paper on their study at the International Horticulture Congress in Belgium last summer. The paper will soon be printed in the proceedings of the Congress, and submitted to a North American agricultural journal.