The biggest hurdle for farmers who are transitioning to organic crop production is timing. USDA requires a three-year transition period for farmers to certify their land as organic, which is essentially working and spending money for three years without a paycheck.
Rabo AgriFinance, with guidance from Pipeline Foods, has developed a new loan product that gives farmers the flexibility to receive the needed capital for upfront costs associated with changing production practices. Additionally, farmers can schedule repayments when they receive the additional revenue from selling certified organic goods.
Interest and conversion to organic farming continues to increase. In fact, organic production jumped by 2% to an estimated 6.5 million harvested acres in 2018. In addition, the number of organic farms increased 3% to a total of 17,648 in the U.S.
This framework will help farmers manage through the three-year transition period.
“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,” explained Shawn Smeins, deputy head of Rabo AgriFinance in a news release. “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.”
As a specialty grain supply chain company, Pipeline Foods leaders know 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. “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 Rabo AgriFinance estimates.
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