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Sustainable agriculture: How big can it get?

By Ron Ross

The short answer is very big. The real question is when. If you’ve haven’t been paying close attention, or harbor stereotypes of someone with flowers in her hair selling roadside apples, it might be time to sharpen your pencil. While you weren’t looking, a growing customer base for rural bankers has taken root.

The question of “how big” depends to some degree on whose measuring stick you’re using.

“We define sustainable agriculture as a very broad umbrella that includes a multiple of approaches to achieve improved profits, environmental stewardship and quality of life for the farmer, the family and the community. It’s a goal-oriented concept, under which organic farming is just one avenue,” says Jill Auburn, director of USDA’s Sustainable Agriculture Research and Education (SARE) program.

“I would even put conventional farming under the sustainable ag umbrella to some extent; I think all farmers are trying to become more sustainable in one manner or another. Our goal is to further the cause of agricultural practices that do the right thing for the environment but also contribute to the bottom line,” Auburn adds.

While total sustainable ag acres are difficult to pinpoint, SARE, through four regional offices, has funded some 2,500 grants to finance research and application of sustainable ag since 1988. The largest grants, in the $90,000 to $100,000 range, go to research teams who study new methods of production and related marketing strategies. Individual farmer/rancher grants, ranging from $5,000 to $10,000, help fund start-up enterprises. Cover crops, which conserve soil and water and reduce dependency on herbicides, and managed grazing, are frequent proposal topics, says Auburn.

“We’re increasingly funding marketing-oriented and value-added projects. A lot of our farmers are learning that’s it’s not enough to cut your cost dollars, if you don’t get a larger share of the consumer dollar,” she explains.

Other definitions are more specific. The Food Alliance, a national third-party non-profit certifier of sustainable agriculture practices, has a strict set of environmental and social criteria covering pesticide reduction, soil and water conservation, wildlife habitat preservation, safe and fair working conditions and animal welfare. The Portland, Oregon-based organization has certified some 200 separate agricultural products, ranging from beef, hogs and lambs to vegetables and wheat. Food Alliance also runs a field office out of St. Paul, MN.

Meanwhile, the USDA’s National Organic Program (NOP), in effect since 2002, sets a uniform set of production and processing standards across the country for producers who sell more than $5,000 worth of organic products. Growers switching from conventional to organic are required to go through a three-year management transition period before they are allowed to sell products branded as organically certified. They may not use synthetic pesticides or fertilizers, must be able to track product from field to point of sale and maintain buffer zones to prevent contamination from conventional fields.

The tough rules aren’t stifling adoption; in fact, most organic growers think a uniform code benefits the industry. Organic retail sales in 2003 were estimated at $11 to $13 billion – between 1 and 2 percent of total food sales – by the Organic Farming Research Foundation (OFRF). But get ready for the numbers to zoom. Current organic sales figures represent a growth rate of 20 percent a year over the past 12 years. If that continues we will likely be looking at an organic foods market in the $20 to $30 billion-plus range by 2006.

Currently, three-fourths of all conventional grocery stores sell organic food products, and the trend points to more investment in organics by food company giants. Organic fruits and vegetables, with sales of $2.3 billion, make up the largest product group. Organic milk, eggs and poultry are rapidly-growing market segments.

A Northeast Lender’s Perspective Pennsylvania community banker Mike Firestine, himself a sustainable farmer, has a ring-side seat to what he calls “phenomenal growth” in organic markets. The senior vice-president of the ag department of Lebanon Valley Farmers Bank, no-tills 20 acres of pumpkins into a rye cover crop, which reduces his energy costs and reliance on chemical weed killers. His 200-acre farm also grows corn, soybeans and oats under a minimal till system.

“One of my clients contracts layers for organic egg markets in New York City, Philadelphia, Baltimore and Washington D.C., all only one to five hours away. He’s having a difficult time keeping up with demand. As a result he’s getting more and more conventional egg producers to switch to organic,” says Firestine. “It works out well for farmers switching to organic because they can often convert older type layer units and save the cost of a new facility.”

Firestine is also seeing a growth in organic dairies, particularly among his Amish clients. “They don’t have acreage for large cattle herds, and are converting to intensified grazing programs. They’re also switching from Holsteins to Jerseys to increase butterfat and protein production, big selling points for organic buyers. I was somewhat skeptical at first, but as long as they can show me a proforma that substantiates cash flow, I’m all for it,” he says

The banker expects to fund a growing number of entrepreneurial organic producers. “Nearly every metropolitan grocery store in the heavily-populated northeastern United States has an organic food section. Health-conscious consumers are more than willing to pay a premium for vegetables, milk and eggs, even organic dog food. We have one area dairy that jugs fresh organic milk and packages organic butter for on-site sales. People drive out from as far away as Philadelphia to pick it up.”

Spreading the Word Down the road a few miles in southern Lancaster County, PA, Steve Groff is the third generation to raise pumpkins, tomatoes and other vegetables on his 215-acre farm, but the first generation to convert to no-till and a permanent cover crop system. In 1996, he wrote a mission statement for Cedar Meadow Farm that sets the standard for many sustainable farmers in the northeastern states: “I want to farm in such a way that produces a healthy food product, generates an income to live in a comfortable lifestyle and leaves the soil in better condition than I found it.”

“We call what we’re doing – the combining of no-tillage, cover crops and crop rotations – a new-generation farming system,” Groff relates. It works for the environment, soil stewardship and the bottom line. Groff has reduced tomato transplanting costs by $650 per acre, while fungicide and insecticide costs have dropped from $200 to $75 per acre and yields increased 10 percent. Meanwhile, organic matter on the farm has increased from 2.7 to 4.8 percent and soil runoff has dropped from 14 tons per acre since he began no-tilling, to zero.

Gross also spends a lot time on the stump, telling his story. In 2002 he became a sustainable farmer educator for the northeastern office of SARE. In addition to giving about 10 speeches to farm groups a year at regional and national meetings, he answers some 150 calls and e-mail queries from farmers, extension agents, journalists and others.

“I’m real upfront about not proposing organic agriculture as the ideal. I have no desire or goals to go organic because I don’t want to limit myself in anything that will increase the environmental stewardship or the eco-system that I’m controlling. But having said that, I see a continual interest and adaptation of certain practices that are considered sustainable, including cover crops, reduced tillage and rotation, and part of that is because of the demand for organic food,” Groff says.

Sustainable Ag in the PNW Across the country from the Pennsylvania sustainable ag experiences, partners Karl Kupers and Fred Fleming are in the second year of a joint venture called Columbia Plateau Producers with a dozen affiliated Pacific Northwest wheat growers. They produce and market high-gluten wheat flour produced with direct-seeding (another term for no-till) systems and sold under the Shepherd’s Grain brand. Shepherd’s Grains made its first wholesale transaction in 2003 after market testing flour from four wheat varieties, finally selected a blend of the two ranked best by customers. This year, the premium flour is earning a glowing reputation with local pizzerias and artisan bakers in the Portland area.

Shepherd’s Grain growers are certified as environmentally and socially responsible by the Portland-based Food Alliance, a key element of their marketing strategy. In addition to conserving soil, the farmers have reduced fuel consumption by over 50 percent.

The majority of PNW soft white wheat production is currently sold for export to foreign mills. “People in mainstream agriculture tend to look at us as niche marketers, but I dispute that,” explains Kupers. “Our whole strategy is to develop a regional base. We hope to mill about 50,000 bushels into the Shepherd’s Grain blend for local sales this year, with a goal of getting into the millions of bushels with many more direct-seed growers in the not-to-distant future. And at some point we expect to add sunflowers, red beans, garbanzo beans, lentils and other crops grown under sustainable farming systems to the product line.”

The entrepreneurs have caught the attention of Washington state political leaders. In October they received the Governor’s Award for Pollution Prevention and Sustainable Practices, a program recognizing organizations reaching high environmental protection goals.

Kupers, a member of the western SARE regional board, believes PNW ag lenders have been somewhat slow to warm to the idea of no-till farming. “It’s understandable, if you’re only measuring short-term results, because yields often decline during the first years of transition, as soils adjust from tillage to sustainable agriculture methods. But those of who are in the process of making the transition believe the risks of not changing are far greater. We know we’re headed in the right direction and believe lenders will pay closer attention to us as we become more successful,” he says.

Midwest Ag Lenders Respond Bankers and farmers both need to be better informed before sustainable agriculture will be successfully financed, based on results of surveys by the Land Stewardship Project (LSP). The non-profit, grassroots organization, headquartered in St. Paul, MN, promotes sustainable farming practices as part of its goals.

Survey questionnaires were sent to 530 Minnesota and Wisconsin ag lenders in 2002.. Two out of three of the nearly 200 respondents worked for independent local banks, the rest for local branches of regional or national banks and the farm credit system. Companion surveys were sent to sustainable farmers and to agricultural educators.

“We broke out four important “take home” messages from the survey returns,” reports Caroline van Schaik, LSP program coordinator, Lewiston, MN.

• While nearly 100 percent of responding lenders think sustainable ag will grow, they revealed an obvious need to know more specifics about sustainable farming practices as well as the criteria used in decision making. Only 35 percent thought sustainable farming is equally or more profitable than conventional farming.

“It makes intuitive sense that a banker may indeed define profitability and gauge it differently than a sustainable farmer trying achieve several ‘bottom lines,’ of which making money is only one,” says van Schaik. “This is perhaps the largest hurdle to overcome when it comes to opening doors between the lending and sustainable farming communities.”

• Farmers, in general, need to do a better job of record keeping. Most lenders said they want to see three-plus years of financial records “We looked at what lenders need and what farmers are actually doing and it was a pretty legitimate criticism by lenders that farmers coming in for loans -- conventional farmers as well as sustainable – were often lacking good records” adds van Schaik. Lender respondents listed uncertain markets, lack of business marketing plans and poor management skills as additional reasons for denying a sustainable ag loan.

• There are few benchmark data available. Most beginning sustainable farmers don’t have enough history from their own farms to make a case for a loan and it is difficult to find other sources of substantiating data. Likewise, lenders have a hard time finding benchmark data for organic or sustainable enterprises by which to gauge the integrity and credit strength of a loan applicant. “This is one of the primary areas LSP is focusing on as a result of the survey,” noted van Schaik.

• While both lenders and farmers valued the importance of relationships, only about half of each group felt they had positive relationships with the other. “While the majority of lenders said they were open to financing sustainable ag enterprises, fewer than 35 percent of responding farmers reported getting that openness from their lenders. It indicates there is certainly room for outreach and education going both ways and this is within our reach. We can all work on that,” van Schaik comments.

The LSP project revealed that three-fourths of responding lenders had not attended a sustainable ag class or field day in the past five years. It would probably be a safe bet that many never had. Would that be a wise use of your employee training budget?