432 N. Lake Street Madison, WI 53706  608-890-0780

Shifting Farm Business Models

Agriculture is a tough business to be in. According to an analysis by the Farm Bureau, median on-farm household income has been negative for the past 20 years. This means that every year for the past 20 years, more than ½ of all farms in the United States were unprofitable! Many of these farms have kept their cash flow positive by increasing their debt load, and individual farms might be profitable one year and unprofitable the next. These numbers underscore a challenge to farmers looking to achieve profitable operations or transition their farm to the next generation.

There are a lot of explanations for this level of unprofitability in the agriculture sector, and given the sheer size and nature of the farm economy, multiple things in our current economic and political environment would need to change to reverse this trend. That being said, we have talked before in this newsletter about how brand building can help farmers sell products that resonate with consumers while earning a premium, which could help with farm profitability. And, we are excited about the momentum and possibilities of branded products that support regenerative agriculture practices being paid for by consumers demanding long-term solutions to the problems of our agricultural system. However, for commodity agriculture producers used to wholesaling to a few large customers, shifting from that business model to having a relationship with consumers via a branded product is a big leap.

On our podcast this week, we talked with William J. Kitsch, Vice President and Agricultural Lending Manager with Ephrata National Bank in Lancaster County, Pennsylvania. Farmland in Lancaster County sells for $25,000 per acre, making commodity agriculture difficult to work financially due to the low return on assets, especially when trying to transition the farm. In those situations, he advocates for changing the price the farmers receive via new business models or premium offerings through things like organic production or value-added processing (ex. cheese making), so long as the concept is proven through demonstrated consumer demand. But, there is a lack of technical assistance nationally to help more lenders understand (and underwrite) these cross-disciplinary business models (ex. a farming operation with a cheese plant that resembles food manufacturing).

The problems facing farmers and the ecosystem that supports them are complicated and large. Finding new business models that allow farmers to be profitable while meeting changing consumer demand will require high-quality technical assistance and coordinated effort on the part of farmers, brand-builders, lenders, investors and consumers. With the right assistance and coordination, hopefully farmers can take advantage of the business model opportunities available to them and reverse these troubling trends.


And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Food and Beverage Business Models

Business Model Insights

Raising Capital

Raising Capital

Grocery Store Shopping

CPG/National Brands

Grocery Store Produce Section

Market Trends

 Median On-Farm Household Income (Farm Bureau)

Farming and AgTech

Mergers and Acquisitions

Deals/M&A

Events

Industry Events

Categories: Insights Newsletter