Bringing fintech to farmers

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Agriculture contributes over $1 trillion annually to U.S. gross domestic product and creates reams of data, but fintech for farmers hasn’t fully sprouted.

Growers Edge Financial in Johnston, Iowa, is one firm looking to target that niche, by bringing fintech innovation and lessons to partnerships with retailers and technology providers serving the agriculture industry.

“There’s a lot of data and analytics for getting auto loans, home loans, student loans and new credit cards,” said Dan Cosgrove, the company's chief strategy officer. “I’m really hard-pressed to find a good example of anyone that’s applying that type of innovation to ag lending.”

The company works with retailers and technology providers to create prescriptions for farmers that promise a certain crop yield under a warranty. By paying for the prescription, farmers can use new products and technologies with less risk to their business.

With about 40 employees now, Growers Edge is focused on bringing on data scientists to build out its data analytics engine that powers its growers score and agtech index. The score is the firm’s proprietary credit risk rating and the agtech index is how it scores the technologies that it prescribes to growers.

The company also plans to hire a lending team in the future when it begins to offer loans to farmers through its agribusiness clientele.

Cosgrove talked with American Banker recently about how the company’s relationships with third parties work, the amount of untapped data that the agriculture industry has and when Growers Edge plans to break into ag lending.

Following is an edited transcript of the discussion.

What do your products look like at Growers Edge?

DAN COSGROVE: Growers Edge is what we like to call fintech for farmers. We try to help farmers boost their profitability by developing customized financial solutions.

Those solutions fall really into two categories. The first category, and our flagship product, is we develop a prescription that is backed by a warranty. It tells the farmer that if you follow steps one, two and three, you are guaranteed a yield. The financial instrument behind that guarantee is what we help put together.

Let's say you tell a farmer, "If you plant this seed and apply this chemistry and maybe take a couple of other steps, you will see a 5% yield increase." Then we create the warranty that's behind that yield. The prescription and the accompanying warranty is then sold to the farmer or the grower.

How much does that cost the farmer?

For example, let's say $6 an acre. In that example, the return on that $6 investment by the farmer should get them a 5% yield increase. That could be something like $30, $40 or $50 an acre for a $6 guarantee.

What would an example of these steps look like for one of your farmers?

It might be planting a certain variety or hybrid of seed, applying chemistry from a prescribed retail partner and maybe doing an in-season leaf or tissue sample to determine if fungicide or some other midseason step needs to be taken.

We draft those prescriptions working with an agribusiness partner, a retailer or a technology provider. We work with them, take their data, combine it with ours, and then develop the prescription and the warranty. The agribusiness partner tells us what problem they’re trying to solve and then we develop the prescription to drive that product. Because getting to the farmers is hard for some of these startups.

It's a lot like the extended warranty that you might get at Best Buy after you buy a TV. It costs a little extra, but it provides some extra level of protection. The farmer can buy the product from the provider without taking a great deal of risk. We don't keep that risk. We actually end up selling off that risk to reinsurance partners.

The whole goal is to incentivize those farmers or growers to try new products. There’s a lot of really good things out there that are being developed. The farm economy is under stress and for a farmer to set aside additional cost at the input stage is very difficult. So you have to provide them some economic incentive to do that.

What do your customers look like?

One type are the retailers, which are the biggest likely target for people to buy our warranties because you can put together different packages. The second are technology providers that offer a single solution that de-risks the farmer somehow. The third we’re still working on, but we’d like to announce one shortly: companies that try to incentivize farmers to practice regenerative agriculture or organic farming.

How are you reacting to the pain farmers are feeling because of flooding, bankruptcies and current U.S. trade policies?

We haven’t done it yet, but it’s in our road map. We want to guarantee profit or price outcome. Most of our guarantees are written for yields, not necessarily pricing.

Do you work with any banks currently? Any financial products included in prescriptions?

We will be launching in the next four to six months or so a lending arm. Today, much of the decision whether to loan cash for input has been based on financial inputs. So, let me see your balance sheet, your tax returns and your credit score.

What we have developed is a way to not just look at the credit score for the farmer, but combine that with the data we have on what their practices are and what they’re buying. All of that feeds into what we call a growers score that helps us come up with better lending decisions. We’ll be able to offer very favorable rates to those farmers that have a good score going forward.

Do you think that will be profitable at first for you, in this environment?

We think it will be profitable in the first year. Farmers as a whole are a very good credit risk. Most farmers, especially for input loans, know that every year they have to buy seed and chemistry and things to make their farms go.

It will be a while before we go direct-to-customer because most of the interest has come from the agribusiness partners that we work with on the prescription products side as well. You’re probably not going to see a storefront out there for ag loans from Growers Edge anytime next year, but you might see some loans being written through retailers or through technology providers.

Most of those retailers and technology providers have existing customers that need access to credit. As long as we provide them with a competitive loan package versus the other ones that they’re getting from the major ag lenders that are out there, we think we’ll be competitive.

Initially, we will be buying participation rights in existing loans. Long term, we would like to offer loans directly to farmers and growers.

Agriculture generates a tremendous amount of data, especially in the United States. It’s a $100 billion market and there hasn’t been a lot of innovation brought to that market recently.

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