Agricultural bankers want to lift the farm economy out of its three-year slump by giving farmers a financial stake in the products made from their raw commodities.
The theory is making corn flakes where you grow the corn, said John Blanchfield, director of the American Bankers Associations Center for Agricultural and Rural Banking. He has spent the last three months in roundtable discussions with agricultural bankers in states including Texas, California, Illinois, and Iowa.
As the ABA prepares its wish list for the next major farm bill (the 1996 Freedom to Farm Act expires in 2003) bankers are asking lawmakers to consider incentives that would help farmers create value in crops and protect themselves from price fluctuations by investing in the crops conversion to finished goods.
We just cant keep an ag policy where we produce commodities and try to find a market for them, said Mr. Blanchfield, who plans to wrap up his tour in Montana next week.
Some communities have already proven it can be done. In North Dakota, for example, nearly 1,100 wheat farmers have bought shares in Dakota Growers Pasta Co., a factory that produces pasta from the wheat they supply. Terry J. Jorde, president and chief executive officer of the $35 million-asset Countrybank USA in Cando, N.D., said that investing in the pasta cooperative has stabilized the incomes of many of her customers.
When the cost of wheat goes down, the plant makes a larger profit, and farmers get the return through their equity stakes, she said. When the cost of wheat goes up, the plants margins are tighter, but farmers make more from their crops.
Ms. Jorde said such investments must be encouraged to help farmers survive. Farmers, she said, need to be involved in all stages of production from field to store shelf, and bankers must take an active role in helping their farm customers become more entrepreneurial.
Though farmers in Ms. Jordes area are stocking the shelves with pasta, Roger D. Monson, president and chief executive officer of the $30 million-asset Citizens State Bank in Finley, N.D., wants to help farmers in his part of the state make the shelves. His idea is a plant that would convert the straw left over from the grain harvest into fiberboard, which can be used in furniture, paneling, and flooring.
We feel its the kind of product that holds promise for rural America, he said.
Funding for a $200 million factory has proven hard to come by, however. Mr. Monson has been trying to get the project off the ground since 1992. A partner in the project, Goldboard Development Corp., is negotiating with suppliers for Home Depot Inc. to gain a strong endorsement for the product that would attract investment.
The ABAs Mr. Blanchfield said bankers are interested in funding these types of projects but are reluctant to do so without some government assistance. Bankers are asking Congress to increase funding for the Department of Agricultures Business and Industry Guaranteed Loan Program, which backs up to 80% of a commercial loan.
We are hearing that the banking industry alone cant meet the lending requirements of these value-added industries because they dont have the equity, Mr. Blanchfield said.
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