Whole Foods Market Inc., purveyor of organic foods and high-end meats, is entering a new line of business: agricultural lending.
John Mackey, Whole Foods' chairman and chief executive officer, revealed last week that the upscale grocer plans to start making long-term, low-interest loans to small and organic farms.
The plan is an extension of Whole Foods' philosophy of using local farmers and organic products to supply stores whenever possible, Mr. Mackey wrote in his Web log on the company's home page.
"We are going to 'walk our talk' with financial support for local, small-scale agriculture," Mr. Mackey wrote.
Whole Foods, of Austin, is allocating $10 million to the project, and loans would be made by regional and store-level buyers to farmers near its 184 stores in the United States, Canada, and the United Kingdom. Mr. Mackey wrote that the loans would be made primarily to farms that raise grass-fed beef, organic egg farms, goat-milk dairies, and operations that raise dairy cows, chickens, turkeys, sheep, and pigs in humane ways, though vegetable growers also would be eligible.
The $10 million is only the beginning, he wrote. "Each year we will make an additional $10 million available for loans. Also, as the loans are paid back, we will recycle the returned capital back into additional loans."
Traditional lenders say they are not panicked by the prospect of competing with Whole Foods.
Kenneth E. Auer, the head of the Farm Credit Council, which represents Farm Credit System lenders, said that $10 million "is really almost a drop in the bucket - not that it wouldn't matter to the people who got a low-interest loan."
Last year Farm Credit lenders made $10.9 billion of loans to about 148,000 small-farm borrowers. ("Small farms" are defined as those with less than $250,000 of annual sales.) The average loan size was just under $75,000.
Whole Foods' entry into the market would benefit small farmers, Mr. Auer said. "The more credit in rural America, the better off they'll be."
Mark K. Scanlan, the director of agricultural finance for the Independent Community Bankers of America, agreed that $10 million is small compared with the total amount of farm lending, but he also said banks should not ignore Whole Foods as a competitor - especially as it makes more money available in future years.
Commercial banks also are making more loans to organic farmers, Mr. Scanlan said, "because there is a growing interest in raising organically grown food."
Whole Foods would hardly be the first commercial company to get into the agricultural lending business; a number of feed and seed suppliers and equipment dealers offer credit to farmers.
For example, Deere & Co. of Moline, Ill., makes equipment loans, and in 2000 it established a Madison, Wis., thrift, FPC Financial, to make consumer loans. Also, the Decatur, Ill., agribusiness giant Archer Daniels Midland Co. owns a bank, the $714 million-asset Hickory Point Bank and Trust.
A spokeswoman for Whole Foods said that its lending plan is still being developed, and that information beyond what Mr. Mackey wrote in his blog was not available.
Whole Foods decided to become a lender in part in response to criticisms that it is not as supportive of local farmers and organic agriculture as its advertisements and in-store signs claim.
Michael Pollan, the author of "The Omnivore's Dilemma," wrote in a letter to Mr. Mackey that Whole Foods' regional distribution system makes it "difficult, if not impossible, for small local farmers to sell directly to individual Whole Foods stores."
Mr. Mackey agreed in his blog that Whole Foods needs to do a better job of working with local growers.
Scott Van Winkle, a managing director of equity research with Canaccord Adams Inc. in Boston, said that whether Whole Foods is motivated by ensuring a supply of organic food or making a gesture of good will, getting into lending would be a good business move, because demand for organic food keeps growing, and every major retailer is adding it to their shelves.
"Whole Foods can manage risk very easily with these types of relationships, because they know where the supply is going, and they know the demand for the resource," Mr. Van Winkle said.
