Sustainable Economics– When farmers fail math

I don’t know how often I will do this, but I’d like to start an occasional series on the nitty gritty economics of sustainable production.  I think a good start is noting some of the problematic aspects of current models of sustainable farming.  Today is looking at a bit of math fail from a sustainable farmer.

This farmer complains about “suits” at banks not advancing financing while admitting they don’t have the cashflow to cover a conventional loan’s terms and that they rely on customers for “loans” which are really gifts or agreements for deep discounts.

There’s some more in the linked article, but the valid points (that farming, being cyclical, needs to have that cyclical nature considered in financing models and lending small sums is sometimes loss leading even in fairly small regional/local banks even if the loan is repaid on schedule) are a bit lost due to the whining and refusal to be professional on the part of some farmers when this issue comes up.

Lending with repayment on a quarterly or trimester schedule is not exactly way out there in terms of business lending, but works pretty well with the cyclical nature of farming and is not quite as overwhelming to the farmer as semiannual repayments would be.  And local banks could band together and create a farm loan pool for all farms in a given region to slash their servicing costs.

But you’ll note neither of these things is in the article, despite it being an article about small farm financing difficulties.  This is altogether too typical when the topics of small farming, sustainability and economics are discussed in the media.  The article also doesn’t discuss the craziness that is borrowing from your customer base.  Here’s a hint– if you have to borrow from your “customer base”, you aren’t charging enough in actual prices to cover your expenses at a minimum, much less enough to cover your expenses and then draw a salary to live upon.

Having said that, it is not beyond the pale to have investors who started out as customers, or to work out some kind of communal-ownership arrangement.  But the article isn’t really dealing with unorthodox, inventive, or alternative business structuring.  It’s trying to argue that sustainable farmers shouldn’t have to worry about crazy things like profits and returns on investments.  But they should, like, be able to get loans on any terms that suit them and customers should both buy their products and give them money, just because.

If you support the “sustainable” in “sustainable agriculture”, it’s important to demand that farmers treat their enterprises as real businesses with real business obligations.  Professionalism matters.  Sloppiness kills, not just animals, but economies too.  We can’t get away from the industrially centered agricultural economic model so long as customers support sloppiness and laziness about the financing details from small, sustainable producers.  It is quite simply not sustainable, lasting, or real.  And more than farming techniques, the economics need to be there for sustainable agriculture to be a feasible alternative to industrial agriculture.  And that means dealing with the hard math and working to turn a profit and cashflow enough to justify financing support.

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