Richard Deitz and Shira Gans
With more than 35,000 farms and $5.5 billion in annual sales, the agriculture industry is an important part of the New York State economy. New York produces a wide array of agricultural goods, from dairy products (the state has the third largest dairy industry in the country) to fruits and vegetables, livestock, and even fish. It is also a growing industry: agricultural exports, for example, have more than doubled in the state since 2000. And the action isn’t just on farms: agriculture reaches into many other parts of the economy, such as farmers’ markets, food manufacturing and processing firms, restaurants, and agritourism.
Recognizing that firms that make, process, and sell agricultural products play an important role in the state’s economy, the Regional and Community Outreach team at the New York Fed recently held a conference for N.Y. food and beverage firms on accessing capital, co-sponsored by Empire State Development and the New York State Department of Agriculture and Markets. The goal of the event, which was held on June 24, was to provide information about the wide array of financing available for these firms, and to help them decide which types of financing would best suit their credit needs. The conference also highlighted opportunities in international markets, and identified financing tools available to assist firms with exporting their goods abroad.
More than 130 small business owners attended. Expert panels discussed three topics: traditional sources of capital, alternative and emerging sources of capital, and available export financing and services. Following the panels, a resource expo gave attendees a chance to network with a number of government agencies and lenders.
Commissioner Richard Ball of the New York State Department of Agriculture and Markets kicked off the day’s events. He characterized the agricultural sector as an important driver in the upstate economy, and outlined Governor Andrew Cuomo’s plan to help agribusinesses upstate connect to their largest market, New York City. A notable part of this plan is the Upstate-Downstate Food-to-Table Agriculture Summit, scheduled to take place later this year.
The first panel, which discussed traditional sources of capital, gave advice to firms about how to successfully access funding. The speakers highlighted the need for firms to develop detailed business plans calibrated for risk—including, for example, contingency planning for natural disasters like the flooding that hurt farmers in the Schoharie Valley, or fluctuations in commodity prices that could affect profit margins. William Brigham of the Small Business Development Center (SBDC) at the University at Albany advised attendees that SBDCs throughout the state offer technical assistance on developing business plans.
Government representatives on this first panel highlighted specific programs that are available to help firms in the agriculture sector. For example, Cynthia Shannon from Empire State Development described how the Linked Deposit Program can provide a 3 percent financing reduction to agricultural businesses with 500 or fewer full-time employees seeking to expand or improve agricultural operations. Tom Cosgrove from Farm Credit East described the Winery Benchmarks program, which provides wineries with in-depth financial and operational analyses, as well as the opportunity to interact with other successful winery owners and receive feedback from Farm Credit East consultants.
The second panel, which addressed emerging and alternative lending, discussed innovative investment models. Derek Denckla from Food Shed Investors Fund NY, a project of Slow Money NYC, described their “angel investor network,” focused on local, sustainable agribusinesses. In addition to using traditional equity financing, they are experimenting with revenue-sharing models that reduce transactional costs. Additionally, many of their deals create an inverse relationship between cost and environmental and social impact—the greater the positive impact, the lower the cost of capital. Experts on this panel discussed how lenders work together to finance deals collaboratively and to help borrowers find the most cost-effective forms of capital. They also explained how a demonstrated passion for a project, as well as technical knowledge, was critical to their assessment of whether a potential borrower might prove to be a good investment. Joe Landy from the Community Loan Fund talked about how character was also critical to their assessment. He was not as concerned with a borrower’s credit score as with the story behind the score.
The conference’s final panel covered export financing and services, discussing the large international market for U.S. products as well as government-backed financing and assistance programs designed to help companies tap into export markets. Michael Grossman from the Department of Commerce made the case for exporting, pointing out that 95 percent of the world’s consumers live outside of the United States and that exporting firms have wages that are 14 percent higher than those of firms that don’t export. Tim Hamilton, Executive Director of Food Export USA Northeast, detailed government-backed programs to help agribusinesses with fewer than 500 employees identify foreign markets, develop marketing materials, and identify foreign buyers. He advised companies to consider exporting if they have established distribution networks in the United States, have a product with a shelf-life that can accommodate international shipment, and are comfortable with taking the time to comply with requirements in the target country. His perhaps surprising advice for those in attendance: there is an enormous untapped international market for fish-flavored potato chips!
From farms to wineries and distilleries, to businesses that make baked goods and cheeses, firms involved in making and selling agricultural products contribute to New York’s economy in important ways. This conference provided valuable information to help these firms access resources to grow their businesses and tap into international markets.
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.
Richard Deitz is an assistant vice president in the Bank’s Research and Statistics Group.