Financing Food and Ag Beyond the Pandemic

Although COVID-19 has affected every industry, food and agriculture have been hit disproportionately hard. Prior to the pandemic, more than 50% of food was consumed outside the home. Then, suddenly, everything changed, forcing food and ag enterprises of all types to pivot their business models and find creative ways to weather the disruption.

Some businesses haven’t made it. Others, buoyed by the Paycheck Protection Program (PPP), COVID-19 Economic Injury Disaster Loans (EIDL) or other assistance, have barely eked by. Others yet have experienced a pandemic sales boom and will emerge from this crisis stronger than before.

Well, what happens now? The pandemic isn’t quite over, and its fallout—broken supply chains, worker shortages, ingredient scarcity, inflation—will plague the food industry for some time. However, many aspects of daily life have regained some “normalcy.” And as many food and ag entrepreneurs are discovering, their pandemic pivots may in fact be their new normal (or close to it). So, what will it take to keep these enterprises funded and flourishing well beyond the COVID-19 era?

In the latest Edible-Alpha® podcast, FFI founder Tera Johnson lays out the biggest financing gaps and opportunities today. But first, she reminds us that money always follows a business model, meaning you can’t know what type of financing you need until you’ve hammered out your business model. This point is critical. Because if a business model pivots, as so many have during the pandemic, the type of capital needed now could be different than the type needed two years ago.

For most food brands, however, the predominant need remains the same: working capital, which, ironically, can be the toughest to get. Tera says that prior to the pandemic, it had become easy for brands to get onto retail shelves, but difficult to move off them. Therefore, brands needed to raise money for promotions but were struggling to do so without giving away equity.

COVID-19 has only exacerbated the issue. In response to consumers favoring familiar brands and stockpiling staples, as well as distribution bottlenecks hindering product availability, retailers shrunk their selections and eliminated entire departments, leaving many small brands in the lurch. Of course, plenty of brands have survived, even thrived, by ramping up direct-to-consumer e-commerce. But to remain successful going forward, especially as the retail landscape keeps evolving, brands still need working capital. One option is to secure a guaranteed loan, such as a Small Business Administration 7(a), which can be used for short- and long-term working capital.

For many farms, on the other hand, their capital requirements have changed. Because they’ve pivoted to direct-to-consumer or retail sales, they now require the same kind of capital as brands do—although working capital can be even tougher for farms to get. Ag lenders typically don’t work with SBA or understand farms’ brand-building needs. Plus, with agriculture struggling across the board, lenders have tightened their pocketbooks.

However, unlike food brands, farms have access to USDA value-added producer grants (VAPG). This program has evolved and is intended to be used for packaging, labeling, promotions and other needs that can’t be backed by collateral.

As for food hubs, public markets and other food system–related operations, Tera says more financing opportunities are arising. Many municipalities, counties and states now understand that a vibrant local food ecosystem can be a vital economic development engine, so there are more public grants, tax incentives and loan programs available. Philanthropic foundations are also increasingly interested in supporting local food endeavors for their economic, environmental and social impacts.

Need help determining which type of financing your business needs? Want to learn how to raise that money? Get this guidance and more from our Raising Equity Immersion Training coming up next week!

The latest Edible-Alpha® podcast turns the tables, with interim FFI director Sarah Larson interviewing FFI founder Tera Johnson, who is moving on to lead Iroquois Valley Farmland REIT. Learn how Tera got FFI off the ground, developed a solid business model, grew the organization’s impact and cultivated an expert team to continue FFI’s invaluable work. Also hear her take on current financing gaps and opportunities for food and farm businesses, and learn about her next endeavor.

Listen to the Latest Episode

And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Consultant With Tablet

Business Model Insights

Raising Capital

Raising Capital

National Wholesale Brands

CPG/National Brands

Grocery Store Produce Section
Market Trends

Regenerative Agriculture
Farming and AgTech

Mergers And AcquisitionsDeals/M&A

Industry Events

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