Maine Harvest Credit Project
REGENERATIVE QUALITIES OF THE MAINE HARVEST CREDIT PROJECT
Robust Circulatory Flow / Honors Community & Place / Empowered Participation
Robust Circulatory Flow / Honors Community & Place / Empowered Participation
A Conversation with Scott Budde of The Maine Harvest Credit Project
A former pension fund manager on a quest to found the country’s first sustainable agriculture credit union.
A former pension fund manager on a quest to found the country’s first sustainable agriculture credit union.
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December 2013—As we look to identify financial services institutions that are purpose built to serve the regenerative economy, we reached out to Scott Budde, former director of TIAA-CREF’s Global Social and Community Investing Department. While overseeing the $487 billion pension fund’s investments in community development finance institutions, Scott discovered much to his surprise that there was not a single CDFI in the country dedicated to serving the critical financing needs of America’s small-scale sustainable farms.
On a quest to discover a way to fill that gap he left TIAA-CREF to direct "The Sustainable Agriculture Credit Union Research Project," an initiative funded by The John Merck Fund and the Betsy and Jesse Fink Foundation. (Editor's note: Since this story was posted, the project has been renamed the Main Harvest Credit project.) Scott talked to us in November from his new home in Portland, Maine, about the role financial institutions serving sustainable farms will play in helping to redefine risk in the agriculture sector, and his plans to charter the country’s first sustainable agriculture credit union. Q: You looked at three CDFI options—banks, loan funds and credit unions— in the initial phase of your research into the appropriate model for a sustainable agriculture financial services institution. Why did you decide to focus on credit unions? Scott Budde: While loan funds are very helpful to this sector, they typically don't reach a scale where they can be self-sufficient. Banks were off the table for a lot of reasons. You need way too much capital to start a bank, too much in relation to what you could deploy. Also you need a shareholder structure and I was not sure that would play well in a sector that has a very sensitive nose for issues like mission drift and control. I thought a credit union structure would provide an opportunity to tap the deposit market, but also, as a member-owned, non-profit financial institution, it would help ensure that mission alignment. Q: What did you discover to be the pros and cons of the credit union model? Scott Budde: On the upside, the credit union regulator is amenable to creating credit unions that could be based around this sector. Getting the deposits was not the issue and there seemed to be loan demand that could be met around small farm mortgages and not a lot of existing fund providers. The downside was there were new regulations for credit union charters that made it much more expensive to get one up and running than it was 10 or 15 years ago. You used to be able to have a couple of pancake breakfasts and you were off and running, and you could start with manual record keeping and a lock box in the church basement. You can’t start them that way any more, you need a much higher level of accountability, a well-developed business model, and much higher levels of start-up capital. Also prior to coming to Maine, I was looking at a regional model and it was difficult to line up regional funding in a sector that is so locally oriented. Even in a region like New England where you have small states with a lot in common you would find local foundations or high net worth funders who just cared about their own immediate region. That is how the local food movement works. So that made a regional model more difficult. Q: So you have now decided to start smaller. But is it your hope to scale up from there? Scott Budde: Having a demonstration effect would be unbelievably helpful. My guess is a Maine-based credit union for this sector would be a small-scale, flexible model that you could replicate on a state or sub-state level, but the most valuable part of the research would be to create a model other states could replicate and do it at a small scale and still be efficient. Q: You have now decided to look into the feasibility of chartering a credit union in the state of Maine. Why Maine? Scott Budde: Several reasons. Maine has the oldest and largest state association for organic farming, the Maine Organic Farmers and Gardeners Association (MOFGA). MOFGA in fact is larger in membership than all the other states in the northeast combined. Maine also has the only statewide land trust focused on preserving farms - Maine Farmland Trust - and a large, active Slow Money chapter. Finally, Maine is also one of the few states in the northeast with large amounts of arable land. So it was the logical next step to give it a try at a state level in Maine. Q: You discovered much about the regenerative nature of rural communities and of the sustainable farming model in particular during the course of your credit union research project. Tell us about that. Scott Budde: What I found very interesting was that in the series of farm interviews I did —these were three-hour talks at the kitchen table of small sustainable farms— the vast majority of the farmers did not have dramatic goals for growth. When they talked about growth they typically talked about growing to a level of sustainability or to achieve greater efficiency. That says a lot about regenerative communities. It means that much of the growth in this sector, and it is certainly growing, is likely to come largely from adding more farms. That was not something I thought about immediately at the beginning but as I heard the same story over and over again it started to hit home that this was a broader social effect of rebuilding rural communities. Q: What does a financial institution that is helping its clients grow their businesses, but only to a level of sustainability, look like and behave like? Why is a credit union particularly suited to this regenerative finance model? Scott Budde: I have spent much of my career around giant financial institutions, many of which have behaved quite badly in recent years. And I think part of the issue is that they have these enormous conflicts between what shareholders want, what employers and managers want, and what customers want, and that conflict creates all kinds of problems. I believe it is easier to balance those types of stakeholder interests in a credit union because your customers are in control of the institution and are the primary stakeholders. Also you need to have an institution that can deal in smaller transactions, without constant pressure for growth through ever larger loan sizes. Q: So are we beginning to redefine what efficiency means in the regenerative economy? Scott Budde: One thing I can say about the math of efficiency: every bank or insurance company or investment manager I have ever worked for or consulted to or competed against has thought that all of their problems of efficiency would be solved if they just got bigger. Surprisingly, even as the banking industry in the US has consolidated massively, big banks are not more profitable than smaller banks, there is no direct correlation. That whole efficiency argument is elusive. The answer is you have to figure out how to be efficient at whatever scale works for you. Q: What will be the profile of typical sustainable agriculture credit union depositors? Scott Budde: They will be looking for a complete package—that is a competitive return, government guarantee on deposits, and funding a sector they believe in. I find if you can get the institution off the ground you can deliver that. I would not target high-end deposit rates, I don’t think you need to. Every CDFI credit union and bank has said raising deposits is not an issue. Nationally, the USA has a $15 trillion + market and many customers are looking for more responsible alternatives. Q: You plan to address risk by chartering a credit union with levels of capital that well exceed regulatory requirements, and to offer a significant amount of technical assistant to your borrowers, something that is not required by regulators. But you also see a role for your institution as a partner with regulators in redefining the risk of the agriculture sector. Scott Budde: There is some very interesting work going on in the sustainable agriculture world today around what is risky about agriculture. Traditionally big farms were considered less risky than small ones. I think this could change rapidly. I think a 100-acre diversified farm that sells through CSAs, farmers markets, and directly to local restaurants could well look less risky than farming 10,000 acres of soybeans. Industrial farming has huge embedded risks that we are still just beginning to appreciate while smaller farms often have positive attributes that have been overlooked. As the risk of industrial farming comes home to roost for lenders and investors, smaller, more sustainable models will begin to look less risky and more attractive. I think a credit union or any new CDFI working in this sector has the ability to help redefine how you look at risk and that will be crucial. It is certainly one of the issues that will come up in our discussion with regulators. 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"Conversations in the Field"
Listen to Scott Budde talk about his vision for the country's first Sustainable Agriculture Credit Union Read Scott Budde's Study, "The Sustainable Agriculture Credit Union Research Project"
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