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New help for start-ups

Agriculture.com Staff 02/12/2016 @ 6:26pm

It was almost like a dream. It came to Katie Ives just before she awoke. And when her husband, Alex, walked in the door for breakfast after morning chores, she blurted it out.

"Ice cream! Ice cream!"

It was the answer to weeks of thinking, praying, and trying to come up with a new enterprise to diversify their sixth-generation dairy farm near Norwich, New York.

The farm, an 80-cow dairy with a busy custom cropping operation, already supports Alex, his father, and a cousin and his family. Alex and Katie's three sons will be its seventh generation. It's getting a bit crowded.

So Katie and Alex have started a new business, Ives Cream, a main street ice cream store in Norwich. Every other week Alex trucks milk to a processing plant where it's made into chocolate and plain base mixes. The mixes go to the store, where the family makes their own flavors.

"The successful farmers these days are the ones who are diversifying," Katie explains in her store, as she waits on a customer who ponders between a milk-and-honey cone or a maple-walnut cone.

Family dairies that sell their own milk, cheese, or even ice cream aren't unheard of these days. What sets the Ives family's business apart is that they have a $50,000 loan from a new program for young farmers started by First Pioneer Farm Credit ACA, a Farm Credit System lender in the Northeast, and CoBank, the system's lender to cooperatives. Each lender committed up to $1 million to a seed capital program, FarmStart, LLP.

FarmStart can make loans to beginning farmers that wouldn't meet Farm Credit System members' internal credit standards.

It's almost like venture capital. FarmStart doesn't actually own a stake in these new businesses, as a true venture capitalist would. But it requires no down payment or equity for five-year loans up to $50,000 -- if the business cash flows and seems to have a good chance of succeeding.

"It really is a bet as to whether or not we think these people are going to be survivors and whether we want to make an investment in their operation," says Michael O'Connor, senior vice president and general counsel at First Pioneer's headquarters in Enfield, Connecticut.

The loans are nonrecourse subordinated debt, with personal property as collateral. "This structure is about as close to an equity investment as you can get," O'Connor says.

The goal with each loan is to graduate the borrower to more conventional loans with First Pioneer in five years or less.

So far, FarmStart is a long ways from using up the combined $2 million commitment of its founders. Besides the ice cream business for the Iveses' dairy farm, FarmStart is backing a goat-cheese operation started from scratch, a pick-your-own apple orchard, a vegetable stand, and a tomato transplant business.

"Agriculture is evolving in the Northeast and changing," O'Connor says. "We want to be there encouraging that. These are going to be new and different operations that conventional agriculture might not want to lend to."

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