Credit Unions Help Farmers Replenish Food Deserts
Rows of fresh turnips, okra and watermelons were the images Helen Godfrey Smith had in mind when she visualized the rich, farm land throughout the Mississippi Delta region.
“While the Delta has been a vibrant community that’s not the case anymore,” said Godfrey Smith, president/CEO of the $102 million Shreveport Federal Credit Union in Shreveport, La. “What’s happening is casinos are moving in, the older people who have farms – the younger people are just not interested in farming. With that in mind, we began to look at what we can do.”
What the credit union found were swaths of food deserts or urban neighborhoods and rural towns without ready access to fresh, healthy and affordable food, as defined by the United States Department of Agriculture. Instead of supermarkets and grocery stores, these communities are often served by fast food restaurants and convenience stores that offer few healthy, affordable food options. According to the USDA's Economic Research Service, 23.5 million people live in food deserts and more than half of them are low-income.
In 2011, Shreveport FCU merged with a $5 million credit union in Mississippi that had $4 million in its loan portfolio, Godfrey Smith said. Located in one of the poorest parts of the U.S., the credit union sought to help residents secure homes, vehicles and small business loans.
“We wanted to get them out of predatory lending,” she explained. “In a short amount of time, we’ve become active in the community and community development and connected and engaged with the members.”
Over the past three years, Shreveport FCU has loaned more than $21 million in home, auto and small business loans to members in the Mississippi Delta. Through a partnership with the Alcorn State University Extension Program in Jackson, Miss., the cooperative also developed a program under the Department of Treasury’s Healthy Food Financing Initiative to combat food deserts in the region.
Created in 2009 by Treasury and other government agencies to support fresh food retail in underserved communities, the HFFI provides loans to small crop farmers to expand their growing operations for the production, distribution and sale of healthy foods in food deserts. Since its launch, $77 million has been allocated for HFFI, according to Treasury. President Obama’s fiscal year 2015 budget calls for $35 million for the program.
Godfrey Smith said the merger created a bit of a learning curve for Shreveport FCU, which had a reach that stretched across Louisiana, down Interstate 20 and had focused mainly on urban issues.
“It’s a huge rural market. We had very little exposure to rural farmers. When we received the invitation to go into Mississippi and crossed the Mississippi River, we were confronted with different issues,” Godfrey Smith said. “Moving into the Delta, we noticed there was a lack of resources.”
For one, residents are at least 10 to 15 miles from any type of services including grocery stores and medical services. Right away, Shreveport FCU discovered having reliable transportation was a necessity for those in the Delta, so the cooperative began to offer affordable auto loans.
The credit union also became a Community Development Financial Institution, which helped with its economic development efforts in the Delta. Farmers in the region were accustomed to the changes in each season that could either produce bumper crops or scarcity brought on by drought or freezing temperatures.
To the rescue were hoop houses, which are semi-circular polyethylene tunnels that use solar radiation from the sun to warm plants and soil, according to the USDA. In addition to protecting crops from intense heat, strong winds, frost and other hazardous weather conditions, farmers can grow fruits and vegetables year-round.
The USDA provides financing for the hoop houses but the arrangement is on a reimbursable plan, Godfrey Smith explained. Meaning, the farmers have to pay for the hoop houses up front and then apply to the USDA for reimbursement.
For most farmers, having ready funds to pay for the equipment has been a challenge, so Shreveport FCU provided the financing.
“In the spring, they have tomatoes, okra and turnips, and in the fall, collards and broccoli. It allows them to have income year-round,” Godfrey Smith said. “(The hoop houses) also takes away some of the risks of lending for us.”
Read more: Underwriting agriculture microloans ...
The maximum amount for the microloans is $50,000 with up to five-year terms. Shreveport FCU ensures that the payments are reasonable and the farmers provide some sort of collateral to cover any risks.
Defaults have been minimal. The credit union recently had to charge off loans for $989 and less than $2,000, Godfrey Smith said. Two or three loan payments were 60 days late and had much to do with seasonal changes that had an impact on crops, she added.
Many of the farmers have little to no credit histories because they had never taken out loans or applied for credit, she said. Shreveport FCU stepped in to help boost their financial skills including connecting them with accountants and tax professionals to help file timely tax returns. For potential borrowers, the credit union requires three years of income tax returns.
Shreveport FCU also provides financial empowerment seminars to help the farmers understand computer and software systems that aid with keeping good financial records.
To help further with lending decisions, Shreveport FCU relies heavily on resources such as the farmers’ almanac and other entities involving crop production. One discovery was matching the loan term to when a certain crop would produce.
Just as important was tearing down walls of suspicion.
“In the beginning, there was skepticism. There was a period of time to build trust,” Godfrey Smith said. “They’re not used to a CEO coming in, kicking off her designer shoes, putting on flats and walking the farm. I’m that kind of CEO. I had to go out there and learn this piece of the business.”
Strolling through cabbage and turnip patches also provided an on-site view to check the farms’ operations and to learn more about with whom the credit union would potentially do business. Godfrey Smith said all of the farms to which Shreveport FCU provided loans are still in business and the majority of them have even expanded.
“The rewards? To see the pride on their faces,” she said. “The shoulders and backs are straighter, the heads are held higher because they’re given an opportunity to be successful. This is social service at its best. We’re new at this too but this is our piece of the future.”
The $324 million ASI Federal Credit Union in Harahan, La., also received a HFFI grant in 2011 to help replenish food deserts. The cooperative loaned out more than $2.5 million to help members open corner grocery stores, full grocery stories, food co-ops and a restaurant that gets much of its food from local farmer markets, said Robert Bell, ASI director of lending.
Even though it’s been nine years since Hurricane Katrina pummeled much of the Gulf region, certain parts of New Orleans, including the LowerNinth Ward, are still struggling to rebuild, Bell noted. In line with its mission of eradicating poverty, ASI’s partnership with the HFFI has helped to provide loans up to $500,000 over a maximum term of 15 years to bring back fresh foods and vegetables.
“Katrina seems like it was a long time ago but to us, it’s like yesterday. Some areas have come back better than before but some harder hit communities still need help,” Bell said.
The average loan is about $250,000 and is used for equipment, build-outs and inventory. Bell said even though the low interest rate program is easy to use, the hardest challenge has been finding qualified business owners.
ASI’s nonprofit division helps by providing counseling to ensure businesses meet the loan’s criteria. So, far the credit union has not experienced in defaults or chargeoffs; however, one member encountered a few financial setbacks, he noted.
“After Katrina, a lot of money was pumped into the area in the form of grants. Some were thinking the majority of the money would come from grants but they weren’t aware they had to repay these dollars,” Bell explained. “It kind of created a few barriers but we were able to educate them.”
Read more: Reorganizing a community loan fund to better meet community needs ...
Meanwhile, the South Carolina Community Loan Fund in North Charleston, S.C., has seen firsthand the need to replenish food deserts. Since its launch in 2004, the fund has infused more than $19.2 million in loans into the community, resulting in the development of over $163 million in community development projects.
One of SCCLF’s loan programs involves healthy food projects, said Anna Hamilton, the organization’s strategic initiatives director. The fund provides loans up to $500,000 to finance acquisition, predevelopment, infrastructure, construction, renovation, leasehold improvements, machinery and equipment, working capital, and permanent financing of business costs. Some of the outlets include grocery stores, corner stores, farmer’s markets, food hubs and mobile markets within South Carolina’s underserved communities.
“Healthy food has become a national conversation. It’s been Michelle Obama’s initiative,” Hamilton said. “We had to work hard because we started out with housing financing. But what we kept hearing was ‘we need a grocery store.’ So our board changed our name and mission and in about 2012, we added an additional loan program.”
The SCCLF expanded its reach when it moved away from its old name, Low Country Health Trust, and became one of the first HFFI grant recipients, Hamilton said. The fund has since approved more than $1 million in healthy food loans with one its biggest projects in Spartanburg, S.C.
In early May, the SCCLF hosted a banker forum for banks interested in investing in the revolving loan fund. PNC Bank recently provided $500,000 toward the fund.
“We have a strong relationship with banks. We would welcome the opportunity to work with credit unions because our missions are along the same lines,” Hamilton said.
It is encouraging to see how credit unions are figuring out ways to help in food deserts, said Lauren Ornelas, founder and executive director of the Food Empowerment Project, a Cotati, Calif.-based non-profit group that promotes healthy food choices.
“The lack of access to healthy foods in communities of color and low-income communities is very complex,” Ornelas said. “One of the underlying problems is that many people do not have enough money to cover their basic needs; they are not being paid a living wage, and this is a huge concern.”
In 2010, the Food Empowerment Project conducted a study in Santa Clara County, Calif., and found that higher-income areas have 14 times more access to frozen vegetables than other communities. The organization also conducted focus groups in three areas in San José, Calif., and will be releasing the findings in the next couple of months.
Ornelas said while attention has focused on the lack of healthy foods in some areas, the solutions should be based on what the community wants.
“Those solutions should benefit the community instead of big corporations,” she said. “Urban gardens, residents growing their own food and worker-owned cooperatives serve not only as a solution to the lack of access, but also help to grow the community.”