When we think about the important parts of the agriculture industry, we may consider the farmer, tractor dealership, seed company representative, and veterinarian, but we may leave out the banker. Although their role is often overlooked, banks play a big part in the farming world. Their support makes it possible to start a farm, operate it year to year, and pass it on to the next generation. Here’s a look at the role banks play in supporting agriculture.
How Banks Support Farming
Capital Credit
The most obvious financial need for a farm is the loan that it takes to purchase the land, construct buildings, and buy equipment. Without banks, there is no way to get the large sum of money needed upfront for these investments, and without that money, there is no farm.
Operating Credit
One area that many people don’t think about is the year-to-year credit required to put out a crop. Buying inputs like seed and fertilizer, hiring labor, and paying contractors such as custom pesticide applicators require a loan before the planting season arrives, to be paid with the proceeds of the year’s sales.
Financial Management
Farmers are typically so busy caring for crops and livestock that they don’t always have time to take the long view. A good relationship with their banker allows farmers to get personalized advice on how to invest for the long term and keep their family’s future financially sound.
Succession Planning
Speaking of the family’s future, banks can provide helpful advice on how the farm can be passed on to the next generation with the least possible impact on tax liability and the most painless transition process. Whether the older generation hangs up the pitchfork at 55 or 85, banks can help make the transfer smooth and effective. Which will lead to less problems for all parties involved.
Do Banks Cause Higher Food Prices?
While there is little interest expense in any farming operation, the real impact on food prices comes after the product leaves the farm. Transportation, processing, packaging, and the marketing process all add layers of cost to the finished food product that far outstrips the cost of doing business at the farm level. The best way to lower food prices for your family is to eliminate as many extra layers as possible and buy close to the farm in your area.
How to Support Local Farmers
This carries us right to our final point. The more your food travels around the country between the farm and your table, the more expensive it becomes. Processors manage these costs by paying lower prices to farmers, who rarely have the option to sell elsewhere. If you want to strengthen the local farm economy, buy local. You’ll send more of your food dollar to the farmer who earned it, which will help the economy.
Although banks may be located many miles from the farms they serve, their contribution to the operation is every bit as important as the farmer on the tractor, and the mechanic that repairs the machinery.
