Food businesses throughout the value chain face significant challenges in accessing affordable growth capital. Investing in food systems is vastly different from investing in a fashionable plant-based meat startup or a consumer-packaged goods company that can outsource manufacturing and build a brand for sale to a conglomerate. Food system businesses require substantial investment in processing equipment, trucks, and warehouses, making them capital-intensive. Moreover, these businesses operate in a highly competitive and low-margin sector. Despite considerable interest in food system enterprises, the current funding ecosystem is weak. The capital needed to build these businesses is hard to come by and even harder to sustain over the long term. It is also not readily available in many regions where this work is happening and is not equitably distributed. Unfortunately, entrepreneurs of color are often woefully underfunded, as is the case in many sectors.
Managing cash flow and working capital is crucial to the growth of any successful business. However, food businesses face additional challenges due to a fundamental mismatch in their cash flow. They have to use their limited capital to pay for the upfront production costs, while they wait for weeks or months to receive payment from their customers. This puts producers and processors in a difficult situation where revenue growth can actually be harmful because it drains their cash and ability to pay for ongoing operational expenses. As a result, sudden bursts of success can cause farmers to find themselves with a severe cash deficit.
Access to financial products that address working capital needs for farms is limited and expensive. Established businesses can access lines of credit and factoring to fill this cash flow gap. However, small and medium-sized family farms are often unable to access these sources of capital, resulting in these small businesses relying on credit cards, personal assets, or networks to finance their business. Many farmers, especially those who have been historically excluded, miss opportunities to innovate, bring in reliable income, and build wealth because they cannot access working capital.
The COVID-19 pandemic has exposed the weaknesses and unfairness of our industrialized food system. This has led to a growing movement to create strong regional food systems that support local farmers, improve food security, empower communities to control their own food supply, and have positive environmental impacts. However, these goals will only be attainable if we address long-standing structural issues. For example, price pressures continue to make it difficult for decentralized food systems to be economically viable, and people of color are still underserved in roles such as farmers, food chain workers, supply chain entrepreneurs, and consumers.
During the session, we will discuss the necessary changes in funding for the creation of equitable and thriving regional food systems. Our belief is that to decommodify our food system, we must also decommodify the way we invest. This means using non-extractive capital based on social impact and creatively redistributing risk.
