Rising demand for locally grown produce and food can create a new economic and lending opportunity for community banks and their agricultural customers
By Robert Heuer
Children’s book author Dave Sargent was nearing retirement a decade ago. He figured to stay busy by growing vegetables in the backyard and selling them to area farmers markets.
Today his vegetable produce company, Sargent Farms, generates $4 million a year in annual sales. Squash, okra, peppers and tomatoes are sold through various outlets—most notably Walmart. Early on, Sargent supplied a Walmart store near his northwest Arkansas home. The next year, three store managers were customers.
Now his company supplies vegetables to three Walmart distribution centers in Arkansas, Oklahoma and Missouri. Sargent Farms produce is then sold to consumers at hundreds of Walmart stores throughout the Midwest.
Sargent, who lives less than an hour from Walmart’s headquarters, has become a model agricultural entrepreneur for a corporate strategy to diversify their food sourcing. Walmart, the world’s largest grocer, is not alone in fulfilling a rising demand for locally grown food. Other food chains are aggressively seeking vendors like Sargent to shorten the geographic distance between farm and fork.
With this demand comes an opportunity for community banks and their agricultural customers for greater rural economic growth and revitalization. As the farm and food sector begins to undergo a new market design, some community banks may want to consider and promote the agricultural lending and economic development opportunity.
The big picture
The nationwide proliferation of farmers markets—340 in 1970; 6,132 in 2010—reflects growing consumer interest in how food is produced, where and by whom. Demand for direct market-type products has moved into high-volume, wholesale channels like restaurants, grocery stores and institutional food services. Walmart is a retail industry leader in modifying its business to meet demand for food sourced from nearby farms.
In 2008, the Walmart Foundation awarded the University of Arkansas a $549,000 grant to convene national stakeholders interested in creating a sustainable food system that links small producers with large markets. This “Agile Agriculture” program—facilitated by the Applied Sustainability Center at the Sam Walton School of Business—explored how to create regional-scale supply chains that ensure profitability for producers and distributors, while enhancing local economies and delivering healthy products to consumers.
Two key obstacles impede market growth. Few small producers have the necessary insurance, product traceability and documented food safety systems required to meet the procurement standards of large distributors. In addition, smaller producers often lack access to aggregation facilities that can provide the scale of product volume needed by larger markets.
These findings mirrored Walmart’s activities in the field. Wholesale buyers seek relationships with farmers who can pick, clean, pack and drive their produce to one of the company’s 42 distribution centers within 24 hours. In 2010, Walmart officials reported that regional produce sourcing accounted for 4 percent of sales. The retailer’s goal is to double that number before 2016.
This year, Walmart is targeting three clusters for growing this model—the I-95 corridor in the Mid-Atlantic states, the upper Midwest and the Delta Region along the Gulf Coast.
Multiplier effect
Sargent Farms is putting dollars in a lot of local pockets through a business that generates a constant supply of produce for 20 weeks. Vegetables are grown on 400 acres with the help of eight tenant farmers and as many as 60 employees at the height of harvest season. Most of that land used to be in pasture.
“Cattle ranchers gross about $800 an acre, but I can gross $10,000 an acre raising vegetables,” Sargent figures. “The people I employ live in the area. So do the truckers who move our product.”
The nearest national chain hardware store is a 15-mile drive away. Sargent prefers to patronize his cousin’s hardware store located five minutes from the farm. Another cousin owns the tractor supply store. “It’s great to keep our dollars circulating in the local economy, helping small businesses and generating tax revenues for our town, our schools, county and state.”
Sargent takes pride in running a high-tech operation. “We’re very inventive and are always trying to modify equipment to better fit our needs,” he says, citing a permanent irrigation system as an example of where he reduces expenses. “I haven’t had to raise prices in six years.”
Sargent reports plenty of interaction with Walmart’s regional-produce-sourcing leadership. “Walmart realizes that better produce comes from smaller units of production. The bigger you get, you lose control. If I had 3,000 acres of vegetable production, I wouldn’t be that concerned about 100 acres not meeting specs because that loss would be only three percent of my crop.”
Community banks should look favorably on this type of locally centered agricultural production, Sargent says. “Vegetable growing is not a high-risk business for a good farmer. We insure our crops through a federal program for $750 a year. It is labor intensive. You have to be out in the field everyday inspecting the crops.”
Creating new value
Berni Kurz is a frequent visitor to the Sargent Farms. As staff chair for the Washington County Extension office, he supervises a team of employees who provide technical assistance for area farmers and gardeners.
“In 1991, I started a 13-year period working for Extension in neighboring Crawford County,” Kurz recalls. “At the time, the agricultural economy was quite diverse with almost every type of vegetable grown. … By the time I left to come here to Washington County, there were zero acres of commercially grown vegetables. Low transportation costs had made it cheaper to grow vegetables elsewhere. Now it’s local production that lowers transportation costs.”
Kurz works in Fayetteville—home to the University of Arkansas and a thriving Saturday morning farmers market that has become a tourist destination. Vendors there must produce their own food from one of four contiguous counties. He’s acquainted with 15 producers who sell their wares at the Fayetteville market, but doesn’t expect them to make the business changes required to sell wholesale.
He anticipates that resurging demand for crops sourced from nearby farms will “put farmers back into business or create another cash flow that they have the option to go to.” 
Robert Heuer is an agricultural writer in Evanston, Ill. |
