Agri-Access at 20 years: How can farmers and ag lenders get ready for the next two decades?
Agriculture and lending are in for a seismic shift over the next 20 years, similar in scope to the changes we’ve witnessed in the first 20 years of Agri-Access.
What do the trendlines indicate about the future of farming? What can lenders do to prepare themselves to meet these challenges?
Patrick Hawkins and Ray Smith are relationship managers at Agri-Access. We tapped their deep expertise in agriculture and ag financing to explore some of the ways the next two decades may unfold.
What lies ahead for agriculture over the next two decades?
First and foremost, the family farm is entering a generational transition, where producers are preparing for retirement as heirs become more active in decision-making and management of the family enterprise.
Smith anticipates an increased interest in selling the farm to investors or neighboring landowners. This transition will drive a need for capital and experienced farmland management services.
“Either way will result in a different style of farm operations and the capital required to operate them,” says Smith.
This opportunity will be attractive to institutional investors looking to expand their alternative investment strategy, as well as high net worth family offices looking for portfolio diversification and asset preservation.
“Not only has farmland provided a respectable return on invested capital, it now plays into the investors’ socio-economic strategies,” Smith says.
Meaning these investments will drive a greater emphasis on regenerative agricultural practices, including carbon sequestration, cover crops, alternatives to chemicals and pesticide, and organic farming, Smith says.
At the same time, consumers will want and expect more transparency about the origin of their food. Technology tools will enable producers to share information quickly and in greater detail.
What challenges should ag lenders and producers be prepared to take on?
Over the next two decades, demand for food experts will continue increasing, driven by rising incomes in developing countries and the resulting dietary changes.
“That will require producers to increase productivity and efficiency,” says Hawkins.
However, investing in technological advancements will enable farmers to scale, improving their efficiencies and yields, and enabling them to expand into new markets and methods.
Farmers will continue adapting to challenges arising from the cyclical nature of production agriculture. Over the next two decades, increased government regulations, tight labor supplies and environmental threats from disease outbreaks to water shortages will be top of mind, Smith says.
Producers will have a continued need for resilient lenders equipped to endure market downturns, he added. Cultivating loyalty will be crucial as he anticipates tightening competition among agricultural lenders over the next two decades.
“Everyone wants to lend to the best producers, which is a group that is gradually shrinking,” Smith says.
What will be key to success over the next two decades for ag lenders and producers?
“Communication, commitment and capital,” says Smith.
The trendlines point to big changes in the economy, environmental and social policies as well as technological innovation. These shifts will make their mark on agriculture and Smith and Hawkins urge producers and lenders to embrace them.
Being proactive with the changes in management practices and embracing new technologies will determine whether or not operators succeed, and Smith suggests finding capital solutions from reliable partners that achieve these directives.
“Ag lenders will need to continue to manage credit risk, while maintaining strong relationships with their customers,” Hawkins says.
How will Agri-Access play a role in helping lenders and producers meet the challenges?
For the next 20 years, the ag-forward solutions for lenders will continue.
Agri-Access has a team of experts that know and understand the needs of borrowers, Smith says, with a focus on technological innovations that streamline the borrowing process.
“Agri-Access will play a key role for ag lenders — our lending partners — providing them with the products and services they need to help their customers become successful,” Hawkins says.
Learn how participation loan offerings and other innovative solutions from Agri-Access can grow your ag portfolio. Reach out to a relationship manager today.
