FINANCING A SUSTAINABLE FUTURE

In Business, January-February, 2005, Vol. 27, No. 1, p. 14

Today, the movement to a sustainable economy faces many financial and conceptual obstacles. Here are strategies and examples of how those obstacles are being overcome and how an economy - especially the local food economy - will be transformed.

Christopher B. Bedford

WHEN architect and sustainability guru, Bill McDonough walked into a presentation with a large corporation 10 years ago, he most always began with this statement, “I am here to make you money.” As McDonough well knew, the corporate CE0s “were always afraid I was going to talk only about the environment or poor people.” They were afraid my vision of the future was going to be about less. Less profits. Less growth. Just less. I talked to them, instead, about abundance - not limits; about more not less; about what good growth based on a kind of 'ecological intelligence,' might look like.”
Bill McDonough and his partner, Michael Braungart (authors of the book “Cradle to Cradle”) represent one of the most aggressively hopeful visions for a sustainable economy -human commerce that thrives because it obeys nature's rules and works with nature's processes in a kind of creative industrial aikido. This nature-as-ally approach allows these visionaries to talk positively about the other two corners of the sustainability triangle - economy and equity. In their world of sustainable abundance, there will be profits enough for corporations, income enough for communities and workers, as well as harmony with nature.
Unfortunately, the place where their sustainable rhetorical rubber meets the Dow-Jones driven road is not as smooth nor as straight as they depict (or perhaps hope). And they are not alone in this lapse. Much of the progressive community is trapped in a kind of Alice-in-Wonderland dream about the challenge of building a sustainable economy. This unreality means we often pursue solutions that are real only in appearance. To put it metaphorically, we are in the process of being evicted from our home by nature's deputies, believing confidently, as we are hustled out the door, that we are going to pick the Power Ball number in next week's cosmic drawing and everything will be alright. Sad dreams in an urgent time.
This article is an exploration of some hard questions about the hands-on process of actually transforming our economy. Specifically, this article raises questions about the funding of what some call a paradigm shift. Who is going to finance the transition to a sustainable economy, particularly a sustainable local food economy? Who will pay? Who will benefit? And what can we do as citizens and consumers?
Implicit in this exploration is a consideration of how we, as a nation, and as citizens in a global community actually can create a healthy quality of life for our children and their children, unimpaired by our current destructive economic behavior.

THE DIRTY TRUTH AND NO LAUNDROMAT IN SIGHT
Today, the movement toward a truly sustainable economy faces a financial and conceptual obstacle that is not much discussed in public - a “dirty” truth that says, “the sustainable economy will be built with the profits derived from the unsustainable economy it seeks to replace.” I call this the Sustainable Sin Paradox.
Ford's new hybrid mini-SUV Escape is financed, in some important measure, by the sales of its North-Slope-destroying-global-warming-promoting Excursion and Expedition monster SUV brothers. The transition to the wastewater hydrogen economy will, in some corporations, be financed in part by profits from the mining and burning of coal.
The Paradox is particularly potent in the vast portion of our economy that is based on toxics based manufacturing and products. Nontoxic products are almost prima facie evidence of the danger posed by their profitable, toxic brethren. And with evidence can come lawsuits.
Nike hesitated introducing a nontoxic rubber for its footwear, in part, because of advice from litigation shy corporate counsel worried about lawsuits over its current rubber formulation. The chemical industry balked at giving compostable upholstery maker Rohner Textil AG technical information about toxic fabric dyes because of “proprietary product concerns” - corporate speak for revealing liability.
Bill McDonough is one of the few innovators to actually address aspects of the Sustainable Sin Paradox. In some of his presentations, he shows a slide depicting the full cycle of a product's life - from innovation/introduction through increasing profitability because of uniqueness or quality through decreasing sales from competition and loss of patents, etc. “I tell them the time to begin investment in fundamental innovation is not when sales are declining and a product's life is approaching its end,” say McDonough. “The time to invest in real change is at the height of the current cycle's profitability.”
In other words, don't wait until the trial lawyers are queued up outside your door to begin development of less harmful (read “sustainable”) alternatives. Use toxic profits to develop the nontoxic solutions to customers' needs.
But McDonough doesn't use this slide in every presentation he makes, in part, because it is easier to talk about the Triple Bottom Line - the bean counters' lingo for “sustainability” in a corporate context - than to actually commit capital, human resources, and reputation to action. And even when this corporate decision-making bridge is crossed, the Sustainable Sin Paradox can mitigate against fundamental change. Often the actions taken are on the less painful, less litigious margin.
The Sustainable Sin Paradox virtually ensures that the established corporate giants that rule so much of our world will have to struggle mightily with tenacious technical demons, organizational inertia, and impatient investors/shareholders in their move to sustainability. There is simply too much human and financial capital invested in “business as usual” to truly address the environment and equity points on the sustainable triangle. And this is not good news for nature and those of us who think we are running out of time.
In some measure, our economy at the corporate hegemony level has come to resemble the command-and-control system that guided the economy of the former Soviet Union. “In many sectors, we have become like our former Soviet adversaries,” said Neil Harl, Charles F. Curtiss Distinguished Professor in Agriculture at Iowa State University. “We talk about markets and market forces. But the unelected oligopolist corporate actors in today's economy create the market and control it, much like the apparatchik of the Soviet system.”
If the transition to a sustainable economy is to become something other than a marginal, symbolic, and ultimately futile exercise, it has to have its roots, like nature itself, in a diverse movement in specific places, ecosystems, communities, and entrepreneurs. In other words, the sustainable revolution has to come, principally, from the ground up.

BUILDING THE SOIL OF SUSTAINABILITY
In spite of the Wal-Martization of the U.S. economy, there is a huge, very diverse small business sector sprouting between the cracks of the Big Box economy's parking lots. Nearly half of U.S. employees work for businesses with a payroll of less than 20. These small businesses “produce the lion's share of new jobs” according to economist David Birch.
Less bureaucratic and more nimble, small businesses innovate at a rate far faster than the largest corporations. Any intentional and successful program to promote a transition to a sustainable economy must, by necessity, focus on this small business sector. This shift of focus is not insignificant - and, in fact, is something akin to revolutionary; what E.F. Schumacher in Small Is Beautiful called economics as if people mattered. What we seek is an economics as if nature mattered.
What Schumacher describes is not some romantic 19th Century notion of utopian collectivism. It is, in fact, an implicit feature of capitalism. University of Missouri agriculture economist John Ikerd points out, “If you asked experts in 1969 about the future of computers, virtually everyone would have mentioned IBM, a corporation that dominated the market for main frame computers. Ten years later, in 1979, IBM was almost out-of-business because of the appearance of new enterprises making personal computers.”
Perhaps the most fundamental mistake made by the globalization of production with its attending standardization and obsession with the economic bottom line is that it violates nature's prime directive, “ create diversity”. An economy that is sustainable because it works with nature must also be as diverse as nature. Following diversity's dictums, a sustainable economy should be as local as possible. Judy Wicks of BALLE and Philadelphia's White Dog Care uses the term a local living economy to describe this goal diversity and localness.
Within the diverse aspects of a local economy, the food system offers the most profound connection with place, biodiversity, culture and the economy.

THE MASTICATION MANIFESTO
Food - its raising, transportation, distribution and preparation - offers consumers, communities, and citizens the greatest opportunity for beginning the transition to a local sustainable economy. The reasons for this are many and arise both out of the incredible costs from the current industrial food system and the potential benefits of a healthy, humane, homegrown food system.
o Industrial food production threatens the environmental health of water, the public health of rural communities and consumers. Fresh, humanely raised and healthy local food has none of these costs.
o U.S. industrial food production remains competitive in the world market mainly because of subsidies (which now will be very substantially reduced under a proposal from the Bush Administration). Local food systems radically reduce transportation and middleman costs, allowing both farmers to retain more income without dramatically increasing the cost of food.
o The increasing use of genetically modified organisms in industrial food production threatens biological diversity and farmer independence. Local food systems, by their very nature, are appropriate to their place, fostering and protecting genetic diversity in plants and animals while removing farmers from corporate networks of control.
o Industrially produced food has been linked to the growing epidemic of diabetes and obesity. On the flip side, there is increasing evidence that healthy fresh local food can dramatically improve everything from physical health to academic performance in children.
o The industrial food system is heavily dependent on oil and natural gas for production inputs, processing, and transportation - the average meal traveling about 1500 miles from farm to table in the United States. Locally grown meals travel far less.
o Food production and sales employ nearly 50 percent of all retail workers in most communities - forming a critically important part of the local employment base.
For all these reasons and because food security is a critical element of community economic security, the development of a local, sustainable and humane food supply should be among the top priorities on the sustainable economic agenda. It is a growing concern among consumers. But when it comes to financing, to access to capital, the food system is the poor step- child of the local sustainable economy.

HEY BROTHER, CAN YOU SPARE A DIME?
In 2002, when Iowa's Legislature and Governor proposed to establish a $500 million economic development fund (called the Iowa Values Fund) to transform the state's failing agricultural and manufacturing economy, the focus was on a big ticket projects (capital intensive new technologies) developed by out-of-state corporations and entrepreneurs. Chris Peterson and Kevin Miskell of the Iowa Farmers Union and a coalition of groups associated with The Humane Society of the United States's Care4Iowa Campaign called for ten percent of the Iowa Values Fund to be set aside to help small and medium farmers diversify and upgrade their crop and animal production. The campaign slogan was, “Hey brother, can you spare a dime?”
The proposal went nowhere. Some said there was too much money to be made by large corporate and monied local partners to bother with small and medium size farmers. Others noted that money made from state grants sometimes resulted in large campaign contributions to legislative leaders and their party. Whatever the truth, there was virtually no interest in funding in the small farm and food businesses from which a sustainable local food supply might grow. (Iowa, the second largest farm economy in the nation, currently imports over 90 percent of its food.)
Iowa is not alone in this regard. In many states and throughout much of the private investment community there is little real action to promote investment in a local, sustainable food system.
On January 14 and 15, 2005, Woody Tasch, Chair of the Investors' Circle, spoke at the Practical Farmers of Iowa's Annual Conference in Des Moines, Iowa. His theme was the need for Slow Money - the financial corollary of Slow Food. (See In Business, Sept.-Oct. 2004, “Venture Capitalist In Search of Sustainability.)
“I worry because, as money is 'speeding up', it is commanding - with increasing insidiousness and invisibility - ever more of our attention, and is therefore negatively affecting our human potential.” Tasch continued: “It is my hope that the concept of Slow Money might motivate early investors, who will demonstrate that it is possible to reintegrate what E. F. Schumacher called 'meta-economic values' (sustainable values) into the daily business of living. I hope that Slow Money may prove to be an effective idea for facilitating new strategic alliances, new collaborations, new thinking, and, perhaps, a new funding vehicle or two.”
In his statement, Tasch expresses the dream, the vision of many who seek to capitalize the more rapid development of sustainable local food systems. His words carry weight because he heads a movement of socially and environmentally responsible investors. At the PFI Conference he was surrounded by farmers, new and established, seeking capital for new local food ventures. Yet, Tasch is tentative in his words and his process - talking about “hopes” and relying on funding through the Investors' Circle Foundation, not the Investors' Circle(s) themselves.
Implicit in his words is the concept that the development of local sustainable food systems is philanthropy, not business. The business of venture capital is something quite different from Tasch's vision. Demanding between 20 percent (Tasch) and 45 percent (The Federal Reserve) return annually, venture capital has little interest in small, local sustainable food producers and businesses. These investments return too little, cost too much to make, and aren't sexy.

TWO ROADS, ONE NOT MUCH TRAVELED
Local, sustainable food systems have not been able, with few exceptions, to secure capital investment from the private sector especially from venture capital funds. Rural businesses, particularly food businesses, were viewed as too low-tech and slow-growth to provide the high rate of return venture capital expects. Deal costs were higher and rural communities provided only a limited business infrastructure.
In 2001, rural counties were home to 17 percent of all U.S. businesses but received only 0.8 percent of the dollars invested by venture capital funds. Only a very small percentage of those funds were invested in the food system.
Historically, government at the federal and state levels has undertaken the responsibility investment in rural areas and the small entrepreneur level of the food system where sustainability is most likely to begin. From the beginning the equity corner of the sustainability triangle has provided a principle motivation for these programs. Implicit in these investments is a “social return on investment” as well as a financial. This is called, within socially conscious lending, “the double bottom-line” to describe both economic gains and community development.
This “double bottom line” aspect runs through the history of government investment in community economic development. In the Great Depression, Congress first entered the community development arena with the United States Housing Act of 1937 to build new housing and renovate existing buildings.
But the antecedents for today's situation grow from President Lyndon Johnson's War on Poverty and Great Society programs. In 1964, the Economic Opportunity Act created the Office of Economic Opportunity (OEO) and Community Action Agencies (CAA) to help low income communities in urban and rural areas. In 1966, after a visit to devastated neighborhoods in the South Bronx and Brooklyn, New York's two U.S. Senators, Robert Kennedy and Jacob Javits, offered the Special Impact Program (SIP) as an amendment to the Economic Opportunity Act. Their goal was to create public/private partnerships that focused on making material improvements to the poorest neighborhoods and communities in the nation.
In 1968, the Office of Economic Opportunity awarded the SIP grants to the first two Community Development Corporations (CDCs): the Hough Area Development Corporation in Cleveland, Ohio and the Bedford-Stuyvesant Restoration Corporation in Brooklyn, New York.
In 1983, a third piece of legislation - the John Heinz Neighborhood Development Program of the Housing and Urban-Recovery Act - provided grants to private, voluntary, nonprofit corporations - most were Community Development Corporations - for neighborhood renewal.
These laws and others have created a bewildering array of programs and institutions that have the goal of community economic development. What follows is a brief look at this public and public/private investment universe with an eye to what existing programs might actually invest in a sustainable local food system.

THE COMMUNITY DEVELOPMENT CORPORATION
The Johnson era War on Poverty Community Development Corporation is a nonprofit corporation created to raise and spend funds to address the needs of specific, low income and other identifiable communities. It is the first place based community investment vehicle since the Second World War. Today, almost 4,000 Community Development Corporations (CDCs) operate in the United States. A large majority of these CDCs engage in the development, renovation, and ownership of affordable housing for low income residents of both urban and rural areas.
But commerce is also on the CDC agenda, particularly in rural areas. According to the coalition Standup for Rural America 2001 Survey of Rural Community Developers, there are approximately 1,400 CDCs in rural America. Of these, 44 percent do some kind of job and business development, 33 percent invest in community, commercial, office and industrial facilities. However, the overall numbers are small. The total equity invested in rural businesses is only $16.7 million. The total loan portfolio is $145 million, nationwide.
In some cases these investments are speculative in nature - a sort of rural development version of “build it and they will come.” In many communities across rural America, empty buildings stand in rural community industrial/office parks, built with CDC raised money. This bricks-and-mortar inclination of CDC's is a reflection of its low-cost, war-on-poverty housing roots.
CDCs depend heavily on specific government grant programs for their funds. As a result, the potential for CDC investment in a local, sustainable food system is not high, given the current lack of state and federal support for such programs.

SBICS - SMALL BUSINESS INVESTMENT COMPANIES
These are private sector firms that must have a minimum private investment of $2.5 million. SBICs operations and management must be licensed by the Small Business Administration of the U.S. Department of Commerce. But once these criteria are met, a SBIC may borrow federal funds or sell government guaranteed securities to raise investment capital.
There are almost 300 licensed SBICs in the U.S. with operations in all major agricultural states except Nebraska and Montana. All but five of these Small Business Investment Companies are located in metropolitan areas, functioning like mainline venture capital funds that focus on high-tech and high-growth sectors of the economy. Few rural businesses have access to SBIC venture capital funds. Sustainable, local food systems aren't even close to being on the SBIC radar.

COMMUNITY DEVELOPMENT VENTURE CAPITAL FUNDS
These are called, in the language of the federal government, New Market Venture Capital Companies. These companies must raise at least $5 million of private capital. The Small Business Administration will, in turn, provide the NMVC with matching investment funds equal to 150 percent of private investment. This venture capital mechanism was created by Congress to invest in low income communities. Recently, there were only seven approved NMVCs, four of which serve predominantly rural communities. CEI Community Ventures of Maine was one of those four.

COMMUNITY DEVELOPMENT BANKS
Community Development Banks (CDBs) target long-term economic development in low-and moderate-income communities. Perhaps, the most famous of these institutions is the Shore Bank of Chicago, the first U.S. Community Development Bank and today the largest CDB holding company in the nation with branches in Chicago, Cleveland, Detroit, the Pacific Northwest and the Upper Peninsula of Michigan . These banks make loans to the people living, working, and doing business in their community or service area. Deposits are FDIC insured like conventional banks. The Shorebank publicly adheres to the Triple Bottom Line accounting system - attempting to balance economy, equity and the environment. (See sidebar) These institutions offer one path to financing a sustainable food system - but their experience is with urban not rural investments.

COMMUNITY DEVELOPMENT CREDIT UNIONS
Community Development Credit Unions operate just like commercial credit unions, but focus on economic development in specific areas. The Community Development Credit Unions are membership owned and are federally insured and regulated. The grassroots nature of these non-profit financial institutions unions offers communities an integrated, homegrown way to invest in a sustainable economy, particularly food. Community Development Credit Unions with a 50 percent membership below the poverty level qualify for loans and outside deposits to strengthen their capital base. There are over 100 Community Development Credit Unions in the U.S. I believe these institutions offer sustainable food advocates an integrated and effective way to both finance and organize support for their work.

COMMUNITY AND MICROENTERPRISE DEVELOPMENT LOAN FUNDS
Community Development Loan Funds use grant money and individual investments to make direct unsecured loans for very targeted community economic development. These loan funds have rates of return from zero to five percent and terms of one to ten years. These are place-based institutions, within a specific area.
The Microenterprise Loan Fund is the U.S. version of the Grameen bank of Mohammad Yunus (See sidebar.). Microenterprise funds have lent more than $25 million to low-income individuals for home purchases and small business start-ups. These loans target business with five employees or less and generally do not exceed $25,000 in amount. Many start-up sustainable food businesses would qualify for these microenterprise loans.
Financing of sustainable, local food systems is really in the hands of community residents and consumers, concerned philanthropists, and elected government officials. The failures of the larger capital system are reflected in a bias towards what Woody Tasch calls “fast money” investments. But there are openings and opportunities if we choose to take them. As described in the sidebar on page 19, there are three steps you, the reader can take, to help finance the transition in your community, your region.
INVEST IN YOUR FUTURE
The transition to local, sustainable economies - ones with secure local and healthy food supplies - ones where energy and goods are produced in a way that respects nature - ones where everyone has access to a sustainable quality of life - must be based in commerce.
The globalization onslaught, with its largely unmeasured costs to the environment and to the economy and equity of communities, has distorted commerce. And with that distortion has come a bias against investments in a local, sustainable alternative.
This bias is neither inevitable nor immutable. The economic revolution we seek can be financed by communities of people being intentional with their investments and their purchases.
The mechanisms already exist, particularly the Community Development Credit Union and Microenterprise Loan Fund processes. We can vote with our dollars. We can work together to build local sustainable economies that are secure economies. It all begins with food.

Christopher B. Bedford is with the West Michigan center for Economic Security based in Montague, Michigan. His e-mail is chrisbedford@charter.net. In the July-August, 2004 issue of In Business, Bedford wrote a report of the Sioux City, Iowa “Food Market with Big Big Promise” in the section on “Building Vibrant Local Economies.”

BAY FRIENDLY CHICKEN
Jerry Wunder retired from a Baltimore, Maryland heating and cooling business to raise chickens and “live a good, relaxed life” in 1995. “Boy, was I misled,” said Wunder. “I was told I could live like a kind of country gentleman - working a little and making a good living. (He laughs) I have had to build a new air-conditioning business just to support my chicken habit. I have had no real increase in my income per bird for over a decade. But all my other costs have risen. And I owe so much money on my facility, I just can't get out.”
Wunder, who raises 100,000 broiler chickens per flock under contract for Perdue, sought a way out of his dilemma. In 1999, he joined with a group of other unhappy contract poultry growers on the Eastern Shore of Maryland to start a LLC called Chesapeake Friendly Chicken - now called Bay Friendly Chicken after a destructive name ownership dispute with one of the founding growers.
Michael Shuman, author of “Going Local: Creating Self-Reliant Communities in a Global Age,” worked with the Chesapeake Bay Foundation to help the growers organize an independent chicken broiler business using high quality LaBelle Rouge chickens processed using an air-chilled technique.
Shuman estimates the resulting broiler product could be sold at a 50 percent premium over industrial chicken products because of the taste and quality. Growers would realize a 300 percent increase in their income per bird over the Big Chicken monopoly-based contracts they currently operate under.
The funding for this new business (they sought $1 million) would be different as well. Shuman proposed raising capital from the local Eastern Shore community beginning with the growers themselves, who each invested $5,000. These first investments by growers would constitute the Tier A stock. Other local investors would have Tier B stock. Only local investors from either tier would have stockholder voting rights.
Shuman worked with the growers to create a proposal for a “sustainable” food business. “I wanted to demonstrate how a business with its stock held by the community could raise environmental quality and social equity standards,” said Shuman. “The cost to consumers to address social and environmental costs turned out to be far lower than expected. For example, environmentally sound disposal of chicken manure adds less than a penny a pound to retail prices.”
Social equity is addressed as well by the plan for Bay Friendly Chicken. The project worked closely with the Delmarva Poultry Justice Alliance from its inception.
The Bay Friendly Chicken project, as of November, 2004, was stalled because of a lack of adequate capital. “We are looking for some angel investors,” added Shuman at a meeting then. “I am a little wary of true venture capital investment from outside the community. I don't want to destroy the local community ownership and control.”

OKLAHOMA FOOD COOPERATIVE STARTS WITH NO OUTSIDE CAPITAL
In 2003, a group of 80 farmers and consumers around Oklahoma City came together to form the Oklahoma Food Cooperative - a consumer cooperative licensed by the State of Oklahoma. Each member joined the cooperative for a cost of $50 making the total capital investment of $4,000.
“We were frugal in our start-up and we are frugal today,” explains Robert Waldrop, president of the Cooperative, which connects 328 member/customers to 66 farmer/producers using a software developed by a volunteer. Customers place their orders on the cooperatives' website (www.oklahoma
food.coop) “adding to their cart” much like any other internet purchase. Producers' orders are automatically tabulated and consolidated into one invoice which can also be accessed from the web. The orders are compiled monthly with a cutoff date.
“We have over 320 members but only about 120 to 150 place orders in any one month,” notes Waldrop. “Since November, 2003, we have done about $115,000 in business with the amount increasing most months. In January, 2005, we will do $10,000.” The cooperative's ultimate goal is to operate on a weekly basis.
Right now, the Oklahoma Food Cooperative has no institution wide values or mandates. Most producers raise naturally or certified organic. On the transition to a more sustainable local food system, Waldrop adds, ”We believe that if people want a more sustainable product, they will demand it. And our producers will produce it.”
The cooperative has worked to help small farmers (often young farmers get started.)
“We have $7,000 in the bank and have no plans to seek grants or loans.” But the Oklahoma Food Cooperative is about to release (April 1st or thereabouts) its market software to the public for free under a general license. “We think that we ultimately benefit if we open up our software to use by others. They will share their improvements with us under this deal.”
For more information about the Oklahoma Food Cooperative, contact Robert Waldrop at #1524 NW 21st Street. Oklahoma City, OK 73106. (405) 613-4688.

Copyright 2007, The JG Press, Inc.