Hoobler, Machado Join Farm Land Trust Board

Bill Hoobler and Mike Machado Appointed to California Farmland Trust’s Board of Directors

California Farmland Trust is proud to introduce well-respected industry professionals and community members, Bill Hoobler and Mike Machado, as new board members.

Hoobler and Machado have been active supporters of CFT for several years and bring a wealth of institutional knowledge and deep-rooted passion to the organization.

“Bill and Mike both offer a talented skillset and valuable expertise to the board, and their combined knowledge in policy and finance will be tremendous additions to our organization,” said Charlotte Mitchell, executive director at California Farmland Trust. “We are thrilled to have such accomplished individuals join the board and look forward to working towards continued success, in service to our critical mission.”

Since 2018, Hoobler has served as a CFT committee member and dedicated his professional life to the agriculture industry. He worked in the Farm Credit system for over 39 years, specializing in lending and crop insurance, before retiring in 2016 and starting his own crop insurance agency in Patterson.

“Being involved with CFT since 2018 has been rewarding,” Hoobler said. “California farmland needs to be protected and CFT is just one way to assure that farmland will remain farmland, forever.”

Machado, a Linden native, grew up on his family’s over-100-year-old farming operation and returned to the family business after serving in Vietnam. Machado also served 14 years to the California State Legislature, where he focused on water, banking, insurance, and budget accountability. In 2015, Machado and his family placed an agricultural conservation easement on their family farm, and later in 2021, Mike protected an additional two parcels.

“Without agriculture, we don’t eat,” Machado said. “Without farmland, we don’t have agriculture. That is why the work of California Farmland Trust is so important.”

Hoobler and Machado join the existing 11 members of CFT’s board of directors and will both serve on the Budget, Finance, and Risk Management committee.

2022-05-09T11:13:42-07:00May 9th, 2022|

Water Measurement and Reporting Courses Offered by UCCE May 26

By Pam Kan-Rice, UCANR

California water-rights holders are required by state law to measure and report the water they divert from surface streams. For people who wish to take the water measurements themselves, the University of California Cooperative Extension is offering a virtual training to receive certification on May 26.

At the workshop, participants can expect to

  • clarify reporting requirements for ranches.
  • understand what meters are appropriate for different situations.
  • learn how to determine measurement equipment accuracy.
  • develop an understanding of measurement weirs.
  • learn how to calculate and report volume from flow data.

“We are limiting the number participants for the water measurement training to 30 people per session,” said Larry Forero, UC Cooperative Extension livestock and natural resources advisor. “If you need this training, please register soon.”

The scheduled trainings will be held Thursday, May 26, at two locations:

  • Redding at Shasta College Farm.  Registration is required and costs $25. To register visit https://ceshasta.ucanr.edu. For more information, contact Larry Forero (lcforero@ucanr.edu) or Sara Jaimes (sbjaimes@ucanr.edu) or by calling the UCCE office in Shasta County at (530) 224-4900. Training will begin at 8 a.m. and conclude at 11:30 am.
  • Woodland at the UC Cooperative Extension at 70 Cottonwood Street. Registration costs $20. To register, visit https://cecapitolcorridor.ucanr.edu. For more information, contact Morgan Doran at mpdoran@ucanr.edu or the UCCE Yolo County office at (530) 666-8143. Training will begin at 2:30 p.m. and conclude at 5:30 pm.

Background:

Senate Bill 88 requires all water right holders who have previously diverted or intend to divert more than 10 acre-feet per year (riparian and pre-1914 claims), or who are authorized to divert more than 10 acre-feet per year under a permit, license or registration, to measure and report the water they divert. Detailed information on the regulatory requirements for measurement and reporting is available on the State Water Resources Control Board Reporting and Measurement Regulation webpage. The legislation requires that installation and certification of measurement methods for diversion (or storage) greater than or equal to 100-acre feet annually be approved by an engineer/contractor/professional.

California Cattlemen’s Association worked with Assemblyman Frank Bigelow on a bill that allows a self-certification option. Assembly Bill 589 became law on January 1, 2018. This bill, until Jan. 1, 2023, allows any diverter who has completed this instructional course on measurement devices and methods administered by the University of California Cooperative Extension, and passes a proficiency test, to be considered a qualified individual when installing and maintaining devices or implementing methods of measurement.

UC Agriculture and Natural Resources brings the power of UC to all 58 California counties. Through research and Cooperative Extension in agriculture, natural resources, nutrition, economic and youth development, our mission is to improve the lives of all Californians. Learn more at ucanr.edu and support our work at donate.ucanr.edu.

2022-04-27T13:22:26-07:00April 27th, 2022|

Today’s World is Full of Uncertainties. Your Food Supply Shouldn’t be One of Them

By Mike Wade, California Farm Water Coalition

The war in Ukraine and all the global unrest it is causing has focused American’s attention on just how uncertain a world we inhabit.

Inflation was already wreaking havoc on family budgets and now gas prices are also skyrocketing.

Which is exactly why our government should be doing everything it can to reduce reliance on foreign sources for our basic needs, especially food.

Unfortunately, that is the exact opposite of what is happening.

Through out-of-balance regulatory policies and a failure to prioritize western farming, our government is putting our safe, affordable, domestic food supply at risk.

Over 80% of our country’s fruits, nuts and vegetables are grown west of the Rockies and simply cannot be moved elsewhere. Without that supply, Americans will see shortages at the store, even higher prices, be forced to rely more heavily on increasingly unstable foreign sources, or all of these at the same time.

Learn More

When you make a salad, have fruit for breakfast, eat a hamburger with cheese, or put tomato sauce and garlic on a pizza, odds are that at least some of those products came from California.

But without a reliable water supply, that farmland simply cannot produce what our country needs.

It doesn’t have to be this way.

In some western states, the government is holding on to existing water supply, rather than release it to farms to grow food. In California, we must move more quickly to build and repair infrastructure that will help us store more water in wet years for use in dry ones like this one. And in general, water policy has become unbalanced in ways that penalize the farms trying to produce our food supply.

California farmers are doing their part and have reduced water use by double digits since 1980. Throughout the West, farms are also important in the battle against climate change because crop production helps remove carbon dioxide from the air. If things continue the way they are, our government is essentially creating deserts instead of food production, which will only perpetuate the cycles of drought and wildfires we’d like to avoid.

Food price increases in 2022 are now expected to exceed those observed in 2020 and 2021. Without changes in water policy, it will continue to get worse.

It has never been more important that U.S. consumers insist on domestically grown food in our stores.

2022-04-21T15:58:13-07:00April 21st, 2022|

Quality Walnuts Are Grown in California

California Walnut Growers Produce Higher Quality Products

By Patrick Cavanaugh, with the Ag Information Network

Walnuts are grown in many countries around the world but California walnuts really shine when it comes to quality. Pam Graviet is a Senior Marketing Director International for the California Walnut Commission. Graviet said it comes down to those growers and the processors.

“It’s really what the growers do. I mean, they spend so much care in the orchard, and then when it gets to processing there’s all the extra steps that are taken,” said Graviet. “What they do is partially regulated and partially because of their desire to have a superior product. And that’s actually recognized around the world,” noted Graviet.

“You can get a walnut from Moldova, China, Italy or Australia. There are so many countries that produce them but they see the value that our industry delivers and they want our product,” noted Graviet.

But Graviet said the challenge, and it’s a big challenge, is the price that the growers receive.

“Just like almonds, you have a large supply and you have to develop that demand. And over time that happens, but in the meantime, the price will fluctuate depending on what the supply is on any given year,” she said.

2022-03-16T10:46:05-07:00March 16th, 2022|

The Story of Rising Fertilizer Prices

High fertilizer prices in the past year have increased costs for farmers, but for some crops more than others. Multiple potential causes could explain these price increases, stemming from both supply and demand factors. If farmers respond to high prices by using less fertilizer per acre, it will provide an environmental benefit in the form of less nitrogen and phosphorus in streams, rivers, and lakes.

By Aaron Smith, DeLoach Professor of Agricultural Economics in the Department of Agricultural and Resource Economics at UC Davis.

https://s.giannini.ucop.edu/uploads/pub/2022/02/24/v25n3.pdf 

Fertilizer prices approximately doubled between the summer of 2020 and the end of 2021. Prices had been relatively stable in the prior five years at around $500 per ton for phosphate products (phosphorus) and just below $400 per ton for potash (potassium) and urea (nitrogen). In January 2022, phosphate products hit $900 per ton, and potash and urea prices were $800 per ton (see Figure 1).

What caused these price increases, and how much do they matter?

Agricultural Fertilizers

Most fertilizers deliver one or more of the following macronutrients to plants: nitrogen (N), phosphorus (P), or potassium (K).

Nitrogen makes up three-quarters of the air we breathe and is essential in plant growth. However, atmospheric nitrogen needs to be converted to ammonia (NH3) before it is accessible to plants. This conversion process, known as fixation, occurs naturally through bacteria and archaea that live in the soil or in the roots of some plants. Animals also produce ammonia by eating nitrogen-laden plants and excreting manure.

These natural processes typically do not produce enough ammonia for crops to reach their maximum potential. The invention of the Haber-Bosch process in 1909 enabled the production of synthetic ammonia by reacting nitrogen with hydrogen under high heat and pressure. U.S. nitrogen producers use natural gas as an energy source in this process.

Phosphorus helps plants grow by promoting photosynthesis and other functions important for development. Phosphorus fertilizers are typically produced by mining phosphate rock and treating it with sulfuric or phosphoric acid, causing a chemical reaction that converts it to a form that can be absorbed by plants.

Potassium strengthens plants, making them resistant to disease and higher in quality. Potassium fertilizers are created by mining potash from deep underground, similar to table salt. Chemical reactions convert it into a form usable by plants.

It is impossible to apply the exact amount of fertilizer that plants require, and there is a perception that many farmers over-apply fertilizer because they fear yield and profit losses from applying too little. This extra fertilizer is sometimes called “insurance nitrogen.”

Nitrogen and phosphorus that are not taken up by plants often end up in waterways, where they can cause a massive overgrowth of algae, known as an algae bloom. Certain types of algae emit toxins that are absorbed by shellfish. Consuming these tainted shellfish can lead to stomach illness and short-term memory problems. Drinking or coming into contact with toxins from algae blooms can cause stomachaches, rashes, and more serious problems. Algae blooms also reduce the recreational value of lakes and rivers.

U.S. Fertilizer Consumption

Nitrogen fertilizer use increased by a factor of four from 1960–1980, as shown in Figure 2. This increase coincided with dramatic increases in crop yields. In the 1970s, high agricultural commodity prices created a farm boom in which farmers planted more acres to crops and increased fertilizer applications.

After a slight drop during the farm crisis of the early 1980s, nitrogen fertilizer use has increased steadily, but at a slower rate than in the 1960s and 1970s. Phosphate and potash use has been relatively constant since 1985. Use of all fertilizers dropped substantially in 2009 after fertilizer prices increased fivefold during the 2008 commodity boom—a much larger increase than in 2021.

Nitrogen is by far the most used agricultural fertilizer by weight. It now makes up almost 60% of all fertilizer used, whereas phosphate and potash each comprise just over 20%. However, the trends in phosphate and potassium use mirror those in nitrogen, perhaps because many farmers apply multi-nutrient fertilizers.

Two facts provide insight into the role of fertilizer in the U.S. farm economy. First, corn uses about 45% of each fertilizer type, yet it takes up only a quarter of all cropland—90 out of about 390 million cropland acres in the nation. Second, in 2020 fertilizer made up 35% of operating expenses for corn growers—more than any other crop. Fertilizer is a major expense for the biggest crop in the nation, so the 2021 fertilizer price increases will significantly raise the cost of growing it.

As Figure 3 shows, fertilizer makes up more than 25% of operating expenses for several other major crops, including barley, oats, sorghum, and wheat. Between them, these crops use an additional 50 million acres each year.

In percentage terms, fertilizer is a much smaller expense for major California crops than the major national crops. It makes up about 10% of the cost of growing almonds, less than 2% of the cost of growing wine grapes, and 11% of the cost of growing processing tomatoes.

These percentages are useful for understanding the salience of fertilizer price increases for farmers. A jump in the price of one of your largest expense items will be noticed.

However, these percentages obscure the amount of fertilizer used on each crop because major national crops such as corn are relatively inexpensive to grow. Most corn is grown without irrigation, which saves the cost of acquiring and pumping water. Corn also requires little labor, especially now that tractors practically drive themselves.

According to cost and return studies by the University of California, bearing almonds cost $3,000–$4,000 per acre per year, which is about 10 times as much as growing corn in Illinois. So, although they spend a smaller percentage of their budget on fertilizer, California almond growers spend about three times as much per acre on fertilizer as Illinois corn growers, including about 25% more on nitrogen and multiple times more on potassium.

Fertilizer Production 

Fertilizers are produced throughout the world and traded heavily between countries. Figure 4 shows that the United States currently produces about 85% of the ammonia it uses, most of which becomes nitrogen fertilizer, and it produces 90% of the phosphate rock it uses, most of which becomes phosphate fertilizer. It imports 90% of its potash.

Most U.S. ammonia production capacity is in Louisiana, Oklahoma, and Texas—close to natural gas fields. Natural gas constitutes about 80% of the cost of producing ammonia. Domestic production declined substantially from 2000 to 2010, a period when U.S. natural gas prices were historically high. In the latter part of this decade, two major producers merged as part of a period of consolidation in the industry.

After 2010, the deployment of hydraulic fracturing (fracking) increased the supply of natural gas and thereby lowered the cost of production dramatically. Fertilizer prices, however, remained high in this period and U.S. firms enjoyed large margins. In the last five years, production has rebounded, as more plants were built to take advantage of cheap natural gas.

Ammonia imports have mirrored domestic production, increasing as production declined between 2000 and 2010 before declining when production rebounded after 2016. Two-thirds of U.S. imports come from Trinidad and Tobago, and most of the remainder comes from Canada.

U.S. potash production has declined by 80% since 1965. Most of the remaining U.S. production comes from deep mines in southeastern New Mexico. Most potash imports come from Canada, which is the world’s largest producer by a significant margin.

Most domestic phosphate is mined in Florida and North Carolina, although there is also some production in Idaho and Utah. U.S. phosphate production declined steadily from 1980–2019, but phosphate fertilizer use in U.S. agriculture remained relatively constant over this period.

Each year between 1980 and 2019, the  U.S. exported about half its phosphate production, mostly to Canada and Mexico. As production declined, the U.S. maintained domestic consumption by increasing imports, mostly from Morocco, Russia, and Israel. In March 2021, the U.S. International Trade Commission ruled that imports from Morocco and Russia had affected the U.S. producers adversely, and they imposed countervailing tariffs ranging from 9% to 47%.

The U.S. Geological Survey (USGS) is an excellent source for data on mineral commodities, and I use this source for ammonia and potash in Figure 4. For phosphate, USGS reports data on phosphate rock, which is the product that is extracted from mines. Production and consumption of phosphate rock shows an incomplete picture of the phosphate fertilizer market. Each ton of phosphate rock generates about 0.2 tons of fertilizer. The U.S. imports some phosphate rock, mostly from Peru, which domestic firms make into fertilizer. In addition, the U.S. imports a significant amount of phosphate fertilizer. Thus, Figure 4 presents phosphate fertilizer data from FAO rather than phosphate rock data from USGS.

Prices

So, why have prices increased? To answer this question, I consider supply- and demand-side factors.

On the supply side, U.S. natural gas prices doubled between the summer of 2020 and the end of 2021, which significantly raised the cost of nitrogen production. Energy is also a component of phosphate and potash mining costs, but it is much less important in the production of these products than for nitrogen. For this reason, the increasing price of natural gas cannot fully explain the fact that all fertilizers increased in price by a similar percentage.

Weather events also disrupted nitrogen supply, including the freeze in Texas in February 2021 and Hurricane Ida in August 2021. There were also some supply disruptions due to COVID-19. However, these events caused only a temporary reduction in production and so do not explain a sustained price increase. Moreover, these events did not hit phosphate and potash production regions.

Also on the supply side, shipping costs increased dramatically in 2021, especially on shipments from Asia to North America. However, most fertilizer imports to the U.S. come from the Americas and would be less affected by shipping costs.

On the demand side, crop prices are high. Corn, soybean, and wheat prices increased by 60% from the summer of 2020 through the end of 2021. High crop prices incentivize farmers to apply more fertilizer per acre, which would place pressure on fertilizer prices.

The high crop prices did not spur a substantial increase in acreage in 2021, and it is too early to know whether we will see an acreage increase in 2022. However, an increase in demand from farmers planning to expand acreage in response to high crop prices is a plausible factor behind rising fertilizer prices.

Conclusion 

Predicting commodity prices is a fool’s errand. When natural gas and agricultural commodity prices come down, I would expect fertilizer prices to also come down.

When the price of a pound of fertilizer exceeds the expected increase in revenue from spreading it on the field, it is not profitable to use that pound. Fertilizer prices have increased by more than most crop prices, so in 2022 producers have an incentive to apply less fertilizer per acre. If farmers do apply less fertilizer per acre, it will provide an environmental benefit in the form of less nitrogen and phosphorus in streams, rivers, and lakes.

Moreover, to the extent that farmers apply more than the recommended amount of fertilizer as insurance against low yields, reducing use in 2022 provides an opportunity to experiment and to learn how much such insurance is necessary.

 

2022-03-14T16:07:26-07:00March 14th, 2022|

California Agricultural Mediation Program Helps Farmers

As Farming Population Ages, New Partnership Offers Support and Tips for Transition Planning

Nearly 40 percent of producers in California are over the age of 65 according to the most recent U.S. Census of Agriculture, slightly higher than the national average. The stability of California agriculture, the backbone of U.S. food production, is largely dependent on the successful change of hands to the next generation.

As a result, many non-profits are instituting holistic succession planning programs to help farm families with the transition process. In California, California FarmLink offers a 12-month long program, The Regenerator: A Year of Farm Succession Planning, which addresses all aspects of transition, including tax and estate planning, business structure and valuation, as well as financing strategies.

California FarmLink recently partnered with the California Agricultural Mediation Program (CALAMP) to set the stage for productive farm transition conversations and help participating families with any communication related issues.  CALAMP is a nonprofit organization that provides free mediation and facilitation to those working in agriculture.

CALAMP and California FarmLink offer these five tips for successful farm transition planning, an often overlooked but critical part of farm operations.

Have a Champion & Prioritize the Discussion
Have someone at the farm who is dedicated to moving the process forward. Often transition conversations are put on the back burner because people get too caught up in the day-to-day.

Recognize Each Other’s Point of View
It’s common for family members and stakeholders to have different visions for the future. It’s important to listen and recognize each other’s point of view as valid, whether you agree or not.

Understand the Financial Picture
The next generation should have access to the finances for the best chance of success. For example, unknowns can cause issues and prevent a successful transfer.

Write Down Your Rough Draft for Transition of Assets and Management
Write down your vision or ideas to ensure everyone is on the same page. This draft will help you finalize it with a professional.

Get Help as Needed from a Facilitator
A facilitator or mediator with experience in family coaching and succession planning helps create a sense of fairness. They’ll help set the agenda at family meetings, ensure nothing is missed, and help reluctant participants become more involved.

“We provide free mediation services on a variety of issues facing farmers, including farm transitions.” said Matt Strassberg, CALAMP Program Director. “CALAMP’s services helped many families reach agreements about how to manage the farm going forward.”

CALAMP offers both on-site mediation sessions and teleconferencing sessions so that everyone has access to this service no matter where in California they live.

“Farm transition discussions don’t have to be limited to only family members. Some may want to involve long-term employees in future ownership or young farmers outside the business,” Strassberg said.

For more information on FarmLink’s program, visit: https://www.californiafarmlink.org/succession. Or email Liya Schwartzman at liya@cafarmlink.org.

For more information or to sign up for free mediation with CALAMP visit www.CALAMP.org where you can fill out an online request form. Or email Jenna Muller at jennam@emcenter.org or Mary Campbell at maryc@emcenter.org.

2022-02-03T09:12:41-08:00February 3rd, 2022|

New Grower Liaison for American Pistachio Growers

Campbell Gilkey Will Make Contact with Growers

By Patrick Cavanaugh with the Ag Information Net

The American Pistachio Growers Association has brought on a grower liaison to help build up the voluntary association and to retain current members. Campbell Gilkey, a fifth- generation farmer with Gilkey Farms, a diversified farming operation, including pistachios in the Corcoran area of Kings County.

“I’ll be reaching out and making new contacts all along the west side of south Kern County, throughout Fresno County and up north near Sacramento and occasionally reaching out to our Arizona and New Mexico growers,” said Gilkey.

American Pistachio Growers has the majority of growers within its ranks, but more is better.

“Yes, more is better, said Gilkey. “I’ll be working all throughout Central, Northern and Southern California, trying to make new contacts, create retention with some of our older loyal customers and spreading our message and helping with their marketing and promotion in the whole pistachio industry,” he noted.

Gilkey describes his family’s legacy operation. “It started with my Great grandfather, and then  my two grandfathers, Don and Charles Gilkey helped to expand the company and eventually their sons took over, and it’s three sons and two cousins of mine now are operating the company,” Gilkey said.

2022-01-31T21:28:08-08:00January 31st, 2022|

Farmers Invited to Tour Cover Crops in Sacramento Valley March 3

Farmers and ranchers are invited on a tour to learn how to use cover crops to build soil health. A full-day tour of several cover crop sites in orchards and annual crop fields in the Sacramento Valley is being offered on March 3 by the Western Cover Crop Council’s Southwest Region Committee.

“The goal of this tour is to demonstrate ways to use cover crops effectively in annual crops and orchards in the Sacramento Valley,” said tour organizer Sarah Light, UC Cooperative Extension agronomy advisor.

“This tour will cover a range of topics, including cover crop selection, equipment needed to manage cover crops, considerations for cover cropping in the region, and the importance of building soil health,” said Light, who is also chair of the Western Cover Crop Council’s Southwest Region Committee and a board member of the Western Cover Crop Council.

Cover crop species, cultivars and mixes including legumes, grasses and brassicas will be showcased in Colusa County, with farmers, UC Cooperative Extension specialists and researchers giving presentations.

The tour bus will depart from the Colusa County Cooperative Extension Office at 100 Sunrise Blvd., Suite E, Colusa, CA 95932 at 8 a.m. and return at 7:30 p.m.

Priority registration is limited to farmers and ranchers until Feb. 1. Other interested people may join after Feb. 1. ​The $50 registration fee includes morning refreshments, transportation, lunch and dinner. To register or to see the agenda, visit https://surveys.ucanr.edu/survey.cfm?surveynumber=36190.

Source: UCANR

2022-01-25T08:28:47-08:00January 25th, 2022|

Current and Former FFA Officers Tour CA Ag

FFA Members Explore Agriculture in California During January

Earlier this month, 46 current and former state FFA officers visited California and learned about the various types of agriculture the state offers.

Members flew into California and toured various agribusinesses — from the largest U.S. producer of caviar to a fourth-generation ranch practicing responsible carbon farming and more. They also talked with Karen Ross; California Secretary of Agriculture, Dorene D’Adamo; the vice-chair of the California Water Board, Matthew Allen; vice president of state government affairs at Western Growers.

FFADuring the second week of the tour, members visited berry farms, nurseries, a horse ranch, and a feedlot; experienced whale watching; and explored the Muir National Forest. They spoke with a variety of agriculture experts, learned about practices they could take home to their communities, and visited the Mark Richardson Career Technical Education Center & Agricultural Farm in Santa Maria.

The experience was made possible thanks to FFA sponsors John Deere and Bunge.

FFA members who participated in the experience include: Alyssa Andrews and William Blankenship of Arkansas; Jillian Johnson, Carter Howell, Julia Heijkoop, Kelly Alexander, Barrett Young and Tyler Brannan of Florida; Madison Stevenson and Kesley Holdgrafer of Iowa; Cassandra Moody, Claire Shelton and Katherine Hebdon of Idaho; Julia Hamblen of Indiana; Ashley Chandler and Rachel Sebesta of Kansas; Kyle Schulze of Maryland; Olivia Coffey and Adele Battel of Michigan; Nicol Koziolek of Minnesota; Joceyln Dvorak of Missouri; Regan Hand of Mississippi; Bailey Robinson, Emma Kuss, Madison Stracke and Victoria Ference of Nebraska; Emily Sadlon, Abigail Goodenough, and Johnathan Finney of New Jersey; Aubrey Schwartz, Jacob Zajkowski, John Dippold, Katherine Price, Kylie Baldwin, Isabel D’Aquisto-Butler and Justin Sharp of Oregon; Hunter Eide of South Dakota; Ryder Mortenson of South Dakota and Samantha Olson of South Dakota; Charles Moser; Samuel Leach; Ellie Vance; Jackson Lohr, Lauren Rhodes and Emma Jackson of Virginia.

The National FFA Organization is a school-based national youth leadership development organization of more than 735,000 student members as part of 8,817 local FFA chapters in all 50 states, Puerto Rico and the U.S. Virgin Islands.

2022-01-24T09:11:42-08:00January 24th, 2022|

California Marijuana Growers Can’t Take Much to the Bank

Study analyzes tension between legal cannabis, financial industry

Legalization of marijuana in California has helped some financial institutions in the state increase their assets. At the same time, many banks, feeling stifled by federal regulations, deny services to licensed growers, manufacturers and retailers, a new study shows.

“Licensed cannabis businesses need to bank their cash and take out loans to build their businesses, but many banks worry that by doing business with the cannabis industry, they’ll be flouting federal laws,” said co-author Keith Taylor, University of California Cooperative Extension community development specialist. “Banks that won’t accept legal cannabis cash deposits and don’t provide loans, aren’t monetizing their deposits. Marginalized cannabis communities are missing out on capital.”

Of the banks and credit unions contacted by researchers at The Ohio State University and University of California for the study, most were not knowingly involved in the cannabis industry.

Combining data on bank holdings and interviews with growers and bankers, the research –published online in the journal Agricultural Finance Review – paints an initial picture of how the marijuana and financial industries co-exist in California now, and suggests regulatory changes could create new opportunities for both.

The data analysis did make one thing clear: Legalization of the estimated $16 billion marijuana industry in California has been a boon to financial institutions. But restricted access to banking, from checking accounts to loans, perpetuates inequities for those participating in the legal production of cannabis – while unlicensed, illegal growing and exporting continues as an enormous cash-based sector of the industry.

“We need a better understanding of the economics of this industry and all of the questions and implications related to it so the impacts of policy choices are intentional,” said lead study author Zoë Plakias, assistant professor of agricultural, environmental and development economics at The Ohio State University.

“If we want to have a more equitable society and allow communities to keep more of the value of this crop, how do we do that? We first need to characterize what happens in communities when you legalize cannabis.”

Plakias and Margaret Jodlowski, assistant professor of agricultural, environmental and development economics at Ohio State, conducted the study with researchers Taylor, Parisa Kavousi and Taylor Giamo at the University of California, Davis.

“The tensions we are observing in the cannabis banking space comes about in part due to the inequity felt between large cannabis and small and legacy operators,” Taylor said. “The ‘big guys’ are able to absorb a great deal more than ‘Ma and Pa.’”

Legalization benefited financial institutions indirectly

Marijuana is listed as a Schedule 1 drug under the federal Controlled Substances Act. Even in states that have legalized recreational and medicinal use of cannabis, it is still a federal crime to possess, buy or sell marijuana. California legalized recreational cannabis for adults in 2016, and the industry is overseen by the Department of Cannabis Control.

Data used by the researchers for this study included bank and credit union call data for the years 2015-2020. The analysis showed that assets held by financial institutions in counties that legalized marijuana had increased in that period by almost $750 million and loan activity rose by about $500 million.

These benefits are presumed to be spillover effects of better overall economic health that followed cannabis legalization in specific counties, Jodlowski said, because the interviews with financial institutions indicated there has been little appetite among banks to associate with the marijuana industry.

“It’s important to remember when talking about loans that it’s not possible to identify whether they were for cannabis operations, and they’re probably not based on what we heard from stakeholders,” she said. “It’s more of a general relationship. The bank is doing better, and they’re able to lend out more in general and earn more interest from loans.”

When they narrowed the analysis to banks that operate only in California, the researchers found that for each single new manufacturing or retail license, bank assets and loan capacity grew by tens of thousands of dollars. Cannabis cultivation licenses, on the other hand, had no impact on California banks’ holdings.

“This suggests that a lot of the economic benefits of legalization come from other stages of the supply chain – and it’s not a foregone conclusion that farmers benefit from legalization,” Plakias said. “There’s a need to think about how farmers who are producing cannabis in the legal market, often operating in rural environments with a weaker economic base to start with, can be supported in the context of economic development.”

The team also interviewed marijuana farmers and representatives from banks and credit unions in Humboldt, Trinity and Mendocino counties – the “Emerald Triangle” region known historically in California and nationally for the quantity and quality of marijuana produced there.

Cannabis growers face obstacles, risk-adverse bankers

On the financial side, bankers reported being hamstrung by ambiguous federal guidelines that pose a real risk to financing cannabis, largely because banks are required to report suspicious transactions to the federal government. They might be seen as players in a criminal enterprise even by providing banking services to employees who work for licensed members of the cannabis industry, or they could lose big on lending if cannabis-related assets backing a loan were seized by federal agents.

“What’s consistent across all financial institutions is that it’s very costly, and does involve taking on some risk, to be in compliance with all of the guidelines – the risk being that even if you follow all guidelines to the letter, there’s no assurance that you can’t still get in trouble,” Plakias said.

Cannabis growers they interviewed reported paying fees ranging from $200 to $3,000 per month for bank accounts, which they found to be cost prohibitive. These limitations leave most licensed marijuana producers and retailers in the lurch, forcing them to rely on nontraditional financing arrangements – maybe investing in friends’ endeavors – or risk running cash operations.

“There is a lot of evidence that cash can be better for a local economy because cash tends to stay local – but we are now a credit-based economy,” Jodlowski said. “In this day and age it’s incredibly harmful for local economic development to have an entire sector that’s denied access to credit, because so much of developing as a household, or individual, or industry requires credit and requires demonstration of credit-worthiness.

“That’s a fundamental harm of these sorts of restrictions.”

This research is part of a larger project on cannabis and community economic development in California supported by a grant from the UC Davis Cannabis and Hemp Research Center. As part of this project, the California authors on this paper recently published a review of the opportunities and challenges marijuana legalization poses for localities in which the crop is cultivated and sold.

“It’s clear we need policies making cannabis banking and finance more equitable,” Taylor said. “It’s also clear that ‘Ma and Pa’ enterprises need to associate together in formal organizations so they can achieve economies of scale and harness their political power to endure the transition to legal.”

Despite the stigma attached to marijuana, even when legal, its status as California’s most valuable crop – estimated to be worth more than almonds and dairy combined – attracts outsiders who are better-equipped to come up with funding to get their operations started and compete with legacy growers who have lived and worked in California for generations.

This trend necessitates development of evidence-based policies that take all participants into consideration, the Ohio State researchers say.

“Our findings speak to confusion around existing policies and the need for streamlining, clarifying and having a more unified approach to regulating this industry,” Jodlowski said.

2022-01-20T13:14:22-08:00January 20th, 2022|
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