How Renewable Energy Sources Can Benefit Agribusinesses and their Financial Partners

Kala Jenkins
February 2, 2021
Read Time: min

Diversifying income streams

With the recent impacts of COVID-19, ag and financial partners alike are turning their attention to diversified income streams for financial stability.

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Long-term resilience

Revenue Diversification for Financial Stability

Across the entire U.S. agriculture system, we have witnessed a steady increase in farmers and ranchers seeking sources of diversified income over the years. With the recent impacts of the COVID-19 pandemic, agribusinesses and financial partners alike are turning their attention to diversified income streams far beyond the farm field for financial stability.

Revenue diversification provides nontraditional income to agribusinesses. It also increases ag businesses’ long-term resilience to offset commodity instability and creates a strategic roadmap that benefits farmers, ranchers, and their financial partners, including lenders, insurers, and landowners.

But revenue diversification is often not that simple to attain. Ag businesses today are finding significant value in the form of renewable energy opportunities. While acting as an advocate for farmers and ranchers from a financial standpoint, I have recently noticed that there’s a noticeable disconnect in conversations with lenders regarding these new revenue streams. The complex contracts involved in the areas of solar, fluid minerals, wind, and other resources can often blur the bottom-line impacts of these revenue streams, making it difficult to analyze credit, assets, and cash flow in the long term.

Lenders must be able to mitigate potential risks and ascertain the value and impact that renewable energy diversification can deliver.

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Why Renewable Energy is Attracting Agribusinesses

Today’s farms and ranches are making the move to produce money off of their most prized asset: land. Many realize that there is value in the water and minerals available on their land. Furthermore, there are additional revenue opportunities in renewable energy sources such as solar and wind generation.

To an ag lender, it should come as no surprise as to why agribusinesses are diversifying. Commodity prices, as we know, are just not enough to save the farm, save the ranch, or keep the next generation interested. Many operations are finding themselves cash poor and unable to retire unless they sell. With their backs up against a wall, many owners are finding that renewable energy opportunities are knocking at their door and providing much needed financial support.

The additional funding landowners acquire through providing renewable energy sources is used for a variety of purposes. For example, some agribusinesses will diversify to liquidate debt, while others aim to expand their land or equipment purchases. Regardless of the goal, landowners have opportunities to raise the money they need using resources they already have. There are gaps to fill for many producers based on what commodity prices are doing – or not doing – to keep the business above water.

Advising agribusinesses

Navigating the process of diversifying

We often see agribusinesses seeking to generate the next generational involvement – but not necessarily by just giving it to them, rather by producing additional cash flow in order to motivate them to stay in the business and continue their legacy.  Renewable energy tends to be very attractive to the younger generation in particular. 

Of course, developers do not always make these proposed opportunities fair for agribusinesses. This has created risks for landowners (your borrowers), which should be resolved before signing contracts. Let’s face it: Many landowners are being pressured by energy companies to sign leases with them, to host projects, or provide access via eminent domain. This is an especially poignant point for financial institutions to understand because these developer contracts could be putting your clients, portfolio, collateral, and assets at risk.

There are multiple diversification methods that can boost income, but it takes careful and comprehensive consideration beforehand. While we try to do our part to advise agribusinesses to enlist an advisor to help navigate the process on their behalf, understanding the diversification process and key touchpoints to have with your borrowers is also highly recommended for the health of your portfolio.

About the Author

Kala Jenkins

Senior Agriculture Consultant
As a senior agricultural consultant for K·Coe Isom, an accounting and consulting firm specializing in the food and agriculture industry, Kala improves upon the financial performance of food and agriculture producers through strategic planning, operational consulting, and risk management. Her background in farm credit and finance has provided her with

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