Volume 8, Number 6 March 1, 2005
Farming with "Venture Capital"
by Dr. Ridgely Abdul Muímin Muhammad
"No, that wonít work! You just donít get it. We are at war!" I blurted out this statement in response to a statement by a young lady in the audience who had suggested to a farmer that he seek "venture capital" funds to develop a processing facility for his co-op.
One of the Black farmers who runs a farmer co-op, had just given a presentation at the 7th National Black Land Loss Summit held on February 19, 2005 at the Franklinton Center near Tillery, NC on how his co-op was faring even with a contract with a large hotel chain. He told us that he needed other markets that he had more control over, because they could not afford for this hotel chain to be their primary market.
Specifically he stated how they had sent up a load of produce that he knew was grade "A". However, when the truck arrived at the central warehouse for this hotel chain, it was turned away, supposedly because it was of inferior grade. The co-op was luckily able to divert that shipment to another buyer, but he found out later that the hotelís purchaser had over ordered and to hide the fact, turned back good products from his co-op because they lacked market power.
In other words, although this chain agreed to purchase from the co-op, the unwritten rule in the industry is that if you over order, you turn back products from your newest and smallest supplier so as not to upset your larger historical suppliers. Therefore, so as not to be sued you subjectively lower the grade of the product. Since food products are highly perishable, there would be no evidence for the victim to show in court as to the quality on the day of delivery.
This farmer therefore advocated the position that Black Farmers and Agriculturalists Association (BFAA) and we at Muhammad Farms take and that is, the Black farmer must control the product "from the land to the man". We must develop independent markets with our "city cousins" that would not play these purchasing games because they had our best interest in mind. We as Black farmers would also have our "city cousins" best interests in mind and would insure that we do not put any harmful chemicals on our produce or in our farm animals.
To set up such a processing and distribution system requires money. This is when the lady from the audience made the comment about seeking "venture capital". This was at the end of a long day of workshops where the issue of losing control of your farm operation and even your personal life came about by borrowing money from the USDA.
We had talked about how our uneducated ancestors 45 years up from slavery had bought over 16 million acres of land by 1910 without borrowing money from the government or "venture capitalists". However, it took the recent generation of college educated farm advisors to convince Black farmers to "leverage their assets", the land, to eventually lose it to the children of their former slave masters through foreclosures and tax sales.
One such victim of the USDAís lending practices is Mr. Leroy Harvey. Mr. Harvey is eighty-nine years old, a life-long farmer, who has accumulated several tracts of land totaling 300 acres. Despite his age, he is forced to continue farming to maintain his land and home. Due to the devastating effects of Hurricane Hazel, Mr. Harvey, like many other farmers in his position, took out a loan with the United States Department of Agriculture (USDA) to save his farm. Even though the value of the property may far exceed the amount of the loan, all assets immediately become collateral for the loan repayment. This is the case with Mr. Harvey. Furthermore, the USDA is now garnishing his deceased wife's retirement pension which had nothing to do with his original loan.
"Venture capital" sounds high tech and progressive, but the Honorable Elijah Muhammad has taught us that "history rewards all research." Let us go to the text book definition of "venture capital" first. According to http://www.nottingham.ac.uk/business/cmbor/glossary.phtml
"Venture capital: Equity finance in an unquoted, and usually quite young, company to enable it to start up, expand or restructure its operations entirely. It's cheaper than bank finance initially because paying dividends can be deferred; it also provides a strategic partner - but it implies handing over some control, a share of earnings and decisions over future sales."
Now letís break this definition down. It talks about this capital being "cheaperÖinitially" but results in handing over "some control", "share of earnings" and "decisions". Now these are the same conditions that Black farmers are trying to get out from under with the USDA. The USDA loan funds were cheaper than the bank rates initially. However, USDA officials on the local level began to micro-manage the Black farm borrower out of business, then sell off the farm to friends and relatives of the USDA loan officer. So why should the farmers trade off one "massa" for another.
Furthermore, the history of venture capitalism reveals that this was the "brain child" of a few very rich families who did not have any new ideas to invest in. So they looked around for creativity and genius, funded those ideas in exchange for an equity position in the new emerging firm. In other words, they looked for talent, gave them the money in exchange for up to 75% ownership and control.
The venture capitalistsí goal is to fund new and emerging technologies while they are still too risky for other sources of finance. Once this new product or service goes big, it then offers stock on the stock market. The venture capitalists cash in on the initial public offering (IPO) on the stock exchanges and get "filthier rich". If the venture does not make it, well they just print some more money, and lend it to the government. These same wealthy families own the Federal Reserve System that prints the money and finances the US government. These international banking families pull this same stunt all over the world.
Do you know the "magic" of compound interest? One hundred dollars ($100) loaned out at 6% compounded annually for 100 years, grows to be $35,000 (thirty five thousand dollars). So these money lenders and moneychangers have amassed so much wealth that they buy ideas, people and countries.
If we are to build an alternative production, processing and distribution system that gets around the present system controlled by these same families, we must do it ourselves. The rich only invest to own, not liberate.
Please support the Three Year Economic Savings Program and BFAA so that we can continue to develop such a system for Black farmers and our "city cousins", so that we might "Eat to Live".