Ground Level Category Archive: Social entrepreneurs

Minnesota foundation gets into cropland rental business

Posted at 9:00 AM on September 5, 2011 by Dave Peters (0 Comments)
Filed under: Community Development, Social entrepreneurs

A childhood friend who has been farming his whole life told me not long ago he was worried about losing most of his land.

He's a successful corn and soybeans farmer in southern Minnesota who has done very well for himself and his family over the decades. He's not the victim of a scam or some bad financial moves, and he'll be fine, no matter what happens.

But he rents most of the 1,000 or so acres he farms, and the owners are getting quite old. When they die, there's no telling what the heirs might do with the land. My friend assumes they would sell, but he figures he's too old to take on the debt involved. It could easily pass into the hands of an absentee owner with other plans. He in turn might be forced into retirement before he's ready.

The Southwest Initiative Foundation is trying to step into situations like my friend's in an effort to keep renters on their land and generate income for itself. Through a new program it calls Farmland Retention, the foundation has gotten into the land rental business and stands to generate substantial income in coming decades that it could then spend on other programs in the 18-county area it serves in southwestern Minnesota.

The foundation, based in Hutchinson, has started soliciting gifts of farmland so that it can continue to rent to existing tenant farmers. The donors get a considerable tax break, tenants stay on the land and money stays in the community.

Sherry Ristau, president and chief executive officer of the Southwest Initiative Foundation, says that between now and 2030, $4.5 billion of wealth will be transferred from one generation to the next in southwestern Minnesota.

Here's a breakdown of that money by county:

Much of that value is in farm land, and many owners will pass it on to heirs who live elsewhere. Often the end result -- whether it's via corporate ownership or another outcome -- is that farmers who have rented for years will no longer be able to continue to do so, and money leaves the area.

According to the U.S. Department of Agriculture, a third of the farms in Minnesota include at least some rented land. Landowners often have close and long-term relationships with their tenants, and for many it's important to preserve that even after the land changes hands, Ristau said.

So far, the foundation has received two parcels, both in Cottonwood County near Windom, totaling 350 acres. It's working on a third deal that would almost double the holdings.

"Usually when a foundation gets a piece of land, they sell it," Ristau said. Her foundation is apparently the first in Minnesota to want to hang on to the land and make money by renting it out as active farmland. The foundation can't promise in writing that it will keep the current tenant on the land, but keeping it in farm production with the same tenant is the goal.

So far this year, the foundation's land is growing corn and beans and, in an area where cropland brings from $200 to $250 a year per acre in rent, is generating about $58,000 to use for other purposes. The foundation rents at market value and pays the normal property taxes.

"We want to make sure the wealth stays here."

Ristau says the project could become a critical tool for rural philanthropy and thinks other foundations will follow suit, particularly as the wealth transfer numbers accelerate. She talks about attracting 5 percent of the total transfer, which theoretically would amass more than $200 million for the foundation in the coming decades.

Lakefield attorney Pat Costello has been an architect behind the effort. He said a key legal shift a few years ago in Minnesota created an exemption to the state's anti-corporate farming law, making it clear charitable organizations can own farmland.

He thinks the idea is beginning to take hold nationally, too, as it becomes clearer that foundations and other charitable organizations can own farmland to generate revenue.

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Instead of student loans, how about student investments?

Posted at 10:55 AM on February 9, 2011 by Dave Peters (0 Comments)
Filed under: Social entrepreneurs

This is one of those ideas that seem obvious after somebody else thinks of it.

The somebody in this case is Felipe Vergara, a Miami entrepreneur with a Wharton MBA and experience as a McKinsey & Company consultant, who was in town last night to speak at a forum on social entrepreneurism.

His idea? Help poor students get college educations, not by lending money with a set payback date and interest rate, but by providing money and then claiming a percentage of the student's later income for a set number of years. A typical deal might provide, say, $30,000 to a student and then require 8 percent of income for 10 years.

"It's not a student loan; it's an investment in human capital," he says.

If the student gets a good-paying job after college, Vergara's company gets a good return on its investment. If the student gets a lower-paying job, he earns less.

Vergara's for-profit operation, Lumni, has been in business for about eight years and he says he's helped some 2,200 students in four countries -- the United States, Mexico, Chile and Vergara's native Colombia. One hundred fifty of those have finished college, gone to work and completed paying off the investment. Another 500 are out of school and currently paying Lumni.

In all, he's attracted about $17 million in investments, including some from those 150 students who have paid off what they owed, and has grand hopes of someday helping a million college students.

Vergara was talking about his achievements at a Minneapolis forum sponsored by Ashoka, a global organization interested in fostering social change, and InCommons, a Minnesota initiative being established by the Bush Foundation. (MPR News is an InCommons partner.) Ashoka named Vergara a fellow several years ago and provided a key chunk of money to help his enterprise achieve scale.

The larger point of the forum was that social entrepreneurism -- the effort to change society for the better, either via non-profit or for-profit means -- needs to look for ways to scale the search for money, talent and markets.

Vergara said as far as he knows, his company is the only one in the United States operating on his principles. Of course, his idea isn't as simple as it might sound.

Lumni won't pay for an entire education, and it scrutinizes both the student and the college he or she wants to go to in an effort ensure payback. And it might, for example, adjust the percentage of income required depending on the field the student is going into. An English major might have to agree to pay a higher percentage of income than a prospective engineer.

And if the whole thing strikes you as a version of indentured servitude, Vergara points to the statistics that show low-income high school graduates make substantially less money in their lifetimes than comparable individuals that go on to finish college.

"Lenders want collateral," he says. "Why not become a partner with the student?" he asks, pointing out that Lumni provides coaching and support to help students stay in school and to find jobs later.

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