Related Links

• Rural Investment Collaborative
• Financing Rural Development
• Collaborating to Improve Rural Access to Capital
• Community Investment Training application

Transcript

Tim Sablik: My guest today is Jason Smith. Jason is a senior community development advisor at the Richmond Fed. Thanks for joining me, and welcome back to the show.

Jason Smith: Thank you, Tim. I'm glad to be back to the show. The Rural Investment Collaborative has made a lot of progress since we last spoke. I've been able to take some road trips this summer to visit some of the Community Investment Training graduates, and I'm excited to bring a few of those stories back for you and your audience.

Sablik: I'm excited to dig into it.

As I mentioned, you were last here on the show in November to talk about the Richmond Fed's newly launched Rural Investment Collaborative. For those listeners who might have missed that last episode, could you provide a quick overview of the Richmond Fed's goals with this program?

Smith: The Rural Investment Collaborative is a network of leaders who are working together to improve access to capital or investments for small towns and rural communities. Most simply, the availability of resources doesn't necessarily mean they are accessible.

The Rural Investment Collaborative's steering group identified two basic problems that they wanted to work on together, one on the supply side and one on the demand side. On the demand side, there are communities that are not ready to seek investments for their projects because they lack the people with the training or expertise to develop an investable project proposal. On the supply side, even if they have great project proposals, they can still be met with sources of investment and money that aren't always well aligned or ready to work with rural communities.

Community Investment Training is a partnership with Invest Appalachia to help improve that community readiness. What we are doing is providing training where participants work on a real-life community and economic development project. They learn about different sources of funding and they also learn about the technical assistance or expertise that can help them move their projects forward.

By the end of the training, they prepare and deliver an actual pitch for their project. Now, this isn't "Shark Tank" though. The practice pitches are with a friendly audience of experts who provide feedback on how they can improve their project presentations before they go live in front of real funders.

Sablik: The first cohort of participants just wrapped up their community investment training. How did that go?

Smith: We were really excited to have 17 graduates from the first cohort. We were aiming at first for 12 to 15 and had a lot of great applicants.

I was privileged to serve as a respondent for most of the project presentations, being able to hear their presentations and how far they had come since they proposed them, and then to be able to listen about what the different types of projects are that they were working on and provide a little bit of feedback and support for how they could improve that, whether they were talking to philanthropy or banks or other sources of funding.

It was really exciting to hear what the communities were doing to build on the strengths they had. I'd just like to share a couple of them to help the listeners understand the types of things that people could do in their communities and how they can benefit from participating in the training. One of our projects was developing a commercial training kitchen in partnership with a local community college to address a workforce shortage in the hospitality industry. A very different project was working on environmental sustainability, developing an evacuation shelter for the area as well as a training facility that was connected to it to help the community prepare for increases in extreme weather in that coastal community.

The participants just graduated about a month ago. We've already been excited to see how they are leveraging the training opportunity in order to receive additional technical assistance, which could be things like engineering studies or architectural renderings or things that they needed to do to bring their projects to the point where they could seek investment. We've also had some of the graduates receive technical assistance and even some early implementation funds in order to begin move their projects forward.

We know it's early and it's going to take time to see all of the impact of it. But to see impact this quickly is really exciting.

Sablik: That ongoing work is a great segue to the summer road trip that you mentioned at the beginning. You've already been out on the road, meeting with graduates from that first cohort to talk about their experience.

We have some audio from a conversation that you had with a participant: Craig Sewell. Before we hear from him, could you tell us a little bit more about Craig and his project?

Smith: Craig is working in southern Maryland. A few weeks ago, I was able to go to his home and learn about the agricultural-related project that he is leading. As we sat next to the greenhouse in his back yard and at his kitchen table, he shared about some of the challenges of getting food from farm to table. His project involves helping farmers aggregate their raw materials to a level of volume that can be depended on by places like Maryland schools. This requires infrastructure that smaller individual farms would have a hard time doing on their own. So, he is working regionally to bring people together to solve a problem that that area has on being able to get their products to market.

When I visited Craig, I asked him to share a little about his community and the need he is trying to address.

Craig Sewell: The primary economic engine in southern Maryland has been, and still is, agriculture. Thirty years ago, everyone in southern Maryland grew tobacco. Tobacco had its problems, clearly: labor issues, depleting the soil. The transition from growing tobacco into doing other things was assisted by the tobacco buyout, with the cigarette restitution money. Everyone has diversified into growing other crops. It could be livestock, it could be produce, it could be grains, it could be some aquaculture and growing oysters in some of the rivers.

When they grew tobacco, which was a highly lucrative crop, they had all the infrastructure support that they needed to successfully grow that crop, get it to market, get it sold, get paid. When the tobacco buyout happened and they decided not to grow tobacco any longer, what they quickly found out was that they didn't have the infrastructure to support these industries. There were new regulatory things that they need to figure out. There were new markets they needed to figure out. They had to figure out who their customers were.

Smith: Craig spotted a need but also worked with the community to identify solutions that the region could work on together. He worked with the county economic development staff and regional agricultural organizations to look at how they could address some gaps in the supply chain.

Sewell: The intention was, through the Southern Maryland Agricultural Development Commission that I worked for, which is also a part of the Tri-County Council of Southern Maryland, to first start tackling some infrastructure for meat processing.

The value of being able to have localized processing is one of time, for one. These producers were taking their animals three, four, five, six hours away to be processed, and then going back in two weeks and bringing home frozen product to be able to sell on their farm or at a farmer's market. That was the total extent of the supply chain.

If you have localized processing then, first of all, the time lag of driving and all the rest is gone. Second of all, your meat tastes better because the animals are less stressed by having to travel all those distances in trailers. But I think, most importantly, it allows them the ability to do a lot more with the product than they already have. We have the ability to be able to aggregate and then further distribute and go after new markets, in particular institutional sales.

Our challenge, internally, is that we need to create a consistent product, delivered on time and in the volumes requested because the rap on local foods is that, yeah, it's great, but I can't always get it and it's not always the same quality wherever I go. So, we need to work with our producers to create systems where we can have that consistent product, delivered in the amount that we need it delivered, invoiced within their current invoicing system. What we need to do is that we need to set up a competitive food distribution system focused on local foods.

Smith: Craig was a farm-to-table chef in this area for years, so he understood the challenges about sourcing local food. His project focused on how they could build a local food system to connect farmers with local residents.

Sewell: It's just trying to get the product from a local source to people that are already predisposed to buy it in as convenient and as value added way as we possibly can.

I'm not rosy colored eyeglasses enough to think that this project is going to change the way Albertsons and Kroger's grocery stores secure and distribute their foods. But I think there's a real opportunity to be able to service people in our school systems, to service people through locally sourcing food co-ops, to be able to distribute significantly, if we can meet our obligations of being timely and being able to produce food that is of a high quality, consistent quality.

I ran a locally sourcing restaurant of my own for 20 years. I knew my customers very, very well. Twenty five percent of my customers came to me because I locally sourced. They liked that. Twenty five percent of my customers came to me because I was a local independent business. Fifty percent of my customers came to me because it was good tasting food, delivered well in a friendly setting. They really didn't care what all this background stuff was. And you know what? I needed those people to be able to make my business successful.

Smith: For people who are considering applying, I want to share that Craig's project has more moving parts than some of the other graduates. Not all of the projects were this complex.

Craig has been working on this for a number of years, working on different areas of infrastructure that would be needed to serve different types of agriculture and aquaculture.

Sewell: The overall plan of rebuilding our food supply is to take a look at each production segment — meat we've talked about, produce, grains, aquaculture, growing oysters. All of these different things have their particular supply chains that they would need to follow to be able to find additional markets or whatever. Most of those things are constrained because there simply isn't any mid-supply chain processing right now.

The aquaculture things, they need places to be able to process and shuck their oysters because they have a whole different set of regulatory issues that they have to do. Once an oyster is harvested, it has to be retailed within 32 hours.

There are quick things that need to be done within each one of these things, but they all involve localized processing.

Smith: Craig has been moving each part of the project forward based on the level of community support and the readiness of those industries to collaborate.

Sewell: The regional agricultural center was born with the idea that we were going to take a serious look at what's involved in meat processing. Well, there's a couple of major things. One of them is the initial harvest. The second one is the butchering, the cutting and wrapping and labeling and all the rest of that. If we potentially separated those two things, would we stand a better chance of being able to achieve the whole?

So, phase one, which was the harvest, we approached the Amish community of St. Mary's County who had always internally processed for their community. They had just recently completed a cheese shop that has turned out to be extremely successful. I thought maybe they may want to get involved in meat processing to be able to provide employment for their people in the community and to have another viable business. So, I started working with them. We put up a building, they self-financed it, and now they've been under USDA continuous inspection for the last three years. Very successful relationship.

So, phase one done, right? Phase two gets more complicated because here we have a multi-million-dollar facility in cooperation with the local government. Now you have two government agencies trying to build something that neither one of them have any experience building. So, they go out and find a plot of land and hire consultants and then start building this. It is an enormous undertaking and, quite candidly, it breaks new ground to have local government invest in building brick and mortar infrastructure for a particular industry.

The financing part is curious. The county came up with a couple of bond issues to come up with their side of the money. We used sequestered funds for some of it and other grant funds for another part of it. But as time goes on, costs increase. We're almost coming to the end of this process for the original idea and here we are potentially not having enough money.

Enter the [Community Investment Training] cohort. In the cohort, you started talking about private investment and community investment banking and philanthropy and people that are actually interested in helping in rural development. Honestly, I didn't feel as alone as I had felt up to that point when I started hearing this. To me, it was almost a eureka moment because internally, within small county government and whatnot, going out and finding private investment to work with public money just is not done. It's a foreign idea.

Smith: As we got closer to the end of the conversation where Craig was sharing about his project and providing updates since the training ended, he also shared some of the things he valued about the Community Investment Training.

Sewell: One of the things that I gleaned from the cohort was the fact that what you're instructing through the cohort can be flexible. You can set up a way to approach the financing, marketing, and eventually sales that will go across product lines, so that when I face the headwinds — political headwinds — I could switch to another project still using the same techniques that you were instructing through the cohort. I'll come back over here, but right now the momentum is going in another way. So I'll switch to where the momentum is, and then we'll come back.

Sablik: You're now gearing up for the second cohort of participants. Can you share any information about that? Have you learned any lessons from the first cohort that you'll be applying to your approach this time around?

Smith: The podcast is going to air before the applications close on August 8, so there is still a chance for people to pull together their application based on a project they are working on in the community.

We have learned some lessons. We have really taken seriously getting feedback from the group. That's part of why I'm on these rural road trips this summer; it's to learn more about what we can do better to serve these communities.

Part of what we've heard is that the learning on this process is only as rich as it is connected to a real-life project and something that benefits the community. So, part of the application process is that people have to identify a project that they would want to be working on and they'll actually advance that project through participation.

Another thing that we learned is that there are a lot of people who are very interested in trying to fund their projects with grants. While that's a great thing to be part of the financial stack, these projects need to have other forms of capital investment in order to make sense for this training. There are great trainings out there for grant writing, but this one is focused on how you pull together multiple types of investment, which could include things like loans, tax credits, forgivable loans, recoverable grants, and more complex pieces of deals that have to be put together. So, we're encouraging people to think about how their project may need to leverage some of these other investment forms if they are going to seek to apply.

Sablik: We'll definitely include a link to that sign-up page in the show notes for anyone who's listening and is interested in submitting an application.

Jason, thanks so much coming on today to talk about this.

Smith: Thanks. It's been great to come back.