In the last decade, production agriculture has begun a significant transformation. Today, tens of thousands of farmers own stakes in upstream rural-based businesses, hoping to boost their incomes through dividends and supplier premiums rather than relying solely on the whims of commodity agriculture. This surge of entrepreneurship entails additional risks, although successful enterprises share basic traits that can help avoid problem start ups (see p. 17,”Observations of Successful Businesses”).

On the whole, this ownership trend is generating new jobs, recirculating profits locally and helping to revive depressed farm communities. Technological advances that help speed the conversion from a petroleum-based economy to a bio-based economy will also offer a rash of opportunities for investment in rural industries in the coming decade.

What’s important to recognize is that the transition to value-added agriculture can be enhanced—if producers are willing to adapt, if public and private interests prioritize research on technological advances for plant-based fuels and materials, if regulatory agencies make timely permitting decisions and if state and federal governments remove barriers to rural business formation.

To achieve those goals, farm leaders and policy makers should focus on: (1) redefining U.S. agriculture’s strategic importance beyond a food-based economy; (2) engaging a national effort to shift focus to basic science research for bio-based products in the health, environmental and energy needs of America; (3) fostering economically viable, value-added business opportunities in rural areas; (4) encouraging dynamic farmer-owned business models that can anticipate and take advantage of market opportunities; and (5) increasing government support for entrepreneurship and innovation in rural areas.

Specifically, the Task Force recommends that policymakers and farm leaders:

Elevate bio-based research and technology to a national priority.

• Establish a national research priority to enable the U.S. to transition from a petroleum-based economy to a plant-based economy.

• Support an audit of current inventory of federal research to evaluate the effectiveness of public and private investments in renewable energy and materials. This will include renewable fuels, manure management, plastics, pharmaceuticals, nutriceuticals, textiles, building/construction materials, highway applications and chemicals.

• Encourage federal research funding to promote transfer of new technologies to rural commercial opportunities.

• Recommend a federal initiative to support the rural broadband communication act.

• Continue to develop cost effective manure management practices to eliminate environment problems from livestock facilities. This will ensure the number one customer for grain and oilseeds stays in the United States.

Encourage farmer-owned brands by removing legal barriers:

• Simplify the paths needed for farmers to register value-added brands.

• Enhance intellectual property rights that would facilitate geographic or other attribute branding (examples: Vidalia onions, Champagne, Feta cheese)

Reform producer-owned business structures to improve tax efficiency, easily raise capital and offer investor liquidity.

• Authorize 308B type cooperatives in more states and change Sec. 521 to recognize these new cooperative forms. This would allow hybrid structures to qualify for Sec. 521’s preferred tax and securities status, as long as a majority of the stockholders or equity owners actually produce and deliver or market ag products for further processing or manufacturing. The proposed changes would also allow Sec. 521 co-ops to obtain outside capital and issue minority interests or issue preferred stock or equities and pay dividends of up to 18%.

• Facilitate transformation of co-ops to new business structures by authorizing tax and securities flexibility for farmer co-ops. Relax federal tax and securities laws that treat conversion from a corporate structure as a liquidation and equity in new entity as a securities offering.

• Authorize markets or equity exchanges for producer controlled entities, cooperatives, LLCs, and corporations. Keeping equity liquid will encourage investment and allow for timely exits as members age.

• Authorize federal exemptions for producer-controlled projects where state securities divisions approve offerings. A single-purpose project that has no more than 1,000 investors, less than $50 million in new equity capital and only has investors from contiguous states could be exempt from SEC filing and reporting. Right now, small projects must shoulder Enron-induced legal and accounting burdens to raise equity.

• Allow rural processing ventures to qualify for New Market Tax Credits. This $3.5 billion federal program is targeted to impoverished areas that have lost population in the last census. So far, most of the rural aid has been directed at urban areas. The only success in rural areas has been low-income, senior housing. Redirecting some of those funds to rural manufacturing might generate more economic impact.

• Authorize flexibility in the energy bill tax credits to pass to producers or be transferred to entities that can use the credits. Right now, size limits constrain their usefulness.

• Authorize Rural Electric Cooperatives and Mutual Companies to make investments in qualified rural processing business and retain the profits without jeopardizing their tax status. Right now, 85% of the earnings must be related to the cooperative’s business with members.

• Improve governance of co-ops by amending state laws that prohibit outside directors on co-op boards. As farmer ventures become more removed from production, boards need to tap more diversity and expertise outside agriculture.

Foster and fund value-added education and rural entrepreneurship:

• Establish continuing education for value-added agriculture

- Provide and conduct e-learning/seminars for producers to understand co-op and business structure laws.
- Provide and conduct e-learning/seminars for producers to learn how to write and effectively evaluate business plans.
- Provide and conduct e-learning/seminars for producers on basics of investing.
- Provide resources for Co-op Board of Director education

• Establish a rural development entrepreneurial online library (web information). This could involve a clearinghouse that links all available resources for value-added agricultural marketing.

- Access to state co-op laws/regulations.
- Access to state and federal tax regulations.
- List prospective venture capitalists and their requirements for consideration of investment.
- List resources and links of other well-established rural initiatives, such as the Small Business Administration, Illinois Institute for Rural Affairs, Purdue University’s Center for Agribusiness or attorneys/accountants with specialties in cooperative law.
- Provide professional contacts for all state and federal permitting processes.

• Establish a for-profit rural development fund.

- Create a mutual fund for producers to diversify their investments in value-added enterprise.
- Create a team of investment and business planning experts to evaluate potential rural business investments.
- A portion of producers’ initiation fee would be dedicated to conduct professional research and analysis.