Racial parity in US ag could generate billions of dollars – McKinsey

Partner Shelley Stewart describes an opportunity for agriculture to become an investment vertical for ‘post-George Floyd’ firms launched to pursue racial equity and social justice.

Black US farmers present a big opportunity for funds and investors seeking to finance Black-owned enterprises, McKinsey partner Shelley Stewart told Agri Investor.

A study from the firm published in November highlighted that addressing the undercapitalization and underperformance of the country’s Black farmers could create as much as $5 billion in economic value for its agriculture sector.

“You’ve seen a number of new firms pop up in a post-covid, post-George Floyd world that are focused on investing for equity in things that are going to have good returns and will also do well,” said Stewart, mentioning Washington, D.C.-headquartered Lafayette Square as an example.

“Many of those investors are looking at affordable housing and investing in Black-owned businesses. If you untangle it, there is a land and real estate piece to it and there is a Black ownership piece to it. I see a big opportunity for ag and farming to be one of the investment verticals that some of these newly formed funds focus on, but it’s still the early days and there is frankly a big menu of things that people are considering. I’m not sure this one is getting the attention that it should.”

McKinsey’s report analyzed the performance and representation of Black agricultural producers in the US, which accounted for 14 percent of farmers in 1900 and just 1.4 percent today. On production, the report found that farm-level revenue for Black farmers is just 70 percent of that of their peers, with a 14 percent operating margin gap before government payments.

McKinsey estimated that steps to help Black farmers achieve peer-level performance could result in an additional $4.2 billion through additional sales, $70 million in government payments to match peer-level support and $770 million through improvements to productivity and operating margins.

The paper describes historical factors contributing to the decline of Black-owned farms, including discriminatory lending practices, exclusion from land purchases prior to the passage of the Fourteenth Amendment recognizing formerly enslaved people as citizens, and a limited ability to transfer property to heirs.

“Taken together, the inability of Black Americans to participate in the land market has resulted in a lost opportunity for generational wealth creation,” McKinsey wrote.

Investment opportunities

Stewart, who was among the paper’s authors and leads McKinsey’s Institute for Black Economic Mobility, told Agri Investor that a Biden administration executive order to consider racial equity across government is beginning to have tangible impact in many industries, including ag. He added that although USDA efforts to extend debt relief have thus far been slowed by legal challenges alleging racial discrimination, such policies demonstrate how efforts to assist Black farmers can create investment opportunities.

“If that balance sheet is improved because of some debt relief, you have assets that were underinvested in historically, that now look like a significantly better investment, because they don’t have that same debt profile,” he said. “In some ways, you get entry basis on your investment that you can only get with Black farmers because of the history.”

McKinsey’s report describes eight potential steps to help bring Black farmers into parity that include increasing capital market access and financing startups, formalizing estate planning support and expanding agronomic training programs.

Also included is a suggestion to invest in broadband infrastructure in the “Black Belt” region where Black farmers are most active, which stretches from the coastal counties of Virginia south through Georgia and westward along the Coastal Plain as far as Eastern Texas and up north the Mississippi River to Missouri.

The paper suggests private investors categorize participation in efforts to help Black farmers as part of their ESG initiatives.