May 23, 2012

Contact:  Juli Obudzinski, 202-547-5754

NSAC Comments on Proposed USDA Microloan Program

Washington, DC – Today, Agriculture Secretary Tom Vilsack announced a proposed rule for a new microloan program that would be part of the suite of credit options available to farmers through the Farm Service Agency (FSA).  The new program would allow FSA to make smaller loans, with a principal balance of up to $35,000, and would streamline the application process to require less paperwork for farmers.

“NSAC applauds the Department of Agriculture for being responsive to the needs of small and beginning farmers who have faced significant hurdles in obtaining loans through federal credit programs,” said Juli Obudzinski, Policy Associate with the National Sustainable Agriculture Coalition.  “This new program is a step in the right direction for the next generation of farmers who often are looking for smaller loans when they’re first getting started in agriculture.”

A modified version of this microloan program that includes a specific priority on beginning farmers is included in the Beginning Farmer and Rancher Opportunity Act (H.R.3236, S.1850), which NSAC and partners such as the National Young Farmers’ Coalition have been gathering support for across the country.  Although the microloan program announced today is not exclusively targeted at young or beginning farmers, the program will be incredibly helpful in allowing these groups to access federal credit and obtain loans to help them start their farming operations.

“Capital is the number one need of young and beginning farmers in the United States,” said Lindsey Lusher Shute of the National Young Farmers’ Coalition. “USDA microloans will fuel new farm businesses and a new generation of family farmers.”

In addition to credit needs, there are several other incredibly important issues for beginning farmers that are currently on the table as the Senate and House take up the 2012 Farm Bill, many of which are included in the Beginning Farmer and Rancher Opportunity Act.  NSAC will monitore the new microloan program throughout the rulemaking process to ensure it meets the needs of beginning farmers and will continue to advocate for programs that serve the next generation of farmers and ranchers as the farm bill process moves forward.

The National Sustainable Agriculture Coalition is a grassroots alliance that advocates for federal policy reform supporting the long-term social, economic, and environmental sustainability of agriculture, natural resources, and rural communities.

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The panel of witnesses were chosen from both Chairman Fortenberry’s and Ranking Member Fudge’s home states of Nebraska and Ohio, along with a witness from Maryland.  The panel was comprised of a mix of bankers and producers, and included the following witnesses:

• Bob Frazee, Farm Credit Council (Maryland)
• Jeff Gerhard, Independent Community Bankers of America (Nebraska)
• Matthew Williams, American Bankers Association (Nebraska)
• Michael Walton, Tunnel Vision Hoops (Ohio)
• Justin Doerr, Beginning Farmer (Nebraska)

In his opening statement, Chairman Fortenberry stressed the importance of federal credit programs in meeting the needs of young and beginning farmers who often face difficulty obtaining commercial credit due to their lack of an established credit history.  He also mentioned that federal credit programs need to be receptive to the financial needs of producers who sell to local markets.

Ranking Member Fudge focused on the specific challenges that urban farmers face when trying to obtain credit through direct or guaranteed loan programs, and emphasized the unique perspective that these producers can bring to federal credit policies and programs.

Beginning Farmers

The specific credit needs of young and beginning farmers was a hot topic at today’s credit hearing, which is not all that surprising, given that the Chair of this subcommittee is also the leading Republican sponsor of the Beginning Farmer and Rancher Opportunity Act (H.R.3236).  The producer witness who was able to speak most directly to these issues was Justin D. Doerr – a beginning farmer and veteran from Plainview, Nebraska, who represented himself as well as  NSAC and NSAC member organization Center for Rural Affairs.

Doerr is a mixed crop and livestock farmer who rents land in Northeastern Nebraska.  He grows alfalfa, corn, and soybeans, and raises sheep, goats, and chickens.  In his testimony, Doerr told the story of the obstacles that he faced as a beginning farmer and military veteran, speaking to several programs included in the Beginning Farmer and Rancher Opportunity Act that address the credit and land access needs of new producers.

Chairman Fortenberry and beginning farmer witness, Justin D. Doerr

He spoke about his difficulty in finding affordable land to farm and his experience trying to use the Conservation Reserve Program Transition Incentives Program – a popular federal program that incentivizes retiring landowners to sell or rent their expiring CRP land to beginning farmers.  Since starting in 2010, demand for this program has grown tremendously and over 1,600 beginning farmers have used CRP TIP to access over 260,000 acres of farmland to begin or expand their farming operations.  Unfortunately, as of early this spring, all of the funding provided by the 2008 Farm Bill for this program has already been obligated, and thus, beginning farmers like Doerr, were unable to take advantage of this land access incentive program.  For this reason, NSAC is advocating for renewed but increased funding for this program in the 2012 Farm Bill.

In addition to access to land, which is often the first obstacle beginning farmers face, Doerr also discussed other challenges he faced that specifically deal with financing his farming operation.

With the price of farmland skyrocketing all across the country, two important programs that Doerr mentioned in his testimony are the Down Payment Loan Program and the Beginning Farmer and Rancher Individual Account (IDA) program.  Both of these farm bill credit programs are specifically targeted to helping beginning farmers and ranchers finance the purchase of farmland or accumulate savings to use towards a down payment or other operating expense.

One provision included in the Beginning Farmer and Rancher Opportunity Act that would help beginning farmers like Doerr finance the purchase of farmland, is to give priority to joint financing programs, like the Down Payment Loan Program, which leverage federal funding with the collateral of private lenders.  The IDA program is an innovative matched savings program that has been around since the 2008 Farm Bill, but despite annual funding requests by USDA, has unfortunately never received an annual appropriation and thus has not been available as a potential resource for young farmers.  NSAC will continue to advocate for mandatory funding for the IDA program as the House takes up the farm bill reauthorization.

Other beginning farmer programs that Doerr mentioned in his testimony included FSA microloans, whole farm risk management insurance, and beginning farmer and veteran training and agricultural rehabilitation programs.

Almost every other witness on this panel discussed the specific credit needs of beginning farmers as well.  Frazee, who testified on behalf of the Farm Credit Council, spoke about their “Start Right” program, which targets lending to young, beginning, and small producers, and Williams, who was representing the American Bankers Association, said that many borrowers that private banks lend to are young, beginning, and small farmers and how important federally guaranteed credit programs are in serving their needs.

Urban Farmers and Local Food

Rep. Fudge’s witness, Michael Walton, discussed the specific challenges that non-traditional borrowers, like urban farmers and those that provide for local markets, face when trying to obtain credit.  Walton is an urban farmer from Cleveland, Ohio who runs a hoop house design, fabrication, and installation company, and is involved in urban farming ventures that have transformed vacant city lots into thriving, urban food production sites all across the city.

Although the witness from MidAtlantic Farm Credit discussed a program they are creating to meet the credit needs of urban farmers in Baltimore, MD, the other commercial lenders on the panel acknowledged that there are major challenges to fit non-traditional borrowers like Walton into their loan “boxes.”  The panelist from the American Bankers Association suggested that we need to work on designing a program that works for these borrowers, and overcomes existing obstacles, such as lack of agricultural credit expertise among urban lenders.

Crop Insurance and Credit

Unsurprisingly, crop insurance also weaved its way into today’s credit hearing, and occupied much of the question and answer period.  All three lenders – FCS, ICBA, and ABA – said they did not as a general rule require borrowers to have crop insurance but they strongly encouraged it.  They also all spoke in favor of funding for federal loan guarantees and in favor of removing the statutory term limit on how many years a bank borrower could receive a loan with a federal guarantee.  Obviously, both federal expenditures – crop insurance subsidies and loan guarantees – firm up lenders’ bottom lines.

Along those same lines, the lenders spoke out against proposals to place a cap on the size of insurance premium subsidies any one farm could receive and against linking basic conservation requirements to protect the natural resource base on which food security depends to receipt of such subsidies.  It is always troubling, though not surprising, to see the Farm Credit System and the commercial banking sector opposing sound public policies such as entitlement reform, natural resource protection, and limits on federal guarantees on bank loans.

To see a video of the hearing or download copies of the witnessess’ written testimony, click here.

To see a video of Doerr and Fortenberry following the hearing, click here.

In recent years, FSA has increased its scrutiny of loans to poultry and hog producers who raise their animals in vertically integrated systems under production contracts with poultry processors or meatpackers.  FSA realized that the integrators in these systems could control and manipulate the conditions under which these producers operate and put them at risk of defaulting on FSA loans.

In 2009, FSA issued a Notice to its state and country offices requiring that staff look more closely at the business plans submitted by poultry contract growers to assess whether the performance assumptions in a plan are realistic in light of the ability of poultry integrators to manipulate a grower’s operation.  The Notice stated that when a producer’s business plan depends on income from other sources in addition to income from land owned by the producer, the producer’s income must be dependable and likely to continue.

FSA found that, especially for new loan applicants, a contract with a poultry integrator that guaranteed only a single flock – a flock-to-flock arrangement – was not dependable.  The agency determined that for a poultry production contract with a new applicant to be considered dependable, the contract must:

• be for a minimum period of 3 years;
• provide for termination based on an objective “for cause” criteria only;
• require that the grower be notified of specific reasons for cancellation; and
• specify a minimum number of flock placements per year.

In 2010, USDA expanded the guidance with to cover loans to hog contract producers.  In a November 2010 Notice, the FSA also provided an additional requirement for loans to poultry and hog producers – that the production contract “provide assurance of the producer’s opportunity to generate enough income to develop a cash flow budget and repay the loan.” The assurance is required to be stated in the contract, which must incorporate requirements, such as minimum number of poultry flocks or hog “turns” per year, minimum number of bird or hog placements per year, or similar quantifiable requirements.”

In April 2012, FSA issued an Amendment to the Handbook for the Farm Loan Program that reaffirmed the guidance on loans to contract poultry and hog producers.  The Amendment also extended the guidance to loan applicants requesting funding to expand their poultry or hog operation by adding more houses or barns or buying more land to increase the size of the operations.  The production contract must at least cover the facilities financed with guaranteed funds.

USDA’s concerns about the dependability and continuation of the income of contract producers are valid.  In the 2011 Packers and Stockyards Annual Report released in March 2012, the Packers and Stockyards Administration concluded that poultry growers are particularly susceptible to extraction of income by integrators after the contract is executed.  Poultry growers and hog growers can be trapped in a contract by high rates of investment in their facilities and low rates of compensation in the production contract.  This gives integrators the opportunity to extract even more wealth by requiring upgrades to houses and barns after the contract is signed.

The PSA Report estimated that poultry growers are losing equity at a rate exceeding the loss of equity due to inflation.  Based on a per farm asset value for 2009 of $624,047, the gap on earnings to inflation represents an annual loss on equity of $16,903 per farm.  The median return on equity from USDA Economic Research Service data for growers that were earning 90 percent of more their gross income from production contracts is negative (-0.509) when averaged over the 7 years from 2003 to 2009.

USDA is to be commended for continuing its policy of requiring that poultry and hog contracts must demonstrate dependability and likely continuation before providing farm program loans to producers.  But much more must be done to ensure that all poultry and livestock farmers, both those with production contracts and independent producers, receive a fair return on their investments.

The Grain Inspection Packers & Stockyards Administration (GIPSA) regulation issued in November 2011 made some improvements.  Congress, however, blocked additional improvements via a legislative rider on the agricultural appropriations bill last year.  The Senate appropriations bill past last week removes that rider, but action now turns to the House, where action on agricultural appropriations for FY 2013 is expected in the next month.  NSAC urges Congress to cease blocking implementation of the comprehensive GIPSA regulation required under the 2008 Farm Bill.  Continuation of the rider, among other things, will put taxpayers on the line to bail out loans benefiting the integrators.

We are thrilled to report the bill approved by the Appropriations Committee endorsed the Administration’s proposal to fund for the first time the Sustainable Agriculture Federal-State Matching Grant Program as a new component of the Sustainable Agriculture Research and Education (SARE) program.  Combined, the Committee bill provides for $22.7 million for SARE, including $3.5 million for the matching grant initiative.  The latter was authorized by Congress, along with the rest of SARE, back in 1990, but to date it has never received an appropriation.  The Committee’s proposed funding level represents a long overdue 18 percent increase in funding.

We are also glad the Committee endorsed the Administration’s proposal to increase spending for the Value-Added Producer Grants program by $1 million to $15 million.  This is still $5 million less than the long-term funding level for the program and $25 million less than the 2002 Farm Bill provided for the program, but at least a modest step back in the right direction.

In the conservation part of the bill, we are delighted the Committee chose to reject the Administration’s proposal to cut a portion of farm bill mandatory funding for the Conservation Stewardship Program (CSP).  We strongly oppose backdoor efforts in the appropriations bill to reduce mandatory farm bill funding for conservation and applaud the Committee for keeping CSP funding intact.

The Committee bill also steered clear of cuts to the Farmland Protection Program, the Wetlands Reserve Program, and several other conservation programs.  However, they did propose to cut $350 million out of the farm bill mandatory funding level of $1.75 billion for the Environmental Quality Incentives Program, the same amount as in FY 11 and FY 12.  Also cut was farm bill funding for the Wildlife Habitat Incentives Program, down $12 million from the farm bill level of $85 million, a smaller cut than made in the FY 12 appropriations act.

We are also pleased to report the Senate Committee did not include the legislative rider from the FY 12 appropriations act that acts to prevent USDA from doing its job to ensure fair competition in the livestock and poultry marketplace.

The Committee also:

• includes a big bump up for the Agriculture and Food Research Initiative, a quasi-competitive research, education and extension grants program, from $264 million currently to $298 million, a 13 percent increase;
• keeps direct and guaranteed farm ownership and operating loan funds constant at FY 12 levels; NSAC has requested an increase for direct farm ownership loans targeted to beginning farmers and ranchers;
• allows $3 million in remaining 2008 Farm Bill funding for the Rural Microentrepreneur Assistance Program to be spent in 2013; we had advocated for additional discretionary funding but none was granted; and
• maintains level funding or very modest increases for a variety of other programs we follow closely including ATTRA, Organic Transitions Research, IPM Regional Centers, Office of Advocacy and Outreach, Local and Regional Food Enterprise Loan Guarantees, State Mediation Grants, Conservation Operations including Technical Assistance, and others.

For more details, see the NSAC Appropriations Chart on our website, which is now up-to-date with Senate Committee action.

For general details on the bill refer to the Committee’s summary.

To read about the big conflict between House and Senate spending levels for 2013, read our earlier post.

The Senate Agriculture Committee voted the Agriculture Reform, Food and Jobs Act — the proposed name for the 2012 Farm Bill — out of Committee on Thursday, April 26.  The markup and negotiations that immediately preceded the markup resulted in some significant improvements in the bill for beginning farmers, though the bill still needs to do more in this area in our view.

Last year, Sen. Tom Harkin (D-IA) along with Agriculture Committee members Sens. Leahy (D-VT), Kloubhar (D-MN), Casey (D-PA), Brown (D-OH) and nine off-Committee sponsors introduced the Beginning Farmer and Rancher Opportunity Act (S. 1850) as a template for provisions that should be included in the new Farm Bill.  An identical bill (H.R. 3236) was introduced at the same time in the House by Reps. Walz (D-MN) and Fortenberry (R-NE).

Here’s a title by title breakdown of what beginning farmer related provisions were (and were not) included in the Farm Bill that emerged out of the Senate Committee markup.  This post focuses on changes adopted since a week ago when the the draft farm bill bill was first presented by Chairwoman Stabenow (D-MI) and Ranking Member Roberts (R-KS).  A previous blog post on beginning farmers summarizes the provisions as presented in the original draft bill.

Conservation

The popular Transitions Incentive Program (see previous blog post for more details) was championed by Sen. Johanns (R-NE) and included in the manager’s amendment that was presented during committee markup with increased funding of $50 million over the life of the farm bill, rather than just the $25 million included in the bill presented for Committee conservation.  NSAC applauds the Senator for his leadership on this issue which addresses the common challenge of accessing land that many beginning farmers and rancher face when looking to farm.  It is not clear if $50 million will prove to be sufficient for the program over the next five years and it may well be a bit short, but the amendment definitely made it closer to the mark.

Another win for beginning farmers in the conservation title was Sen. Leahy’s addition of “promoting agricultural viability for future generations” to the purpose of the newly created Agricultural Land Easements Program, which consolidates the existing Farm and Ranch Land Protection Program (FRPP) with other conservation easement programs.  The farm viability provision is an important improvement to what is today the FRPP.  The amendment did not cover the full breadth of the proposal in the Beginning Farmer and Rancher Opportunity Act, but is an important step in the right direction.

The existing set-asides, higher cost-share rates, and the advance payment option within the Environmental Quality Incentives Program (EQIP) and the Conservation Stewardship Program (CSP) were left intact, however the proposed increases in these provisions that were included in the Beginning Farmer and Rancher Opportunity Act, were not included.

Two other amendments that were included in the final bill were one that adds veteran farmers to the list of eligible applicants (along with beginning and socially disadvantaged farmers) who can receive an increased cost-share rate under EQIP and one that creates an exemption to allow beginning farmers and ranchers to graze on land enrolled in the Conservation Reserve Program.

Credit

There were no huge changes in the credit title from what was included in the bill prior to markup and the bill that was voted out of committee this week.  Of note, the Down Payment Loan Program maintained the higher value of land that can be financed that was included in the draft bill, as proposed and championed by Sen. Harkin.  This change will increase the utility of the down payment program in areas with high land costs.

The Beginning Farmer Individual Development Accounts program, for which NSAC has been advocating for funding since it creation in the last farm bill, was maintained but unfortunately still not funded.

One minor change included in the final committee bill changed loan eligibility criteria to require a farmer to have “participated in a farm operation” in order to receive a direct farm ownership loan, rather than having “operated” a farm to qualify.

Sadly, language included in the original draft bill presented to the Committee that restricted conservation loans to family-sized farms was stripped out of the final bill that is now headed to the Senate floor.

Finally, we were disappointed to see that despite efforts of key champions on the Committee, an authorization for a microloan program was not included in the final package.  On the bright side, USDA is currently in the process of creating a microloan program, although it is not specifically targeted at beginning farmers nor does it include any special features for young or beginning farmers, as is proposed in the Beginning Farmer and Rancher Opportunity Act.  NSAC will continue to work for an authorization in the farm bill, and also plans to comment on USDA’s forthcoming proposed rule for the new program.

For an overview of other credit programs that were included in the bill prior to mark-up, see our previous blog post.

Rural Development

On the rural development front, Sen. Casey won an amendment that clarifies the priority for beginning farmers within the Value-Added Producer Grant (VAPG) program into the final package.  The new provision requires that at least a quarter of the beneficiaries of a VAPG grant be beginning or socially disadvantaged producers in order to qualify for this priority.  This is a program implementation issue that NSAC has been working on for the past few years, and which has not been sufficiently addressed in the rulemaking process.  Hopefully, if this provision becomes law, more projects will be given priority and funded that benefit and create value-added entrepreneurial opportunities for beginning and socially disadvantaged farmers.

Unfortunately, the funding issue for VAPG has yet to be resolved as the farm bill makes its way to the Senate floor.  Sen. Brown commented during markup that without a strong investment in rural development programs, this bill cannot truly be considered a “jobs bill.”  While there is currently no funding for any rural development programs (other than energy title programs) in the bill as reported by Committee, Sen. Brown did offer and subsequently withdraw an amendment that would have provided some funding for VAPG as well as the Rural Microentrepreneur Assistance Program (RMAP).  There may well be an opportunity for the Brown amendment to be offered and accepted on the Senate floor.

Sen. Casey offered, spoke to the importance of, and then withdrew in light of opposition his amendment to give USDA clear guidance and flexibility to use rural development loan and grant programs to spur new agricultural enterprises that benefit beginning farmers.  This provision is included in the Beginning Farmer and Rancher Opportunity Act, but did not make it into the final package voted on by the Committee.

Research, Education, Extension

Perhaps the most disappointing outcome for beginning farmers of the current bill as it stands is the insufficient funding providing to fund new farmer training and education programs under the Beginning Farmer and Rancher Development Program (BFRDP).  In the bill as reported by the Committee, this program receives $50 million over the course of the farm bill (compared with $75 million included in the last farm bill), which cuts annual program funding almost in half – from $19 million to $10 million per year.  This will severely impact the number of grants that will be able to made under this program, and will decrease the number of new farmer training programs established, and ultimately the number of new farmers successfully entering farming each year.

Despite efforts to introduce an amendment that would create the offsets needed to provide adequate funding for this program, we were unable to secure additional funding for this program during markup.  NSAC will continue to press for $25 million a year for this program as the farm bill process moves forward.

Miscellaneous Title – Minority Farmers and Veterans

There were a few bright spots specifically for veteran beginning farmers hidden in the Miscellaneous Title.  Sen. Nelson (D-NE) championed a new provision that creates a veterans agricultural liaison position within USDA, who would be responsible for assisting returning military veterans in accessing federal programs, specifically new farming training and agricultural rehabilitation programs.  Additionally, this position would advocate on behalf of veterans within the Department.  This was part of the Beginning Farmer and Rancher Opportunity Act.

Sens. Baucus (D-MT) and Johanns pushed to include an emphasis on veterans within the Office of Advocacy and Outreach, and the 2501 Outreach and Technical Assistance for Socially Disadvantaged Farmer and Ranchers program.

NSAC was also pleased to see that $5 million a year in mandatory funding was provided in the final bill for the 2501 Outreach program, compared with zero dollars contained in the draft bill released before committee mark up.  Sen. Harkin, with support from Sens. Baucus and Johanns and others, was instrumental in pushing for this funding and we commend all who helped make it happen.

NSAC collaborated with several other groups that work on minority farmer issues on a letter addressed to the Senate Agriculture Committee urging $25 million a year in funding for both the 2501 program and the Beginning Farmer and Rancher Development Program.  As the farm bill progress proceeds in the Senate, NSAC will continue to work with beginning, minority, and veteran farmer champions in the Senate to renew critical funding for these two programs.

NSAC commends Chair Stabenow and Ranking Member Roberts for including some of the Beginning Farmer and Rancher Opportunity Act provisions in their mark and for working with the various members of the Committee who offered further amendments this week to assist beginning, socially disadvantaged, and veteran farmers and ranchers.

For more information on which provisions were included in the draft farm bill, see our previous blog post on beginning farmers.

Today, the House Appropriations Committee set its own discretionary spending allocations, but rather than abide by the spending caps agreed to by both the House and Senate in last year’s Budget Control Act, it lowered them an additional $19 billion.

On the Senate side, the allocation allows the Senate Agriculture Appropriations Subcommittee to provide discretionary funding of $20.785 billion for USDA and FDA programs.

The House allocation, as it passed today, caps House Agriculture Appropriations Subcommittee discretionary spending on USDA and FDA programs at $19.4 billion, roughly $1.4 billion below the Senate level.  (The House Democrats put forth an unsuccessful amendment to peg the agricultural allocation at $21.1 billion).

To put this $1.4 billion in perspective, the entire discretionary spending appropriation in FY 2012 for the Food Safety Inspection Service was $1 billion.  The difference is also more than all discretionary spending for the Animal and Plant Health Inspection Service and over half of all rural development spending in FY 2012.

As the House and Senate move forward with their respective agriculture appropriations bills, they will be moving on very different paths.

The Senate Appropriations Committee is scheduled to mark up its agriculture appropriations bill tomorrow morning.  We do not know much about the Chairman’s mark, which has yet to be released; however, funding levels for most programs are expected to be very close to if not the same as last year’s levels.

On the House side, the future of the agriculture funding bill is much less clear.  The House Agriculture Appropriations Subcommittee has yet to set a date to mark up its bill.  An allocation this low complicates matters, making it extremely difficult for the members of the Subcommittee to do their work.  Moreover, President Obama has said that he will veto any spending bill that does not conform to the levels set out in the Budget Control Act.

More likely than not, the House’s unwillingness to abide by the agreement struck in 2011 will lead to a rancorous and drawn out fight over vastly different spending bills come the end of the fiscal year.  We hope that, instead, the two chambers are able to reconcile their bills in conference at the Budget Control Act level and pass something that supports and enhances rather than undermines important rural development, research, conservation, and beginning farmer programs.

Stay tuned for a detailed analysis of the FY 2013 Senate Agriculture Appropriations Bill after it is released tomorrow.

We worked last fall with Sen. Sherrod Brown (D-OH) and Rep. Chellie Pingree (D-ME-1) and many other members of Congress to develop the Local Farms, Food, and Jobs Act.

We are both pleased and disappointed with how the local food bill compares to the Senate’s draft Farm Bill, which makes some steps in the right direction but also missed the mark on vital funding needs as well as no-cost policy tweaks with enormous prospective impact for our economy.

The Good

• The Crop Insurance Titles adds a directive to USDA to create a Whole Farm Diversified Risk Management Insurance product for diversified operations, including specialty crops and mixed grain/livestock and dairy operations.
• The Farmers Market Promotion Program (FMPP) is renamed the Farmers Market and Local Food Promotion Program, thus serving not only direct producer-to-consumer marketing channels but also “scaled up” local food sales to retailers and institutions.  The program receives $20 million in annual mandatory funding, double the current level in light of the new expanded program purpose.  The Local Farms, Food and Jobs Act calls for $30 million a year, a level we will continue to advocate for.
• Funding for Community Food Projects receives an increase of $5 million a year for the next 5 years, above its permanent funding of $5 million a year.
• Appropriate Technology Transfer for Rural Areas (ATTRA), which provides research-based information on sustainable agriculture, remains intact with $5 million in annual discretionary funding.
• Funding for national organic certification cost-share fares well.  Click here to read our analysis of organic agriculture in the bill.

The Half-Baked

• The bill levels the playing field between wireless and wired vendors by requiring all retailers to fund their own SNAP Electronic Benefit Transfer (EBT, formerly food stamps) equipment, with a discretionary exemption for farmers markets.  NSAC advocates to expand this exemption beyond just farmers markets to all direct producer-to-consumer marketing outlets.  The bill also establishes a pilot program for mobile technology to accept EBT at farmers markets and other direct marketing outlets, however the pilot does not include the development of technology that can accept other nutrition assistance program benefits, which would further expand access to fresh, local foods for low-income Americans.
• The Rural Development Title’s Business and Industry Direct and Guaranteed Loans includes the Local Farms, Food, and Jobs Act provision for publishing information on and outreach for the program’s set-aside for Local and Regional Food Enterprises loans.  However, none of the proposed food enterprise program improvements were included in the draft bill.  We hope this will be rectified in markup this week and as the farm bill process continues.
• The Rural Business Enterprise Grants (RBEG) and Rural Business opportunity Grants (RBOG) are combined into a single program called Rural Business Development Grants.  NSAC advocates for authority for developing local food enterprises in these programs and in the Community Facilities (CF) program, though none of these no-cost policy changes are included.  We hope these will be added as the bill moves forward.
• Most of the needed policy changes to the Rural Microentrepreneur Assistance Program are included in the draft bill, which is good news.  However, the program receives no mandatory funding, a disappointing loss after the 2008 Farm Bill funded the program.  Hopefully funding will be added as the Senate considers the new farm bill.
• The Horticulture Title creates a study on local food production and program evaluation, which is critically important.  Unfortunately, the study receives no mandatory funding.
• The Specialty Crop Block Grant Program (SCBGP) receives a mandatory funding increase from $55 million to $70 million per year, however none of the Local Farms, Food and Jobs Act’s no-cost local food policy asks were included.  In particular, we support an allocation of program funding for locally marketed specialty crops.

The Ugly

• Organic crop insurance does not fare well at all.  Click here to read our analysis of organic agriculture in the bill.
• The bill leaves out several no-cost policy provisions to expand Farm to School, which benefit both American schoolchildren and our nation’s agricultural producers by ensuring more local foods are served in cafeterias.
• The Senior Farmers Market Nutrition Program, already receiving less funding that there is demand, does not receive an increase in its mandatory allocation.
• The Credit Title does not address the specific needs nor enhance lending opportunities for producers selling in local and regional markets.
• No funding was provided for the Rural Development Title.  NSAC advocates for a Rural Community Prosperity Fund with mandatory funding to drive economic growth in rural communities.
• Value-Added Producer Grants (VAPG) receives no mandatory funding, despite the program’s proven track record of creating jobs and stimulating the economy.  Click here to read about VAPG and beginning farmers and ranchers.
• The bill does not include a proposal called “Local and Regional Food Enterprise Facilitation,” which would authorize Extension to provide training and technical assistance in the neediest parts of the country in order to develop economically-viable local food businesses.
• The Agriculture and Food Research Initiative (AFRI) is untouched in the bill, thus leaving out chances to shore up research on local food.  Click here to read more about research in the bill.

There were some small wins for beginning farmers in the draft conservation and credit titles, which included provisions contained in the Beginning Farmer and Rancher Opportunity Act.  The research and rural development titles, on the other hand, were for the most part, major disappointments for those just starting out in farming.  Hopefully improvements will be made in Senate Committee markup of the bill this week.

The Good

There were quite a few highlights for beginning farmers in the draft farm bill, including the reauthorization of the highly popular Transitions Incentives Program within the Conservation Reserve Program that promotes sale of land coming out of the land retirement program to beginning farmers and ranchers.  The program was maintained and provided with level funding of $25 million in funding over five years.  Unfortunately, due to the anticipated number of acres coming back into production and the high demand for this program, this funding will likely run out within the next few years.  The $25 million provided by the last farm bill was utilized in just 18 months.  Hopefully the program will be given additional dollars as the farm bill during markup this week in the Senate Agriculture Committee.

On the credit front, the draft bill increased the value of land that can be financed under the Down Payment Loan Program to $667,000, a help in areas with very high land prices, and gives the Secretary discretion to determine how much years of managerial experience is required for a beginning farmer to qualify for a direct farm ownership loan.  The conservation loan program was modified to require applicants to be not larger than a family farm and to be unable to obtain credit from private lenders.  However, the beginning farmer guarantee amount is still lower than other federal loan programs.

The Half-baked

We consider it a partial win that the Beginning Farmer and Rancher Individual Development Accounts program was reauthorized, even though it was not provided any mandatory funding.  Many programs that have never received any funding through annual appropriations were allowed to expire.  However, the big task to get this innovative new farm start-up program off the ground is to find farm bill funding for it as the farm bill process moves forward.

Two other credit provisions from the Beginning Farmer and Rancher Opportunity Act that were not included in the draft farm bill include a young and beginning farmer microloan program and a directive to coordinate the borrower training program required by borrowers of FSA loans with the financial training programs funded through the Beginning Farmer and Rancher Development Program.  FSA is currently in the process of creating a microloan program, although it is not specifically targeted at beginning farmers nor is it specifically authorized by law.  Hopefully a microloan program authorization will be added to the bill during markup this week.

On the conservation front, the draft bill maintains the higher cost-share rate and advance payment option for beginners in the Environmental Quality Incentives Program (EQIP), and the set-asides for beginning and socially disadvantaged farmers in EQIP and Conservation Stewardship Program.  However, the proposal to increase the advance payment level to 50 percent has not yet been included, nor has the proposal to increase the size of the set-aside to bring it a bit closer to a fair share for beginning farmers.

The biggest disappointment for beginning farmers in the draft bill is the lack of adequate funding provided for the Beginning Farmer and Rancher Development Program (BFRDP).  Total funding was decreased by $25 million, which cuts annual funding in nearly in half from $19 to $10 million.  This comes at a time when this program is in the most need of funding to scale up its impact and reverse the aging of  America’s farmers.  On a positive note, the program includes a new priority on military veterans, and attempts to increase matching requirements and eliminate key program priorities were turned back.

The Ugly

Perhaps one of the most surprising defeats of the draft farm bill is the defunding of the 2501 Outreach and Technical Assistance for Socially Disadvantaged Farmers and Ranchers program.   In the 2008 Farm Bill, both the 2501 program and BFRDP received $75 million in mandatory funding, and while BFRDP at least received some funding in the draft farm bill, their was no funding provided for outreach and training for minority and limited resource farmers, aside from an authorization for annual appropriations.  This is a real slap in the face to the nation’s minority farmers.

Another big funding loss came to the Value-Added Producer Grant program which received zero dollars in farm bill funding (down from $15 million in last farm bill and $40 million per year in 2002 Farm Bill).  Additionally, while the priority on project that benefit beginning farmers is still maintained, but the critical fix recommended in the Beginning Farmer and Rancher Opportunity Act to encourage farm coops and businesses to include beginning farmers without mandating that they be 100 percent comprised of beginning farmers has so far not been addressed.  Hopefully that will be fixed in markup this week.

In the conservation title, the Farm and Ranch Land Protection Program was consolidated into a conservation easement program and renamed the Agricultural Land Easements Program, and although most of the program structure remains in place, there are no specific priorities on easements or land transfers made to beginning farmers, as called for in the Beginning Farmer and Rancher Opportunity Act.

USDA’s conservation programs, as well as numerous state conservation programs, provide financial resources for farmers to implement conservation practices that protect natural resources and the environment.  Many of these programs fund only a share of the cost of implementing the practices, and hence are referred to as cost share programs.

The cost share funding is generally available only after the farmer has established the cost share practice.  The farmer is responsible for payments to contractors and others who provide equipment, services, or materials for the conservation practice.  The farmer then provides receipts for services and materials to the agency involved upon completion of the conservation practice, or in some cases just signals the practice has been installed.  Provided the conservation practice meets the standards and criteria required under the conservation program, the farmer is provided with a share of the costs as reimbursement.

In addition, the conservation program cost-share payments may not be based on the actual costs incurred.  For example, currently under the Farm Bill’s Environmental Quality Incentives Program (EQIP), the cost share payment is based on the average costs for the conservation practice in a state or a specific region of the state multiplied by a payment rate.  Typically, the cost-share payment rates used to establish the NRCS fixed dollar cost-share amount are 50 percent or 75 percent.  Limited resource, socially disadvantaged, and beginning farmers and ranchers are eligible for an additional 15 percent added to the applicable payment rate for most practices.  Program participants cannot receive more than the actual costs incurred in a cost-share payment but many receive even less than the cost share rate if their actual costs exceed the average costs.

For many farmers and ranchers, especially beginning, limited resource, or socially disadvantaged farmers and ranchers, the need to have full funding in hand to implement a conservation practice can be a barrier to participating in conservation programs.  The cost burden can be particularly high when the conservation practice is associated with a new agricultural operation that has not yet provided income to the farmer.

Bridging the Gap

Here are some loan programs that can help bridge the cost-share gap:

USDA’s Conservation Loan Program

USDA’s Conservation Loan Program, administered by the Farm Service Agency, was established in the 2008 Farm Bill.  The program provides direct loans of up to $300,000 (not currently available) and guaranteed loans of up to $1.2 million.  The Conservation Loan Program includes a priority for loans to beginning farmers and ranchers and socially disadvantaged farmer or ranchers.  However, USDA’s regulations for the program also provide an advantage to wealthier farmers and ranchers in the form of a streamlined application for loans and the waiver of FSA’s normal requirement that borrowers cannot own larger than family sized farms.  Lenders may be less willing to deal with USDA guaranteed loans in smaller amounts, with more paperwork required for less wealthy farmers. NSAC’s Farm Bill Platform  is calling for amendments to this program to make it work better for small and mid-size farms, including beginning and socially disadvantaged farmers and ranchers.

There are other financing opportunities to bridge the cost-share gap that have fewer administrative hoops than USDA’s Conservation Loan Program.  Here are three examples.

ShadeFund Loans from The Conservation Fund and the U.S. Endowment for Forestry and Communities

ShadeFund, a nonprofit program of The Conservation Fund and the U.S. Endowment for Forestry and Communities, can help farmers and forest-based businesses with the short term “gap” financing they may need to take advantage of conservation cost share programs.  This gap financing provides upfront money for a project, with the loan repaid from the cost share funds or permanent financing when it becomes available.  Loans repaid through a cost share can have interest rates as low as 4%.  ShadeFund charges an origination fee of $200 (+ filing fees) on loans up to $20,000.

The ShadeFund website features an example of funding received by beginning farmers at New Beat Farm in Knox, Maine.  The farmers had a Natural Resources Conservation Service EQIP contract with cost share to construct a seasonal high tunnel greenhouse, but lacked the upfront funding to cover the purchase cost.  They received a ShadeFund gap financing loan for the greenhouse and were able to repay the entire amount when they received the EQIP reimbursement funds two months later.

ShadeFund can loan up to $50,000 to farms and natural resource-based businesses that do not have a cost share.  These loans may have a higher interest rate and require additional documentation.  A 1-percent origination fee (+ filing fees) is charged on loans larger than $20,000.

The ShadeFund welcomes partnerships with agencies and non-profits that support farming and business practices that promote conservation of farmland and forestland.  For information on how to apply for a ShadeFund loan, see the ShadeFund website or contact Rick Larson by email at rlarson@conservationfund.org or by phone at (919) 951-0113.

Center for Regional Food Systems Hoop House Loan Funding (Michigan)

In Michigan, the Center for Regional Food Systems at Michigan State University has teamed with the Michigan Farmers Market Association to administer a Hoop House Loan Program supported through the Kellogg Foundation.  Technical assistance is provided by the MSU-Student Organic Farm.  Zero interest loans are made to farmers who are current vendors at select farmers markets.

Rather than repay the loan directly to the lender, the loans are “repaid forward” through the distribution of food to low income individuals, using a voucher redemption system at the farmers market.  The payback period is five years, with no penalty for early repayment.  This creative arrangement assists farmers to establish their farming operations, helps create a market for their products, and ensures that low income members of the community can have access to fresh local produce.

Maryland’s Low Interest Loans for Agricultural Conservation (LILAC)

Under its LILAC program, the state of Maryland works with banks and farm credit institutions to make low interest loans available to farmers for projects designed to address nonpoint-source pollution from agricultural sources.  The lenders set the terms and conditions for the loans, with the loans in the LILAC program typically discounted by three to four percent.  The Maryland state revolving fund provides financial resources for the lower interest rate.

Maryland farmers interested in the LILAC program should contact their local soil conservation district.  The soil conservation district can provide technical assistance on the first step of the program, which is designing or verifying best management practices to address water quality issues related to the farm.  The soil conservation districts also help farmers apply for cost-share funds and obtain a certification from the Maryland Department of Agriculture and the Department of the Environment that the practices installed meet the requirements for LILAC.  The loan funds cannot be used to finance practices or other capital improvements on concentrated animal feeding operations or other privately owned projects considered point-source water pollution control projects by the U.S. Environmental Protection Agency or the Maryland Department of the Environment.

From FY2009 to the present, the program has helped 31 Maryland farmers access loans for over $1.4 million to fund equipment for conservation practices.

If you know of other gap loans or gap financing, please contact Martha Noble at mnoble@sustainableagricutlure.net.

This month, USDA’s Farm Service Agency (FSA) issued a final rule, effective May 18, 2012, for the Conservation Loan Program (CLP).  The CLP was included in the 2008 Farm Bill as a stand-alone program to provide guaranteed and direct loans to farmers and ranchers to implement conservation practices.  It has operated under an interim final rule since September 2010.

The conservation loan section of the farm bill was upgraded in the 2008 Farm Bill to provide more targeted funding for on-farm conservation improvements.   We support that intent, but believe the revised program has flaws and those flaws are unfortunately compounded by the new final rule.

Farmers and ranchers can get loans for conservation projects for authorized purposes through FSA’s direct and guaranteed Farm Ownership and Farm Operating Loan Programs, which include loans for activities to promote soil and water conservation and protection as one of many purposed.  These programs include eligibility requirements to ensure that the loans, which draw on or are backed by public funds, do not go to applicants who are able to obtain sufficient credit directly from commercial lenders or who are larger than family farms.

Unfortunately, the CLP does not include either of these eligibility safeguards.  In the final rule for the CLP, FSA refused to include even minimal safeguards to ensure that the CLP would be used to facilitate timely implementation of conservation practices that would be postponed due to lack of monetary resources.  Instead, FSA chose to adopt a streamlined application process for applicants with a debt to asset ratio of 40 percent or less, a net worth 3x the loan amount, and a FICO score of 700 or more.

With CLP loan limits of $300,000 on direct loans and $700,000 on combined direct and guaranteed loans, this streamlined option gives an advantage with lenders to those whose net worth exceeds $2.1 million.  FSA acknowledged that some CLP applicants will be ” . . .  very strong financially, with high debt service capacities and significantly more than adequate assets to secure the requested loan.”

The CLP statute does require that USDA give a priority to:

• Qualified beginning farmers and ranchers and socially disadvantaged farmer or ranchers;
• Owners or tenants who use the loans to convert to sustainable or organic production systems; and
• Producers who use loans to build conservation structures or establish conservation practices that comply with the Farm Bill’s conservation compliance requirements.

In the final rule, FSA acknowledges this priority but establishes no regulatory goal or process to ensure that the priority is honored. The agency does state in the rule’s preamble that it intends to target 35 percent of direct and guaranteed CLP loan funds to applicants who are included in the priority groups, with an additional 15 percent of the funds targeted to socially disadvantaged farmers and ranchers at the national level.  But no process is provided for this targeting.

In addition, the only criterion in the final rule for demonstrating that a farmer will use loan funds to establish a sustainable agriculture system is a conservation plan that states the applicant is “moving towards a sustainable production system.”  This vague statement of intent ignores the final rule’s own definition for a conservation plan that includes a schedule of operations and activities to solve resource problems at a conservation management system level.  FSA could have built on this definition to require that an applicant seeking priority for a sustainable agricultural production system should be able to demonstrate that major resource concerns on the farm will be addressed through implementation of the conservation plan.

NSAC Farm Bill Platform

In our platform for the next Farm Bill, NSAC continues to support direct and guaranteed conservation loans, if the CLP is amended to apply all of FSA’s traditional farm ownership and operating loan programs eligibility requirements, including the family-sized farm test and the no credit elsewhere test, to ensure that limited government financing is well targeted.

In addition, the guaranteed amount should be raised to 95 percent for beginning and socially disadvantaged farmers and ranchers, consistent with other loan programs.  A target participation rate for beginning farmers should apply to conservation loans as it does for all other loan programs.  Finally, the authorization for appropriations should continue to  specify amounts for direct loans and for guaranteed loans, consistent with the authorization for appropriations for all the other farm loan provisions.

These improvements to the conservation loan program are contained in the Beginning Farmer and Rancher Opportunity Act.  More information on this important marker bill for the 2012 Farm Bill can be found on our website.