Conservation Loan Program Final Rule

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 from money advance apps 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.