NSAC's Blog

Expanding Packing and Cold Storage Loan Options for Diversified Farms

March 10, 2014

The U.S. Department of Agriculture (USDA) today announced several changes to the Farm Storage Facility Loan Program that will greatly improve the program’s ability to support diversified producers that sell their produce through localized market channels, such as farmers markets, community supported agriculture (CSAs), and farm-to-institution.

Farm Storage Facility Loans are financed through the Farm Service Agency (FSA) and provide low interest loans to qualified producers to build or upgrade on-farm storage and handling facilities.  Traditionally, these loans have primarily provided financing for commodity grain growers’ storage bins and single-vegetable storage, such as potato storage.  Although the loans were technically available to diversified producers, certain requirements made it difficult for beginning and diversified producers to apply.  FSA worked closely with NSAC member organization the National Young Farmers Coalition to identify and overcome these barriers.

Today, based on those lessons learned,  the Farm Storage Facility Loan (FSFL) program changes to provide the flexibility necessary to allow diversified fruit and vegetable producers to qualify and to extend the program to cover packing sheds as well as product storage.

To better assist in financing packing and storage facilities for fruits and vegetables, USDA has issued a directive instructing FSA employees to waive acreage reporting and crop insurance requirements for highly diversified operations and CSAs.  Like the Whole Farm Revenue crop insurance product authorized in the 2014 farm bill, this change to USDA policy recognizes the risk management benefits of crop diversification, and greatly increases access to low interest rate loans for beginning farmers and diversified operations.

In particular, the following special provisions now apply when fruit and vegetables producers who grow three or more crops are applying for a storage facility loan:

(1)  Instead of providing the typically required three-year acreage yield reports, producers can provide information on sales, volume sold (based on farmers market space or vehicle size), CSA shares, or other similar measures.

(2)  The FSFL requirement to first obtain crop insurance or non-insurance crop disaster assistance program (NAP) coverage can be waived on a case-by-case basis, taking into account a variety of factors that result in the determination that crop insurance or NAP would not provide meaningful risk protection for the producer.  These factors may include, but are not limited to, the application burden, number of crops, typical area planted to each crop, and whether the producer markets his or her product in a way that commands a premium above traditional wholesale market prices (e.g. direct-to-consumer, certified organic, etc.).

(3)  Because specialty crops are often processed before being placed in cold storage to maintain quality, the loans can also go toward packing sheds and certain handling equipment, such as packaging, cold dip tanks, sorting and grading bins and tables, washers, and waxers, among others.

The directive is also accompanied by changes to the program that will make it easier and less expensive for small producers and beginning farmers to qualify for a storage facility loan.  Previously, any loan over $50,000 required the producer to provide additional security in exchange, such as a lien on the property where the facility would be located.  Moreover, the value of the property had to at least equal the amount of the loan and the producer had to provide either a severance agreement from any prior lien-holders or other ways to secure the loan, such as a larger down payment.

For many small and beginning farmers, these requirements discouraged applications because of the time and money required to obtain a relatively small loan.  Under the new rule, the requirement for additional security does not apply unless the loan (or aggregate outstanding storage facility loans) exceeds $100,000.  These changes, in addition to the changes for diversified growers, should make it easier for beginning farmers to access lines of credit.

The change from $50,000 to $100,000 is optional at the state level, so it will be important for farmers to check with their state or local FSA office to find out which option will apply in their state.  We encourage FSA state and local offices to work with interested farmers in using the new flexibilities to estimate market sales and to waive, where appropriate, the crop insurance or NAP requirement.  We also encourage them to opt for the new $100,000 threshold for the additional security measures.

NSAC encouraged this idea and we applaud the Farm Service Agency for their innovation and their commitment to serving the full range of farmers. 

Today’s announcement simultaneously addresses in a proactive fashion the needs of local and regional food systems, small and mid-sized farms and new and beginning farmers, and coming enhanced food safety requirements.  It is an excellent step forward to serving the needs of local and regional market farmers, and a great example of how to revise long-standing programs to meet new and emerging needs.

Categories: Beginning and Minority Farmers, Commodity, Crop Insurance & Credit Programs, Local & Regional Food Systems

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