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FSA Issues Conservation Loan Rule

September 3, 2010

On Thursday, September 2, USDA announced the launch of the Conservation Loan program established by the 2008 Farm Bill.  Though Congress appropriated money for the loan program in fiscal year 2010, enough to fund $150 million worth of loans, the program has been stymied waiting on the rulemaking.

The new interim final rule appears in the September 3 edition of the Federal Register.  The rule goes into effect immediately, but the public comment period on the interim rule extends for 60 days until November 2.  NSAC plans to submit detailed comments on the proposal.

The program, in the words of USDA, “will provide farm owners and farm-related business operators access to credit to implement conservation techniques that will conserve natural resources.”

As with all other Farm Service Agency loans, direct loans from the government are capped at not more than $300,000, while guaranteed loans from commercial lenders but backed by the government are capped at $1,112,000.

The rule follows the statute in exempting conservation loans from several normal FSA loan requirements.  Unlike all other types of loans, conservation loan borrowers do not have to show difficulty in obtaining commercial credit without government assistance, do not have to be family-sized farms, and do not need to work with FSA to graduate to commercial credit when the opportunity arises.  NSAC opposed these misguided exemptions during consideration of the farm bill, but lost that battle to other farm conservation groups who advocated for the exemptions.

We will nonetheless propose to FSA ways to improve the rule that will at least provide some protection for the taxpayer and some control over farm consolidation and concentration subsidies.  We will also urge Congress to amend the law in the next farm bill and return to the sound policies that have until now always applied to conservation loans.

On a more positive note, as a result of NSAC’s advocacy, the 2008 Farm Bill provided a priority within the conservation loan program for (a) beginning farmers and socially disadvantaged farmers; (b) owners or tenants who use the loans to convert to sustainable or organic agricultural production systems; and (c) producers who use the loans to build conservation structures or establish conservation practices to comply with the highly erodible land conservation compliance requirements.

In the rule, FSA has decided to implement the priority language by targeting 35 percent of the funding each year to these priorities for the first six months of the fiscal year.  Once the targets are removed, priority loan uses will still take priority over non-priority uses at any given point in time.

In addition, minority farmer target participation rates will apply, meaning that roughly 15 percent of direct loan funds will be targeted to socially disadvantaged producers.

Terms for conservation loans will not exceed 20 years.

For guaranteed conservation loans, the FSA guarantee will only be 75 percent the loan, rather than the customary 90 or 95 percent.  The lower guaranteed level was specified in the Farm Bill.

FSA has decided to exempt conservation loans from a general prohibition on FSA loans being used to support enterprises that produce animals for pets, that produce exotic animals, that market other non-farm goods, or that process farm products from multiple farms.  NSAC is reviewing that proposal and may comment on it.

Overall, we are pleased the program is moving forward.  There are important opportunities here for sustainable agriculture practitioners to obtain financing for legitimate conservation-related projects.  We encourage farmers to look into this option if it might apply to them by contacting their local FSA office.

Nonetheless, we are also concerned with the philosophy of some that these loans will be a good and easy way for industrial-style livestock facilities to obtain not only subsidized, below market financing, but also to in this fashion collect the participant’s share of cost-share assistance from the Natural Resources Conservation Service’s Environmental Quality Incentives Program (EQIP) for large scale animal waste lagoons.  These tend to be the most expensive EQIP grants to begin with, and thus the size of the farm share of the cost-share can also be quite large.  By eliminating the credit elsewhere test and the family-sized farm test, the door has been opened to a new mechanism to provide government support for factory farms, with something close to encouragement on the government’s part to using the program in conjunction with EQIP CAFO grants.

Here is how FSA delicately states the case in the preamble to the interim rule:

“Many farmers who need and want to implement conservation measures on their land, do not have the “up front” funds available to implement these practices.  This is particularly true for farmers in the livestock sector who are experiencing low profitability, but may have the most critical need to implement conservation practices due to increasing pressure to minimize or eliminate: 1) surface water quality deterioration from spills and manure runoff; 2) surface water quantity being depleted by larger operations; and 3) odor nuisance from large barns and manure storage. “

“Many USDA conservation programs, such as the Environmental Quality Incentives Program (EQIP) and the Conservation Reserve Enhancement Program (CREP), provide only cost-share assistance, which is generally 50 to 90 percent of the cost to implement the conservation practice.  Farmers and ranchers are required to complete the practice and provide receipts prior to receiving the cost-share reimbursement.  While these conservation projects are environmentally valuable, they may contribute very little to the economic productivity of the farming operation providing little incentive for private sector institutions to provide financing. This often means that implementation of environmentally vital conservation measures must be postponed because “up front” capital is not available to the farmer.”

In its economic analysis, FSA goes on to say that they expect the existence of the loan program to increase the demand on EQIP.  We can only hope that will be the result of family farmers and ranchers using the program to finance their share of pasture renovation, fencing, and improved watering systems and other conservation practices, and not as a result of the installation of new and expanded factory farms.  Implementation of the program on the ground bears careful watching.

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

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