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2014 Farm Bill Opportunities for Young and Beginning Farmers

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Allison M. Collins
Foster Swift Agricultural Law Update
December 11, 2014

Only six percent of farm operators nationwide are under 35 years old, and as the age of the average American farmer continues to increase, so does the need for a new generation of farmers to replace retirees and carry forward the agricultural industry. The 2014 Farm Bill recognized the need to assist and encourage the next generation of farmers by expanding financing programs available to beginning and young farmers. The new Farm Bill will invest $444 million over the next ten years in beginning and socially disadvantaged farmers to help them overcome the biggest challenges new farmers face: a lack of available farm land and a lack of capital to fund operational costs until harvest. Below is a summary of some of the opportunities available to famers that have owned a farm or ranch for less than 10 years or who qualify as a socially disadvantaged farmer.

Expanded Financing Options

The Farm Service Agency offers beginning farmers Farm Ownership loans to purchase farmland as well as Operating loans. Beginning farmers can obtain a Farm Ownership loan or Operating loan directly from FSA for up to $300,000 with no down payment. Beginning farmers can also obtain a loan from a commercial lender and have up to $1,392,000 of the loan guaranteed by FSA. This makes it much more likely that a commercial lender will be willing to extend a loan to a beginning farmer.

In addition to FSA direct and guaranteed Ownership or Operating loans, beginning farmers also have the option of a down payment loan to finance the purchase of farmland. Under this program, a beginning farmer can finance a property valued at up to $667,000 with a five percent down payment. The remainder of the financing is a hybrid between an FSA direct and guaranteed loan: up to 45 percent of the financing comes directly from FSA, and then FSA will guarantee up to 95 percent of the value of the loan obtained from a commercial or private lender for the remainder of the purchase. FSA only charges 1.5 percent interest on the FSA portion of the loan, and will waive the normal fee charged to guarantee the commercial lender portion of the loan.

Another available FSA financing tool is a joint financing loan. A joint financing loan can be used for any authorized farm operation purpose. FSA will provide up to 50 percent of the loan amount directly, and the rest of the funding is obtained from a commercial or private lender. The interest rate on the FSA portion of the loan is two percent less than the FSA direct farm operating loan rate, and can be for a term up to 40 years.

Beginning farmers can also have a land contract guaranteed by FSA. Depending on the seller’s preference, FSA can provide either a guaranteed prompt payment of up to three annual contract payments plus costs, or can guarantee 90 percent of the outstanding principal balance under the land contract if the purchase price is less than $500,000 or for the market value of the property. The beginning farmer must provide at least a five percent down payment, but this FSA option can help facilitate the transition of farmland from retiring farmers to the next generation.

The most recent expansion of FSA financing options was the October 2014 announcement that the microloan program increased the maximum loan amount from $35,000 to $50,000. Microloans are available to cover operating costs for small or beginning farmers and can be repaid over a period of up to seven years.

FSA also has options available to beginning farmers interested in conservation planning or making the transition to organic agriculture. For beginning farmers implementing conservation plans approved by the National Resources Conservation Service, FSA will guarantee up to 90 percent of conservation loans obtained from a commercial lender.

Beginning Farmers can also take advantage of the Advanced Payment Option for Environmental Quality Incentives Program (EQIP) funds. EQIP funds allow farmers to make on-farm conservation improvements, such as updating conservation plans, improving pasture, or installing fencing to keep cattle out of waterways. Traditionally, EQIP required the farmer to entirely fund the conservation project, and they would receive the EQIP funds once the improvements were completed. The Advanced Payment Option allows beginning and socially disadvantaged farmers to receive up to half of their EQIP funding up front, making conservation plans and improvements less fiscally burdensome.

Under the National Organic Certification Cost Share Program, a young (under 35) or beginning farmer interested in obtaining organic certification can be reimbursed for up to 75 percent of the cost for organic certification or up to $750 per certification category per year per farm. The farmer receives reimbursement after the farm is certified.