Are Federal Young and Beginning Farmer Loan Programs Hitting the Target? Dr. Ernest Bazen University of Tennessee Department of Agricultural Economics University of Tennessee Institute of Agriculture

What is the Target? Lower the Average Age of the Farmer (Ownership)? Ensure farmland is transferred to the next generation of farmers? (Land remains in farm production) Financial Assistance to start a sustainable farm enterprise? Creation of Hobby Farmers? Organic or Niche Farming? University of Tennessee Institute of Agriculture

To Be Sure of Hitting the Target, SHOOT FIRST And, Whatever You Hit, Call It the Target.

Young & Beginning Farmer Loan Budget Since $7.6 billion on 88,000 loans (personal communication with Mark Falcone) Iowa has loaned approximately $390 million since 1981 with less than 1% default. Current annual budget is $20 million. (personal communication with Jeff Ward) Tennessee has averaged about $10 million per year from 1994 – 2004.

Young & Beginning Farmer Loan Program Overview A beginning farmer or rancher is an individual or entity who  (1) has not operated a farm or ranch for more than 10 years;  (2) meets the loan eligibility requirements of the program to which he/she is applying;  (3) substantially participates in the operation; and,  (4) for Farm Ownership (FO) loan purposes, does not own a farm greater than 30 percent of the average size farm in the county. - USDA Farm Service Agency website. University of Tennessee Institute of Agriculture

Program Overview continued Maximum Loan Amounts Maximum amounts of indebtedness are:  Direct FO or OL: $200,000;  Guaranteed FO or OL: $899,000 (Amount varies annually based on inflation). University of Tennessee Institute of Agriculture

Program Overview continued Down Payment Farm Ownership Loan Program  FSA has a special down payment FO loan program to assist beginning farmers and ranchers to purchase a farm or ranch. This program also provides a means for retiring farmers and ranchers to transfer their land to a future generation. University of Tennessee Institute of Agriculture

Program Overview continued To qualify:  An applicant must make a cash down payment of at least 10 percent of the purchase price.  FSA may provide a maximum amount equal to 40 percent of the purchase price or appraised value, whichever is less. The term of the loan is 15 years at a fixed interest rate of 4 percent.  The remaining balance may be obtained from a commercial lender or private party. FSA can provide up to a 95 percent guarantee if financing is obtained from a commercial lender. Participating lenders do not have to pay a guarantee fee.  The purchase price or appraised value, whichever is lower, may not exceed $250,000. University of Tennessee Institute of Agriculture

Proposed Changes  Increasing the loan limit to $750, Previous limit has been unchanged for 23+ years.  Suspend permanently the present direct operating loan term limits of 7 years for operating loans and 10 years for farm ownership loans.  Increase loan limits for direct farm ownership and operating loans—in an effort to help beginning farmers, the $250,000 limit on the purchase price or appraised value for property in FSA’s Beginning Farmer Down Payment Program should be increased to $350,000. University of Tennessee Institute of Agriculture

Proposed Changes  FSA should be allowed to guarantee loans made by commercial lenders on tax- free bonds—many States are promoting tax-free bonds as an avenue to assist beginning farmers.  Increase the maximum FSA loan term for beginning farmer down payment loans to 20 or 25 years, from the present 15-year term.  Beginning farmer and rancher programs should be expanded to specifically serve beginning organic farmers and ranchers. University of Tennessee Institute of Agriculture

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Challenges for Young & Beginning Farmers  Escalating costs in Real Estate, Equipment and Production making Cash Flow an issue without Off-Farm Income.  Equity – Equity – Equity  Limitation on the Number and Size of Farms (land) available for purchase.  Finding New Farm Revenue or Value-Added Opportunities.

How do we Monitor Success?

Conclusions  Despite the sharp decline in the number of citizens involved in production agriculture, there is a recognition that young and beginning farmers are important to the cultural identity of our country.  Developing financial assistance programs that offer opportunities for expansion and sustainability.  Pursue new ideas – Mentorship to Purchase Program University of Tennessee Institute of Agriculture

Questions? University of Tennessee Institute of Agriculture