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Rural Development Archive

Financing Local Food: Recent Initiatives of the Farm Credit System

January 23, 2013

With the recent launch of the new USDA Farm Service Agency loan program for beginning-farmers, we thought it might be appropriate to address some of the many credit options that new and beginning farmers have these days. Bringing you the details on a new initiative by the Farm Credit System to service the needs of new and beginning farmers is Sara Albert. Sara Albert practiced corporate and franchise law in Dallas. She is currently pursuing an LL.M. degree in Agriculture and Food Law at the University of Arkansas in Fayetteville, with a particular emphasis on urban agriculture and food policy issues. 

The urban farmer – and others farming in less traditional, hyper-local ways – will now have greater access to a well-established credit resource for agriculture. Farm Credit System (“FCS”) has recently adopted an initiative to serve the emerging market segment represented by the local food farmer.

FCS is a privately owned, federally chartered network of bank cooperatives. Signed into legislation by Woodrow Wilson in 1916 as a “Government Sponsored Enterprise,” the statutory mandate of FCS was to serve all types of creditworthy agricultural operations and producers. FCS has provided reliable financing to the farm sector for generations and has been instrumental in its transformation to the industrialized model that dominates agriculture today. But new farming models are now a part of our urban, suburban and exurban landscapes. Consumer demand for farm-to-table locally grown food has prompted FCS to re-focus some of its resources to the businesses that are responding to this socio-cultural shift.

In April of this year, Farm Credit Administration (“FCA”), which makes the regulations that govern the network of FCS lending institutions,  directed member banks to develop marketing plans to “promote diversity and inclusion.” FCA’s diversity directive addresses the current reality that the small and/or urban agriculture businesses – whether producers, farm-related service providers, processors, or marketers – engaged in the local and regional food systems – are underserved by FCS. Food hubs, Community Supported Agriculture ventures, aggregators, hydroponics growers, hoop house farmers, aquaponics producers, retail agriculture (direct marketing), and vertical farmers are several of the business models in the local and regional system that need financial support from bankers who understand their business.

Through their young, beginning and small (YBS) farmer lending program already in place, FCS has a history of providing credit to new rural farmers. Through this new initiative, FCS promotes a clear objective to respond to the evolving demography of agricultural operators who are creditworthy and otherwise eligible for FCS funding. Not a lender of last resort, FCS perhaps recognizes an opportunity for growth of their own through development of this up-and-coming slice of the market.

As further guidance to FCS lenders, on October 11, 2012 the FCA Board approved Bookletter BL-066 entitled “Providing Credit to Farmers and Ranchers Operating in Local/Regional Food Systems.” A Bookletter is a document issued by an FCA official that communicates FCA’s legal interpretations and the Agency’s position on specific issues. BL-066 explains how FCS associations can serve the financing needs of local food farmers and certain farm-related businesses under their existing statutory and regulatory framework. Specifically, the Bookletter provides guidance to FCS banks on:

  • Determining eligibility and scope of financing for local food farmers;
  • Determining when a local food hub, aggregator, or support business qualifies for financing as a farm-related service business, processing or marketing operation, or similar entity
  • Applying standards of creditworthiness and underwriting to local food farmers;
  • The role of FCS banks in supporting FCS association lending;
  • Educational support for local food farmers; and
  • Developing a lender’s strategic business plan for emerging agriculture markets.

The beautiful Brooklyn Grange, an example of one of the many types of new but economically viable agricultural businesses that FCS is seeking to provide with credit.

Eligibility of the borrower is the threshold test for access to FCS credit. Even before the creditworthiness of the prospective farmer is analyzed, the borrower must demonstrate that he or she is a “bona fide farmer or rancher.” Earlier FCA Regulations defined a bona fide farmer or rancher as a “person owning agricultural land or engaged in the production of agricultural products…” The Bookletter points out that existing regulations do not specify where someone’s agriculture production must take place to qualify them as a bona fide farmer. “Therefore,” states BL-066, “if a person is engaged in producing an agricultural product for market in any location (rural, suburban or urban) that person most likely meets the definition of a bona fide farmer and would be eligible for FCS financing.”

Likeswise, creditworthy processing and marketing operations and other service businesses whose operations are directly related to the farmer’s agricultural production are eligible for FCS financing under this guidance. Businesses like contract slaughter facilities, beekeepers who provide bees for pollination of orchards, cold storage facilities, regional food hubs, mobile wine bottling units, and agricultural produce grading businesses can also apply for loans.

FCS’s diversity initiative opens up a world of possibility to those building businesses in our local and regional food systems. Targeting this market of creditworthy farmers is affirmation of the relevance of the rising local food sector. And it is a resounding nod to the demand for change in how and where we want our food produced and delivered.

— By Sara Albert, Esq.


Creative Methods of Drought Relief

August 16, 2012

A modicum of good news for drought-beleaguered farmers. More government agencies are stepping up to provide relief. Frequent Food Law contributor Emilie Cajigas is here with details:

News of the worsening U.S. drought continues to plague the headlines. More than half of all U.S. counties have been designated disaster zones, with some areas reaching the D3 and D4 drought intensity levels. In an effort to assist U.S. Farmers during this time of need, the USDA issued a press releaseon August 8th which announced the various steps the current administration is taking to assist farmers. Many of these steps exhibit some admirable regulatory deftness:

Within the last month, USDA has opened the Conservation Reserve Program to emergency haying and grazing, has lowered the borrower interest rate for emergency loans, and has worked with crop insurance companies to provide more flexibility to farmers. USDA has also announced the following:
  • Allowing producers to modify current EQIP contracts to allow for grazing, livestock watering, and other conservation activities to address drought conditions.
  • Authorizing haying and grazing of Wetlands Reserve Program (WRP) easement areas in drought-affected areas where haying and grazing is consistent with conservation of wildlife habitat and wetlands.
  • Lowering the reduction in the annual rental payment to producers on CRP acres used for emergency haying or grazing from 25 percent to 10 percent in 2012.
  • Simplifying the Secretarial disaster designation process and reduced the time it takes to designate counties affected by disasters by 40 percent.

Even the U.S. Small Business Association has stepped up to offer farmers the Economic Injury Disaster Loans (EIDL). “Those eligible for these loans are small businesses, small agricultural cooperatives, small businesses engaged in aquacutlure, and most private nonprofit organizations of all sizes that have suffered substantial economic injury resulting from a physical disaster or an agricultural production disaster (as designated by the Secretary of Agriculture).”  In order to receive an EIDL loan, you must fill out an application, which can be done online. After you file, SBA inspector will be sent to estimate the damage incurred in order to gauge the amount of assistance required by individual need.

The Business of Farming

November 16, 2011

Contrast these two recent articles, both discussing the business implications of small farms and local food.

The first is that the market for locally grown products is expanding, rapidly. That’s wonderful news for my friends and clients. This is more reassurance that this is not a fad, but a permanent part of our culture. While the dollar signs are great news, to me the subtext is more important. This economic success means that the ad hoc supply chains local farmers have established to get their products to the customer are working.  If almost $5 B has changed hands in this ad-hoc system, that is a promising sign of permanence.

Secondly, both the NYT and NPR recently ran the EXCLUSIVE STORY that it is tough to raise capital for a farming enterprise. I know, I was totally blown away too.

Would this story be at all interesting if it were about the entry costs of a private dentistry practice? Of course you would be bored to tears reading about that in the Times. It’s not interesting because the reader already assumes it’s expensive. Why do we not think it is just as tough to get into farming?

The perception that it is easy to get into farming is unfortunate. There is a naive assumption out there that a farmer is someone who just puts some seeds in the ground and tickles them occasionally with a hoe until perfectly formed organic carrots spring forth. Farming, especially in America, is a highly diversified, sophisticated industry. We actually have very good farmers here and the most successful ones treat their “farm” as a professional enterprise. It should never be a shock for any business to have to fight for capital. A Times article this patronizing only feeds the presumption that farming is for hicks.

More broadly, it is time for the neophyte farmer to replace their zeal with the steady realization that farming is hard physically, logistically and financially. Small farms and local food have already had their Thomas Payne Moment, courtesy of Messrs. Pollan and Schlosser, et al. It is now time to conduct the boring administrative details in order to consolidate the gains made by the pioneers. That means scaled-down logistics, food lawyers, ag economists, accountants, local and farm-friendly commercial lenders, and all that clerical stuff. This is the real infrastructure of an alternative food system that will not go away as a fad but will continue to make its market participants lots and lots of money. It’s evolution, not revolution.

I encourage any growers among my readership to share their tips or anecdotes on raising capital in the comments box, especially how you overcame the business challenges.


Mobile Mills for California’s Olive Growers

June 22, 2011

Access to value-added food processing equipment is vital to small farms. For small-scale farmers who cannot scale-up to make more money, it is especially helpful to squeeze more revenue out of the smaller amounts of product they produce.

The Olive Oil Times reports that mobile mills now process and bottle product right at the grove. These mobile mills allow growers to put smaller, artisanal batches on the market at more affordable prices. The shortened time between harvesting and pressing also makes for a far superior product. More and more farmers are turning towards mobile logistics solutions like this. We have all heard of the push for more mobile slaughter units. Mobile wine bottling has been around for years, too.

Equipment like this falls into the USDA’s definition of “rural development”. Financial assistance in the form of grants and guaranteed loan programs are available to assist with financing. If you would like to turn your milk into cheese or your wheat into a nice, foamy weissbier, rural development funding is something to definitely think about.

USDA Rural Development

June 14, 2011

Not a day goes by without an official USDA press release on the subject of rural development, like the announcement yesterday of a federally guaranteed loan for a small, rural co-operative grocery in St. Peter, Minnesota. The Business and Industry Loan Guarantee program made it possible for this small community to have retail access to local, organic, and fair-trade foods.

Program funding is open to any rural business entity which will provide employment, improve the economic or environmental climate, promote the conservation and development of water for aquaculture, or reduce reliance on non-renewable energy resources through investment in renewable energy systems. That is an expansive definition, broad enough to include some of the ambitious project being talked about on the East End.

Rural development is a big thing these days at the USDA. So is local food, but federal and state governments understand the logistical challenges small-scale farmers face when they try to bring cost-effective products to the consumer. Often they simply lack the infrastructure they need to efficiently process their goods.  The federal response is to throw money at the problem. So far, they seem to be throwing it with a higher degree of accuracy than one would expect. The St. Peter food co-op will serve as the anchor for its local food system, the retail hub for the region’s local goods.

Notwithstanding the giant yachts in Sag Harbor and the multitude of South Fork mansions, the USDA considers the East End to be a rural area. There are ample opportunities for our farmers and food producers to seek creative funding for their ambitions, especially for the sorts of projects that will improve the infrastructure of the local food system. Somebody needs to step up and ask for it.

To check out the rural development eligibility in your area, click here.