The Carrot Project: Farmers' financing needs assessment

Commodities

Will is a thoughtful beginning farmer in Central Massachusetts who, after seven years of running his farm business, is ready to increase the size of his operation to boost his on-farm income. Until now, his certified organic, diversified vegetable operation has been mostly self-financed. He rents land and equipment from a non-profit. Using a little seed money he had set aside, Will has slowly built his operation and reinvested in the farm, and has developed a good mix of direct and retail markets. Over time, his operation has started to provide an income. In his efforts to increase his acreage and move toward a livable income, Will sought to move his operation to leased land owned by a land trust, but was disqualified for a loan for operations because of limited collateral. The American Farmland Trust (AFT) Farmland Information Center receives many phone calls from farmers with pressing questions about how to become independent or expand their operations. Because it is so expensive to get started, farmers assume that plenty of grants or loans must be available, states Don Buckloh of AFT. These farmers’ experiences are not unique: like so many other small, limited-resource farm operators, they cannot find the financial assistance they need to maintain or improve their productivity. TCP has found scant research on the roles of debt and financing gaps as they affect smaller farms. The following information provides some sense of the situation. A 2002 Cornell University study indicated that 39 percent of New York farmers responding to a survey about factors important to small farm success used a variety of different approaches to secure outside capital for their farms’ operations. A 2005 USDA Farm Service Agency (FSA) study in Vermont found that insufficient capital or credit was an obstacle to 63 percent of start-up artisan or farmstead cheese-makers. The rate dropped to approximately 20 percent for operations and expansion of farm businesses. The average need ranged from $140,000 to $35,500 to $135,000 for start-up, operations, and expansion, respectively. Nearly 70 percent of farmers responding to Self-Help’s 2004 survey of North Carolina farmers viewed a lack of capital and low-interest loans as a barrier to sustainable farming. USDA’s FSA is the ideal ally for beginning farmers and limited-resource farmers because it provides high-risk agricultural loans and guarantees for farmers unable to meet the requirements of traditional lenders. Farm Credit also has programs designed to serve smaller and beginning farmers. Despite the existence of these programs, financing gaps persist. Farmers’ financing dilemmas are affirmed by lenders and organizations providing technical assistance. According to Jon Jaffe, a member of The Carrot Project Advisory Board and Vice President and Farm Business Consultant/Farm Tax Specialist at First Pioneer Farm Credit, ACA, first- or second-position liens providing adequate collateral are needed for farmers who lack the equity to secure the financing they need. John Harker of the Maine Department of Agricultural Resources states, “Unfortunately, I know too many people who might fit that category [those who can’t find financing]. I see a number of farmers in my business-planning class that need financing, but for one reason or another, cannot get it.” A low-interest loan pool would be helpful not only for the farmers with whom John Harker works, but also for the immigrant farmers participating in the numerous new entry-farming programs across the region.