The 2008 Farm Bill: Beginning & Socially Disadvantaged Producers

George HaynesProfessor and Extension Specialist

Montana State University

Vincent SmithProfessor

Montana State University

2008 Farm Bill Education ConferenceKansas City

July 8-9, 2008

Beginning Farmer/Rancher

• To qualify . . .– Have not operated a farm/ranch for more than 5 years– Meets the loan eligibility requirements of the program

to which they are applying– Substantially participates in the operation

– Does not own a farm greater than 30 percent of the median size farm in the county (Farm Ownership Loan)

– Must have participated in the business operation of a farm for at least 3 years (Farm Ownership Loan)

Social Disadvantaged (SDA)

• To qualify . . . – Must have been subject to racial, ethnic, or

gender prejudice . . .

• SDA groups are . . .– Women, American Indians, African

Americans, Alaskan Natives, Hispanics, Asian Americans and Pacific Islanders

Limited Resource

• Gross farms sales less than $116,800

• Household income . . . – Below the national poverty level for a family of

four; or

– Less than 50 percent of the county median household income in each of the previous two years.

Beginning and SDA

Eligibility Requirements

• Be a family-size farmer

• Have a satisfactory history of meeting credit obligations

• Have sufficient education or training – Direct loans – 1 year of experience managing

or operating a farm/ranch in past 5 years– FO loans – participated in the business

operations of farm/ranch for 3 years

Eligibility Requirements

• Citizen of the U.S.• Unable to obtain credit elsewhere at reasonable

rates and terms• Possess legal capacity to incur loan obligations• Not delinquent on any Federal debt• Not have caused FSA a lost by receiving debt

forgiveness• Be within the time restriction as to the number of

years they can receive FSA assistance.

Program Begin SD&MConservation

Environmental Quality Incentives Program (2503) x xSpecial set asides for these programs . . .

EQIP, CSP and WHIP (Section 2704) x xWetland Reserve Program, American Indian (2201) xHealthy Forests Reserve Progam, American Indian (8205) xCRP to Facilitate Transfer of Land from Retire/Retiring Producers (2111, 2701) x x

Energy

Bio-energy Crop Assistance Program (9011) x x

Credit

Farm Experience (5001, 5101) x xDown Payment Loan Program (5004) x xContract Land Sales (5005) x xConservation Loan Program (5002) x xInventory Sales Preference (5302) x xIndividual Development Accounts Pilot Program (5301) x xRight of First Refusal to Reacquire Homestead Property (5305) xHighly Fractionated Lands, American Indian (5501) x

2008 Farm Bill Program Summary

CONSERVATION PROGRAMS

Conservation

• Environmental Quality Incentives Program– Cost-share is increased up to 90% (or 25%

higher than prevailing rates)• e.g, build new fence

– Purchase price $ 1.00 / ft.

– Cost-Share 0.90 / ft.

– Your share 0.10 /ft.

Section 2503

Conservation (EQIP)

• EQIP (continued)– 30 percent of cost-share funds advanced to

buy material• E.g., advance 0.27 / ft.

– 90%(30%)

Section 2503

Conservation

• Special set-aside (5%) . . . – Environmental Quality Incentives Program

(EQIP)

– Conservation Stewardship Program (CSP)

– Wildlife Habitat Incentives Program (WHIP)

Section 2704

Conservation

• Wetland Reserve Program (WRP) & Healthy Forests Reserve Program (HFRP)– New provision to allow American Indian Tribes

to participate in 30-year contracts that will be paid at the same rate as 30-year easements.

• For American Indian Tribes not interested in placing easements on tribal lands, this program should give them the incentive to participate in the WRP or HFRP.

Sections 2201 & 8205

Conservation

• Facilitate Transfer of Land from Retired/ Retiring Producers– to facilitate a transition of land subject to the contract

from a retired or retiring owner or operator to a beginning farmer or rancher or socially disadvantaged farmer or rancher for the purpose of returning some or all of the land into production using sustainable grazing or crop production methods (2111)

– $25,000,000 for the period of fiscal years 2009 through 2012 (2701)

Sections 2111 & 2701

ENERGY

Energy

• Bio-energy Crop Assistance Program– For biomass feed stocks, cost-share for the

development and demonstration of . . .• Harvesting, transportation, pre-processing, storage

technologies

– Cost-share - 75% of establishment costs

Section 9011

FARM CREDIT PROGRAMS

Credit

• Loan eligibility for SDA– Any farm experience, without regard to time

elapsing between farm experience, will be considered in determining if the applicant meets the experience requirement

• In short, less farm/ranch experience is required

Sections 5001 & 5101

Credit

• Down Payment Loan Program– Interest rate on the loan is the direct farm

ownership loan rate less 4% with a floor of 1.5%, rather than the previous floor of 2%

• Current rate – 4%;

– Down payment requirement is reduced from 10% to 5%;

– Loan term is increased from 15 to 20 years; – Maximum purchase price is $500,000.

Section 5004

Credit

• Farm Ownership Loans (continued)– E.g., purchase a farm/ranch for $500,000

• Commercial Lender (50%) 250,000• Down payment (5%) 25,000

– Borrower

• FSA Loan (45%) $225,000– Interest rate 1.5%– Term 20 years

Section 5004

Credit

• How much would you owe on this farm purchase in year 1?– Commercial bank $15,000

• 6%, 20 years, $250,000

– FSA 3,472• 1.5%, 20 years, $225,000

Over $10,000 less interest paid year 1 because of USDA interest rate subsidy

Section 5004

Credit

• Loan Guarantees– Guarantees 90 percent of principal and

interest of the farm ownership and operating loans

• e.g., operating loan for $50,000

• Guarantee 45,000– (90%)($50,000)

– Who pays if the farmer/rancher defaults?Section 5004

Credit

• Contract Land Sales– guarantee a loan made by a private seller of a

farm or ranch to a qualified beginning or SDA farmer or rancher

• Down payment 5%• Maximum purchase price $500,000• Term (period of guarantee) 10 years

Section 5005

Credit

• Conservation Loan and Loan Guarantees– Priority for beginning and socially

disadvantaged farmers/ranchers

Section 5002

Credit

• Inventory Sales Preference– Preference for first 135 days land is held in

inventory for sale by the USDA.

Section 5302

Credit

• New Farmer Individual Development Accounts (pilot)– FSA grants to qualified non-profit organization

who deliver the program to eligible participants

• Target – new low income producers– Less than 80% of state median income or 200% poverty

• Purpose – establish savings account

Section 5301

Credit

• Right of First Refusal to Reacquire Homestead Property– borrower-owner who is a socially

disadvantaged farmer or rancher, the borrower-owner or a member of the immediate family of the borrower-owner

Section 5305

Credit

• High Fractionated Land– Allows individual American Indian Tribal

members to qualify for Indian Land Acquisition Loans.

Section 5501

Credit

• The USDA want YOU . . . – Direct farm ownership loan program

• set aside has been increased from 70 to 75%

– Direct operating loan program, the • set aside has been increased from 35 to 50%

– Guaranteed operating loan program, • set-aside has been increased from 25 to 40%

– Direct ownership and operating loan limits• increased from $200,000 to $300,000

Others

• 1101 – base acres payment provisions• 1615 – representation of social disadvantaged

producers on committees• 6202 – priority in awarding of value-added

market development grants• 12026 – Supplemental Agricultural Disaster

Assistance (waiver of minimum insurance)• 14002 – review of foreclosures on social

disadvantaged borrower in past 5 years

Other Provisions

Others

• 14004 - Outreach and technical assistance to beginning and SDA producers ($75 m.)

• 14008 - Minority Farmer Advisory Committee

• 14011 – resolution of claims and class actions brought against USDA by SDA producers be resolved in expeditious manner

• 14012 – determination of the Merits of Pigford Claims

Beginning and SDA

Program Summary

• Beginning and Socially Disadvantaged– Conservation

– Energy

– Credit

– Other

Questions

?Beginning and SDA