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.
University of Tennessee Institute of Agriculture
Young & Beginning Farmer Loan Budget

Since 1994 - $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 $750,000.
- 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
Trends in U.S. Agriculture
7
600
6
500
5
400
4
U.S. Number of Farms
U.S. Average Farm Size
3
TN Average Farm Size
2
300
200
1
100
0
0
1900
1920
1940
1960
1974
1982
1992
2002
Year
University of Tennessee Institute of Agriculture
Acres
Millions
U.S. Number of Farms and Average Farm Size in
the U.S. and TN
UT Marketing & Communications Video
U.S. Life Expectancy and Average Age of Farmers
in the U.S. and TN
80
75
Life Expectancy
70
U.S. Average Age of
Farmer
TN Average Age of
Farmer
Age
65
60
55
50
45
40
1900
1960
1980
1997
Year
2002
2004
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