Whole Farm > Financial > Industry Analysis

June 2024

Evolution of beginning farmer programs in the Farm Bill

The average age of American farmers is at an all-time high of 58 years old (USDA NASS, 2023). As these farmers reach retirement age, supporting the next generation of farmers and making farm transition easier is crucial for agricultural production. One significant way to support new and beginning farmers is through loans provided by the Farm Bill. Passed approximately every five years, the Farm Bill outlines various agricultural policies, with Title V: Credit significantly impacting loans for beginning farmers. Understanding the changes and effectiveness of these loans in each iteration of the Farm Bill is essential, especially with a new bill expected by the end of this year.

Definition and eligibility for beginning farmers

The USDA defines a beginning farmer as someone who "has not operated a farm or ranch for more than 10 years… [whose farm size is less than] 30% of the average farm in the county… [and they] substantially participate in the operation" (USDA ERS, 2018). For this article, farmers also include ranchers. Qualifying as a beginning farmer as per this definition opens various USDA programs, particularly loan programs. Before the 2014 Farm Bill, the USDA used 'median' instead of 'average' to define farm size (USDA ERS, 2018). Median farm size, a statistical measure referring to the size at the midpoint of all farms in a county, does not change if a county has a few very large farms. So, having a few very large farms in the county will not raise the median farm size, but the average farm size will increase. Changing the USDA farm size definition allowed more farmers to qualify for loan benefits, notably in counties with large farms that skew the average size. One of the reasons for including more people in the beginning farmer category to allow them to benefit from farm programs is the concern over rising ages across the farming profession, with fewer people from younger generations taking up the career, making beginning farmer support programs a mechanism to attract, in addition to supporting, the younger generation (USDA ERS, 2018).

Figure 1. Average age of US producers by county.

Loan programs for beginning farmers

Certain loans granted by the Farm Service Agency are outlined and budgeted for in the Farm Bill, additionally, some of these loans are reserved purely for beginning farmers. Four loan types are particularly relevant for beginning farmers: Guaranteed Loans, Micro Loans, Direct Operating Loans, and Direct Ownership Loans (see Table 1 for a summary). Guaranteed loans are conventional loans backed by the government, with up to 95% backed for beginning farmers (USDA FSA, 2021), minimizing risk for lenders. Microloans from the Farm Service Agency (FSA) have smaller denominations and are used for minor farm purchases and operations. Direct Operating Loans and Direct Ownership Loans are objectively the most important for beginning farmers. These loans provide significant capital for starting or expanding a farm. A specific amount is reserved for beginning farmers in the Direct Ownership Loans to assist with down payments on farmland, reducing the barrier to entry by making land purchase more accessible. This greatly reduces the barrier to entry to farming as land is the most expensive asset.

Table 1. Summary of different loans offered to farmers by the FSA.

Historical changes in the Farm Bill

Throughout the years, the Farm Bill has changed certain qualifications and parts of loans for beginning farmers, even adding additional loans. Starting at 1996, Beginner Farmers were recognized in a previous bill, but provisions supporting Beginning Farmers were few and unclear. The 1996 Farm Bill stated that “a portion of loan funding is reserved for new and beginner farmers,” without clarifying the amount (USDA ERS, 1996). This is a pattern followed in each new iteration of the Farm Bill, allocating a certain percentage of loan funding specifically for beginner farmers. In fact, in the 2002 Farm Bill, one of the most important changes was specifying the exact portion of the funding to committed uses. In 2002, it changed so that 70% of the total for direct ownership loans, 25% for guaranteed loans, and 35% for direct operating loans are reserved purely for new and beginner farmers (USDA ERS, 2008). The 2002 Farm Bill also increased the farm size limit to 30% of the median (it was changed to average in 2014) farm size of the county and gave priority of purchasing FSA land to beginning farmers (USDA ERS, 2002). This could be considered the start of adding more specific provisions for beginning farmers, rather than more vague additions to current programs. Additionally, the importance of Direct ownership loans to beginning farmers is clear, as beginning farmers are being given 70% of the total funding for that loan. This percentage increased in the 2008 Farm Bill to 75%, along with the other loans, increasing to 40% and 50%, respectively (USDA ERS, 2008). In 2014, as stated earlier, the Farm Bill changed the definitions of a beginning farmers from 'median' to 'average'. The 2018 Farm Bill continues these programs and allocations, without many substantial changes.

Over the years, the effectiveness of loans and other programs for beginning farmers has been a topic of discussion. FSA loans are utilized more frequently by beginner farmers than by their established counterparts (Thilmany et al., 2021), indicating that these programs are reaching the intended demographic. However, Thilmany et al. (2021) note that government-backed financing will be in high demand and may need to become more flexible. Government funding tends to have strict usage guidelines, which may need to adapt as agricultural practices evolve. For instance, urban farms often require specialized equipment and supplies, making it challenging to justify these needs compared to conventional farming.

Further research acknowledges the utility of these programs but questions their adequacy in fully supporting beginning farmers (Calo, 2018). Specifically, new farmers face challenges in acquiring start-up capital, securing markets, and finding suitable farmland (Calo, 2018). While loans can address capital needs, there is a notable gap in support for market access and land acquisition. Additionally, new farmers often lack practical experience and face significant financial risks when trying new techniques or practices. Therefore, while loans are crucial for beginner farmers, there is a need for complementary government programs that provide knowledge-based support and reduce the risks associated with innovation and learning in farming (Calo, 2018).

Beginning farmers have several support options within the Farm Bill, particularly through various loan programs that offer specific benefits. Previous Farm Bills have successfully introduced loan options beneficial to beginning farmers. However, as the new Farm Bill approaches, it is essential to consider changes in agriculture and the needs of beginning farmers. The loan programs have remained relatively unchanged since 2014, and while they are being utilized, increased flexibility could further enhance their effectiveness and accessibility.

Figure 2. Timeline summary of changes affecting farmers in the farm bill from 1996 to 2018.

References

Calo, Adam. How Knowledge Deficit Interventions Fail to Resolve Beginning Farmer Challenges. Agriculture and Human Values 35, no. 2 (October 7, 2017): 367–81.
Dawn Thilmany, Allison Bauman, Joleen C. Hadrich, Becca B.R. Jablonski, and Martha Sullins. Unique Financing Strategies among Beginning Farmers and Ranchers: Differences among Multigenerational and Beginning Operations. Agricultural Finance Review 285–309, no. 2 (December 9, 2021).
US Department of Agriculture Economic Research Service (USDA ERS). The 2002 Farm Bill: Provisions and Economic Implications, May 22, 2002.
US Department of Agriculture Economic Research Service (USDA ERS). 2008 Farm Bill Side-By-Side, August 20, 2008.
1996 FAIR Act Frames Farm Policy for 7 Years. US Department of Agriculture Economic Research Service (USDA ERS), April 1996.

 

Olivia Sharp, Rural Sociology student
Rabail Chandio, extension economist, 515-294-6181, rchandio@iastate.edu
Tammy Nebola, agricultural development program specialist, Iowa Agricultural Development Division, Iowa Finance Authority, tammy.nebola@iowafinance.com

Olivia Sharp

Rural Sociology student

Author

Rabail Chandio

extension economist
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Author

Tammy Nebola

agricultural development program specialist, Iowa Agricultural Development Division
View more from this author