Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=217144
Story Retrieval Date: 12/6/2013 9:39:19 AM CST
Elbow grease, a bag of seed and a plow have been the hallmarks of entrepreneurial farming dating back to the Johnny Appleseed fable. But that perception may be outdated.
Issues such as high land prices, financing and the pressure to compete with the industry’s giants often present insurmountable obstacles, experts say.
The question– how to stimulate development in populations with little to no means – has historically been associated with the Third World. But Secretary of Agriculture Tom Vilsack brought it home in January, when he announced a program that aims to give beginning farmers a boost.
The federal program will provide up to $35,000 in low-interest micro loans for new farmers. It aims to cover items ranging from seed and livestock to greenhouse-like “high tunnels” and family living expenses.
“Commercial agriculture today is a tremendous capital need,” said Jeff Koch, farm loan chief for the Illinois office of the Farm Service Agency. “It’s very difficult to cover all the bases and get started that way.”
The loan payback period will vary, but the U.S. Department of Agriculture says it will not exceed seven years.
Scott Koster of Geneva Lakes Produce, in Burlington, Wis., said he has been exploring a loan for his son Jordan, to enter the family’s business full time. Jordan is a recent agricultural economics graduate of the University of Wisconsin-Platteville and has been gradually phased in to the produce operation.
The Kosters currently have six high tunnels – long, plastic huts that extend the growing season by trapping in heat with a translucent plastic shell. A loan would help the family expand the number of high tunnels to as many as 16. Each high tunnel can cost between a few hundred and a few thousand dollars, depending on size.
Obtaining financing for farm real estate can be an imposing barrier for those wanting to get into farming.
Because of decreasing supply and increasing demand farmland values were up 10.9 percent in 2012 from 2011, according to the USDA. The period from 1987 to 2010 saw farm values double from roughly $1,000 per acre (adjusted for inflation) to $2,000.
Borrowing from banks can be a dead end for some beginning farmers, Koch said.
“Lots of times commercial operations aren’t comfortable lending money for that and so the agency has tried to tailor a loan program to fit that need that we maybe haven’t always in the past,” Koch said.
Jordan Rose, of mushroom grower River Valley Kitchens Burlington, Wis., said he faced such a challenge.
“For a long time, it was difficult for us to get loans from the bank despite the fact that we had always paid in on our loans,” Rose said. “That we were holding them didn’t make us a desirable client to a lot of banks.”
That early difficulty meant the farm acquired a second mortgage, but it has become more profitable after focusing on “value-added” products like pickled mushrooms, salsas and soups – items with a more palatable profit margin.
Rose said that he has seen other small farmers engage in risky financial agreements to secure credit.
“They’ll take out car title loans or subprime loans on their equipment, property, or max out credit cards or whatever they need to do to cover that gap,” he said. “It’s really a Band-Aid solution. It doesn’t help anybody in the long run.”
Another financial challenge is small farms simply can’t spread their costs as widely as the largest farming outfits, which invest millions in efficient, cutting-edge technology. Less than 1 percent of farms (those that eclipse $5 million in annual sales) accounted for nearly 30 percent of sales in 2007, according to the most recent agricultural census.
While this could mean low prices for consumers at the supermarket, it also means that fewer startups are gaining a foothold.
In 1982, 38 percent of farms’ primary operators had less than 10 years of experience. As of the last agricultural census in 2007, that number had fallen to 26 percent.
A parallel trend is the average age of the American farmer has risen to 58, up from 45 in 1974 and 39 in 1945. Perhaps most telling is that the age bracket with the fastest growth is that of 65 and older.
Jury still out
Given the modest scale of the plan, some say they have serious doubts about its effectiveness. For example, mid-size farms like Geneva Lakes Produce are in need of up to five times the $35,000 boost if they need to make a significant capital acquisition, according to Scott Koster.
But Rick Whitacre, an agricultural economics professor at Illinois State University, said the money is a step in the right direction for the smallest of farms.
“If you’re a small vegetable producer supplying local farmer’s markets or if you have a small livestock operation that is supplying local restaurants and you need to put in a new watering system, a new irrigation system, a new livestock facility, this is the kind of loan that might really help out somebody in that particular situation,” Whitacre said.
Rose, of River Valley Kitchens, said that while the micro-loan plan sounds good on paper, he’s seen unresolved promises before from various lending agencies.
“If they work, that’s great, if people actually get the loans. But I’ve had a couple of experience where I’ve gotten told ‘We’re going to do this and these are the programs,’” he said.
“I’m sure it looks good back at the office. But when it comes to the people that are running the businesses, that are trying to make a living doing this, it’s not necessarily the easy setup between the people that need it and the people that are offering.”
Whitacre said the program’s success could hinge on the rate at which the loans are repaid.
“It’s going to be interesting to see what kind of follow-up they have in terms of what this money’s spent on, if there’s a default rate, what the default rate would be,” he said. “We’re not talking about a lot of money, but you’re going to try to get your loan back eventually.”