When Jean-Pierre Blackburn stepped up to the microphone to announce a new federal program to help young farmers, he knew that what he was going to say would cause heads to nod in agreement all across Canada.
“We all know that beginning farmers face many obstacles,” the federal Minister of State for Agriculture said, listing the high cost of entry and the resulting debt load as a primary example.
“We are determined to improve the tools and programs available to the agriculture sector, so young farmers across the country have the tools they need to succeed,” Blackburn said.
In fact, there is already such a diversity of programs aimed at young farmers across the country that the federal agriculture department has carved out a complete section of its website devoted solely to helping young farmers figure out what programs they might qualify for.
But are governments really listening to young farmers? Are their programs keeping pace with the complexities of today’s agricultural sector?
Young farmers can clearly see their good intentions, says Chris Kletke, a producer from the Brunkild area in the Red River Valley south of Winnipeg who is also past-president of the Canadian Young Farmers’ Forum (CYFF).
But with the size of farms continuing to increase and with capital — whether land, building, machinery or quota — becoming ever more expensive, Kletke wonders whether some programs are worth the effort.
“Access to capital is always a priority,” Kletke says, “but there is frustration when you’re asked to fit a narrow mould, especially in the context of farms that are getting larger and more and more complex.”
An innovative new Alberta program does seem to be working. Kelly Rich, the vice-president of the province’s Agricultural Financial Services Corporation (AFSC), believes that when it comes to offering programs that beginning farmers will actually use, simpler is better.
“We used to have a multitude of micro-programs,” Rich says. “But when you have a whole bunch of small boxes, you inevitably end up with voids in between that limit your ability to help people. Now we have one big box with a few extra components for client groups with special needs.”
The “big box” to which Rich refers is the Alberta Farm Loans Program (AFLP). It provides financing for starting, developing or growing farm operations in amounts up to $5 million. To be eligible for the AFLP, you need to be an Alberta resident involved with primary agriculture. Long-term loans on assets like land can be locked in with a fixed interest rate for up to 20 years.
Currently, the interest rate on a 20-year loan is 5.78 per cent. At the same time, a producer participating in the AFLP retains the flexibility of paying off his or her loan early with no penalties, either in whole or in part, a feature that Rich says causes some problems for the lender but which is great for the client. Payment deferrals and interest-only payments are also built into the AFLP in recognition of the fact that agriculture is a unique business with ups and downs that are as unpredictable as they are inevitable.
“We take a long-term view of agriculture,” Rich says. “We know this is important to all producers but even more so for new entrants. They need to know that they can count on us to be there in the long run.”
But the ALFP also has some special features that make it a particularly attractive to new entrants. The Beginning Farmer Incentive (BFI) as it is called offers an interest rate reduction of 1.5 per cent for the first five years of the loan. It is available to any qualifying individual with a net worth of $500,000 or less at the time of application. The maximum amount of principal on which the rate reduction can be applied is also $500,000. If a husband and wife both qualify, then a farming couple can receive the BFI on up to $1 million.
There is no age limit for the BFI. To qualify, a person has to generate at least $10,000 of gross income from farming operations. Off-farm income is recognized by AFSC in assessing the debt-servicing ability of participants in order to enable them to more easily transition from outside employment to full-time involvement in the farming operation.
The interest-rate relief has got the attention of new farmers. Rich says that of $240 million that AFSC loaned out year, almost 65 per cent went to new entrants.
From both a government and political point of view, another number is equally important. AFSC does an annual customer satisfaction survey, and last year, farmer satisfaction exceeded 90 per cent, up considerably from before AFSC moved to a broader-based approach to agricultural lending.
Not every province offers interest subsidies. For instance, Saskatchewan doesn’t. However, neighbouring Manitoba does. Gary Smart, who works as a business development specialist based out of the Somerset office of Manitoba Agriculture, Food and Rural Initiatives, explains that the Young Farmer Rebate (YFR) offers a two per cent reduction in interest rates up to annual limit of $3,000 for qualifying participants. It is available for the first five years of the loan.
Unlike Alberta, Manitoba puts an age restriction on its new-farmer program. Farmers must be between 18 and 40 years to qualify. As in Alberta, loans can be locked in for 15 or 20 years. Available rates are currently as low as 5.75 for a 20-year loan.
If high capitalization and heavy debt payments are a barrier for new farmers, the Manitoba program can claim that it is actually getting support to those who need it. Last year, $1.6 million was rebated to participating producers, and loans for which the YFR was available represented 80 per cent of the Manitoba Agricultural Services Corporation’s (MASC) direct loan business.
Along with the YFR, this means that a beginning farmer can pay as little as 3.75 per cent interest on the first five years of a long-term loan where rates are guaranteed to never exceed 5.75 per cent. Farmers taking out loans with MASC can also pay them back at any time without financial penalty.
Other Manitoba programs add a wrinkle that more governments are looking at. Its Bridging Generations Initiative (BGI) provides interest relief to young farmers involved in inter-generational transfers. Qualifying producers must be between 18 and 39 to get a maximum annual benefit of a one per cent reduction in interest on the original balance, up to a ceiling of $2,500 per year.
In exchange, the young farmers must take a minimum of 25 credit hours per year of farm management training.
Young farmers are signing up. Manitoba rebated $174,000 of interest under the BGI in the past fiscal year.
There are also examples where young farmers might be the key targets of programs that don’t seem at first to be targetted at them. Manitoba’s Agri- Adviser program provides up to $2,500 in funding to develop a business plan or to hire a consultant to provide third-party advice on any management-related topic.
As well, Manitoba offers a mentorship program that covers the mentor’s per diem to the tune of $150 per day as well as reasonable mileage costs, and the province also gives a $300 grant to first-time crop insurance buyers.
Still, despite the plethora of programs, Kletke fears they are falling short. He cites the example of a young producer who is part of a large family corporation. The young farmer needs to get established, but the operation may well exceed the net worth ceilings of the programs.
“The guidelines of some of these programs need to be relaxed or, at the very least, the field people need to be given enough discretion to make the call on the spot,” Kletke says.
Kletke says that on his own operation — a 1,600- acre farm where he is the sole proprietor — he can foresee the day when he will be sufficiently diversified to make government programs like these essentially irrelevant. He believes a lot of young farmers are striving for that same independence.
At the national level, there are efforts to consult with organizations like the CYFF to ensure that concerns, like those that Kletke raises, are addressed. Farm Credit Canada (FCC) is a committed supporter of the CYFF as well as the Outstanding Young Farmer program and views both as important forums for young producers to get together, network and identify pressing needs. FCC has also established a vision panel that it regularly consults and that has representation from the young-farmer sector.
“We’re always looking to improve the programs and services that we offer,” explains Derwin Arnstead, FCC’s vice-president for the Prairie Region (Manitoba and Saskatchewan). “Surveying our vision panel, meeting with CYFF and running focus groups with our clients are all essential parts of our product development process.”
Arnstead says the focus on young farmers is working. During the 2009-10 fiscal year which ended on March 31, lending to farmers under the age of 40 totalled $1.8 billion, which represents roughly one-third of all loans. It’s also an 11 per cent increase, compared to the previous year.
Loans to young farmers are a combination of standard and specialty products. One of those specialty products is FCC’s Transition program. It reduces interest by disbursing the proceeds of the sale over a period of up to four years. It can even mean not having to come up with any capital for a down payment. This can also have tax advantages for the seller by spreading out any capital gains while at the same time limiting financial risk since the full sale price is guaranteed by FCC.
Then there is the First Step Loan which helps farmers with limited credit history access capital under terms usually reserved for better-established producers. To qualify, participants must be enrolled in or have completed a recognized post-secondary program within the past three years and must submit a business plan that identifies opportunities and risks for the farm.
According to Arnstead, the First Step Loan is tied to FCC’s overall belief in agricultural training and knowledge. Other products like the Performer Loan and the 1-2-3 Grow Loan are also popular with young producers. The interest-only payments that producers can make during the first five years of the loan under the 1-2-3 Grow program are ideally suited to new entrants.
Along with these many loan programs, FCC tries to offer young and beginning farmers with ongoing training opportunities to help them establish and grow their operations. It organizes training events in the form of workshops, learning tours — where speakers travel throughout rural areas to address farm management issues — and half-day forums. Arnstead says that, last year, 10,500 people took in these events.
It’s clear then that governments are giving more than lip service to the needs of young and beginning farmers. But the best way to deliver assistance is constantly evolving.
Should capital for young and beginning farmers always be offered in the form of credit, especially when interest rates are already as low as they are? Would a pool of venture capital have its place among the suite of programs that governments offer?
Prospective new entrants to agriculture should stay tuned.CG
One third of all FCC loans in fiscal 2009-10 went to farmers under the age of 40, for a total $1.8 billion, up 11 per cent from the previous year