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AGRICULTURE; FEDERAL ASSISTANCE PROGRAMS; STATE AID;

OLR Research Report


February 18, 2010

 

2010-R-0078

FINANCIAL ASSISTANCE PROGRAMS FOR SMALL FARMERS

By: Meghan Reilly, Legislative Analyst II

You asked for a list of programs that assist Connecticut small farms.

SUMMARY

We found no programs that exclusively assist low-acreage farms (i.e., small farms). Most farm programs and policies qualify farms for assistance based on other criteria. In fact, Connecticut law does not define “small farms,” and federal definitions are based on annual sales rather than acreage. (For example, the Small Business Administration generally classifies farms as small if their annual sales are less than $500,000, while the Economic Research Service sets the limit at $50,000.)

Small and large farms qualify for financial and technical assistance under a wide range of federal, state, and nonprofit programs. Federal loan programs provide financing for acquiring and operating farms, while state and federal grant programs help people start farms and prepare business plans and feasibility studies. They also help existing farmers by providing working capital and fixed asset loans. A Connecticut program also helps existing farmers diversify or expand production.

Several state preservation programs target existing farms. The Farmland Preservation Program allows the Department of Agriculture (DOAg) to purchase development rights while the 490 Program reduces the property tax assessment on farms, which usually results in a lower tax bill. Additionally, the law exempts $100,000 of the value of all farm machinery, except motor vehicles, from property taxes and allows towns to exempt an additional $100,000 in value for this machinery. The law also allows towns to exempt up to $100,000 in value for farm buildings, subject to certain conditions.

The law also addresses farmland preservation through conservation easements and right to farm laws. The latter protect farmers from public and private nuisance suits.

Several national nonprofit organizations offer educational and technical training for small farmers.

LOAN PROGRAMS

Farm Service Agency (FSA) Loans

FSA, a division of the U.S. Department of Agriculture (USDA), provides direct and guaranteed loans to beginning farmers and ranchers who are unable to obtain financing from commercial credit sources. A farmer qualifies for this financing if he or she (1) has not operated a farm for more than 10 years, (2) meets the program's loan eligibility requirements, and (3) substantially participates in operating the farm and has helped operate a farm business for at least three years. The farm the farmer wants to purchase must be no greater than 30% of the country's average size farm (http://www.fsa.usda.gov/FSA/webapp?area=home&subject=fmlp&topic=bfl).

The maximum loan amounts are $300,000 for direct loan funds and $1,094,000 for guaranteed loans.

FSA Down Payment Program

Socially disadvantaged and beginning farmers who want to purchase a farm qualify for FSA down payment loans. “Socially disadvantaged” farmers include those who are members of a group whose members have been subjected to racial, ethnic, or gender prejudice because of his or her identity as a member of the group. These groups include African-Americans, American Indians, Hispanics, and other specified groups.

Loan applicants must make a cash down payment of at least 5% of the purchase price. The loan term is 20 years and the amount must not exceed 48% of (1) the purchase price; (2) the appraisal value; or (3) $500,000, whichever is least. The remaining balance must be obtained from a commercial lender or a private party. Financing from participating lenders must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan. Retired farmers may also use this program to transfer their land to future generations (http://www.fsa.usda.gov/Internet/FSA_File/beginloans.pdf).

Beginning and Socially Disadvantaged Farmer and Rancher Contract Land Sales Program

The Beginning and Socially Disadvantaged Farmer and Rancher Contract Land Sales Program provides federal loan guarantees to retiring farmers who self-finance the sale of their land to beginning or socially disadvantaged farmers and ranchers.

The program gives retiring farmers either (1) a “prompt payment” guarantee equaling three amortized annual installments or (2) a standard asset guarantee plan of an amount equal to 90% of the outstanding principle of the loan. A farmer qualifies for the latter if he or she obtains an agent to service the loan payments. In both options, the guarantees are good for 10 years. The purchase price or appraisal value of the farm or ranch cannot exceed $500,000. The buyer of the farm and ranch must contribute at least 5% of the purchase price as the down payment for the land.

To be eligible for this assistance, the buyer must (1) be a beginning or socially disadvantaged farmer or rancher, (2) have an acceptable credit history, (3) be the owner or operator of the farm or ranch when the contract is complete, and (4) be unable to obtain sufficient credit elsewhere without a guarantee to finance actual needs at reasonable rates or terms.

GRANT PROGRAMS

Beginning Farmer and Rancher Development Program (BFRDP)

The BFRDP funds technical assistance for beginning farmers and ranchers by making grants to collaborative state, tribal, local, or regionally-based networks and public-private partnerships. These entities, which include community-based and non-governmental organizations, cooperative extensions, USDA and state agencies, and community colleges, use the funds to provide education, outreach, and technical assistance to new farmers. They must use at least 25% of the funds to assist socially disadvantaged beginning farmers, ranchers, and farm workers seeking to become farmers or ranchers.

BFRDP grants have three-year terms and cannot exceed $250,000 annually. Eligible recipients must provide a cash or in-kind contribution match that is equal to 25% of the grant amount.

Beginning Farmer and Rancher Individual Development Account Program (BFRIDA)

BFRIDA is a 15-state pilot program providing matching funds to beginning farmers who are saving money to start a farm. Although authorized, Congress has not provided funds for the program.

Value-Added Producer Grants (VAPG)

VAPG provides competitive grants for, among other things, the development of mid-tier value chains, which are local and regional supply networks linking independent producers with businesses and cooperatives that market value-added agricultural products. “Value-added” includes any agricultural commodity or product that has (1) undergone a change in physical state; (2) was produced, marketed, or segregated in a manner that enhances its value or expands the customer base of the product; or (3) aggregated and marketed as a locally-produced agricultural food product.

The mid-tier value chains must: (1) target and strengthen the profitability and competitiveness of small- and medium-sized family farms and ranches, and (2) enter into agreements with eligible agricultural producer groups, cooperatives, or majority-controlled producer-based business ventures. The latter criterion is intended to assist farmers too large for direct marketing to consumers but too small to engage in high volume raw commodity production.

VAPG funds may be used to (1) develop business plans and feasibility studies (including marketing plans or other planning activities), or (2) acquire working capital to operate a value-added business venture or alliance. They may not be used for property improvements or equipment purchases. The required cash or in-kind matching funds must be at least equal to the grant amount and must be spent before the grant.

Farm Reinvestment Grant Program (FRG)

Connecticut's DOAg's FRG provides matching grants for diversifying or expanding farm family businesses. Funds must be used for capital improvements having a minimum 10-year life expectancy.

Grant applicants must secure and comply with all necessary zoning, inland wetland, building, and other permits prior to receiving a grant. They must also agree to a site inspection before DOAg acts on their application and again during the construction phase of any grant-funded project (http://www.ct.gov/doag/cwp/view.asp?a=3260&q=398988).

PRESERVATION PROGRAMS

Farmland Preservation Program

Under the farmland preservation program, DOAg purchases the development rights of existing farms, thus preserving them for agricultural uses (CGS 22-26bb(d)). By purchasing the development rights, DOAg gets a permanent easement prohibiting the land from being developed for nonagricultural uses, while allowing the owner continue operating and managing the farm (CGS 22-26aa).

Owners must apply to DOAg if they wish to sell their development rights to it. The application must include a description of the farm's size, its crop productivity, its zoning classification, and the probability that it will be developed for non-agricultural purposes. DOAg evaluates the farm to determine the public interest in purchasing it and scores the land based on statutory criteria (CGS 22-26cc(a)).

Community Farms Program

The law establishing the Community Farms Program allows DOAg to create a program to acquire the development rights of farms that do not meet the Farmland Preservation Program's criteria but still contribute to the local economy (CGS 22-26nn, as amended by PA 08-174). The program is not yet operational.

490 Program

As a rule, towns assess properties based on their fair market value, which reflects their highest and best use. Under the 490 Program, tax assessors assess farms based on their current use, which is significantly less than their fair market value. In doing so, they reduce the property's assessment, which usually results in a lower tax bill. If the farmer sells the property within 10 years after the classification, he or she must pay a special pro rated conveyance tax. Once granted, a farm classification under the 490 Program can be removed only if the use of the land or its ownership changes (CGS 12-107c).

Conservation Easements

Connecticut law sanctions conservation easements, which limit or require properties to be used in a way that retains or protects their natural, scenic, or open space qualities.

FARMING POLICY

Connecticut Right-to-Farm Law Policy

By law, agricultural or farming operations (and their subsidiaries) cannot be deemed a private or public nuisance because of:

1. odor from livestock, manure, fertilizer, or feed;

2. noise from livestock or farm equipment used in normal, generally acceptable farming procedures;

3. dust created during plowing or cultivation operations;

4. use of chemicals and application methods that conform to approved environmental protection or public health department practices and regulations; or

5. water pollution from livestock or crop production activities (except the pollution of public or private drinking water supplies), if such activities meet specified standards.

The agriculture commissioner's inspection and approval of a farming operation is prima facie evidence that the operation follows generally accepted agricultural practices. (A plaintiff in a lawsuit would have the burden to present evidence to disprove this.)

This right-to-farm protection does not apply if a nuisance results from negligence or willful or reckless misconduct in an agricultural or farming operation (CGS 19a-341).

Property Tax Exemptions

State law exempts $ 100,000 of the valve of all farm machinery, except motor vehicles, from the property tax, subject to certain conditions (CGS 12-91(a)). It allows towns to increase this exemption by up to $100,000 (CGS 12-91 (b)). It also allows them to exempt up to $100,000 in value for farm buildings (CGS 12-91 (c)), subject to certain conditions. Farmers may be eligible for these exemptions only if they earn at least $15,000 in gross sales from the farming operation, or incur at least $15,000 in expenses related to the farm (CGS 12-91(d)). More information is available in OLR Report 2008-R-0645.

NONPROFIT ORGANIZATIONS: EDUCATION AND TRAINING

FarmLink Programs

FarmLink programs and websites connect aspiring farmers with people seeking to sell or rent agricultural land. Connecticut's FarmLink program provides information for aspiring farmers and those interested in selling or renting farmland, at http://www.farmlink.uconn.edu/pages/newfarmers.html. Connecticut's FarmLink program also provides links to apprenticeship and training opportunities, as well as financial and other resources.

Center for Rural Affairs

The Nebraska-based nonprofit Center for Rural Affairs works to strengthen small businesses, family farms and ranches, and rural communities nationwide by offering policy recommendations and strategies for beginning farmers at its website: http://www.cfra.org/resources/beginning_farmer.

New England Small Farms Institute

The institute is a non-profit organization founded in 1978 to encourage sustainable regional agriculture. It promotes small farm development by providing information and training to aspiring, beginning, and transitioning farmers. Located in Belchertown, Massachusetts, the institute maintains extensive resources, seeks partnership with service providers throughout the northeast, and offers programs to people considering farming (http://www.growingnewfarmers.org/).

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