**Statement of**

**Karen Stettler**

**Land Stewardship Project Farm Beginnings ® Director**

**For the Credit Hearing**

**Of the**

**Subcommittee on Conservation, Credit, Energy, and Research**

**U.S. House of Representatives Committee on Agriculture**

**March 27, 2007**

Karen Stettler

Land Stewardship Project

Farm Beginnings® Director

180 East Main Street, PO BOX 130

Lewiston, MN 55952

\(507\) 523-3366

[stettler@landstewardshipproject.org](mailto:karens@landstewardshipproject.org)

Good morning Chairman Tim Holden and Members of Conservation, Credit,
Energy and Research Agriculture Subcommittee. Thank you for the
opportunity to testify on credit and beginning farmer issues which are
critically important to agriculture and rural communities. My name is
Karen Stettler and I serve as Director of the Land Stewardship Project's
Farm Beginnings program. My testimony today is on behalf of the Land
Stewardship Project and the Sustainable Agriculture Coalition.

The Land Stewardship Project (LSP) was founded in 1982 and is guided by
a mission to foster an ethic of stewardship for farmland, promote
sustainable agriculture, and to develop sustainable communities. LSP is
primarily a rural membership organization which works nationally, and in
Minnesota, focusing on farm and environmental issues. Our work
encompasses three primary program areas: a Community Based Food System
program which supports local and regional food systems and efforts that
connect farmers and consumers; a Policy and Organizing Program which
organizes people to successfully impact corporate and government
policies that affect their lives at the federal, state and local level;
and a Farm Beginnings program aimed at training and assisting new
farmers getting started on the land.

LSP's Farm Beginnings program is a farmer-led educational training and
support program designed to help people who want to evaluate and plan
their farm enterprise. Individuals enrolled in the program participate
in a 10 month course where they attend classes focused on values
clarification, goal setting, whole farm planning, business plan
development, as well as attendance of on-farm workshops highlighting
low-cost, sustainable farming methods. While enrolled in the Farm
Beginnings program, participants are also paired with existing farmers
who serve as mentors. Since 1997 when LSP started the Farm Beginnings
program, over 300 people have graduated from the course. Of those
graduates 60 percent are currently farming.

For the purpose of my testimony today I will focus on the following
points:

-   opportunities that are available for new farmers and ranchers in
    agriculture;

-   obstacles beginning farmers and ranchers face in getting started;
    and

-   public policy solutions to help address some of the barriers
    beginning farms face such as struggles to obtain reasonable credit
    and the lack of access to beginning farmer and rancher education and
    training programs.

The Land Stewardship Project's depth of knowledge on these issues is
rooted in the real experiences of our members and communities in which
we work. I hope my testimony is informative as policy options are
evaluated to increase the vitality and opportunities in rural America.

**Opportunities in Agriculture**

Great opportunities in agriculture now exist because of advances in
emerging markets and an increasing consumer demand for a variety of
local or value-added agriculture products. Beginning farmers and
ranchers are well positioned to take advantage of these opportunities.

These new entrepreneurs are often more flexible in responding to
markets, able to take on more risk but lower debt loads than many
conventional enterprises. In our experience, the new entrepreneurs also
bring diverse backgrounds but a common spirit of determination to the
profession of farming.

The growth in organic agriculture over the last ten years is one of the
most remarkable advances in our food system. Consumer demand for organic
food has grown 15-20 percent a year over the past decade. With such a
growing consumer demand for organic food, the need for organically-
certified producers is immense, with imports growing due to a lack of
sufficient U.S. production. New farmers and ranchers are well positioned
to take advantage of this and other similar burgeoning markets high
quality, differentiated products that support family farming and the
environment. New farmers and ranchers are less bound by previous
commitments to and investments in conventional farming operations,
giving them more flexibility in responding to growing markets. The
pricing structure of organic and other premium markets also allow
beginning farmers to start with lower equity and on smaller scales,
building their farming enterprises one step at a time.

Other premium markets are also expanding. Currently companies such as
Niman Ranch Pork Company are paying premiums above the cash market price
for livestock that is raised naturally, without antibiotics, and to a
specified animal husbandry standard. Growth in this area is evident.
Chipotle Mexican Grill, a food chain who sources Niman Ranch Pork, just
opened their 600^th^ restaurant nationwide. In testimony provided to the
Minnesota State Legislature by Chipotle Mexican Grill marketing
consultant Mike Fuller on a package sustainable agriculture bills the
message was clear, "We're really proud to offer naturally raised meats
but we can't get enough of it," said Fuller. "We've proven there is a
demand for this kind of food and funding these research initiatives
would make it possible for us to get more of these products locally."

Fuller went on to explain how the restaurant chain cannot get enough
Niman Ranch pork to meet their demand. For individuals willing to raise
livestock at consumer-driven animal wellness standards great
opportunities exist. Other emerging premium markets include the growth
of demand for grass-fed beef, which because of specific feeding regimens
results in health benefits associated with high levels of omega 3 fatty
acids. Because specific feeding regimens take greater management skills,
beginning farmers and ranchers who are often starting with fewer animals
have an added advantage: the ability to focus more time on individual
care of livestock. Being able to reap the rewards of premium markets
such as Niman Ranch Pork Company and grass-fed beef allows new farmers
and ranchers to grow their farming operations and to succeed.

In addition there is an increase in consumer interest in purchasing food
through emerging local and regional marketing systems. This phenomenon
is gaining traction and has allowed new farmers to capture more of the
consumer dollar for the products they sell. The growth in Community
Supported Agriculture farms, farmers' markets, and direct marketing
opportunities of farm products to consumers and restaurants has expanded
in recent years.

Lastly, the potential of sustainable farm-based energy cropping systems
is an exciting and new development in agriculture. There is still much
to learn about sustainable biomass systems, but new farmers may be well
positioned to get in on the ground floor and take advantage of new
energy crops.

**Desire to Farm**

Not only are there increasing opportunities in agriculture, but our
experiences and the experience of other organizations working with
beginning farmers and ranchers leads us to believe we are experiencing a
boom in the number of people who desire to farm.

According to John Baker, Beginning Farmer Center Administrator for Iowa
State University and the President of the National Farm Transition
Network, the ratio of qualified and potential successors desiring to
farm and those farmers who are willing to provide such an opportunity by
transferring the operation is 10 potential successors to every 1 farmer.
Marion Bowlan, Director of Pennsylvania Land Link, reports that since
1994 when they established their database which connects individuals
looking for land to farm with landowners interested in selling or
renting, the ratio of successors to existing farmers is 3 to 1. LSP's
Farm Beginnings program faces a similar situation. Often times we've had
to turn away potential students due to large demand and classes at full
capacity. After offering Farm Beginnings in Minnesota for 10 years, we
have in no way outstripped demand for the program. The 2006-07 class
includes the greatest numbers of participants we've ever had and
inquires about the next session continue to be made. In response to
demand, we have also now helped start Farm Beginnings classes in
Illinois, Missouri and Nebraska.

**Obstacles Beginning Farmers and Ranchers Face**

Despite opportunities in agriculture, beginning farmers and ranchers
continue face a number of very significant barriers to getting started.
A changing landscape in rural America requires a new paradigm when
considering what public policies can reinvigorate the countryside. For
starters, new farmers and ranchers are much more diverse than previous
generations. In addition to next-generation farmers from
multi-generational farms and ranches, this new generation includes
former farm workers, people from non-farming backgrounds such as
mid-life career-changers, and college graduates who have chosen farming
as their first career. They include more women than ever, as well as
families with Hispanic, Somali, Hmong, and Eastern European backgrounds.

 

Whether or not they are from a farming background, this diverse new
generation of farmers and ranchers faces a set of very difficult
challenges and needs. Adequate access to credit, training, technical
assistance, land, and markets are critical to their success. For
socially disadvantaged farmers, many of whom may have faced bias and
discrimination and who are historically underserved by USDA programs,
the obstacles can be especially difficult to overcome.

For my testimony today I will concentrate on just two of the many
barriers and struggles beginning farmers and ranchers confront that are
connected but also present their own unique qualities:

-   Difficulty beginning farmers and ranchers experience when attempting
    to obtain affordable credit.

-   A lack of support networks and educational and training programs for
    new farmers and ranchers.

**Barriers to Accessing Credit**

One struggle beginning farmers and ranchers face when seeking funds for
land acquisition or operating capital is accessing reasonable credit.
This Subcommittee and Committee has demonstrated great leadership since
the 1990 Farm Bill and the 1992 Agricultural Credit Act in formulating
new credit policies that attempt to serve beginning farmers and
ranchers. In general, our evaluation of current Farm Service Agency
(FSA) lending provisions, including the Beginning Farmer and Rancher
Down Payment Loan Program and farm ownership and operating loan
targeting provisions, are working reasonably well, though their
effectiveness can be improved with some policy modifications in the new
farm bill.

In our view, though, one of the most important hurdles to obtaining
credit for beginning farmers is getting them to the point where they can
apply for FSA loans or credit from private lenders. Farmers, including
beginners, need to do careful preparation and planning before
approaching an institutional or private lender. Helping beginning
farmers develop the tools and know-how to do sound business planning is
the best way to assist farmers in achieving affordable credit.

In 2002-03, the Land Stewardship Project conducted a Farmer Lenders
Survey which was sent to 1,550 sustainable farmers, agriculture lenders
and agriculture educators. The survey focused on the perception,
knowledge, and practice concerning sustainable agriculture and
credit-related issues. With a 39% response rate the surveys provided
useful insight that fortified our assumptions to the barriers farmers
and beginning farmers face when trying to access credit either from an
institutional or private lender.

According to the farmer respondents nearly two-thirds use a local source
for credit. This relationship between local banks and farmers appears to
be where the majority of lending takes place. The symbiotic relationship
between local banks and farmers is critical in rural America. The survey
also found that when assessing major barriers to accessing credit 25
percent of farmer respondents chose lack of external funding as the
major challenge they faced in implementing sustainable agricultural
practices.

From our experiences in the Farm Beginning program, where we work
intimately with a segment of farmers often in desperate need of credit,
some of the more common struggles we hear from participants attempting
to obtain FSA loans are:

-   the volume of paper work and application process is overwhelming and
    daunting enough to turn people away;

-   the lack of technical assistance in guiding applicants through the
    process;

-   a lack the knowledge and tools needed to develop business plans; and

-   there is a need for education of FSA and other lenders about the
    broadening variety of farm enterprises.

Responses from lenders to our survey were consistent from what we had
heard from FSA loan officers: one of the biggest barriers to providing
credit to all farmers was a lack of an appropriate business plan.

Through our Farm Beginnings work we have run into cases where new
farmers are trying alternative enterprises or production systems that do
not fit traditional lending patterns and therefore they struggle to
obtain credit. One family LSP worked with in Wisconsin was starting an
alternative enterprise that included an on-farm bakery and use of
permaculture (a long-term cropping rotation). In 2003, the family
decided to expand their farming enterprise. A total of 16 different
banks turned the family away despite the solid business plan they had
prepared. After unsuccessful attempts to obtain credit the couple
resorted to more desperate measures and financed their expansion on
credit cards. In 2005, under duress, the family participated in a
continuing education class following up on the Farm Beginnings course
they had taken in 2000. After redrafting their farm business plan and
working through a network of friends, they were able to sit down with a
FSA loan officer and finally get a loan.

In many cases working with Farm Beginnings graduates we have found that
obtaining sufficient amounts of credit takes a creative approach and a
number of different lending options bundled together. For example, one
option that a number of Farm Beginning graduates take advantage of is
the use of a partnership between the Land Stewardship Project and Heifer
International. The partnership allows beginning farmers to secure
livestock loans. Through the livestock loan farmers build equity. This
added equity allows for greater leveraging power when accessing credit
through a lender. We have had graduates who receive a livestock loan and
build equity for a number of years and then use that equity to leverage
credit through a participation loan from a local lender in conjunction
with an FSA loan.

Both scenarios above contain a common thread to their success, a
connection to a community based organization providing networks and
training to overcome barriers that beginning farmers face when trying to
obtain credit. One obvious solution to helping farmers overcome hurdles
to obtaining credit is support for additional community-based beginning
farmer and rancher education and training programs.

Building equity through livestock loans or saving through development
accounts puts farmers in a better position to access credit whether
through FSA or a local lender.

**A Lack of Beginning Farmer and Rancher Education and Training
Networks**

One of the most underserved communities in agriculture is beginning
farmers and ranchers. The lack of educational and training programs when
compared with the number and diversity of individuals interested in
farming is astounding.

Perhaps the most critical component to succeeding in farming is having
clear expectations and realizations of what new farmers and ranchers can
accomplish when they start. Financial and entrepreneurial training
programs can assist new farmers and ranchers with goal setting;
marketing and communication skills development; whole farm
decision-making; and financial monitoring including assets management,
credit preparation and cash flow assessment.

In addition, educational and training programs for beginning farmers and
ranchers lends to a framework that builds networks between farmers.
Mentor/apprentice relationships can provide new farmers and ranchers
with a sounding board as they get started on the land. The value of
on-farm experience can be irreplaceable for new farmers and ranchers.
Unfortunately few such apprenticeship programs exist.

Beginning farmer and rancher training programs run by community-based
organizations in partnership with local, state, and federal agencies and
institutions are increasingly important as the supply of future farmers
diversifies beyond the sons and daughters of multi-generation farm
families. The few sparsely distributed partnerships and training courses
across the nation that exist are operating on shoe-string budgets and
largely surviving because of the dedication of talented instructors and
strong community bonds. If there ever was a place to make an argument
for the infusion of federal support for long-term economic development
and stability, beginning farmer and rancher training programs present a
very case. The 2007 Farm Bill represents an important and timely
opportunity to make this investment in the future of rural America.

**Public Policy Solutions to Support Beginning Farmers**

Over the next two decades, an estimated 400 million acres of
agricultural land will be transferred to new owners and will either
remain in production or be converted to non-agricultural uses. The
future health and vitality of agriculture and the food system will
depend on public policies that encourage a new generation of farmers and
ranchers to work in agriculture.

The 2007 Farm Bill should include a major, cross-cutting initiative that
addresses in a comprehensive fashion the needs of beginning farmers and
ranchers. The "Beginning Farmer" initiative should provide beginning
farmers and ranchers with tools they need to successfully enter farming
or ranching, to be good stewards, to be innovative and entrepreneurial,
and to be better able to respond to the rapidly changing demands of the
marketplace.

Since 1990, Congress has begun to incorporate provisions into the farm
bill that are specific to beginning farmers and ranchers, especially in
the area of farm credit. These existing efforts should be improved and
expanded. We recommend the following revisions and additions.

**Beginning Farmer and Rancher Down Payment Loan Program**

The Down Payment Loan Program was established by the 1992 Agricultural
Credit Act and implemented by USDA beginning in 1994. The special loan
program reflects the dual realities of increasingly scarce federal
resources and the significant cash flow requirements of most new
operations. It combines the resources of the Farm Service Agency, the
beginning farmer, and a commercial lender or private seller. Because the
government's share of the total loan cannot exceed 40 percent of the
price, limited federal appropriated dollars can be spread to more
beginning farmers.

Under the program, FSA provides a down payment loan to the beginning
farmer of up to 40 percent of the farm's purchase price or appraised
value, whichever is less. This loan is repaid in equal installments for
up to 15 years, at a 4 percent interest rate, and is secured by a second
mortgage on the land.

The beginning farmer must provide an additional 10 percent of the
purchase price in cash as a down payment. The total purchase price or
appraised value, whichever is less, cannot exceed \$250,000. The
remaining 50 percent of the purchase price must be financed by a
commercial lender or a private seller on contract. This financing may
use assistance from a state beginning farmer program, which can
frequently provide lower interest rates and longer repayment terms than
other loans from commercial lenders. The loan or contract must be
amortized over a 30-year period but can include a balloon payment due
anytime after the first 15 years of the note.

A commercial loan (either farm ownership or operating) made to a
borrower using the down payment loan program may be guaranteed by the
FSA up to 95 percent (compared to the regular 90 percent) of any loss,
unless it has been made with tax-exempt bonds through a state beginning
farmer program.

Throughout the 90s this program was quite successful in creating new
farming starts, though loan making activity has slowed in recent years
as interest rates have remained fairly low. Since its inception, the
program has made down payment loans to help 2,728 new farmers purchase
their first land, for a loan volume of \$124 million. In the recent
years, however, low interest rates have made the Down Payment interest
rate differential too small to make much difference and therefore has
reduced the attractiveness of the partnership approach. As a result, the
vast majority of direct loans have returned to the traditional 40-year
100 percent government financing loan approach or to 50/50 partnership
loans between FSA and banks.

The 2007 Farm Bill should make several adjustments to the program,
including most importantly [setting the interest rate at 4 percent below
the regular direct farm ownership interest rates or one percent,
whichever is greater.]{.underline} This change will better accomplish
what the Committee originally intended when it wrote the program during
a period of high interest rates. We commend the Administration for
addressing this issue in their farm bill proposal. In our view, however,
the floating rate proposal is superior to the Administration's proposal
for a flat 2 percent interest rate because it will not contract the
number of loans that can be made in high interest rate years.

We also support these additional changes to the program:

-   The maximum allowable sales price should be (a) changed to maximum
    allowable portion of sales price eligible for the down payment loan,
    and (b) increased from \$250,000 to \$500,000 to reflect the new
    land market realities since the law originally passed in 1992.

-   The borrower down payment requirement should be reduced to not less
    than 5 percent, with the FSA portion increasing to 45 percent, and
    loan repayments should be deferred for the first year. These two
    changes were also recommended by the Administration.

-   In order to maximize the number of borrowers who can be served and
    to promote graduation of borrowers from government to commercial
    loans, the down payment program and the 50/50 joint financing
    participation loans should be made the first choice option for real
    estate loans in all regions of the country.

**Loan Fund Reservations for Beginning Farmers**

The 1990 and 1996 Farm Bills and the 1992 Agricultural Credit Act
introduced a number of loan fund set-asides and preferences for
beginning farmers and ranchers. For instance, 70 percent of all direct
farm ownership (DFO) loan funds appropriated by Congress each year are
designated for beginning farmers and ranchers, with 60 percent of that
total designated for Beginning Farmer and Rancher Down Payment loans.
For direct operating loans (DOL), the set-aside is 35 percent.
Guaranteed ownership (GFO) and operating loan (GOL) funds targets are 25
percent and 40 percent, respectively. Each of these loan set-asides are
released for other types of borrowers at set times during the year if
the demand from beginning farmers and ranchers does not fully subscribe
the money. Guaranteed operating loan funds that are unused toward the
end of each fiscal year are transferred to beginning farmer and rancher
down payment and other real estate loans.

The existing statutory loan fund set-asides and inventory preferences
should be continued in the 2007 Farm Bill, but with modifications:

-   In its farm bill proposal, the Administration has recommended
    increasing the 70 percent DFO target to 100 percent and the 35
    percent DOL target to 70 percent. While we fully endorse the focus
    on beginning farmers, we believe these proposals go a bit too far,
    potentially excluding otherwise qualified small family farms from
    securing loans. [We propose instead that the DFO target be raised to
    no less than 75 percent and the DOL target to no less than 50
    percent. We also propose that the GFO target be increased from 25 to
    40 percent.]{.underline}

-   [FSA should be given greater flexibility to respond to fluctuating
    demand for different types of loans by changing the 60 percent
    reservation for Down Payment Loans to a two-thirds reservation for
    the combination of Down Payment Loans and joint financing 50/50
    partnership loans]{.underline}. So, in our proposal, at least 75
    percent of total direct farm ownership loan funds would be reserved
    for beginning farmers and ranchers, but at least two-thirds of that
    total (i.e., half of total DFO loan funds) would in turn reserved
    for the combination of down payment loans and joint financing loans
    through April 1 of each fiscal year.

**Direct Ownership and Operating Loan Limits and Loan Authorization
Levels**

Loan limits determine the maximum amount of dollars that an applicant
can borrow from FSA. Direct farm ownership (DFO) loans, which finance
the purchase or improvement of real estate, currently have a \$200,000
loan limit. Direct operating loans (DOL), which are used to finance
production expenses, machinery, equipment, vehicles, and livestock, also
have a limit of \$200,000. These limits were most recently updated in
the late 1970s and early 1980s. Land, production and capital costs have
increased significantly since that time. The current loan limits are no
longer meeting the needs of all family-sized and beginning farmers and
ranchers who otherwise qualify under the "no credit elsewhere" test.

[The 2007 Farm Bill should increase both the direct farm ownership and
operating loan limitations from \$200,000 to \$300,000]{.underline}. We
do not support the idea of combining the two limits into a single,
higher limit. Since most borrowers are operating loan borrowers, a
single, higher cap will very likely lead to moving direct lending in the
direction of serving fewer, larger farm borrowers. Without a very
significant increase in appropriations for direct operating loans, this
would leave many borrowers on the waiting list, unable to access
operating credit. We believe, on balance, a \$100,000 increase in both
the ownership and operating limits will help update the caps without
threatening a large decrease in the number of borrowers being served.

While the farm bill does not set the actual funding levels for these
programs, it is true that the current authorized loan funding levels
were set with current loan limits in mind. If loan levels are updated
and increased, as they should be, the loan authorization levels should
also be changed at the same time. [We recommend an increase the loan
authorization program levels for direct ownership loans from \$205
million a year to \$350 million and for direct operating loans from
\$565 million to \$850 million.]{.underline}

**Graduation and Term Limits**

Under current law, there are restrictions -- referred to as term limits
-- on the number of years a borrower can be enrolled in the FSA direct
and guarantee loan programs. The term limits for direct loan programs
are seven for operating loans and ten years for ownership loans. There
is also a 15-year term limit on guaranteed loans, though Congress has
temporarily waived the provision. Once the term limit is reached, a
borrower must be able to graduate to private, commercial lender at
commercial rates or risk being unable to sustain their operation. Term
limits do not have any exclusions or extensions for events such as
natural disasters or export bans or other circumstances beyond a
producer's control.

The idea behind term limits is good -- that farmers will be able to
graduate from direct loans to guaranteed loans to commercial loans over
a period of time. Congress passed term limits in part due to past abuses
in which some producers simply became lifelong government borrowers by
default. However, the hard and fast limits are increasingly viewed as
arbitrary and an overly rigid in light of the uncertainties of
agricultural production.

[The 2007 Farm Bill should re-emphasize and strengthen the borrower
training program, loan supervision and regular loan assessment rules,
market placement and graduation procedures, and the family-sized farm
test and no credit elsewhere test.]{.underline} Congress should direct
the agency to issue rules and performance criteria that will ensure
these existing elements of the program are more fully utilized. The goal
should be to maintain a system that from day one has as its objective
starting successful farming operations and graduating borrowers to
commercial credit in the shortest period of time possible.

[On the basis of having those systems in place and fully funding loan
officer staffing and staff training requirements, Congress should
eliminate term limits]{.underline}. Properly applied, the existing
training, loan assessment, market placement, and family-sized farm and
no credit elsewhere limitations are effective in ensuring FSA credit is
playing its proper role of providing temporary assistance. With the
proper protections and directives in place, farm loan officers should be
allowed to do their jobs and make sound loans to qualified borrowers on
a temporary basis without the imposition of arbitrary term limits.

**FSA Pilot Projects**

In the last farm bill, Congress adopted the **Beginning Farmer and
Rancher Land Contract** pilot program to allow USDA to provide loan
guarantees to sellers who self-finance the sale of land to beginning
farmers and ranchers. The pilot program is currently operating in PA,
WI, IA, IN, ND, MN, NE, OR, and CA. The program is structured to provide
the seller of the land a "prompt payment" guarantee. The guarantee would
cover two amortized annual installments or an amount equaling two
amortized annual installments. For a variety of reasons, including an
overall reduction in land contract sales as land prices escalate and tax
sheltering possibilities increase for landowners, the pilot has seen
very modest interest and participation. Nonetheless, the concept seems
quite sound and [we recommend it become part of permanent law as a
regular nationwide program option in the new farm bill]{.underline},
with the following changes:

-   The current 2-year limit on payment guarantee created by regulation
    should be extended to three years.

-   The land seller should be given the option of choosing either the
    3-year prompt payment guarantee or a standard 90 percent guarantee
    of the outstanding principle.

[The new farm bill should create a new pilot program to start building a
USDA-run counterpart to the most urban-oriented Individual Development
Account program run by the Department of Health and Human
Services.]{.underline} A **Beginning Farmer and Rancher IDA pilot
program** would use special matched savings accounts to assist those of
modest means to establish a pattern of savings and to promote a new
generation of farmers and ranchers. The account proceeds may be used
toward capital expenditures for a farm or ranch operation, including
expenses associated with purchases of land, buildings, equipment,
infrastructure, or livestock, or toward acquisition of training. IDA
programs specifically targeted to beginning farmers are currently
underway in Michigan and California.

Each pilot project would involve an organization, agency, or partnership
that would be chosen on a competitive basis to administer the IDA
program. The pilots would target limited resource farmers including
minority and immigrant farmers. IDA participants attend workshops on
business planning, cash-flow projections, understanding credit reports,
farm tax rules, and other topics throughout the program. The program
would help each participant identify their asset goals related to
developing their farm businesses. Many programs would also help connect
beginning farmers with opportunities to lease or buy farmland.

Each pilot project would offer savings plans that match dollars saved by
the participants, generally on a 3:1 matching basis. Participants would
be committed to saving a certain amount each month for several years, so
that by the end of the program they would have funds to put toward a
down payment on a farm, or to purchase farm or processing equipment or
animals. Savings may also be used to qualify the beginning farmer for
public or private agricultural loan packages, for use as the borrower's
down payment for the FSA Beginning Farmer and Rancher Down Payment Loan
Program. Given the IDA's connection to future lending, we propose the
pilot be run by the loan making division of FSA.

The proposed Individual Development Accounts pilot project begins to
address two critical issues -- helping new farmers build equity and
preparing them to access credit. With this recommendation, I conclude my
testimony as it relates specifically to credit needs and recommended
policy changes. However, as I have already suggested, more needs to be
done to address the needs of beginning farmers and ranchers than just
making credit available on appropriate terms. I will conclude my
testimony by highlighting a few additional policy opportunities to aid
beginning farmers.

**Beginning Farmer and Rancher Development Program**

In the last farm bill, Congress authorized the Beginning Farmer and
Rancher Development Program (BFRDP), declaring it the first USDA program
other than farm credit/debt financing programs targeted specifically to
beginning farmers and ranchers. To be administered by USDA's Cooperative
State Education and Extension Service (CSREES), this competitive grants
program will fund education, extension, outreach and technical
assistance initiatives directed at new farming opportunities.
Unfortunately, the direct farm bill funding for the program was deleted
in conference and no appropriated funds have been forthcoming, so the
program has yet to get off the ground. [In our view, no single beginning
farmer proposal in the new farm bill is as important as providing direct
funding of at least \$25 million a year for this critical new
program]{.underline}.

The BFRDP is targeted especially to collaborative local, state, and
regionally based networks and partnerships to support financial and
entrepreneurial training, mentoring and apprenticeship programs, "land
link" programs, innovative farm transfer and transition practices, and
education and outreach activities to assist beginning farmers and
ranchers. Such networks and partnerships may include: cooperative
extension; community-based and non-governmental organizations; relevant
USDA and state agencies; universities; community colleges; and other
appropriate partners. Not less than 25% of funds appropriated for this
program are targeted to limited resource and socially disadvantaged
beginning farmers and ranchers and to farm workers seeking to become
farmers or ranchers. There is a 25% cash or in-kind matching
requirement. Grant terms may not exceed three years.

The program also establishes education teams, made up of representatives
of colleges and universities, cooperative extension, non-governmental
organizations, and agencies, whose task is to develop curriculum and
educational modules geared to different regions and farming systems for
use in a variety of educational settings and available online. The
curriculum and educational modules could include segments on new
markets, new crops, and value-adding enterprises.

**Conservation Incentives for New Farmers and Ranchers**

The conservation title of the 2002 Farm Bill authorized the Secretary of
Agriculture to provide special incentives to beginning farmers and
ranchers and limited resource producers to participate in federal
agricultural conservation programs. This provision has resulted in
several limited offerings by NRCS through farm bill conservation
programs, including a funding set-aside under the Conservation
Innovation Grants program and ranking points for farm transition
planning under the Farm and Ranch Land Protection Program. More far
reaching special incentives were unfortunately not adopted, despite the
new farm bill authority.

The 2002 Farm Bill also established a maximum cost share rate of 90
percent, a 15 percent cost-share differential or bonus relative to the
regular maximum rate, for beginning farmers and ranchers and limited
resource farmers in the Conservation Security Program (CSP) and the
Environmental Quality Incentives Program (EQIP). This cost-share bonus
was unevenly implemented from state-to-state.

The intent of these provisions is to help achieve two important public
policy goals: help get new farmers and ranchers get started while
encouraging them from the outset to adopt whole farm conservation plans
and strong conservation systems. Adoption of sustainable systems is
often far easier at the beginning of an operation's history than later
on once a system is in place and then needs to be changed or
retrofitted.

Setting aside conservation funding for beginning farmers and ranchers
makes good sense for the nation, as it will assist the new generation of
Americans farmers in establishing effective conservation systems on
their farms at the beginning of their farming career. Similarly,
assisting socially disadvantaged farmers in establishing and maintaining
conservation systems and practices on their farms secures more effective
conservation on the land and provides better access to these programs
for a historically underserved community.

[We recommend that the new farm bill continue the cost-share
differential and clarify the language to ensure even and consistent
implementation. We also recommend that the special incentives authority
be continued, but strengthened. We also concur with the Administration
that the new farm bill should reserve conservation funding for beginning
farmer and for socially disadvantaged farmers.]{.underline} We suggest
the reservation of funds be for the first four months following the date
of availability, and that at least ten percent of total funding for each
farm bill conservation program targeted to beginning and at least ten
percent targeted to socially disadvantaged farmers and ranchers. Within
that reserve, a higher maximum allowable technical assistance percentage
should be provided to better address the conservation planning needs of
new and socially disadvantaged farmer and ranchers.

**Beginning Farmer Research Priority**

Very little federal research funding currently is dedicated to new
farming opportunities, farm transfer and succession, farm transition,
and entry, or new farm-oriented production, conservation, marketing,
value-added, or viability issues. In relation to the aging of American
agriculture, the funding for research and extension on these issues
seems paltry indeed. The emerging generation of farmers includes both
people with farm backgrounds and those without. Of those without farm
backgrounds, many are coming to farming as a second or third career
change. They are ethnically and culturally diverse and interested in a
wide-range of crop and livestock systems. There is a large need for
research, development and diffusion of models for new farmer training,
land transition, making rental land accessible as an entry option,
accessible, lower risk production start-up options, alternative
marketing strategies, and alternative financing strategies. [The 2007
Farm Bill should include language in the research title making beginning
farmer and rancher (including socially disadvantaged and immigrant
farmer and rancher), farm transfer and farm entry, new marketing
alternatives, and related issues a priority research area. The new farm
bill should incorporate specific language designating a new national
integrated program area for these issues within the national competitive
grants programs and within risk management education
programs.]{.underline}

**Conclusion**

I appreciate the chance to provide the Committee with testimony that
reflects the realities experiences of farmers we work with at the Land
Stewardship Project. We hope our testimony is informative as the
Committee evaluates policy options to address credit needs in rural
America and how to best support new farmers and ranchers who will be
integral parts of our nation's food and agriculture system. There are
good opportunities in farming today: growth in local and regional
markets, organics and other value-added products, and -- hopefully very
soon -- energy crops. Because of this, there is real opportunity for
beginning and transitioning farmers. We believe a beginning farmer
initiative along the lines of what we have suggested within the new farm
bill will address key obstacles to beginning farmers and provides smart,
cost-effective start-up support and incentives for America's next
generation of family farms.