Annual Midwest Agriculture Conference: Confronting Barriers to Entry
Rising agricultural land values, diminishing farmland availability, and limited access to credit are primary barriers to entry for new farmers. Socially disadvantaged and women farmers and ranchers often face their own hurdles, including discrimination. And next-generation farmers are not immune to issues of land values and credit as they take over operations from older family members.
New farmers may stay small to focus on niche markets, producing value-added products as a way to add income and introduce new products. For others, the majority of their income may come from off-ranch/farm employment, sometimes simply to provide health insurance for the family.
With these and other issues facing new farmers, and with a new farm bill in front of Congress next year, David Oppedahl, policy advisor, Federal Reserve Bank of Chicago, opened this year’s Midwest Agriculture Conference by raising the following questions: Will the financial relief program for Black farmers get implemented? What about farmers from other historically underrepresented groups? How are new farmers impacted by ever-rising land costs at the same time farmland is diminishing? What about the environmental impact of new farms? How will the financial sector evolve to promote beginning and socially disadvantaged farmers and ranchers? This post summarizes the discussions from the daylong event, including a keynote by Zach Ducheneaux, rancher and administrator of the Farm Service Agency at the U.S. Department of Agriculture.
Jeffrey Hopkins, Economic Research Service, U.S. Department of Agriculture (USDA), shared his agency’s ongoing research on beginning farmers and ranchers, that is, those farming for ten years or less (not including next-generation farmers). He cited credit barriers, land barriers, technology, and market-based barriers, in particular, that affect historically underserved farmers and ranchers. Beginning farmers exhibit very high reliance on off-farm income, Hopkins said, adding that the most popular beginning farm types are located in areas where they play a relatively minor role in total agricultural production, which could be a symptom of credit difficulties.
Tax policy and goals related to land access are often in conflict, said Tia McDonald, research agricultural economist, Economic Research Service, USDA, especially when they impact intergenerational transfers and access for new farmers to land. McDonald shared a proposal that would increase land access for farmers who are young, beginning, veterans, women, or from an underrepresented racial or ethnic group.
The American Farmland Trust policy would exclude sales of agricultural land to the target groups from taxation for up to $1 million of capital gains. Young and beginning farmers are more likely to locate in metro counties, but that’s not where available land is, McDonald said. McDonald noted she wasn’t sure how far the policy would go to encourage more intergenerational transfers. While the proposal to exempt land sales to the target population from capital gains may increase land access, the current pattern of land transfers implies that the majority of sales would be unaffected, she said. McDonald also cited additional considerations regarding geographical distribution of target populations and available land.
While a few states, such as Minnesota and Iowa, offer estate tax benefits on selling to a beginning farmer, the proposed program would have a greater reach, if it goes into effect, said McDonald.
Fewer farms and farmers, compounded by loss of land to development, creates a special need, said Emy Brawley, Great Lakes regional director, Conservation Acquisition, and Illinois state director of the Conservation Fund, which has a dual mission of land and water conservation and sustainable agriculture. Brawley talked about the Working Farms Fund, which provides access and business support for beginning and next-generation farmers. “Most food is grown in metro or metro-adjacent areas,” Brawley noted. “That’s the same land that’s under threat to conversion.” The acres growing food in metro Chicago declined from just over 11,000 acres in 1995 to 4,600 acres in the mid-2010s. And our regional goal is to get to 10,000 acres growing food in metro Chicago by 2050, Brawley said.
Brawley said the benefits of getting younger farmers on the land are many: They innovate, do niche farming, try new business models, and most want to own land. The fund creates a pathway to affordable land ownership, permanently conserves farmland, accelerates the adoption of sustainable agricultural practices, and grows a resilient regional food system.
As interim landowner, the fund bridges the differences between old and new owners and most importantly, helps the farmer to focus less on financing and more on growing their operation.
Training partnerships help to ensure farmers’ success, and market partnerships help preserve farmland while boosting local food systems. Brawley said results of the Working Farms Fund to date include 10 participating farms of 750 acres in total, with 40 active farmers, of whom 75% are women or people of color, and $7 million invested in farmland purchases. Programs currently operate in Illinois and Georgia, and the Conservation Fund looks forward to expanding the program to other states.
Supporting new farmers
Research on the use of agricultural credit by beginning farmers was the focus of a presentation by Bruce Ahrendsen, professor of Agricultural Economics & Agribusiness, University of Arkansas. Ahrendsen looked at principal operators by race/ethnicity and gender and found that one in four are women, and about 30% are socially disadvantaged farmers or ranchers (SDFR, as defined by the USDA) in 2017. While there’s been an increase in parts of the country, there are smaller shares of women and people of color farming in the Midwest; for example, just 1% in Iowa and 3% in South Dakota of farms are SDFR-operated. Nationwide, 70%of farmers and ranchers are non-Hispanic White men. There has been an increase in farms operated by beginning primary producers, Ahrendsen reported. He also found a significant increase in the number of woman-operated farms from 2012 to 2017 and growth in the share of Asian American farmers beginning farm operations during this period. Direct and guaranteed credit programs from the USDA’s Farm Service Agency (FSA) appear to be crucial in enabling targeted groups (SDFR and women) to access loans, he said.
However, the programs may not be as effective at correcting historical inequities. The potential effects of alleged discrimination on SDFR exit from farming are important to acknowledge, Ahrendsen added.
But nearly 75% of all SDFR farmers didn’t pay interest (indicating no debt financing), according to Ahrendsen, raising the question of whether SDFR farmers might still be underserved. This concern seems somewhat less problematic in the Midwest than for the entire country. Is it because of farm structure differences, regional differences, differences in banking operations, or lending practices, he asked? Are there more resources available? These are all issues requiring future consideration, Ahrendsen said.
A project that focuses specifically on developing and supporting Black farmers is the Black Oaks Center in Pembroke Township, IL. Jifunza Wright-Carter is co-founder and president of this program in what was a thriving Black farming community in the 1940s–50s, Wright-Carter said, when 2,000 acres helped feed a region that extended to Detroit and Cleveland. “Our mission is to take the community from fallow to fruitful,” by restoring farming, re-establishing local food systems, and securing the needed resources and skill sets to successfully restore Black farming in Illinois and the Midwest, said Wright-Carter. Black farming is endangered with only about 188 farms out of a total 70,000 farms registered in Illinois, Wright-Carter said, in stark contrast to 890 in the 1920s.
Black Oaks Center faces challenges, according to Wright-Carter, citing land loss prevention, leasing land to train apprentices to farm, paying back taxes to turn farmland into a revenue-generating source, increasing equipment access to small farmers, expanding access to markets, and establishing third-party distributors, for example.
The center is also looking for lending programs that provide greater access to capital, tax incentives, and grant opportunities that will grow local equitable agro-economies, Wright-Carter said. To help make the project successful, the center looks to partners, such as the Chicago High School for Agricultural Sciences, Conservation Fund, Food Finance Institute, and Savanna Institute.
Wright-Carter sees a sign that Illinois is supporting innovations in farming, she said: The governor has signed a bill providing assistance to BIPOC (Black, Indigenous, and people of color) farmers to help address food insecurity in the state.
Also focusing on ways to support the next generation of farmers was Shari Rogge-Fidler, president and CEO, Farm Foundation, and a member of the USDA’s Equity Commission. Rogge-Fidler is also a fifth-generation farm operator in Nebraska, continuing a 150-year tradition.
Rogge-Fidler said it’s important to cultivate the next generation of farmers and understand the changes in farming and for farmers themselves. For example, Rogge-Fidler said, when new women farmers consider where to locate, they may also be looking at access to health care and schools.
The Farm Foundation is an accelerator of practical solutions for agriculture issues, Rogge-Fidler said. Farmer health, digital agriculture, market development and access, and conservation and sustainability are some focus areas. The foundation supports programs for mentors of next-generation farmers, as well as informing agricultural leaders. Another piece of the foundation’s work is with beginning and SDFR farmers through emerging research and providing resources and tools for beginning farmers and ranchers, including publications and conferences.
The foundation has purchased farmland in Libertyville, IL, for its Innovation and Education Campus to provide local, regional, and global in-person and virtual programs. Plans include holding boot camps for agricultural businesses and policymakers to promote restorative agriculture.
Keynote: Farmer and FSA administrator Zach Ducheneaux
Zach Ducheneaux, FSA administrator, USDA, is intimately familiar with barriers to farming and ranching. “I was a child of the farm financial crisis,” in the 1980s, he said. Ducheneaux came to his present position via time as executive director of the Intertribal Agricultural Council (IAC). He also served as a tribal council representative for the Cheyenne River Sioux.
He began by sharing a personal story: “The Production Credit Association saw fit to stop lending in Indian Country because of a couple bad apples and withheld operating credit for my old man. Production Credit withholding the capital that was needed for him to continue our ranching operation started a cascading effect, where pretty quick, the Farmer’s Home Administration said, hey, we need to get paid up too. So, he liquidated the cow herd, kept the land together, and we had to start over. He was 51 at that time, 51 and starting over with seven kids. So that will help you understand the formative processes that helped develop the philosophies that I’m trying to bring to bear as your administrator at the Farm Service Agency.”
Ducheneaux then shared his own farm credit story: “I went to six different banks and was turned down for a loan to buy some cows, even with a 90% guarantee by the Bureau of Indian Affairs. So, redlining and lenders' unwillingness to serve where they should really motivates everything that I do today because that still happens.” So that discrimination, both in its active form and its passive form, still are pervasive in the industry, he added, “and one of my jobs as the administrator here at the FSA is to try to chip away at that.”
Ducheneaux argued that: “Loan servicing should be used as a proactive tool. Instead of waiting for someone to fall off the cliff and try to lift them back out, do some data analytics, take a look at equity positions, take a look at balance sheet ratios, and step in there sooner.”
The FSA’s entire direct loan portfolio is about $6 billion a year. So, there's a lot of other capital out there, and the way the FSA can help farmers access that capital to start to advocate about what the agency is doing, Ducheneaux said.
The grand vision Ducheneaux would like to bring to bear during his tenure at the FSA, he said, is a system of agricultural finance that is really an investment in that producer, that has a return that covers the cost of capital, and that has repayment terms that are dictated by the producer. If there’s an investment out there that's paying for its own cost and meeting some other needs, and the producer can pay it back at their comfort, that eliminates a lot of their stress, he added.
“There’s a quote that I've heard and butchered repeatedly,” Ducheneaux said: “A system is perfectly designed to create what it produces.” Our system is perfectly designed for an ever-aging rancher, ever-aging farmer, more consolidation, and increasing debt, Ducheneaux added, and “we're going to have to do it differently if we want to have a different outcome.”
Financial capital for beginning farmers and generational transfers
The conference culminated in a discussion with two specialists in farm lending, Paul Dietmann, senior focused lending specialist with Compeer Financial, and Brad Guse, senior vice president at BMO Harris Bank. Chad Jorgensen, senior supervision manager, Federal Reserve Bank of Chicago, who is based in Des Moines, moderated the discussion.
Jorgenson asked: Do we have right tools for where agriculture is going? Dietmann described the emerging market program he leads, which has at its center a microloan effort begun in 2017. He said the program now has 300 participants, with a $5 million portfolio. While these loans are often under-collateralized because of unusual crops and animals or specialized equipment, they have been very successful, Dietmann said.
Are some niches more successful than others, Jorgensen asked? Dietmann said organic vegetables, value-added products, cideries, and, most recently, flower production have become profitable. The struggle has been in indoor agriculture, which is very capital intensive, he added, and costs are astronomical in cold climates.
Guse shared that he’s seeing more strategic alliances and growing niche markets. For example, in the dairy sector, renewable natural gas extends profitability, he said.
The panel went on to discuss challenges in generational transitions. Jorgensen asked: Do the size and type of operations matter? Guse said his bank sees layers of new entity formations. Nonfarm investments or larger operations make a transition more complicated. “Small or large, communication is a big hurdle,” he said.
Dietmann concurred that communication is the hardest piece: “It helps to have a third party facilitate the conversation. Everybody has a vested interest.” He suggested that it is important for the farmer to have a plan in place before seeing a lawyer.
Even with open communication among parties, Jorgensen asked, what obstacles affect the transfer of a farm operation? Guse said the parties need to be proactive, not reactive. So many make a death plan instead of an estate plan, he said. They can’t start soon enough to make plans because of the complicated nature of a management transfer, tax implications, etc. And flexibility is important, Guse said.
In closing the conference, Leslie McGranahan, vice president and director of regional research at the Chicago Fed, shared the following takeaways from the day:
- Farming is not a particularly easy way to make a living, but people have a real connection to farming and to feeding the people in their communities. And the connection can be shared through stories that are both personal and community based.
- There’s a lot of comparability with the conversations that we’re having today and the conversations we have about small businesses, in general, around access to credit, transitions, getting started, record keeping, lending, and lending products. Supports need to meet people where they are.
- The barriers to entry are both complex and nuanced—so access to capital at the right price and terms is important. You need land where people are and where they want to be, i.e., in urban-adjacent areas. And you also need farmland to open up to a new generation in order to have some of these transitions happen.
- Agricultural land and market access is increasingly complex.