Without a low-interest agriculture improvement loan from the Rural Finance Authority, Greg Piller said he wouldn’t have been able to expand his dairy farm from about 60 to 120 cows. The loan helped to build a new barn and other buildings to improve their production and improve the facilities to “run more efficiently, so we were able to increase our herd without basically adding any labor,” he said.
Like Piller, many beginning farmers and those struggling financially have turned to the state for help. The RFA, a division of the Department of Agriculture, shares risk with commercial banks to give various types of low-interest loans to farmers. About 2,400 farmers have benefitted from the authority’s loan program since the Legislature established it in 1986.
Since then, the RFA has issued $161 million in loans. As of December 2009 the outstanding loan balance was $55.7 million, representing 623 loans.
Dennis Kasper, vice president of agriculture loans at Security State Banks of Wanamingo, said many of the basic farm loans he helps young farmers process are to obtain needed land and for dairy farm expansions. He said an interest rate of just 3 percent to 4 percent can “make or break a young farmer’s cash flow.”
“It’s tough for a new farmer to get involved unless he’s connected with his dad, or programs such as RFA’s beginning farmer program,” Kasper explained. Livestock expansion and equipment programs are permitted fund uses to help dairy farmers expand their herd and install technology upgrades, such as robotic milking devices, he said.
Many times Kasper will help farmers obtain federal farm loans and RFA loans combined. The advantage of the state programs is they are more user-friendly with less paperwork, he added.
A winning relationship
RFA Director Peter Scheffert describes the relationship with banks as “a win-win all around.” He said the authority doesn’t want to compete with banks, but “to be able to support them, and not do a job the private industry can do.” By sharing the loans with banks it helps reduce risk to the bank and lowers the interest rate to the beginning farmer, he said. Since its inception, the authority has only had 15 loan losses totaling $200,893.
Jim Boerboom, deputy commissioner with the Department of Agriculture, said the loans are a great example of a public/private partnership with limited credit risk to the state and financial institutions. RFA works with more than 400 commercial banks and 32 farm credit offices across the state.
As provided for by the state constitution, the state sells bonds and the RFA uses the bond proceeds to fund the loans to farmers while offering them at a reduced interest rate. The authority has received requests to expand their program to such things as loan guarantees, but it’s resisted because of the increased credit risk, Boerboom said.
Because of the economic stress of commodity prices in the livestock industry during the past year, RFA is finding dairy and hog farmers using a lot more restructure loan programs, said Scheffert.
“If we’re going to give you money, we want you to be successful,” Scheffert said. Therefore, farmers using RFA loan programs are required to attend a farm management education program that meets less than 10 times a year. Using computerized analysis a farmer can compare their data to others, thus showing the strengths and weaknesses in a farmer’s cash flow, he said.
Scheffert said while the RFA has some expansion ideas, now isn’t the time to ask the Legislature for adjustments in programs that might need funding. The RFA has sufficient funds to meet loan demand though 2011, he said.
The major loan programs offered through RFA’s bond proceeds include: basic farm and seller assisted loans for entry level farmers to purchase land; agricultural improvement program for upgrading technology, such as grain elevators or manure systems; livestock expansion or equipment programs; and a restructuring program to help farmers reorganize their debt.
The authority also manages a revolving fund that supports the following loan programs: value-added agriculture product stock, disaster recovery, livestock equipment pilot and methane digester.