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ADVANCED AGRICULTURAL CREDIT CONFERENCE, LAFAYETTE, INDIANA SEPTEMBER 5, 2018

Farm transfers from an owner without a family successor to a first-time farmer: Options and assistance. JULIA DEBRUICKER VALLIANT. ADVANCED AGRICULTURAL CREDIT CONFERENCE, LAFAYETTE, INDIANA SEPTEMBER 5, 2018. THE OSTROM WORKSHOP IN POLITICAL THEORY AND POLICY ANALYSIS. STUDY TITLE.

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ADVANCED AGRICULTURAL CREDIT CONFERENCE, LAFAYETTE, INDIANA SEPTEMBER 5, 2018

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  1. Farm transfers from an owner without a family successor to a first-time farmer:Options and assistance JULIA DEBRUICKER VALLIANT ADVANCED AGRICULTURAL CREDIT CONFERENCE, LAFAYETTE, INDIANASEPTEMBER 5, 2018 THE OSTROM WORKSHOP IN POLITICAL THEORY AND POLICY ANALYSIS

  2. STUDY TITLE Transitioning farms and ranches from one family to the next:Improving farm transitions with better programs and services This project is supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, under award number 2016-38640-25381 through the North Central Region Sustainable Agriculture Research and Education program under subaward number LNC16-377. Any opinions, findings, conclusions, or recommendations expressed in this presentation are those of the researcher(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE. USDA is an equal opportunity employer and service provider.

  3. BLESS THESE PEOPLE Study advisors

  4. Inspiration for the study “The transference of the farm has gone horribly, horribly wrong with The New Farmer. It's not a happy or pretty situation, for the last year. I really don't want my father to dredge it up. It's very complicated and somewhat private right now, so it might be that in time it would be better to reflect upon, but right now it's probably at its ugliest. We're all just devastated by that.” Farm owner’s daughter, southern Indiana, 2016

  5. Study: assessment of 30 farm link programs

  6. Increasingly common for farms to have nofamily successor A quarter of farm transfers going on at any one time are between unrelated people (USDA-NASS TOTAL, 2015) Typical course for a farm with no family successor is to first rent and then sell to an established neighbor Or the real estate might convert to non-farm uses On the other hand, such a farm represents a potential entry point for a first-time farmer who does not have a family farm to inherit • ~1990 – the first programs to help first-time farmers transition into an operation with no family successor Non-family farm transfers: normal patterns

  7. 70,000 new farmers per year is an estimate (Katchova & Ahearn, 2017) Most new farmers actually do not inherit their land Most U.S. farms are expensive to acquire and operate. The average operation is 415 acres and holds $1 million in assets (Williamson & Katchova, 2013) A national survey of farmers under 35 finds that land access is by far the most prevalent difficulty (Ackoff et al., 2017). Incoming farmers

  8. Acquiring ground from a non-relative Ahearn, M.C., 2013. Beginning farmers and ranchers at a glance, U.S. Department of Agriculture Blog. USDA-ERS, Washington, D.C.

  9. They may be: Operator Non-operator Absentee They want: their operation to continue as an ongoing business, or who seek a particular future for their land Goeller, D., 2017. Successful farm/ranch transitions, Risk Management Workshop Series. Center for Rural Affairs, North Central Risk Management Education Center, and University of Nebraska, Lincoln The farm owners these programs serve

  10. THE FARM OWNERS THESE PROGRAMS SERVE https://www.extension.iastate.edu/bfc/farm

  11. THE FARM OWNERS THESE PROGRAMS SERVE • Iowa State University Beginning Farmer Center Ag Link is for a retiring farmer who: • Plans to retire within the next 5 to 10 years • Does not have anyone to continue the farm business • Has a desire for the farm business to continue • Wants to help a beginning farmer • Would like to take maximum advantage of tax savings, such as reduced capital gains and income tax • Wants to help preserve their family farm business and their local communities by encouraging young Iowans to move into farming https://www.extension.iastate.edu/bfc/farm

  12. "For us it's important to give a beginning farmer a chance, and not just make a big farmer bigger. It's really a joy to help someone get started.” Farm owner, Hillsboro, Kansas (Nebraska Department of Agriculture, 2015) “I had this weird notion that I wanted to maintain our property as an entity. So when I first approached The First Time Farmer, I told him that my choice would be to sell my equipment to him, and have him do our farming, as opposed to just having an auction, and disposing of everything, and looking for the highest bidder on rent.” Farm owner, northern Indiana, 2018 The farm owners these programs serve

  13. What interest do you hear among your farm owner clientele in: • Keeping a farm going as an entity • Paying it forward: assisting a first-time farming family • A particular future for the land’s management (keeping it in farming, no-till, cover crops, organic, conservation, etc.) Now talk with your neighbor

  14. SECTION 2 Resources for farm transfer planning

  15. https://www.farmlandinfo.org/sites/default/files/FT6_LFG_Farm_Transfers_no%20successor.pdfhttps://www.farmlandinfo.org/sites/default/files/FT6_LFG_Farm_Transfers_no%20successor.pdf

  16. https://www.farmlandinfo.org/landowner-options/transfer-your-farm-or-ranchhttps://www.farmlandinfo.org/landowner-options/transfer-your-farm-or-ranch

  17. https://landstewardshipproject.org/morefarmers/farmtransitiontools/farmtransitionstoolkithttps://landstewardshipproject.org/morefarmers/farmtransitiontools/farmtransitionstoolkit

  18. https://www.cdext.purdue.edu/collaborative-projects/succession-planning/https://www.cdext.purdue.edu/collaborative-projects/succession-planning/

  19. http://www.inaglaw.org/

  20. http://libertyprairie.org/land-access-project/

  21. SECTION 3 Finding each other: Personal networks and “eFarmony” linking services

  22. https://www.practicalfarmers.org/find-a-farmer/

  23. https://thelandconnection.org/farmland/farmland-classifieds/for-salehttps://thelandconnection.org/farmland/farmland-classifieds/for-sale

  24. http://www.hoosieryfc.org/classifieds

  25. http://www.f2fmi.com/

  26. http://policy.oeffa.org/beginfarming

  27. http://www2.mda.state.mn.us/webapp/props4sale/

  28. THE FARM OWNERS THESE PROGRAMS SERVE https://www.extension.iastate.edu/bfc/farm

  29. SECTION 4 Financial and tax incentives for owners “Anything you can do to make it work financially alleviates the deviation between financial and other values.” - Program leader, Nebraska

  30. OWNER-SEEKER AGREEMENTS Beginning farmer state tax credit programs • To help an owner work with a qualifying beginner • Leases • Crop-share, herd-share • Sales • Types of tax incentives: • Income tax credit • Income reduction • Personal property tax exemption • 3 states: IA (2007), MN (2018), NE (1990) • In each state, 200-400 owners participate per year

  31. OWNER-SEEKER AGREEMENTS Beginning farmer state tax credit programs “The potential public cost is the loss of taxes, but if land is not going to come on the market for decades - or be passed through an estate with limited tax exposure - the real costs may be minimal. However, the effect could be significant if it induces more transactions, including inter-family transfers, in which new and beginning farmers (and younger landowners) have access to land.” Hamilton, N.D., 2010. Policy opportunities and legal innovations to support new farmers. Fordham Environmental Law Review • To help an owner work with a qualifying beginner • Leases • Crop-share, herd-share • Sales • Types of tax incentives: • Income tax credit • Income reduction • Personal property tax exemption • 3 states: IA (2007), MN (2018), NE (1990) • In each state, 200-400 owners participate per year

  32. OWNER-SEEKER AGREEMENTS Beginning farmer state tax credit programs • To help an owner work with a qualifying beginner • Leases • Crop-share, herd-share • Sales • Types of tax incentives: • Income tax credit • Income reduction • Personal property tax exemption • 3 states: IA (2007), MN (2018), NE (1990) • In each state, 200-400 owners participate per year “The best tool for state development goals.” Meuleners, A., 2013. Opportunities to facilitate and incentivize the transfer of agricultural property to new and beginning farmers. Drake Journal of Agricultural Law

  33. SELLER FINANCING Self-Directed IRA

  34. Transition of Ownership Interest

  35. OWNER-SEEKER AGREEMENTS Federal CRP-TIPConservation Reserve – Transition Incentive • For owners with ground in CRP • Earn CRP revenue for 2+ more years by teaming with a qualifying new operator: • Beginning • Veteran • Women • Minority • Sell, long-term lease, or lease with option to purchase • Indiana contact: Susan Hovermale, Indiana FSA

  36. OWNER-SEEKER AGREEMENTS- CRP-TIP Minnesota has 243 CRP-TIP contracts, = 29,000 acres, average conservation acreage is 38

  37. When selling real estate to a “beginning” or “socially disadvantaged” farmer • Less than 10 years’ experience • Women • Racial / ethnic minorities • Up to $500,000 • Certain credit requirements • Can be used with family • Never used in Indiana • Indiana contact: Mike Priest, Indiana FSA SELLER FINANCING FSA contract guarantee

  38. Aggie Bond • For banks or direct sellers • Federal exemption on interest income earned • Often in tandem with first-time farmer loan guarantee • Some states have equivalent exemption programs • Brings a lower interest rate for the borrower • Indiana does not use • Investment would be $30-50k for Indiana to adopt other states’ templates • Estimate that Indiana banks would use this 12x/year total

  39. Federal Aggie Bond in the NCR

  40. SECTION TITLE GOES HERE IF NECESSARY Federal and Indiana financing options not limited to first-time farmers • Indiana Finance Authority Agricultural Bond Program • Indiana Economic Development Corporation Capital Access Program • SBA 504 financing program – ideal for buildings • SBA 7-A tool for term loans • Indiana Business Development Loan Fund • Indiana Industrial Development Guarantee Fund

  41. Conclusion and questions for you

  42. Study: assessment of 30 farm link programs

  43. In Indiana, would more attention to transitions between non-related outgoing and incoming farmers help with agricultural productivity, innovation, and cycling of assets from one generation to the next? Demonstrated demand from seekers for listing / linking / matching services Large and increasing demand from owners in other states’ beginning farmer tax credit programs Conclusion and questions for you

  44. Questions for you • What interest do you hear among your farm owning clients who have no family successor - • Keeping a farm going as an entity • Paying it forward: assisting a first-time farming family • A particular future for the land’s management (keeping it as farmground, no-till, cover crops, organic, conservation, etc.) • What do you see here as next steps for Indiana?

  45. [Farmtransitions] list serv http://www.renewingthecountryside.org/farm_transitions

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