An Urban's Rural View

Beginning an Inquiry Into Beginning Farmers

By Urban C Lehner , Editor Emeritus

People are often shocked to hear that the average American farmer is 58 years old. That's nothing. The average Japanese farmer is 66. During my recent trip to Japan I more than once heard people joke that the Japanese government doesn't have to protect farmers from the Trans-Pacific Partnership trade agreement, which lowers Japan's ag-trade barriers. All it has to do is outwait them.

The assumption hiding in this quip -- that no one in Japan wants to inherit farms or start new ones -- is an exaggeration, of course. In the U.S. it would be an outright lie. For many if not most large American farms, sons or daughters are eager to take over when mom and dad step aside. Young Americans who aren't inheriting but want to farm abound, as do "beginning farmer" programs aimed at helping these hopefuls overcome their lack of land, capital and training.

Within USDA, according to the department's Inspector General, six agencies spend $2 billion a year or more on programs that benefit beginning farmers. (http://tiny.cc/…). State ag departments and land-grant universities and nongovernment organizations have programs, too (http://tiny.cc/…).

Yet for all this interest and effort, USDA's 2012 ag census showed a 19.6% decline from 2007 in the number of farmers operating for 10 years or less and a 23.3% drop in the five-years-or-less category (http://tiny.cc/…). Yes, the number of long-established farms has also been declining, but not as fast as the newer ones. In 2012 only 17.2% of the nation's farmers had been operating 10 years or less, down from 26% in 2007 and 38% in 1982.

These statistics are not encouraging. Are we really doing that much better than Japan in making the transition to the next generation of farmers? Are the beginning-farmer programs working? Are they injecting agriculture with fresh blood?

The average age of the beginning farmers in the 2012 census was 49 (http://tiny.cc/…). This suggests that many of the new farmers are simply sons or daughters who are inheriting the role of principal operator later in life because mom and dad are hanging on longer. If that's true, how many young wannabes are actually getting into the game? Have the barriers to entry gotten so high that agriculture, like monarchy, is basically a family affair -- either you're born into it or you're not?

It's theoretically possible, of course, that the beginning-farmer programs, or at least some of them, are in some sense "working" -- that without them the decline would have been much steeper. Possible, but unclear. I have spent some time lately researching these questions. Maybe I'm just a terrible researcher, but I have not found answers.

In my defense, there's reason to think that I'm not the only one in the dark. Last year USDA's Inspector General examined the department's beginning-farmer efforts for fiscal years 2012 and 2013. The IG's report concluded USDA "lacked sufficient performance goals, direction, coordination, and monitoring to ensure success" (http://tiny.cc/…) and thus "cannot ensure that the $3.9 billion of beginning farmers' assistance in FYs 2012 and 2013 has achieved effective and measurable outcomes."

Another report -- by the Land Stewardship Project and National Sustainable Agriculture Coalition (http://tiny.cc/…) -- made a deep dive into one relatively small but potentially critical USDA program. The Beginning Farmer and Rancher Development Program gives grants -- authorized at $20 million a year from 2014 through 2018 -- to institutions developing beginning-farmer training resources. The two groups' June 2015 assessment of BFRDP concluded that universities received a greater proportion of the grants in fiscal year 2014 than community based organizations and nongovernment organizations, contrary to Congressional intent to favor CBOs and NGOs.

Whatever the merits of this assessment, it has limited value in determining whether the program is doing beginning farmers any good. In the taxonomy of the late political scientist James Q. Wilson, it's an example of focusing on a program's "output" rather than its "outcomes." It's obsessed with process, oblivious to results.

Of course, outputs are typically easier to measure than outcomes. But that doesn't mean we shouldn't try. Which if any of these programs do the best job of putting new farmers in business and keeping them in business? What works? What can be improved?

Readers, I'm interested in your thoughts. Can you point me to any programs you think are making a difference? Are you aware of any research analyzing the questions I'm raising? Do you know new farmers who've benefited from these programs? This isn't the last post you'll see from me on beginning farmers. I'm eager to get my hands dirty digging into this important issue.

Urban Lehner

urbanity@hotmail.com

(CZ)

Comments

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andrew mohlman 3/17/2016 | 7:34 AM CDT
Hard to keep my son for a slave while his friends are partying it up at spring break with plenty of money this county is not rewarding workers only scammers.
andrew mohlman 3/17/2016 | 7:34 AM CDT
Hard to keep my son for a slave while his friends are partying it up at spring break with plenty of money this county is not rewarding workers only scammers.
andrew mohlman 3/17/2016 | 7:25 AM CDT
Hard to believe people think the younger generation would want anything to do with non profit farming and get pimped around by a market that uses any excuse not to pay like farmers have a lot in there bins how lame there is a reason there holding to try and make a penny and not be a slave. Pay back will bite the longer no profits occur.
Urban Lehner 3/12/2016 | 7:09 PM CST
Thanks, Jason. That's a very interesting suggestion, waiving capital gains taxes on sales to beginning farmers, along with waiving income taxes on seller-financed interest income. I can see the appeal. I wonder if others would like to weigh in on this.
Jason Bode 3/11/2016 | 3:43 PM CST
By the way, the previous post was not written to be one long run on paragraph. There was supposed to be about seven - much easier to read. Hopefully my thoughts are not lost in the sea of the site's interpretation...
Jason Bode 3/11/2016 | 3:40 PM CST
I'm 12 years removed from going through some of these programs, so I can't comment on recent program changes; but I can say the programs as they were would have to be classified as highly frustrating. The programs have so many rules written into them to protect against abuse, that in my opinion, there is little chance of anyone with a real shot at "making it" actually qualifying for the programs.

I came out of college wanting to do something "else" and spent 8 years away in the high-tech consulting world building life experiences, management skills, and financial acumen. Similar to so many others, our parents were aging, expansion opportunities looked like they might be available, lets face it; there are few better places in the world to raise a family then Nebraska... Anyway, my brother and I both moved home the same year and formed an operating company separate from Mom and Dad. We intended to rent new ground and purchase or lease equipment through this operating company. My brother was fresh out of college and I had been away for quite awhile. I can't really think of any other textbook definition of beginning farmers.

Through our operating company, we applied to both the USDA and Nebraska Department of Agriculture programs available at the time. The NDA had a very nice Beginning Farmer Tax Credit for landowners who rented their land to beginning farmers. After multiple attempts through both programs, we were informed we didn't meet the qualifications of beginning farmers. I don't remember all the specifics, but because my wife and I had put money in our company's 401K matching funds program (money we couldn't realisticly touch for 30 years...); we were deemed too affluent for our landowners to qualify for the NDA tax credit. Since we were in the operating company with my brother, he was disqualified too - even with a four figure balance sheet. As you can imagine, all of this resulted in not so pleasant conversations with our landowners about why they weren't going to be getting a tax credit - even though they pretty clearly rented to beginning farmers. From that point, we abandoned examining these types of programs.

All's well that ends well, though. Both my brother's and my family are flourishing and we got to experience one of the golden ages in agriculture. The landowners that chose us in the beginning are still very much with us today. While certainly not over, the ending looks pretty pleasant right now. I'm sure there are other beginning farmer stories that didn't go according to plan.

In regards to the single biggest program that I think would help, my recommendation would be to waive capital gains taxes on land sales to an operating farmer, in the same or neighboring county, with at least three years on record with USDA, but not more than ten. No other qualification rules, other than the purchaser would have to qualify for financing through normal channels (non-USDA loans) - either the purchaser has to have brought some money "home" with them, made some money in their years of farming, or mom and dad have to put some collateral in the game to help get junior started. This way you have a good bet that the beginning farmer might actually "make it". Retiring landowners could seek out this class of operators while they are still alive and have the final word on who ends up with their land - not their estate or the auctioneer. The seller could choose a lower bid from this group if they wanted because of the tax savings. The purchaser inherits the seller's tax basis, so if they want to make a quick buck and abuse the program by flipping the land, they now owe the capital gains taxes. Inter-family sales would be allowed because of the transfer in tax basis. The first road block people will put up is the "cost" because of the loss in capital gains taxes. Lets face it, once this land goes through a well planned estate, there is very little chance capital gains taxes would have been paid anyway, so the true cost would be very, very low.

It's pretty hard to farm without land, and 12 years later, I can't think of any more effective program to put land in beginning farmers hands while they are in that 25 to 40 year old range. All the government sponsored education and university grants does very little to put land in beginning farmers hands, while I feel the capital gains waiver would be very effective; and cost virtually nothing in the long run. Take a step further and waive income taxes on seller financed interest income and you have an absolute home run. Talk about outcome instead of output.