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help from the state

Posted: June 15 2009

State programs out to help young farmers
Two beginning-farmer programs are helping a new generation of farmers and ranchers with below-market interest rates, fee reductions and other services
by David Lester
Yakima Herald-Republic

PROSSER, Wash. -- Jon and Amy Martinez packed a lot into 2008 by anyone's standard.
The transplanted Kansans opened Maison Bleue Winery in leased space in the Winemakers Loft at Vintner's Village, bought a vineyard and bottled their first vintage.
Oh, and they got married in May.
It's all part of a dream to eventually build a winemaking facility and new home at the 31-acre vineyard site north of town. Their goal is to specialize in the wines made famous in the Rhone region of France.
But it may have been a dream delayed had Martinez not qualified for a program of the Washington State Housing Finance Commission in a partnership with Northwest Farm Credit Services to help beginning farmers get started in agriculture.
The primary benefits are below-market interest rates on mortgage debt and operating credit and the possibility of reduced fees.
"I don't think I could have done it otherwise," the 40-year-old Martinez said. "A lot of ag lenders wanted so much more down. Could I have done it? Yes, but I wouldn't have been able to do the winery at the same time. It would have been much more difficult."
Borrowers can save substantial sums in payments with the lower rate. For example, a 25-year, $300,000 mortgage loan at conventional rates of more than 7 percent would cost a borrower more than $26,000 in annual payments. The most recent borrower approved under the program obtained financing at 3.35 percent, which means annual payments of less than $18,000.
Young prospective farmers who didn't inherit the farm or marry into it face a daunting task to get their foot in the door with high lending requirements and lesser amounts of capital from which to draw, observers say.
These difficulties, along with the advancing age of primary farm and ranch operators, is driving programs to help new farmers.
The average age of farmers and ranchers in the state, according to the 2007 Census of Agriculture, is approaching 57.
The program, which launched last year, is a complement to an eight-year-old program offered by Farm Credit Services, a borrower-owned cooperative that specializes in financing farmers, ranchers, agribusiness, timber producers and the commercial fishing industry.
Wendy Knopp of Spokane, a Farm Credit Services vice president in charge of the cooperative financial institution's young farmer program, said the cooperative's regulator, the Farm Credit Administration, asked each association to develop a way to help young farmers.
"The number of young people entering had declined and the average age of the customer base was getting older," she explained. "They felt that we should see if there was something we could do more to help them."
The farm credit program, called AgVision, has assisted 660 producers since it began in 2001 with competitive interest rates, fee reductions and other services.
The housing finance commission, a 26-year-old self-supporting state agency, is authorized to sell tax- exempt bonds to help finance a variety of housing programs. Taxpayers aren't responsible for paying off the bonds. This tax-exempt bond vehicle is used by Farm Credit Services to make loans to new farmers at lower interest rates, sometimes as much as 5 percent below regular rates.
Tia Peycheff, director of the agency's capital project division, said lawmakers authorized the agency to start the beginning farmer program because of a concern about barriers to entry that spanned the agricultural spectrum, from small urban farmers to wheat ranches.
"We developed a program because we felt this was very important. I believe assisting beginning farmers is extremely important," she said.
Since the state program got off the ground, eight beginning farmers, including Martinez and two other Yakima Valley farmers, have received loans through Farm Credit.
The others are a Grandview couple growing organic vegetables on 92 acres and a fruit grower in Parker Heights.
Knopp said the partnership fit perfectly with what Farm Credit is trying to accomplish.
"One of the obstacles is access to capital and the high cost of farm ground, machinery and equipment," said Knopp, a 20-year employee. "A lot have limited resources for a down payment."
Farms are getting larger in the state to achieve economies of scale. The average Washington farm was 466 acres in 2007, a 4 percent increase from just five years earlier.
Concern about the graying of farmers prompted Northwest Farm Credit Services to launch its program and help spawn a new generation of farmers and ranchers.
Those obstacles have gotten worse during the current economic squeeze, said Doug Young, a longtime agricultural economist at Washington State University.
With access to credit tight, commercial banks tend to ration credit among their most creditworthy customers, he said.
The rationing of credit is as severe as Young said he has experienced in his 32 years as an ag economist.
"If you are established and have a lot of collateral, have your land and machinery paid for, you will move to the front of the line," he said.
Another major cost is machinery. Young said most young farmers have to rely on used machinery that breaks down more often and requires more repairs.
"Those are expensive for beginning farmers. It's almost prohibitive to buy land and start out on a scale that is commercial farming," Young said.
Martinez didn't encounter high land prices in Washington, not as high as in California, Oregon or British Columbia, where he looked to start his career in the wine industry.
Average prices for open crop land in Washington state lag behind other states in the region except Montana. Crop land prices in Washington are $1,890 per acre, compared to $9,900 in California and $2,260 in Oregon, according to a U.S. Department of Agriculture annual survey. The survey is effective as of August 2008.
A former dentist who spent six years doing research about the wine industry after falling in love with wine and food while visiting the Rhone region, Martinez said he settled on the Yakima Valley and Prosser because of its increasing reputation for quality wines.
While lower land prices were a plus, the obstacle to affordable credit remained a negative.
Martinez, who graduated from the Washington State University oenology program at the end of last year, said commercial lenders wanted too much down and charged higher interest rates, in the range of 8 percent.
That's where the partnership program played a role.
Martinez bought the 31-acre vineyard for $225,000 with an interest rate, thanks to the loan backed by the tax-exempt bonds, at about 3 percent.
Farm Credit Services had already qualified Martinez for the loan. With his eligibility in hand, Farm Credit bought the bond and made the loan.
The vineyard contains 9 acres of chardonnay grapes. The remainder is open for now.
Martinez said he hopes to pay off the loan early, adding another building block toward his dream of full control of the total operation.
"I want to have my space that I have full control of," he said. "Not everyone has your sense of how things should be done."


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