July 13, 2006: Just as organic farming is
becoming more recognized in the marketplace, various USDA
agencies have not only accepted the practices but are responding
with actual enthusiasm. The Farm Service Agency (FSA) Loan
Program officers have worked successfully with farmers in
many areas of the United States to provide financing for a
wide variety of organic operations.
Joe Reuter of the Vernon County FSA loan office in southwestern
Wisconsin has found organic producers to be “fantastic”
candidates for this loan program, giving not only one loan
but, many times, subsequent loans before the first loan has
been paid off if the operation is on target with the business
plan. Numerous loans have been given to organic egg, beef,
dairy, food processing and vegetable operations with the relationship
benefiting both Joe and the producers. Joe visits the farms
periodically to make sure construction projects and other
activities are on track and the local farmers' market almost
every week to chat with and buy from the farmers.
While many farmers have off-farm jobs to support their on-farm
enterprises, some have taken a different route. They've left
their jobs and gotten low-interest fixed-rate loans from the
FSA so they can put all their energy and time into making
their farms a lucrative business.
“Everyone thought I was nuts to leave my 'good job',”
stated Erin Varney of One Sun Farm. She could see that it
would be many years of part-time work to develop the 5 acre
produce farm and bakery that she, her husband Dave, brother-in-law
Adam and farm intern Jillian wanted to make a viable business.
All four work full-time on the farm now, using two loans totaling
more than $150,000 for both capital improvements and operating
Erin says their family life has also been greatly improved—she
and Dave are home with their kids and don't have to divide
attention between off-farm and on-farm work.
The Varneys attended a seminar a few years ago with the Land
Stewardship Project (www.landstewardshipproject.org)
in Minnesota where they learned how to write a realistic farm
business plan. They also had experience with the documentation
needed to be a certified organic operation, so when they walked
into the FSA loan office and asked about financing, the amount
of paperwork was not a surprise. Although Erin estimates their
FSA file is more than 10 inches thick, FSA loan officers have
found that organic farmers typically already have very good
records, making the loan process go smoothly.
The Varneys own a total of 35 acres of land with approximately
5 tillable acres. They wanted to build an on-farm bakery where
they could make pizzas using the vegetables they grow and
meats from the hogs and cows they raise, and where they could
sell jams, honey and maple syrup from their fruits, beehives
and maple trees. The first loan they received in 2005 helped
them consolidate their credit card debt that had accrued from
running their produce operation and remodeling their home
for the small bakery.
As more and more family-sized farms
disappear from our landscape, the FSA has found organic
production to be one of the few areas of growth and
Woodstoves are located in an insulated room adjoining the
kitchen area of the bakery so they can gain the benefits of
wood-fired baked products and still be able to work comfortably
in the kitchen. The Varneys, using the One Sun Farm brand
name, originally started making breads as well as pizzas but
found the bread was too “temperamental” in the
humid summers of Wisconsin. Pizzas were also a higher value
product which could be frozen for storage pre-sale. Large
insulated coolers could hold many frozen pizzas when they
attend two local farmers’ markets each week and make
their deliveries to both mainstream supermarkets and natural
food coops. Cookies and other sweet treats are also baked
on a weekly basis. While the farm and bakery operations are
not certified organic, the pizza ingredients are all organically
grown or raised, and having direct contact with their customers
has allowed the Varneys to continue getting a premium without
using the word “organic” on their products.
After a year, the Varneys went back to Joe at the FSA loan
office and said, “We have created a really good business,
but are still constrained by our lack of infrastructure. Can
we get another loan?” In 2006 they received their second
loan, this time to remodel some of their home by putting on
a second story as well as adding on retail space. This will
help them recover some of the living space they lost when
they turned part of the house into the bakery, and give them
more on-farm marketing options. A new produce shed was being
finished by an Amish crew the day I visited One Sun Farm,
built to meet the specific needs of a small CSA with enough
space to effectively dry the large plantings of garlic. FSA
was also financing a small cabin with living space upstairs
for farm partner Adam and intern Jillian, and tractor/farm
equipment storage downstairs.
Erin found the FSA folks “very helpful” throughout
the process. If they were stuck or were having trouble understanding
what was needed, Joe was there to answer questions and make
suggestions. FSA does not want to compete with private loan
institutions so the Varneys needed to show they could not
get private financing from at least three other institutions.
FSA loans are typically 2 points under the local bank interest
rates, and the Varneys make one annual payment on December
31st each year. The loans are amortized for 40 years and have
no penalty for prepayment. Each county may have slightly different
rules and availability of funds.
Three years of business records were required to illustrate
the Varneys had the experience and track record to run a business
and handle their expanded capabilities. Tax records, spreadsheets
with assets and liabilities, income and debts from the past
as well as projected income for the coming years based on
increased income generated by the improvements made possible
by the loans were submitted.
Erin stated that “no banks would touch them”
since they had a pre-existing mortgage on their farm and very
little free and clear collateral. Most banks do not like to
fund what appear to be “start-up” operations,
whereas the FSA is interested in aiding smaller farmers maintain
and diversify their operations. The loan agency does watch
the expenditures very closely and cuts checks to the Varneys
based on receipts for farm expenses. Receipts must clearly
detail purchases that meet the described items in the business
The better producers can explain
organic requirements to the loan officer, the better
chance they have of receiving funding for items that
may be different from traditional farm needs.
An 18-page “Producer’s Guide to FSA Loan Programs”
is available from local county FSA offices. The various loan
categories are clearly described and include capital improvements
as well as operating loans for both new and experienced farmers.
Eligibility, loan sizes, down-payment requirements for land
purchases and emergency loans are all explained in this brochure.
Two farms are highlighted as success stories—one of
them is an organic orange orchard in California. For information
on-line, go to www.fsa.usda.gov/pas.
Explaining organic rules
Organic producers may have a few extra challenges in obtaining
loans since there are specific organic requirements that may
not be understood by the FSA loan officers. One operation
in Wisconsin was unable to convince the local FSA office to
include the cost of a large predator fence for the mid-sized
organic egg operation. However, once it was clearly explained
to the FSA that organic poultry must have outside access in
order to achieve the organic label and gain the organic premium
in the marketplace, the funds were approved.
While many FSA agents may not be familiar with organic regulations,
they have heard of organic production and know there are rules
that must be followed. The better producers can explain organic
requirements and practices to the loan officer, the better
chance they have of receiving funding for items that may be
somewhat different from traditional farm needs.
While in the past FSA did not have a presence in the sustainable
agriculture arena, they now attend many organic and sustainable
agriculture conferences and are actively advertising their
services. The FSA mission is to provide family farmers with
loans to keep those farms viable. As more and more family-sized
farms disappear from our landscape, the FSA has found organic
production to be one of the few areas of growth and success.
Many FSA loan officers view organic agriculture positively
due to its proven track record of profitability. As “traditional”
farms disappear, organic has become more important by default
and FSA is seeking out organic producers to aid with loans
and credit counseling. Expansion of produce farms to include
livestock, purchase of land and equipment, support of Amish
farms and other value-added businesses are all viewed favorably.
Producers looking for a loan must show they have the commitment,
ingenuity, strength in their family unit and ambition to successfully
complete their business plan. The FSA as lender takes a monetary
risk with the producer and will assess both the viability
of the plan as well as the applicant’s ability. Banks
are also becoming more open to funding organic operations
but the FSA loan program offers more “risky” operations
the opportunity to find both funding and financial counseling
when creating or improving their farm operation.