A 2012 study to identify barriers to new farmers joining agriculture found that start-up costs and access to land continue to be substantial barriers. The study examined industry issues faced by both new and experienced farmers who lacked direct farm ownership experience.
Although the study did not identify any new barriers to entry that had not been previously identified, the study showed that Canadian financial institutions specializing in, or with significant portfolios in agriculture, did not perceive there to be access to financing challenges. Although lenders stated no barriers existed, little statistical evidence could be offered to support this view. In most cases, lenders referred to succession applicants or entrants with substantial equity. However, the use of standard lending techniques as a means to access debt capital was truly not an option for all new entrants.
The study confirmed that having a business plan and strong agricultural knowledge are key to accessing financing. For land purchases, the requirement to have at least 25% for a down payment proved to be the most challenging barrier for new entrants. With the combination of increased farm size and high land prices, these financial barriers are increasingly difficult, creating a greater hurdle for new entrants.
Other study highlights include:
- 80% of new entrants have some form of previous agricultural expertise
- Many new entrants are attracted to the lifestyle and are proud to produce food
- 75% of new entrants acknowledged they lacked certain specific skill sets, and many noted the need to improve their financial skills
- Many new entrants relied on personal finances from family/friends to start their new business as opposed to relying on financial institutions
- Respondents reported that access to other farmers and networks/contacts expanded their knowledge base
- Nearly 100% responded that it was important to network with peers and most preferred to do so face to face at events
- Having a mentor was noted as being very important
New Entrant Lending Program
To overcome these new challenges, one of the primary recommendations of the study was to replicate a successful new entrant lending program from the United States (U.S.) called FarmStart (not related to the Ontario-based organization).
The U.S.- based FarmStart program was created to assist beginning farmers and new cooperatives through startup, providing investments in working capital of up to $50,000. Repayment of these funds is up to five years, but recipients must make quarterly dividend or interest payments.
However, the FarmStart project does much more than providing funds; FarmStart is a key element in the success of start-up agriculture business. Not only do recipients have the opportunity to develop a successful credit score, they also get to learn the discipline of effective cash flow management. Since it began in 2005, the U.S. FarmStart program has assisted over 100 new business agriculture ventures. Most amazingly, less than 4% of the new ventures have failed and lost money.
The U.S. FarmStart program is designed to fill in the gap in existing U.S. agriculture lending programs for people who are unable to obtain working capital through conventional lender/programs. The program is geared at young or beginning farmers with the following profile:
- Have a good business idea – a dream
- Good credit history (may be a limited credit history, but a credit score of at least 660)
- Solid business plan
- Monthly cash flow budget
- Two years of relevant industry experience
Let us know if you would support the start up of an organization similar to FarmStart — take our survey.
Investment in this project has been provided by Agriculture and Agri-Food Canada through the Canadian Agricultural Adaptation Program (CAAP). In Ontario, this program is delivered by the Agricultural Adaptation Council.