The Frustration of Government Grants
There has been quite a lot of news over the past few years regarding agriculture specific to governmental assistance, from providing crop subsidies during the Trump Trade War to the Biden Administrations attempt to tamp down inflation via meat processing capacity increases, as well as an attempt to revive a few ideas that had been tabled by previous administrations. The largest focus for the USDA is without a doubt the SNAP food assistance program that feeds millions of impoverished American families each day. The second is the loan and grant programs, which have been getting more attention as of late. Grants are not all what they seem, and while they sound great to the general public, the actual conditions are a bit more seedy, and usually end up capitalizing projects for businesses that don’t need the money and are a failure for their intended purpose for the small and middle market food supply.
Here is why these initiatives fail:
Applicants must be unable to finance the project from their own resources and/or through commercial credit at reasonable rates and terms.
Grants are awarded if the grantee meets the standards of which the grants are legally designated of which, most boil down to two established criteria:
A) Specific need, both in terms of financial and locale conditions, and;
B) The producers tenure or education as capacity within the agricultural establishment.
Both loans and grants follow these criteria and have varying levels of reimbursement. Grants come in three forms from the US government: direct application for specific needs based cases and are awarded prior to project implementation (formation grants), post project completion direct reimbursement (arrears fully funded), and finally post project completion direct reimbursement with a maximum based on program limit or financial needs (arrears, specific percentage funded).
Let me demonstrate a test case from 2020/21. We first applied for an FSA small operation loan, denied. The grant applied for was a rainwater collection system to collect and store runoff as irrigation for the fields. Terms: submit site plans to the award committee using tanks and equipment from an approved supplier. Once approved and supplier has delivered and installed system and landowner will be reimbursed up to $3,500. Meaning, we purchase the rainwater system out of our operating cash, and in the distant future they will reimburse us for not pumping water out of the aquifer.
Outcome: none of that. A mere $3,500, at a dollar a tank gallon only allows me to store 3,500 gallons of rainwater to irrigate from, that is roughly one week of irrigation water, and we tend to go two to three months in late summer with no rainfall. We have sandy, well drained soil, and a lot of surface area to cover.
The cheaper option was for my brother and I to rent heavy equipment and dig a 20,000 pond with a gravity flow system from parts from the hardware store. The grant covers none of it, so we chalk it up to a $1,800 capital investment.
Let’s extrapolate a bit.
Local meat processors can apply for grants to improve their current conditions, or apply for loans and grants simultaneously to buy or renovate an existing business. The specific locale needs to be in a sparsely populated area, around 20,000, and the borrower/grantee must meet the minimum requirements both financially and professionally or have an educational background to suit. Intended use of funds is implied.
First time farmers must meet the financial and educational requirements. Meaning the barriers to entry are a minimum of three years at such capacity (where there are no jobs and no training) and demonstrated financial need. Prepurchase of land and proof of concept helps, but ties up all operating funds and the farmer is left patching what little income they may have from odd jobs into smaller infrastructure like seeds, water hoses, etc. Loans require underwriting, grants are awarded if all conditions are met. Even established farmers may not be subject to grants. An acre farmed, per the IRS is a hobby farm, and acre can be profitable, but you have to show three profitable years out of five and be farming for the majority of the farmers income. One acre of anything is not enough to cover the land and input costs. At least three years to apply, and for a high tunnel or greenhouse purchase, the grant will only be awarded after the purchase and implementation of the infrastructure, which again, is a drain on cash flow.
Given these examples and various barriers, who are these grants for? Already established producers.
The failure of agriculture is not that the farmers are aging out or that urban sprawl continues to eat up cropland; the barriers to entry are so high that someone with passion, enough money to get started but lacking all other conditions is left on their own to finance a three year endeavor that ends either in success or bankruptcy.