The University of Maryland Extension talked with Steve McHenry, the Executive Director of the Maryland Agricultural and Resource Based-Industry Development Corporation (MARBIDCO), to learn more about two Next Generation Farmland Acquisition Programs offered to beginning farmers. The original "Next Gen Program'' and "SANG," the Small Acreage Next Gen Program, give financial assistance for purchasing farmland while also preserving land for food and fiber production.
Q: Thank you for speaking with the Beginning Farmer Success Program about the Next Generation Farmland Acquisition Programs. These programs have a dual purpose: supporting beginning farmers to help buy farmland, and preserving land for the longevity of agriculture in Maryland. Can you tell us more?
A: Thank you very much for this opportunity to discuss our Next Generation Programs. Access to land and access to capital are the two foremost challenges that beginning farmers face. The Next Gen Programs help to address both of these challenges by assisting a beginner farmer with buying their first farms by advancing a percentage of the farmland's fair market value at the real estate settlement while also placing the land on a path to become permanently preserved through a deed-restricted agricultural conservation easement.
Q: There are two Next Gen programs; what is the difference, and how do they work?
A: The programs work a bit differently because of the acreage size requirements and type of easement instrument that is used at the real estate closing when the land is transferring ownership. The original program requires a farmland purchase of 50 acres or more, unless the farm is contiguous to an already preserved farm property. MARBIDCO brings 51% of the fair market value of the land only - not the improvements on the land - to a real estate settlement table to purchase an option to buy the permanent conservation easement. Meaning MARBIDCO becomes the temporary conservation easement holder with this option contract purchase, and the farmer brings the remaining 49% of the land purchase price (plus money for any improvements such as a house) to become the farm’s owner by working with a commercial lender (a bank or farm credit association). After the settlement, we give the farmer seven years to sell the conservation easement to a permanent conservation easement holder such as the Maryland Agricultural Land Preservation Foundation, the DNR Rural Legacy Program, or a County Easement Preservation Programs, or whatever agency wants to hold the permanent conservation easement. The hope is that the Beginner Farmer can sell the permanent conservation easement for more than what we advanced when they bought the farmland, so more than 51%. Ideally, more than 54%, because MARBIDCO would get repaid the 51% it advanced, plus another 3% to help cover our administrative costs. For reference, the Maryland Agricultural Land Preservation Foundation (MALPF) Program can potentially pay up to 75% of the land's fair market value. After MARBIDCO is repaid, the balance of the permanent easement sales proceeds are retained by the farmer.
Q: How many farms have been purchased since the inception of the program?
A: We have funded 36 Next Generation farm purchases during the first five years that the original program has been operating, and two years for the newer SANG program. So we consider the program pretty successful. Some original Next Gen Program farmers have already sold to a permanent easement holder, and those funds that have been repaid have revolved back into the Next Gen program fund for future farm purchases.
Q: What happens if the farmer is not able to sell after seven years?
A:If, after seven years, the farmer cannot sell the easement for more than what we have advanced, they have two choices. They can pay us back plus accumulated interest, or more likely, we close on the easement and donate it to one of the permanent conservation easement holding agencies. Most likely we will donate the easement to the Maryland Agricultural Land Preservation Foundation because the Next Gen Program was originally designed to work with MALPF, which is a unit of the Maryland Department of Agriculture (MDA). But a permanent conservation easement has also been purchased by a county government in one instance.
Q: Have any farmers had a problem selling the easement to a permanent holder?
A: We are five years into operating the original Next Gen program now, so we haven't hit the seven-year mark yet with the first group of easement option purchases. We are anticipating one or two may have a problem. However, it is important to note that the participating Beginner Farmer received just over half of the value of the land to the settlement table to help them buy farmland they would not have been able to buy otherwise. And, the land is permanently preserved, so in reality it is still a win for all involved. The farmer wins and society wins. We certainly want the farmer to benefit as much as possible though, but that is potentially a risk of receiving “only” 51% for the permanent easement sale.
Q: Before discussing participation requirements, tell us about the Small Acreage Next Gen Program.
A: Many Beginning Farmers want to buy farms of less than 50 acres in size, so given that demand, we developed a new program two years ago with acreage requirements of a minimum of 10 to a maximum of 49 acres. Again, we are bringing a certain amount to the real estate settlement table, but MARBIDCO is in effect buying the permanent conservation easement when the property is transferred to the beginning farmer. We have been bringing between 30% to 50% of the fair market value to the settlement table in the projects we have assisted with so far. The dollar figure is based on the number of development rights being extinguished. For example, one development right being extinguished starts at 40% and it goes up from there to 60% for five developments. Also, starting last year, if the farmland does not already have a conservation easement and also does not have any development rights, we can now advance 30% towards the farm purchase. Because MARBIDCO is not a permanent easement holder, we then donate it to a permanent conservation easement holding agency after the farm purchase has been completed.
Q: How does MARBIDCO know who is going to hold the permanent agricultural conservation easement?
A: So it varies between the two programs. With the original Next Generation Program, we are contractually purchasing an option for the permanent easement, and providing the Beginner Farmer several years to sell the actual easement to an agency that holds and administers permanent easements. Since there can be no residential or non-agricultural commercial development on the property in the meantime, MARBIDCO has in effect placed a temporary easement on the property. And we do not specify at settlement who the permanent conservation easement holder is going to be (since we don’t know this yet). With the SANG program, we work with the county to figure out what entity is able to take and hold the permanent conservation easement, and we draft the easement document to fit into the parameters of that permanent easement holder to legally administer the easement. Very often, it has been MALPF, but our last SANG project actually involved the participation of a private local land trust since the property was not eligible for MALPF.
Q: So in the SANG program MARBIDCO is buying a permanent conservation easement, not “an option”, to help beginning farmers navigate getting onto farm properties less than 50 acres.
A: That’s right, we provide an opportunity for small farmers to get onto land that the MALFP program cannot buy an easement on due to the smaller farm size, or perhaps also because the soils do not meet MALPF’s quality standards. When we bring the down-payment money to the settlement table, we are basically preserving this property forever. After settlement, we donate the easement to a permanent easement holder. With SANG, we base the amount we pay for the easement on the number of acres and the number of development rights being extinguished. We can pay up to $4,000 per acre (based on an appraisal). Also, we are discussing with some counties the possibility of bringing supplemental money to the table moving forward. It hasn’t happened yet, but we are in discussions currently. For the original program, we pay a flat 51% of the farmland market value which is used as a down-payment to help buy the property.
Q: So for clarity, besides the acreage requirements and the percentage of the fair market value MARBIDCO advances, the main difference is that for the Original Next Gen program the farmer is responsible for selling the conservation easement to a permanent holder within a prescribed amount of time, and with SANG, MARBIDCO purchases a permanent conservation easement outright and then donates the easement to an agency that holds and administers permanent easements?
A: Yes, that’s correct. And, as I mentioned, with the original Next Gen program we do not know who the permanent easement holder will be when we go to settlement, and with the SANG program we do.
Q: Once the property is put into a permanent conservation easement, who is the official land owner?
A: The farmland remains in private ownership, and the beginner farmer now owns and has title to the land. An agricultural conservation easement is a deed restriction where only farming activity and food and production are allowed on that property. Still, the property remains in private ownership, so if and when the landowner dies, the property transfers to others as specified in the owner's will. But the land is still permanently protected for agricultural uses only.
Q: What about forested land? On the website it reads “helping to secure a viable future for Maryland's agricultural industry by preserving working farm and forest land for future generations”, can you clarify for farmers currently looking for land?
A: As with other agricultural land preservation programs, we view agricultural land and woodland as both being eligible as rural working land. More than half of all farms in Maryland also have woodlots and/or timber stands on them. Woodland is considered to be a component of agricultural land and the USDA Natural Resources Conservation Service classifies both agricultural and woodland soils in a manner that relates to the soil quality and productivity potential. Also, the 2017 USDA Census for Agriculture found that approximately 16% of the agricultural land that was surveyed in Maryland was actually woodland. But there is also other privately owned forestland in Maryland that was not picked up in the Ag Census.
Q: Does the woodland need to be in production?
A: Well, the forested areas may or may not be in production, per se, either as livestock forage areas or for timber harvesting, for example. If there is significant wooded acreage on a property, MALPF would require a forest stewardship management plan be developed for the property. Timber can certainly be harvested on properties having a conservation easement, following the guidance provided in the forest stewardship plan. The forest products industry is still very important to Maryland’s economy and forestry activity provides a potential source of income for farmers.
Q: How is MARBIDCO defining a beginning farmer and what is the criteria to quality?
A: We are targeting Beginner Farmers in these programs and use a definition similar to USDA’s of 10 years or fewer in farm management or operation. The Next Gen farmer must also want to farm the land actively and can't previously own a certain amount of land. The goal of the program is to get beginning farmers onto the land for the first time, not to help existing farmers to expand. Beginner Farmers are the priority with these programs. There are limitations around how much farmland the applicant can own before they apply. It is 10 acres for SANG and 20 acres for the original Next Gen program.
Q: How does the process begin for applying for one of the Next Generation programs?
A: It starts with the Beginner Farmer knowing what particular farm property they want to purchase. You don't get pre-approved in the abstract for these programs. The farmer must have a seller willing to sell the farmland, and the property cannot already be subject to a permanent conservation easement. So once a farm that is for sale has been identified, the Beginner Farmer will want to make sure it is eligible for a permanent future agriculture easement. This is where the staff at the County Agricultural Land Preservation offices will be of assistance. We have found the staff at the county offices to always be very helpful, and really these folks have been key to the success of this program. The Agricultural Land Preservation staff are usually (but not always) housed in a county's planning and zoning department, and the MARBIDCO truly relies on their help during this process. The county staff actually completes two of the five forms that need to be submitted with the formal application. So the next step after finding out from the county that the land does not currently have a permanent conservation easement, but could have one in future, is to enter into a purchase contract with a farm property seller. We very strongly recommend that the closing date for settlement be at least six months in the future after the date that the contract for sale is signed. There are many steps needed to conclude a Next Gen Program transaction. A commercial bank or farm credit association is always involved in a Next Gen project transaction to finance the rest of the money needed to complete the farm purchase, so the farmer will need to qualify for a commercial loan. Applicants must bring forward certain required financial information, as well as a farm business plan. The plan doesn't have to be fancy; it just needs to be clear. UME has an excellent program; the Rural Business Enterprise Center is great for finding sample farm business plans and thinking about how to structure a farm operation. Once the applications have been received by MARBIDCO, we have a committee of experts that reviews them. We originally set the program up to rank the applications using several criteria to help us determine which could be funded. Thankfully though, so far anyway, we have been able to fund all the eligible requests that we have had to date. We have had great support from the Maryland General Assembly for this program too.
Q: Are you seeing any challenges with the program?
A: The biggest challenge we are seeing today is the increased demand for rural property purchases. This has largely been caused recently by the pandemic and people wanting to move to the country. There has been a lot of competition for the smaller farm properties. We advise the Beginner Farmers to try to convince a seller to pick a real estate closing date at least six months out. There are several steps involved in completing a Next Gen program project, and it takes more time than with an ordinary farm purchase that normally happens with a bank or one of MARBIDCO’s loan programs. The fastest we have ever facilitated a Next Gen project closing was in just under five months, from start to finish, others have taken six or seven months. The farm property seller really needs to be willing to wait to get to closing. Thank you for taking the time to help beginning farmers navigate these programs. It is a great opportunity for farmers seeking to buy their first farms and to be a part of a conservation legacy in Maryland. Allison Roe is the direct contact for the Next Generation programs and can be reached at firstname.lastname@example.org.
Q: One more question before you go. Your degree is in political science, how did you come to agriculture and working with rural communities?
A: I actually grew up in suburbia, so I didn't have any rural background for the first 18 years of my life. I went to Saint Mary's College of Maryland, which was in a very rural area at that time. After college, I moved to Annapolis to work for the Maryland General Assembly. Soon thereafter, I became a lobbyist for the Maryland Municipal League, where for 12 years I worked closely with small communities all around the state. It was there that I really gained an appreciation for the needs of rural communities. Later, I had a chance to become the Executive Director of the Rural Maryland Council. That was 24 years ago, and I spent nine busy years there. I have been working with state legislators and around state and local government basically my entire professional life. A lot of my work has involved policy matters concerning agricultural development. One of our initiatives at the Rural Maryland Council was to establish an agricultural financial authority in Maryland. This work initially began in 1999, but it took until 2004 to get the State Legislature to formally create MARBIDCO and another three years to get some initial funding. So today, we are celebrating 15 years of MARBIDCO being in operation. I was hired as MARBIDCO’s first Executive Director in December 2006, so I am coming up on my 16th year. And I am very fortunate to work with such a great team of professionals in our small office in Annapolis. Congratulations, and I think it is notable that you have devoted your career to serving the rural citizens of Maryland. Thank you for your service.
To learn more about the “Next Gen” and SANG programs visit their website. To read more articles from Maryland farmers, industry professionals, and the projects that aim to support Maryland agriculture and Beginning Farmer Success! Sign up for the Beginning Farmer Success Newsletter & visit our archive.