Agricultural credit plays an important role in agricultural development. Agricultural household models suggest that farm credit is not only necessitated by the limitations of self-finance, but also by uncertainty pertaining to the level of output and the time lag between inputs and output.

Agronomy is the science and technology of producing and using plants in agriculture for food, fuel, fiber, and land restoration. It is both a humanitarian career and a scientific one.

Agronomy has come to encompass work in the areas of plant genetics, plant physiology, meteorology, and soil science. It is the application of a combination of sciences like biology, chemistry, economics, ecology, earth science, and genetics.

Agronomists of today are involved with many issues, including producing food, creating healthier food, managing the environmental impact of agriculture, distribution of agriculture, and extracting energy from plants.

Agronomists often specialise in areas such as crop rotation, irrigation and drainage, plant breeding, plant physiology, soil classification, soil fertility, weed control, and insect and pest control. Let us see the important role credit flow plays in this industry.

• What Is Agricultural Credit?
• How Agricultural Credit Works
• 10 Ways An Agricultural Loan Can Help Farmers Grow
• How to get Agricultural Credit
• How Modern Entrepreneurs can Manage Debt in the Agricultural Sector?
• What Are the Benefits of Agriculture and Farmers?

What Is Agricultural Credit?

The term agricultural credit refers to one of several credit vehicles used to finance agricultural transactions. These vehicles include loans, notes, bills of exchange, and banker’s acceptances.

Read Also: How to Revive The Economy Using Agriculture Model

This type of financing is specially adapted to the specific financial needs of farmers and allows them to secure equipment, plant, harvest, marketing, and do other things that are necessary to keep their farms running.

How Agricultural Credit Works

When someone needs credit, they often turn to banks for loans or other credit vehicles. Some industries have special facilities set aside through certain financial institutions as is the case with agribusiness—the business sector encompassing farming and farming-related commercial activities which involves all the steps required to send an agricultural good to market—production, processing, and distribution. This is called agricultural credit, which is available in many different countries.

The Federal Farm Credit System (FFCS) plays a key role in agricultural credit in the United States. The FFCS, which has been around since 1916, is made up of a series of institutions that have more than $180 billion in assets.

These institutions range from wholesale banks and retail lenders that provide an estimated 35% of the real-estate and non-real estate borrowing needs of U.S. farmers. Short-term credit finances operating expenses, intermediate-term credit is used for farm machinery, and long-term credit is used for real estate financing.

Agricultural credit, which is also commonly referred to as agricultural finance, is an important component of the economy, especially in countries with arable land since agricultural products can be exported. Credit is vital to agricultural businesses because it gives farmers access to capital that might not otherwise be available to them.

It helps them secure the seeds, equipment, and land they need to operate a successful farm. Agricultural credit programs not only help farmers and other agricultural producers, but it also supports ranchers and rural homeowners with their finances.

Credit needs to be made available on competitive terms to allow American farmers who operate in a free market economy to be able to compete with farms that receive state financial subsidies, such as in the European Union (EU) or Russia.

If this credit wasn’t available, the U.S. agribusiness sector would face unfair competition when it comes to securing the equipment and arable land needed to produce agricultural products for the global market place.

Countries with farming industries face consistent pressures from global competition. Products such as wheat, corn, and soybeans tend to be similar in different locations, making them commodities.

Remaining competitive requires agribusinesses to operate more efficiently, which can require investments in new technologies, new ways of fertilizing and watering crops, and new ways of connecting to the global market. Global prices of agricultural products may change rapidly, making production planning a complicated activity. Farmers may also face a reduction in usable land as suburban and urban areas move into their areas.

Just like any other industry, many entrepreneurs in the agricultural industry also find the need to diversify in order to maximize their profits. So farmers may not just grow single commodities or one type of livestock.

Instead, they may need to think beyond existing operations. Doing so requires capital. The availability of agricultural credit helps these borrowers realize their dreams of expanding into more complex businesses.

10 Ways An Agricultural Loan Can Help Farmers Grow

The costs of starting up and running a farm can be overwhelming, and it’s likely you’ll need financing – especially if you’re new to the industry. That’s where an agriculture loan comes in.

Agriculture loans are specifically designated for use in the industry, and there are plenty of ways you can use the proceeds to get your farm or ranch up and running or expand your operations. Careful use of that loan will set you up for success.

Before you even apply for an agriculture loan, you’ll want to plan how to spend the money. What resources will most benefit you and keep your business running? How much do you need to borrow? You’ll need to have these plans in place before you obtain the loan, as they will ensure that you use the loan in the right way.

So how do you decide how to use your agriculture loan? Here are ten options to consider:

1. Buying Farm Equipment

You can’t run a farm without specialized equipment. From tractors to irrigation systems to silos, your business is only as good as the equipment you use. High-quality, reliable equipment lasts longer and will make your job easier, but it comes with a hefty price tag.

If you’re just starting out in the agriculture business, you may significantly underestimate the price of specialized equipment. Before you over (or under) commit, thoroughly research the costs and options for the equipment you’re going to need and make sure it fits into your business plan.

Itemize the cost of each piece of equipment, including operating costs (like gas) and maintenance and repair costs – you can’t fix a tractor tire with baling twine! Consider consulting with other people that have experience in the industry to get their insight on what kind of equipment you’ll need, what you can expect to pay for it, and what it costs to run and maintain.

If you’ve been in the business for a while, you may already have a good sense of what you need. However, you still need to price out every piece of equipment you plan to buy. You can also evaluate the equipment you already have – it may be cheaper to repair some things than to replace them, depending on the cost and the expected lifespan of the equipment.

Once you know what you need in terms of equipment, factor it into the size of the agriculture loan you’re planning to take out and make sure you’ll be able to handle the payments.

2. Purchasing Supplies

What do you need in order to grow crops? Seeds and dirt! If only it were that simple to get your farm off the ground! However, you also need equipment (as we previously discussed), fertilizer, harvesting tools, and money for these and all the other costs associated with starting a cash crop.

Your agriculture loan can help you get off on the right foot by enabling you to purchase necessary supplies, whether that’s a truckload of heritage tomatoes or a herd of Heifer cattle.

Keep in mind that you won’t be generating any cash until harvest time, so plan your loan amount accordingly – you may need to borrow enough to cover your operating expenses until you start to generate revenue.

3. Covering Land Costs

Agriculture loans can be used to purchase or lease land. The ins and outs of purchasing farmland can be tricky, and the land you need will depend on the type of farming you plan to do. You’ll need to work out what kind of land and how much of it you need and how much it’s going to cost so you can decide how much to borrow.

Note that it may be difficult to obtain an agriculture loan to purchase land without providing something as collateral. Banks know that farming can be a tough business to succeed in and may want some backing or a loan cosigner to ensure that they’ll be repaid.

4. Refinancing An Older Loan

If you already have agriculture loans outstanding, you may want to refinance. This means taking out a new, lower-interest loan and using the proceeds to pay off the old, higher-interest one. You still have an outstanding loan, but you’re saving money due to the lower interest payments.

This is a decision that only makes sense if the interest savings outweigh the refinancing costs, so it’s best to discuss with your financial advisors and your business team to make sure it makes sense for you.

5. Marketing Campaigns & Advertising

Once you’re up and running, you’ll need to market your products to the public and to vendors. From websites to logos to focused ad campaigns, PR and marketing costs can really add up. If you’re not familiar with marketing practices, you may want to talk to a consultant to decide what channels will be most effective for you.

For example, trade journals may be a good way to reach out to business-to-business customers while online marketing may be a better way to get to retail customers. You can use your agriculture loan funds to boost your visibility – just make sure you’re getting the most bang for your buck.

6. Making Land Improvements & Repairs

Farms need constant upkeep and maintenance to run efficiently. Agriculture loans can be used for expensive upgrades or repairs to land or infrastructure. This kind of capital improvement can help boost your farm’s value, make your business more efficient, and improve your products.

And in today’s market of conscious consumers, you’ll want to keep up with the latest trends in ethical farming and land care. This means sinking some money into improvements up front, but pulling in big payouts in the long term. Just make sure you’re using some of your budget to advertise your big improvements!

7. Investing In Growth

A farm loan can be used to grow your business. When you first started out, you needed to spend a large amount of money on land, equipment, and other supplies. Expanding your operation takes similar kinds of investment.

Use your agriculture loan to buy more land, larger facilities, more cattle, more equipment, more – well, you get the picture. You can also use the proceeds to hire more help – a bigger operation is going to take more hands!

8. Weathering The Storm

Farming is a fickle business. You never know how well your crops or livestock will fare from year-to-year. As with all businesses, you are at the mercy of your consumers and buyers. Commodity prices are notoriously volatile.

In addition, some farming is seasonal. Your slow season may need a cash infusion to keep the lights on and the business moving forward. You can use an agriculture loan to protect yourself through the ups and downs of your business.

Use it to cover operational costs and the costs of getting back on your feet. It’s impossible to plan for and protect yourself from every eventuality, so agriculture loans are there to help you weather a lean season.

9. Covering Operating Costs

At the outset, the cost of running your business and getting off the ground can be prohibitive. You can use your agriculture loan to pay your employees, cover bills, and take care of expenses until you start to generate cash flows. This is not forever – once you’ve gotten the swing of running the business then you’ll be able to cover your own costs. But in the interim, a farm loan can help you make ends meet.

10. Rebuilding After Natural Disasters

The USDA Farm Service Agency (FSA) has a program in place to help farmers recuperate after natural disasters. You may face drought, flooding, tornadoes, fire, insect or disease infestations, and other threats that can put a serious dent in your ability to generate revenue.

When that happens, you can take out an agriculture loan or an FSA loan to help cover the costs of repairs, operating costs, etc.

If you’re in the farming industry, you know that costs associated with starting up a farming business or running an existing one can be steep.

Agriculture loans are geared toward helping farmers make the leap into the world of farming, or taking their existing farm to the next level. Use your funds wisely, and soon you’ll be on your way to a prosperous farming future.

How to get Agricultural Credit

Agricultural loans help farmers run their farms more efficiently. It can be difficult to keep up with all of the costs associated with running a farm, so farmers need low-interest agricultural loans to help them stay afloat.

Fortunately, the government often steps in with low-interest loans and other subsidies that help farmers turn a profit.

What are the applications of an agricultural loan?

Farmers can use agricultural loans to

1. Purchase farmland. Whether you are just starting out as a farmer or wish to expand your current farm business, agricultural land loans help you purchase the land you need to build a great farm.
   
2. Cover operating expenses. Besides needing farmland financing, many farmers also need help covering some of the operating costs. Farm equipment is expensive, but it’s necessary to run the farm. With better equipment, you can cover more land quickly.
   
3. Help with the marketing of their product. If they want to make a profit, then farmers need to sell the product they create. This means that they need an effective marketing plan and money to pay for marketing costs in addition to farmland loans.

How do you apply for an agricultural loan?

Apply for an agricultural land loan from a major bank.

When farmers need financing, most turn to their local banks first. It’s often easier to get a loan from the bank that you typically do business with. If your credit is good, you should be able to get an affordable interest rate on your loan.

Apply for direct and guaranteed loans for farmland from the government.

If you do not qualify for a traditional loan, you don’t have to sell the family farm. There are government agencies that aim to help farmers get the cash they need to be a profitable business.

Farm Service Agency offers loans to farmers to help cover costs. For example, direct ownership loans help farmers to purchase the land and livestock that they need to get started, while a direct operating loan will help to cover equipment and other farm operating costs.  The National Council of State Agricultural Finance Programs lists the agricultural loan programs for each state.

Look for agricultural home loans to purchase a home and farmland.

If you want to purchase land in order to run a farm, then there are a number of loans that apply directly to you. Housing and Community Facility Programs, operated by the government, offer loans to families that wish to live in rural areas. Farm Credit Services also provides loans for homes in rural and agricultural areas.

Make sure that you understand the details of your agriculture land loan before you sign, especially that there are no hidden costs involved.

How do you qualify for an agricultural loan?

Each lending institution will have its distinct requirements to qualify for any of their loan programs. The first thing the lender looks at is your current credit score. For instance, Farm Plus Financial asks for a minimum score of 660 from at least one of the three major credit reporting bureaus. The lender may also ask for a business plan before considering you for an agricultural loan.

FSA has dedicated officers to review applications for agricultural loans. The officer reviews the applicant’s eligibility based on what type of loan they want. For instance, those who wish to apply for a farm ownership loan must have a minimum of three years of business operations experience on a farm or ranch.

Beginner farmer loans ask that the farmer or ranch have less than 10 years of farm operation experience. FSA loans are also available for those who require assistance with only a down payment for a new farm. In this case, the applicant must be able to produce a cash payment of at least 5% of the purchase price.

Agricultural loans are also available for those who currently own a farm and need emergency funding. For instance, if the farm is located in a designated disaster county and the farmer has suffered a production loss of at least 30%, an emergency loan may be granted.   

Tips on how to get a farm loan with bad credit

Prospective farm owners can search for companies that lend to those with poor credit. Although good credit earns you better interest rates, lenders still approve those with bad credit albeit with higher APRs. Once your credit score improves, you could refinance the loan at a lower rate.

Government programs like the FSA are less restrictive about what credit scores they permit from applicants. They will look at your credit score but also consider your background in the farming industry. If you have significant farming experience, then you’re more likely to be approved even with a less than desirable score.

Another tip for getting approved for a farm loan with bad credit is to enlist the help of a cosigner. If the co-signer has better credit than you, your loan is more likely to get accepted by the lending agency.

How Modern Entrepreneurs can Manage Debt in the Agricultural Sector?

In today’s age when most entrepreneurial journeys are marked with effective use of technology to find a solution to a challenge or make life easier, so agriculture can also be one of areas where technology can be applied to make lives of our farmers better.

However, the Indian agriculture conundrum is very unique. And when it comes to technology in the agriculture sector, it is time to unleash its power to address the big beast in the room- Finance!  

Several reports looking at improving the agriculture sector focuses on increasing productivity by using modern technology, better seed inputs, better types of equipment, access to information be it on irrigation or weather and better access to markets. All this comes at a cost! And unless small farm holders have access to capital, these reports will continue to look good only on paper.

Additionally, if some reports do focus on finance- it is more often than restricted to ease in the transaction and mobile banking convenience.

But for solving the debt crisis of the agricultural sector with the use of technology, it has to go beyond banking services and bring more unbanked farmers into the banking umbrella, to assist financial institutions in making decisions backed with data and enabling them to monitor and collaborate with farm holders for better productivity.

The Ground Dynamics

In the last 50 years, Indian farmer ’s size of holding has reduced drastically. Approximately 67% percent of farmers hold less than 1 hectare of land. Incomes have shrunk, and their creditworthiness has come under question.

According to India Spend, a data-driven journalism portal, nearly 70% of India’s 90 million agricultural households spend more than they earn on average each month, pushing them towards debt, which is now the primary reason in more than half of all suicides by farmers nationwide.

This despite the fact that, time and again governments resort to writing off loans. Last year Uttar Pradesh and Maharashtra wrote off loans over Rs 60,000 cr loans, and India faced a cumulative loan waiver of Rs 3.1 lakh crore or 2.6% of GDP in 2016-17.

Further this year in the annual budget, the government once again laid down a slew of measures to support agriculture sector Apart from raising the minimum support price for all crops, the government proposed raising credit for the agricultural sector to 11 trillion rupees ($172.3 billion) for the upcoming fiscal year.

The twin problems holding back farmer credit

While agriculture loans could constitute a significant portfolio for lenders, they attach high risk to it.  

-It is hard to establish land holdings of small farm holders, which is often needed as collateral for traditional agriculture loans.

-It is hard to access farm activity in remote areas, making it a time-consuming and costly task.

Technology for Farmer Land Holding Verification

The land titles, history, and rights are still undergoing through a digital transition in India and more so in remote areas. Land records are often subject to legal ownership disputes and have not kept pace with rest of the technological advancements.

Some of the land records are as old as 100 years and does not have coordinates to locate the farms on modern digital maps.  While GPS enabled devices equipped with custom Loan Origination System (LOS) can allow capturing farm boundary at the time of filling loan application at the site, artificial intelligence combined with Natural Language Processing (NLP) is enabling systems to be much smarter and easier to use for agri-lenders.

These technologies combined is already helping lenders scale much more efficiently when dealing with large untapped markets with farmers working in remote areas.

Technology to Monitor Farm Activity

The big gap remains in bringing unbanked small farmers to the banking sector, and how to give banks/financial institutions the comfort of lending without the fear of delinquencies. This can only happen when banks are empowered with the tools to make informed decisions with actionable data before them.

Satellite imaging data and machine learning can be used to fill much-needed data gaps for assessing farmers’ production ability and to monitor progress. Remote sensing tools can be used to assess historical yields, identify crops planted on different parcels, water levels to determine irrigation, soil quality, etc.  

All this information clubbed with machine learnings can further estimate the time of harvest, approximate income, and predict the likelihood of default in advance.

Remote sensing tools, AI, and machine learning can not only enable a better understanding of repayment capacity of a farmer but can empower financial institutions to check land boundaries and monitor crop production on their desktop without undertaking a physical inspection. It can, therefore, reduce cost, turnaround time of loan application and improve the agriculture lending portfolio.

The satellite imaging also can work effectively to provide early warning signals for any factor that could impact the crops and thereby repayment of the loan.

Making Finance Accessible

Globally the developed markets are embracing precision agriculture as the future of feeding. Using the same technology for better assessment of crop and improve production with substantial data inputs.

For India, this future comes at a cost. And therefore if these very technologies that bring precision agriculture to reality are used first for bringing finance to farmers, would we be able to come close to the vision of doubling farmers income in India.

What Are the Benefits of Agriculture and Farmers?

Humans once subsisted by hunting and gathering, foraging for available food wherever it could be found. These early peoples necessarily moved frequently, as food sources changed, became scarce or moved in the case of animals.

This left little time to pursue anything other than survival and a peripatetic lifestyle. Human society changed dramatically approximately 12,000 years ago, possibly related to the ending of the last ice age, when agriculture began.

People began planting collected seeds, harvesting them and selecting successful crops. This encouraged people to make permanent homes. With a settled lifestyle, other pursuits flourished, essentially beginning modern civilization.

Early Agriculture

Early farmers domesticated cereals, fruits, vegetables and animals. This helped to preserve many species selected for their high nutrient content and reliable harvests. In turn, the stable food supply created by farms kept people from starving, and in fact led to a rapid increase in population around the world.

Modern Agriculture’s Opportunities

While at first farms grew a large variety of foods depending on their location, this eventually changed with the advent of rail transportation in the 19th century. Once rapid transport of crops began, a shift in farming methods took hold. An emphasis on producing high yields of a few reliable grain types resulted in a reduction in global hunger.

Today, agriculture relies on global trade. As the human population approaches 10 billion people by 2050, agriculture is poised to continue growth to meet the demand for food. Farming creates opportunities to lift people out of poverty in developing nations.

Over 60 percent of the world’s working poor works in agriculture. Farming creates more jobs, beginning with farmers, and continuing with farm equipment makers, food processing plants, transportation, infrastructure and manufacturing.

Developments in Farming Sustainability

Modern agriculture’s huge reliance upon a few crops invites challenges, given changes in climate and the potential for harvest failures. New farming endeavors promise to battle the opposing problems of both malnutrition and obesity.

To create better crop diversity for human health and food security, farmers are working to create markets for new crops. More environmentally friendly farming techniques offset climate challenges and protect local ecological systems while securing the food and water supply.

Sustainable farming methods create better food diversity, preserve water with more efficient facilities and drought-tolerant crops, and encourage better livestock health. Farmers represent a front line to defend against the risks of climate change.

Read Also: Harnessing Global Palm Oil Export For Income Growth

Organic agriculture forges a path for sustainable food supplies. Organic farmers work to improve soil fertility by rotating crops, using cover crops and tilling the soil. By not using pesticides, farmers allow groundwater to maintain greater quality and cleanliness.

These methods encourage biodiversity in crops, maintain more natural environments in and around farms, and create habitats for flora and fauna.

Farmers Improve Their Communities

Another positive development in farming is the rapid expansion of farmers markets. Farmers markets allow small farmers to interact directly with consumers. The food system remains within the local economy by being locally produced and eliminates the need for long-distance transportation.

The opportunity to purchase locally grown food proves invaluable as the demand for it rises. Consumers benefit from healthier food options, and farmers benefit from new opportunities to sell their crops.

Consumers and their children can learn first hand from farmers about products, and how they are raised. Farmers interact with and improve the communities they serve.