FRANKFORT, Ky. — While last year’s record cash farm receipts and tobacco buyout payments enabled net farm income for 2005 to remain relatively strong, many farmers opted to bow out of the business due to uncertainties in the changing agricultural markets - especially tobacco.

But due to the Kentucky Agricultural Development Board (KADB), producers have had an opportunity to take advantage of programs specifically designed to help diversify and fund new ag initiatives. The KADB was established in 2000 to administer 50 percent of the Tobacco Master Settlement Funds (Phase I).

One such program is the Kentucky Agricultural Finance Corp. (KAFC), originally created in 1984 to enhance Kentuckians’ quality of life through the stimulation of existing agricultural enterprises and the promotion of new agricultural ventures.

While KAFC helped to finance 18 farm purchases through bond financing in partnership with Kentucky banks, it had been inactive since 1991 until a planning initiative coordinated by the Governor’s Office of Agricultural Policy (GOAP), revitalized the program.

On July 18, 2003 the KADB approved a $20 million funding request from the KAFC to capitalize the lending program, which helped provide low-interest loans to farmers through a variety of loan and investment programs across the state by partnering with local banks.

“There are few states that have similar loan programs that are true low interest type programs,” said Tim Hughes, KAFC marketing and business development coordinator. “While Phase I grants foster smaller projects, big operations have really been left out of the grant process. Loan processes like this make money available for those bigger operations. The availability of these funds has given the KAFC the opportunity to partner with Kentucky financial institutions in providing low interest loans to grow Kentucky’s agricultural economy.”

In 2004 the state faced a budget crisis, which sent $17 million of the KAFC’s funding to balance the state budget. Though still operational, the KAFC board decided to focus on marketing opportunities for Kentucky commodities placing emphasis on grant opportunities available through GOAP verses the loan programs.

“In December of 2004 the KADB and the KAFC adopted modified guidelines to give the KAFC increased flexibility in working with lenders, producers, and value-added applicants,” said Hughes. Complete funding returned to the corporation in April of 2005 when Kentucky Gov. Ernie Fletcher and the General Assembly enacted a state budget that restored the $17,000,000 through a bond issue.

The KAFC is now comprised of capital access programs that are available to producers and processors in Kentucky including the Linked Deposit Investment Program which has specific terms regarding loans that include a maximum loan term of seven years, interest rates equal to prime but never less than 5 percent and investment commission rates to lenders will equal prime minus 400 basis points, but never less than 2 percent; the Tobacco Grower Investment Fund, which was developed to provide loan opportunities to state tobacco farmers interested in making operational transitions (the Fund includes the Agricultural Infrastructure Loan Program, the Down Payment Guarantee Program and the Young Farmer Loan Program); and the Agricultural Processing Investment Fund, which includes the Agricultural Processing Loan Program and the Producer Accelerated Payment Program.

This fund was developed to provide loan opportunities to companies and individuals in Kentucky interested in agricultural processing.

“In today’s lending environment, many banks would walk away from agricultural loans but this program gives banks a higher comfort level and gives farmers a lower interest rate,” said Hughes.

For more information about the KAFC contact Hughes at 502-564-4627 ext. 232 or send him an e-mail at TimD.Hughes@ky.gov

Published in the January 11, 2006 issue of Farm World.