Empowering the next generation of farmers: AFSC’s evolving Next Generation Loan

This article was first published in Volume 4 Issue 3 of ABP Magazine (September 2024). Watch for more digital content from the magazine on ABP Daily.

The Next Generation Loan program offered by Agriculture Financial Services Corporation (AFSC) has been a crucial tool for helping young and new producers overcome the financial hurdles of entering or returning to farming. With rising costs of land, equipment, and inputs, this program provides much needed support to the next generation of agricultural leaders.

The Next Generation Loan program was designed to address the challenges that young and aspiring farmers face when trying to access capital. As Mark Prefontaine, Chief Strategy and Innovation Officer at AFSC explains, “the next generation loan program is really there to help get over some hurdles that we know young producers and those coming into farming, or returning to farming face that being just the costs association with that and access to capital.”

Up until now, the program offered preferential interest rates and an additional 1 per cent reduction for the first 5 years for producers under the age of 40. This incentive has been a major draw, making the program one of AFSC’s most popular offerings.

In response to feedback from producer and industry groups, AFSC is implementing several changes to the Next Generation Loan program, effective September 1, 2024. These adjustments are aimed at making the program more accessible and better suited to the current realities facing young and new farmers.

“We’ve heard feedback from industry, and from our clients since the last time changes were made to this program in 2018, and a lot of that has been based on the costs that producers are facing, whether it be the value of land, the cost of equipment, the value and cost of inputs, etc. It’s the feedback that’s been the primary driver.”

The key changes include:

• Expanded Eligibility: The age limit for the young producer incentive is being removed. Now, even those 40 years of age and older who are new to, or returning to farming, can qualify for the 1 per cent interest rate reduction for the first 5 years. As Prefontaine explains, “If you’re 40 or older, if you’re new to farming, or returning to farming, you’ll qualify for the next gen program, including the incentive as well.”
• Increased Principal Limit: The lifetime principal limit on the loan is being increased from $1 million to $1.5 million per client. This recognized the rising costs producers face when establishing or expanding their operations.
• Reduced Ownership Requirement: The minimum ownership stake in an incorporated operation has been lowered from 25 per cent to 20 per cent.
• Expanded Interest-Only Period: Producers can now access interest-only payments for up to 5 years, up from the previous 2-year maximum. This provides additional financial flexibility during the critical early stages of a new farming venture.

These changes to the Next Generation Loan program reflect AFSC’s commitment to supporting the future of agriculture in Alberta. According to Statistics Canada, the average age of Canadian farm operators has risen from 54 in 2011 to 55 in 2016. By expanding the Next Generation Loan program to include those over 40, AFSC is positioning itself to better support the succession planning and new entry needs of the industry

“We’ve seen, generally speaking, that average ages of producers within agriculture continue to increase. And if you really want to encourage folks either to return to agriculture, or to get into primary ag, then you know, the 40-year-old line that has been drawn in the sand — we knew we needed to rethink that,” says Prefontaine.

By removing the age cap for the young producer incentive, the program now caters to a wider range of applicants. This shift acknowledges the evolving demographics within the industry, and the need to support both young entrants as well as those looking to re-enter the agricultural sector later in life. As farms become more complex and capital-intensive, providing financial assistance to this broader pool of applicants becomes increasingly important.

“We’re trying to find that line of being responsive to what’s happening with our client base, but at the same time ensuring there’s a material involvement in the operation for those that are eligible for these incentives,” notes Prefontaine.

The updates to the Next Generation Loan program have been well-received by the agricultural community, indicating the industry’s recognition of the program’s value. At the recent Alberta Beef Producers Annual General Meeting, a resolution was passed supporting the expansion of the Next Generation Loan program.

“When we get that kind of interest in supporting ongoing evolution and development, we view that as success,” says Prefontaine.

This industry-led endorsement demonstrates the agricultural sector’s enthusiasm for the program and its desire to see it continue to evolve to better serve young and new producers. Beyond the direct feedback from industry groups, AFSC has also observed an increase in referrals from other financial institutions, says Prefontaine.

The changes to the program are also bolstered by the support form the Government of Alberta. As Prefontaine explains, “we’ve got a tailwind, if you will, of support from the provincial government. RJ Sigurdson, Minister of Alberta Agriculture and Irrigation, is always finding ways to encourage and support succession planning and new entry into primary agriculture.”