Fall 2015 Financial Partner Magazine by Farm Credit East

THE LEGACY LIVES ON Plan the transition of your farm business early â&#x20AC;&#x201D; and often

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FarmCreditEast.com

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Farm Credit East Board Welcomes Diane Souza

Farm Credit East WEBINAR SERIES DECEMBER The Food Safety Modernization Act Thursday, December 3, 2015 12 noon - 1:30 PM Grain Marketing and Crop Insurance Thursday, December 17, 2015 1:00 - 2:00 PM

JANUARY 2016 Dairy Outlook & Environmental Compliance Update Friday, January 15, 2016 12 noon - 2:00 PM Labor Law Traps for the Unwary Employer Date and time TBD

FEBRUARY 2016 General Economic Outlook Tuesday, February 9, 2016 12 noon - 1:30 PM 2016 Agricultural Markets Outlook Date and time TBD Visit FarmCreditEast.com/webinars for more details and to register.

ON THE COVER Jon Beller with parents Emily and Glenn at Beller Farms, LLC in Lewis County, NY

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Farm Credit East welcomes Diane Souza to the Board of Directors as an appointed outside director. Diane brings an extensive background in healthcare and finance, having served as the CEO of the UnitedHealthcare Specialty Benefits, as well as leading cross-segment activities spanning the UnitedHealthcare organization. Prior to UnitedHealthcare, she was CFO of Aetna’s Guaranteed Products business, COO of OptumHealth Specialty Benefits and has held leadership positions at Deloitte Haskins & Sells and at Price Waterhouse. Diane is also a certified public accountant.

Financial Partner’s Next Chapter Farm Credit East is pleased to announce our new editor of Financial Partner magazine, Kristie Schmitt. Kristie has been with Farm Credit East for five years and currently serves as director of marketing and communications. Throughout her time with us, she has worked with members to share their business successes and challenges, their inspirations for getting started and the reasons they’re passionate about agriculture. A familiar face to some, Kristie has visited many of our members’ farms and looks forward to sharing the insights and knowledge of Farm Credit East employees and telling the stories of Northeast producers through the pages of Financial Partner.

Financial Services Come to Maine This past summer, Farm Credit East was excited to extend its financial service offerings to Maine customers. Natural resource-based businesses throughout the state can now use Farm Credit East’s tax preparation and accounting services to help their businesses of any size be more successful. New Maine financial services staff, To allow for this extension of services, Farm pictured left to right, Robert Thompson, Credit East welcomed four new employees Norma Thompson, Suzanne Hobbs and to its team of experts in the Presque Isle, Curt Paterson. Maine, branch office. Together, these new staff members contribute more than 75 years of financial expertise.

Curt Paterson, of Presque Isle, Maine, joined Farm Credit East as a farm business advisor with 22 years of experience in tax preparation, accounting and client relations. Robert Thompson, of Caribou, Maine, is an enrolled agent with 32 years of experience. Norma Thompson, of Caribou, Maine, and Suzanne Hobbs, of Presque Isle, Maine, joined Farm Credit East as customer service specialists for financial services.

CEO’s MESSAGE

HONORING THE PAST, BUILDING THE FUTURE Bill Lipinski, CEO, Farm Credit East

Nationwide, the Farm Credit System

this, our board and staff are focused on

that this edition’s feature article focuses

has kicked off its celebration of 100

key drivers for the future: enhancing the

on one of those business services —

years of service to agriculture and

customer experience, talent development

consulting for farm transfers.

rural America. Farm Credit associations

and retention and application of emerging

across the country have planned various

technologies for product delivery.

activities throughout the centennial year, culminating with next summer’s 100th anniversary. In this issue, Jim Putnam, Farm Credit East’s chief business officer and best historian in Farm Credit, reflects back on a time before there was a Farm Credit and discusses the situation that led to the signing of the Farm Loan Act by President Woodrow Wilson on July 17, 1916. I am proud to be a part of Farm Credit and to celebrate its 100 years of service. The Farm Credit System, which was established by Congress, is truly a public policy success story. In an age where, to be quite frank, there are few public

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We understand the need to protect what you have worked hard to achieve in a thoughtful and balanced manner.

Over the past few decades, our consultants have worked with hundreds of Northeast farm families to help develop successful strategies to transfer farms from one generation to the next or to facilitate transfers involving non-family members. It is not rocket science, but it does involve advanced planning to allow the transfer tools to be effective. As noted in the article, generational transfer can involve difficult discussions, but this is your legacy — and we understand the need to protect what you have worked hard to achieve in a thoughtful and balanced manner. In upcoming Financial Partner issues, we will tell more of Farm Credit’s story — one that, as with any 100-year entity,

a cooperative, owned by the same folks

”

has had its ups and downs. Throughout

is well equipped to meet your future

also know that our success is fueled by our

that it serves — this combination has been

business needs and we have the history

customers and we value the cooperative

a great success.

to prove it. In the early ’70s, Farm Credit

ownership model Congress established

introduced credit-related services to

for us 100 years ago. And as we approach

during this Centennial celebration, our

provide more than just financial support,

our next 100 years, this tenet is as strong

focus is on the future — just as it has

but to also offer business services to better

as ever.

been for the past 100 years. To ensure

meet our customers’ needs. So, it is fitting

policy success stories, Farm Credit stands out — Congress got it right in 1916. They enabled Farm Credit to be a private sector entity, with a special mission to serve farmers and rural America, and for it to be

While we honor our rich history

Our goal is to ensure Farm Credit

our history, Farm Credit has always had relevance. We don’t work in the past. We always look to improve for the future. We know that change is inevitable, so we embrace it to effectively serve you. We

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THE LEGACY LIVES ON Plan the transition of your farm business early — and often Farming is a business — one that you most likely hope to comfortably retire from one day. It may be difficult to relinquish ownership of a business you’ve invested your life in, but it is also rewarding to see the legacy you’ve built live on. However, passing on your legacy is easier said than done. There are many considerations, and often emotions, that need to be addressed for the transition of a farm business to be successful. Like any business, a farm business needs to be profitable. Those profits need to support the family, or families, involved in the operation. These multiple parties add a level of complexity to the transfer because each party, whether family or non-family, may have their own interests and vision for the future of the operation. A successful transition plan requires communication and forethought to meet the goals of all interested parties. Another complexity unique to agriculture is that the bulk of the business’s wealth is often held in land or non-cash assets, and is in some cases tight on income. A transition plan is important to preserve those assets, while enabling the senior generation to comfortably retire and keep the business successful.

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C O V E R

“We’re all working to build wealth,” said John Lehr, Farm Credit East business consultant. “Do you want to start with nothing and end with nothing? Of course not. The question is,

S T O R Y

check-list item: what did we do this year to help the process down the road?” “It’s also never too late to start,” said Anna. “Even if a

how do you protect that legacy from one generation to the next?”

business is in the middle of a transition, we can always find ways

That’s where a transition plan comes into play.

to improve the situation.”

We recently sat down with John, two other Farm Credit East

“That’s an important point,” said Gregg. “We often refer to

consultants and one of our tax consultants. All have experience

the transfer of the business to the next generation or non-farm

working with hundreds of Northeast farm businesses and provided

successor, but what if the business doesn’t have a successor?

their insights and advice on the importance of farm business

Selling the business may be an option. We can work with the

transfer plans to protect a farm business’s legacy.

owner to possibly save not just tens of thousands of dollars, but

WHY IS IT IMPORTANT TO PLAN?

maybe even hundreds of thousands of dollars in taxes.”

“If you love your family and business, you’ll leave a plan,” said

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Gregg McConnell, Farm Credit East business consultant. “You won’t be around forever to help them figure it out.” A transition plan is not automatic. “Without planning, the transition may have unexpected impacts on the family dynamics or unintended tax implications,” said Keith Dickinson, another Farm Credit East business consultant. “With proper planning, we can work to make the transfer essentially a tax-free exchange.” The plan helps to define the goals of what you want to accomplish. “We often think of a farm transition plan as transferring the business to the next generation, but a plan is needed any time there is a change in the business,” said Anna Supp, Farm Credit East tax consultant. “This could include family coming back to the business, expansion, retirement, death, divorce, bringing on non-family successors or selling out. Whatever that change is, a transition plan will be defined by your vision for the business.”

It should be an annual check-list item: what did we do this year to help the transition process down the road?

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Finally, a plan allows time to identify the successor and develop his or her skills — whether a son or daughter, another family member or someone not part of the family. Appropriate planning with adequate training will make it easier to relinquish control when the time comes.

WHEN SHOULD THE PLANNING PROCESS BEGIN? Business owners are often at a loss as to when to begin planning a transfer. Keith was quick with the short answer: “Ten to 15 years before it typically does,” he joked. “In all honesty, the process should typically begin as soon as you realize a change is going to happen or once the successor comes into the business. We may not begin the process right away, but we’ll start planning for it. The earlier we begin, the more tools that are available to make the transition as seamless as possible.” “It really is a life-long process,” added John. “Today’s farm businesses are bigger and more complex, so they should really

EASIER SAID THAN DONE

A farm business transition is not always easy. It comes with a unique set of challenges. In farming, you’re dealing with emotions and relationships between family members, not just facts and legal documents. You don’t want a business transition to sour these relationships. “Any legal or tax issues can be dealt with; it’s generally on the people side where I run into the most challenges,” said Keith. “I often joke that sometimes I feel more like a family counselor than I do a business consultant. But when you’re dealing with personalities, it really does become a mix of both.”

begin the process when the business starts. It should be an annual

FALL 2015

Another common challenge is the transfer of ownership. “The existing owner needs to relinquish control and ownership; these are two separate things,” said Gregg. “You may change someone’s title and transfer the business on paper, but that senior generation still needs to step back and allow the incoming generation to make decisions.” Non-farm children and spouses can also be a challenging consideration. “The senior generation needs to look at the big picture and balance their personal and business goals,” said Anna. “If there’s non-farm children involved, their personal estate plan

WHAT ARE SOME OF THE TAX CONSIDERATIONS? Our tax expert, Anna, got the conversation started regarding tax concerns when transition planning. “First, you need to decide the business structure. Whether adding partners to an existing entity or structuring a new entity, you want to be sure the structure maximizes tax benefits and balances business and personal estate interests. “For example, we may create multiple entities to maximize Section 179 deductions or rental payments to reduce selfemployment tax. An LLC

needs to be balanced with

could be structured to grow

the business transition plan

junior members into the

to provide for both farm and

business through their labor

non-farm children.”

and management.

“Spouses who have

“On the flip side, you

married into the family may

need to ensure the senior

have different life goals than

generation is provided for,”

the farming spouse, or than

continued Anna. “How will

the parents or other partners,

they receive cash flow with

so how do you balance the

the best tax treatment? Is the

goals of all parties involved?”

junior generation buying out

asked Keith.

their interests or will it be

And then there’s the elephant in the room. “What if one of the heirs is not capable of operating a farm business?” questioned John. “You don’t want to put your retirement in incompetent hands, so the senior generation needs to decide if the next generation is a suitable successor — that takes leadership.”

gifted? Is there a relief of debt problem? Were retirement plans used to the best of their ability throughout their lifetime? There are many considerations to ensure that the goals of all parties are met with minimal tax implications.”

What to Start Thinking About as You Plan for a

Business Transition › What are the GOALS of the business? › Who is INVOLVED? › Do you have a SUCCESSOR or do you need to find one? › What are the GOALS of each GENERATION and how do they align? › Is the junior generation BUYING out INTERESTS or will they be gifted? › Does the business need to EXPAND?

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› How many FAMILIES will the business need to SUPPORT? › Are there OFF-FARM CHILDREN to consider? › Do you have ENOUGH EARNINGS to support your goals? › Will the SENIOR GENERATION be adequately provided for in RETIREMENT?

C O V E R

S T O R Y

“Often, the motivation for doing a transfer is concern over estate taxes,” said Keith. “But if we do the transition correctly, that’s never really an issue. There may be estate tax, but with planning we can get it down to a palatable level.” Then there’s the question of Medicaid. Our consultants agreed this is addressed in almost every estate plan they work on. “To be on Medicaid you need to be almost penniless,” explained John. “To be penniless you have to give up control, so that’s where trusts and more complex business structures come into place. It’s sometimes hard to swallow that reality.”

As Glenn and Emily’s son, Jon, came into the business, they began to consider their future and the future of the farm. Family dynamics were a large consideration. They had three children not involved in the business and wanted to be sure they had assets to leave to all of them. “When the transition was complete, we still wanted to be a family,” said Emily. So they engaged Farm Credit East consultant, John Lehr.

One of the biggest business risks today is unforeseen health changes, such as death of the first spouse. “It’s important to plan early so the Medicaid question never rears its head,” added Keith.

“

The existing owner needs to relinquish control and ownership; these are two separate things.

” “With a thought-out plan there will be assets secured off the farm that are not necessary to the farm’s success. Those assets can be used to fund the senior generation’s retirement.”

TEAM OF EXPERTS To successfully complete a farm business transfer, it’s important to have a knowledgeable team that can guide the process and direct you toward the appropriate tools. Farm Credit East brings that team of experts to the table. Your loan officer, who you’ve worked with for years, can introduce an experienced farm business consultant and an ag-tax specialist. All of these players provide their expert input to develop the best plan for

Jon Beller with Farm Credit East loan officer Matt Wendig and farm business advisor Mary Stine.

“In a transition process, you’re merging multiple personalities,” said Jon. “We kicked around a lot of ideas to figure out how everyone would benefit and John helped mediate, talking us through the process and offering sound advice.” “We trusted John,” added Glenn. “When issues arose we could bounce things off him. It was valuable to have a confidant and advisor who knew our finances, had been working with us for years and could give us an unbiased opinion. “As a dad, my biggest challenge was to realize Jon was a business partner,” continued Glenn. “I didn’t fully understand until I went through it. He’s still our son, but he’s now a partner too. I needed to be willing to let go of control.” Eleven years ago, Beller Farms, LLC, was formed — but the transition is still a work in progress. Emily commented, “I don’t think it’s ever done. Once we start getting out, hopefully the next generation will be coming in.”

your operation. “We serve as the facilitator and bring in resources as needed to keep the process moving forward,” said John. “And we bring trust. We’ve worked with most of our customers for years, so we know

For other farm families looking to begin a transition, Jon advised, “Give yourself a lot of time and don’t jump to any conclusions right off.”

their business and have a relationship; that’s a key component.” FALL 2015

“Facilitation is an extremely important role,” Gregg added. “We’re able to listen and ask good questions. We get everyone’s input and compile it into a menu of goals. As a group, we then try to figure out how to prioritize those goals, because sometimes they’re mutually exclusive and you can’t have it all, especially in estate planning. “I know this role is invaluable because a lot of times times we get to the point of making hard decisions and the process stalls,” continued Gregg. “As the facilitator, we don’t allow that to happen. We keep circling back, helping the client to reach a decision.”

Partners of Walnut Ridge Dairy in Tompkins County, NY: John Fleming, Steve Palladino, Keith Chapin and Skip Hardie.

Skip Hardie had worked with Farm Credit East’s consultants for years, so as he began to think about the next generation of his farm operation, he turned to them to help brainstorm ideas to best accomplish his goals, both business and personal.

“

Any legal or tax issues can be dealt with; it’s generally on the people side where I run into the most challenges.

”

During the planning process, Steve Palladino was identified as Walnut Ridge Dairy’s successor. Today, Steve is in the senior management role and is supported by two partners, John Fleming and Keith Chapin. “Farm Credit East has been forward-thinking and has helped us identify how things could affect the business financially, both the positives and the negatives, so that we felt that we had all of the information in front of us to make informed decisions,” said Steve. “And there were hard decisions to make; uncomfortable things had to be discussed. Luckily, all four of us were open-minded to compromise on what was best for the farm. “The team at Farm Credit East moved the process forward and helped us to make the right decisions to meet our most important goals as a progressive farm, and in good financial health so that we could provide for our families and our employees,” continued Steve. The forward-thinking partners at Walnut Ridge Dairy are already looking for the next partner to prepare for succession down the road. And they’re always looking at earnings to ensure the legacy of Walnut Ridge Dairy is preserved for generations to come.

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The farmer’s attorney is a critical member of the team. Many of the necessary agreements are legal contracts that need to be drafted and executed by an attorney. Farm Credit East can work with a customer’s existing attorney or utilize relationships we have with our network of attorneys who understand different farm business structures and can speak our customers’ language. At times, our consultants have discovered that businesses have outgrown their attorney; in those instances we can recommend an attorney or work hand-in-hand with a customer’s current attorney to get the job done.

PRESERVING THE LEGACY Today’s farm owners are forward-looking. They anticipate the next change, so why wouldn’t you develop a plan to ensure successful delivery on that change? “Your kids love you and you love them, that’s why you’re willing to transfer the operation,” said Keith. “It’s not fair to give them something and then they have to sell it to finance your retirement. We can help create a plan that accomplishes both generations’ goals.” The bottom line is that you’ve worked hard to build your business. It represents your legacy and with thoughtful planning that legacy can prosper long after your retirement.

Local Appraisers for Expert Valuations Farm Credit East assists more agricultural businesses and families with appraisals than any other firm in the Northeast. Whether you’re looking to buy new property, transfer your business to the next generation or plan your estate, you can rely on a Farm Credit East appraiser for prompt, informed guidance and information. Our team of appraisers understands local markets and has unsurpassed expertise in determining the value of agricultural property and assets. They not only work from our branch offices, but also live in those same communities. So stop by your local branch office to talk with one of our appraisers, or give us a call today. 800.562.2335 • FarmCreditEast.com/Appraisals

NORTHERN NEW YORK Robert Hostetter | 800.626.3276 Nancy Putman | 800.295.8461 Rebecca Stone | 800.626.3276

MAINE Jeffrey Barron | 800.831.4230 Jerrett Goold | 800.831.4230 James Park | 800.831.4640

MASSACHUSETTS Kevin Manion | 800.946.0506

Our appraisers are specialists in determining the value of:

Appraisals for:

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and and buildings, including barns and outbuildings L Specialty agricultural buildings Large land parcels Ag processing facilities Mineral royalties Standing timber Timber processing facilities Conservation easements

CONNECTICUT Nick Celentano | 800.562.2235 Nick Gardner | 800.327.6785 George Malia Jr | 800.562.2235

B uying or selling real estate T ransferring property to a new business T ransferring a business to the next generation D eveloping a business plan P lanning or settling an estate A ddressing property tax issues Gifting property, donating land to a trust or selling development rights FALL 2015

From the Beginning by James Putnam, Chief Business Officer, Farm Credit East

July 17, 2016 marks 100 years of the Farm Credit system. As Farm Credit nears this important milestone, it’s a time to celebrate our history — a history full of challenges, change and advancements to grow the Farm Credit System to what it is today. During my tenure with Farm Credit, I’ve become a bit of a history buff regarding Farm Credit’s role in American agriculture. As we gear up to celebrate our first 100 years, I’ll share highlights of this rich history in the next few issues of Financial Partner. ~JP First, let’s set the stage for the founding of Farm Credit by traveling back to the time before its existence.

In 1910, while in New York, then former President Roosevelt spoke on the hardships the farm community was facing:

Since the founding of the American colonies, farming was the nation’s leading occupation. Nonfarmers and those in cities were the minority. But following the Civil War, this began to shift

the city worker has received and has not been able to express

rapidly — and farmers knew it. America’s cities, manufacturing,

himself as the city worker has done. The problems of farm life

commercial enterprises and burgeoning rail network were

have received very little consideration and the result has been

growing much faster than the farm sector. Farmers were losing political power. New technology — such as telephones, trolley car networks, automobiles and household electricity — along with health care advances and various consumer goods, were more accessible to urban America than in the country. There was a common belief that big city banks were draining currency and capital from rural America to benefit rapidly growing commercial and industrial sectors. And there was great concern that agriculture was falling behind and would eventually be unable to feed urban America. In 1908, President Theodore Roosevelt appointed the Commission on Country Life to obtain information and advice on the conditions of life in the country.

“The farmer has not received the attention that

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bad for those who dwell in the open country, and therefore bad for the whole nation. We were founded as a nation of farmers and in spite of the great growth of our industrial life it still remains true that our whole system rests upon the farm … The strengthening of country life is the strengthening of the whole nation.” In late 1913, Congress passed the Federal Reserve Act. While 12 district banks were chartered and organized in the first year, the provisions of this act did not meet the unique needs of rural America. Farmers needed access to capital in both good and bad times and at affordable interest rates.

The Search is On! HELP US FIND

100

Fresh Perspectives To commemorate Farm Credit’s centennial year, Farm Credit East is participating in a nationwide effort to celebrate the vision and commitment that it takes to remain successful in agriculture and constantly evolving rural industries. Fresh Perspectives is a search to honor 100 individuals or organizations across the country changing the face and future of agriculture to ensure that our rural communities thrive for the next 100 years. Submission deadline: December 18, 2015 Winners will be announced in March 2016 Nomination categories:

The Commission on Country Life’s report had recommended that a system of cooperative credit be explored. They believed this system would be of great service in the development of American agriculture. However, the concept of a national system of financial intermediaries to eventually be owned by its borrower patrons was bold and had never been done before in the United States. During this time, state and national banks relied on low-cost local deposits to fund their loans. In developing a new financing system, a key opportunity seemed to be in finding a way to tap the national money

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Leadership (over 21) Youth Leadership (21 and younger) Rural Policy Influence Beginning Farmer or Rancher Achievement Entrepreneurship and Innovation Sustainability and Natural Resource Conservation Financial Stewardship Mentoring and Volunteerism Agriculture Education and Community Impact Rural and Urban Connection

To learn more, or to nominate a leader, visit FarmCredit100.com

markets to fund these loans throughout rural America. Additionally, who would provide the startup capital for this new system? Farmers were already capital short. In early 1916, President Woodrow Wilson solved this question by agreeing to government funding of the initial capitalization to be repaid by the new financial system from its profitable operations over time. On July 17, 1916, President Wilson signed the Federal Farm Loan Act (FLA). This act launched the building of a nationwide lending system of 12 federal land banks that would channel capital from urban money markets to America’s farmers — and the birth of the Farm Credit System.

HONORING LONG-TIME MEMBERS Farm Credit East is looking to honor those Northeast farm businesses that have continuously done business with us for 80 or more years. Eligible farm businesses must have begun working with Farm Credit prior to the year 1936 and be located within the states currently served by Farm Credit East: New York, New Jersey, Connecticut, Maine, Massachusetts, New Hampshire or Rhode Island. All honoree submissions are subject to review. Submission deadline: December 31, 2015. To submit an honoree, visit FarmCreditEast.com/100years or contact your local branch office. FALL 2015

New York City students participating in the Fresh Air Fund’s Career Awareness Program learned more about agriculture careers as they picked tomatoes with Farm Credit East staff at America’s Grow-A-Row.

Supporting the Next Generation of Agriculture Farm Credit East branch offices support programs to develop agriculture’s future leaders FRESH AIR FUND BRINGS NEW YORK CITY CHILDREN TO THE FARM In September, our Flemington, N.J. branch office held an event at America’s Grow-A-Row (AGAR) for New York City children

students. And we were able to harvest food for those in need.

participating in the Fresh Air Fund Career Awareness Program.

It was a testament to how quickly a large group of people can

AGAR is a non-profit organization that grows produce for New

accomplish a task.”

Jersey food banks, food pantries, soup kitchens and more. The day began at 3rd Avenue and 41st Street in New York

Patty Gares, Farm Credit East operations leader, remarked, “It was a rewarding day for our staff to see the smiles on the faces

City when a bus picked up 33 children to bring them out to the

of all the children as they walked through the fields, harvesting

country to learn about careers in agriculture. Once on the farm,

15 boxes of tomatoes and learning about the various career

the children heard inspirational words from AGAR’s president and

opportunities in agriculture.”

founder, Chip Paillex, and from two AGAR employees who shared

Since 1877, The Fresh Air Fund, an independent, not-for-profit

their journeys “back to the farm” for a career in agriculture. The

agency, has provided free, enriching summer experiences and

students then enjoyed lunch, a walking tour of the farm and then

academic programs for more than 1.8 million children from

got to work picking tomatoes!

high-needs New York City neighborhoods. To learn more, visit

AGAR’s director of educational programming, Sally Zeiner, commented, “It was truly a special day. I hope that today we

planted seeds that will bear important fruit in the future of these

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FreshAir.org.

HIGH SCHOOL SENIORS PREP FOR AGRI-BUSINESS CAREERS Just more than a year ago, Farm Credit East’s Batavia office opened its doors to high-school seniors interested in learning more about careers in agri-business. The students were part of the Agri-Business Academy, a program offered by the Batavia Career and Technical Educational Center (CTE). “Hosting the agri-business students has been a great partnership,” said Ed Urbanik, Batavia branch office manager. “It gives us the opportunity to speak about financing, how the Farm Credit System works and introduce them to opportunities with Farm Credit East. Many of these students may one day be customers, so talking with them about financing and what we expect with loans will help them to be better borrowers down the road.”

2015 Agri-Business Academy students on a farm visit with program instructor, Kerri Richardson, last Spring.

“The students benefit from visiting the Farm Credit East office, not only for the networking, but also for the exposure to

At the completion of the year, students earn 12 SUNY college

the professional side of agriculture,” said Kerri Richardson,

credits. Farm Credit East’s partnership has also made the program

program instructor. “Farm Credit East has also been great at

more economical for students. All of the academy’s programs are

identifying locations for farm tours to match students’ interests.”

located off-campus, so typically the cost to rent space is passed

The Agri-Business Academy is a college-prep program for highly

on to the student via their tuition. With the program hosted at

motivated high-school seniors interested in an agri-business

Farm Credit East’s office, this expense is not added to the tuition,

career. The year-long program is a partnership between the

making the program more affordable for students.

Genesee Valley Education Program and Genesee Community College.

FFA STUDENTS COMPETE FOR EASTERN REGION STAR AWARDS Each fall, Future Farmers of America (FFA) hosts the annual Eastern States Star program at the Eastern States Exposition (The

candidates, their parents and their agricultural education advisor. “To say the competition was tough is an understatement,”

Big E) in Springfield, Mass. This program brings together students

commented Bobbie Jo. “All of the student projects were outstanding.

from Virginia to Maine who have achieved the 2015 Star Award

Their detailed applications include everything from letters of

in their respective state and are now competing for the Eastern

recommendation to financial statements. Some of the applicants

Region FFA Star honor. Eastern Region Stars are awarded in four

were already running full-scale businesses, as freshmen in high

categories: Star Farmer, Star Agribusiness, Star Agricultural

school! It’s truly impressive to see the knowledge, talent and hard

Placement and Star Agriscience.

work of these young agricultural entrepreneurs.”

Farm Credit East is proud to have sponsored this program for

The Eastern Region Star program recognizes the accomplish-

more than 25 years, with some of our staff members serving on

ments of FFA students and promotes and encourages excellence

the judges panel each year. This year, Roger Murray, executive

through development of outstanding scholarship, leadership and

vice president, judged the Star Farmer; Chris Laughton, director

supervised agricultural experiences. It also educates the public

of Knowledge Exchange, judged the Star AgriScience; and Bobbie

on the agriculture and agribusinesses that are a vibrant part of the

Jo Thibault, payroll specialist, judged the Star Agribusiness. Roger

Eastern Region.

also emceed the awards ceremony, recognizing each of this year’s

The 2015 FFA Star Award Winners with National FFA Officer Victoria Maloch, Farm Credit East Executive Vice President Roger Murray, Eastern States Exposition Chairman of the Board Donald R. Chase and Eastern States Exposition President and CEO Eugene J. Cassidy.

FALL 2015

From Hobby to Production New England family adds maple production to diversify forestry operations

â&#x20AC;&#x153;We wanted to buy the right equipment the first time, with capacity for growth. But this would require a larger investment up front, so we turned to Farm Credit for financing.â&#x20AC;? 14

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Nick Staley and his family, of Lancaster, N.H., have owned timberlands in Northwestern Maine for more than 70 years. During that time, the family has used the property for production of firewood and family recreation. Nick and his wife Melanie wanted to preserve the high-quality stand of hard maple on the property while also generating returns for the family. They wanted to accomplish this without a negative impact on the natural setting and recreational uses; production of maple syrup was a logical choice. “The property sits on a southwest facing mountain slope, so all of the lines will drain to one central location at the bottom. In the world of maple sugaring, this is a real luxury,” explained Nick. “Given the topography, elevation, health, density and quality of the trees, we determined syrup production was the way to go.” Nick and Melanie were not new to the world of sap harvest and maple syrup production. Each spring, as a fun way to get out of the house with their three children, they tapped about 35 trees and used a small evaporator to produce maple syrup. But now they were looking to expand those 35 taps to 25,000, so they turned to a maple-industry consultant to develop an operational business plan. “This isn’t just a home project anymore — it’s a business,” said Nick. “It’s a large scale project for us, so we wanted to make sure we were making the right choices up front.” The woods work was the most challenging aspect of the project. “We needed an experienced contractor who could go into the woods and be selective. This is sensitive ground, so we needed someone who could remove the softwood trees without damaging the maples.” When spring came around, they found their contractor, but then had to wait for the ground to dry up and the tree bark to tighten. The logging finally got started in late July. Selective harvesting of softwood and some species of hardwood was completed to reduce shading of the hard maple and to improve the property’s forest roads to expand access to the more remote sections of the timberland. Once thinning was completed, the main tubing lines were mapped and installed on the property. The final step was the installation of the tubing lines and the individual taps at each maple tree. The other major component of the project was the location and construction of the sugar house. This facility is designed to efficiently incorporate the components of a modern maple-production operation, while also providing a comfortable work environment for both employees and the family who will participate in the production of maple syrup. They also needed to purchase large-scale equipment to meet the demands of their significantly increased production. Their equipment goals were to establish an efficient process that produces a quality product. They purchased a vacuum system, a reverse osmosis (RO) machine to take out a high percentage of water and a state of the art evaporator. They were forward-thinking in their equipment purchases. “We didn’t want to just buy used equipment,” said Melanie. “We wanted to buy the right equipment the first time, with capacity for growth. But this would require a larger investment up front, so we turned to Farm Credit for financing. “They’ve made it pretty simple for us,” continued Melanie. “They put together a loan package that included material, equipment, woods work, piping, labor, etc. — all the startup costs to get this business up and running. They worked out a payment plan that fit our needs and that fit the seasonality of our maple production.” “The Staleys have been great to work with,” commented their Farm Credit East loan officer, Shannon Walton. “They were thorough in their planning process, doing extensive research and running a number of projections based on different scenarios. So when they came to us, they knew what they were asking for and were prepared with a solid plan.” Once they have their footing in the industry, their long-term hope is for their children Melanie and Nick Staley among their maple tubing lines in Northwestern Maine

to grow the business and find retail markets to sell the syrup at a higher price point. And thanks to their forward thinking up front, there will be plenty of room for this growth in the future! FALL 2015

K N O W L E D G E

E X C H A N G E

Credit Card Data Security

Chris Laughton Director of Knowledge Exchange

It seems like every few weeks we hear of a big-name retail chain getting hacked and suffering a customer-data breach. Less well publicized is the fact that numerous small businesses have data compromises all the time. No business, regardless of size, wants that kind of loss or negative publicity. So how does a small business in the agriculture sector protect customer data and comply with security regulations?

THE THREAT There is a set of standards called the “Payment Card Industry (PCI) Data Security Standard,” and you need to be in compliance to protect your business and your customers. According to the PCI Security Standards Council, more than 340 million computer records containing sensitive personal information have been involved in security breaches since 2005. As major retailers tighten their security standards, many criminals are shifting their sights to small merchants who often have lax security. A data compromise could be anything from a sophisticated hack into your point-of-sale (POS) system, to a simple breach caused by an employee stealing a customer’s credit card information.

Disclaimer: The foregoing is not to be considered legal advice and if you have specific questions, you should contact your own attorney. This article provides general information and is based on research from a variety of sources, but this is an area where best practices are constantly under review and being modified. Please note that each business may have different security challenges and for more details, business owners may want to contact their credit card processor or other information security professional.

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MANAGING RISK Data theft for most small businesses is a crime of opportunity. The best defense is to minimize the opportunity by limiting access to sensitive information, both internally and externally. Be sure to have controls and checks on your systems and grant access only on an ‘as needed’ basis. Segment internal systems so your POS system isn’t connected to other networks unless it is necessary. Maintain up-to-date and secure firewalls. Employ unique logins for each staff person who accesses your POS or computer networks and do not allow sharing of login information. Educate employees, including part-time, seasonal and temporary staff. This may be challenging during a peak period, but a security protocol is only as effective as its weakest link. People handling sensitive customer information should know how to do it securely and identify fraud.

YOUR RESPONSIBILITIES If you are using stand-alone payment card terminals, most PCI compliance should be covered by your payment processing provider — but don’t blindly rely on your provider! Check with your payment processor, and make sure that they, and you, are PCI compliant. For example, are your terminals sending credit card data using adequate encryption? Are your terminals compliant with new EMV chipenabled cards? Retailers are required to upgrade existing card readers to handle new chip-containing “smart cards” or face increased fraud-liability risk as of October 1, 2015. Estimates are that less than 25 percent of small businesses have done so. If you’re using a POS or web-based system, check with your service provider about PCI compliance. Make certain that if sensitive customer data is being saved in your system, it is secure and in compliance with card issuer requirements.

SOME TIPS FOR BUSINESS OWNERS

•

I nquiries from buyers promising to place a large order, but who want you to send them a list of what you sell.

•

Buy and use only approved payment terminals.

•

Buy and use only validated payment software at your POS or website shopping cart.

•

issing information, or information the customer refuses to M give, such as a day-time phone number.

•

Record sensitive cardholder data only as needed to complete transactions and destroy or delete it promptly thereafter.

•

rders that are shipped to a different address than the billing O address.

•

Use a firewall on your network and PCs.

•

Make sure your wireless router is password-protected and uses encryption.

rders from foreign countries if you don’t normally do O business internationally.

•

illing addresses that don’t match the information on file B with the credit card company.

•

se strong passwords (i.e. a combination of upper- and U lowercase letters, numbers and symbols). Be sure to change default passwords on hardware and software — most are unsafe! And don’t write your passwords down … but if you must, they should be difficult for another person to access.

Card in Hand Transactions: •

W hen a card is present, run it through the card reader device. Entering the credit card number manually increases the chances of processing a fraudulent credit card.

•

Look out for fake credit cards. If unsure, ask for ID and/or call the card issuer.

•

Watch your customers’ behavior and purchasing habits for suspicious activity.

Card Not Present: •

I f processing credit card payments online, collect additional information from the customer and use verification software that will confirm billing addresses.

Tips for spotting online order fraud: •

Unusually large orders placed through the Internet without any contact from the customer.

•

Rush orders for large quantities or high-priced goods.

What to do when a breach occurs

MORE TIPS These tips, though not infallible, may help you decide if an order is legitimate: • Obtain and verify the complete billing information for the cardholder. •

equire customers to enter the 3-digit security code from the R back of their card.

•

I mplement a fraud detection service that blocks suspicious transactions based on where they originate, or other factors.

•

se an address verification service (AVS) to block sales when U the billing address entered online doesn’t exactly match the billing information on record for the cardholder.

•

I f a sale looks suspicious, find an excuse to call the customer back. If you can’t reach the cardholder, don’t ship the merchandise.

•

S end a reminder email to customers when an order is placed, telling them when the item will be shipped and when they can expect it to appear on their bill.

For many companies, it’s not a question of whether a data breach will occur, but when. In some recent hacking scandals, the worst damage was not the breach itself, but the reputational damage incurred because of a poor response. Here are a few things to consider: • P lan ahead. Take some time now to put a “response kit” together. Know the contacts for your POS system and payment card processor and what they can do to help minimize the damage. Talk through a scenario with them ahead of time. Consider how you will respond to data breaches of different scopes (one customer, or your whole database). Check your insurance coverage for such an incident. Ask the insurance agent what action they will require of you and the timeline. Some policies require that you use a vendor approved by the insurance company to investigate the data breach in order to be covered. • N otify appropriate parties. Be aware that state laws may require you to notify customers, law enforcement and others (depending upon

the number of customers affected and the data which is breached), so be prepared to get an attorney involved. Before a breach occurs, research attorneys who have expertise in responding to data breaches and will help you put together a legal “response kit” and be available to assist if a breach occurs. • A ct swiftly. Denying a problem or failing to act quickly can hurt you more than the breach itself. Alert authorities, insurance carriers and data processors immediately. Contact affected customers promptly. • D on’t try to hide it. If the information goes public, be prepared with an effective response. Hiding from the public or media will only worsen the reputational damage. • F inally, remember that the best protection is not to have a data breach! Being proactive will reduce the chances of finding yourself in this situation and may reduce the impact, should a breach occur. FALL 2015

WASHINGTON Update Tom Cosgrove Senior Vice President for Public Affairs

Attention Members of Congress:

Agriculture is Important in the Northeast As Congress returned from its summer recess in September, there were a number of high profile issues facing members, including a debate over the nuclear agreement with Iran and yet another budget impasse. Late September’s surprise resignation announcement from House Speaker John Boehner cleared the way for a short-term budget deal, but it may take time for new speaker Paul Ryan to establish his priorities. In this climate, particularly with the 2016 Presidential primary campaign in full swing, it’s hard to get anyone’s attention. That can be a good thing, because at least no bad laws are being passed. However, it creates a concern when Congress fails to act on important issues like agricultural labor reform or Section 179 depreciation, which are needed to provide certainty to producers about their labor supply or tax planning. A key part of Farm Credit East’s public affairs effort involves getting members’ attention by telling the story of our customer owners and the positive impact they have on the region. That’s one reason Farm Credit East released the Northeast Economic Engine report earlier this year. The report shows the economic impact of agriculture, forest products, commercial fishing and related businesses, and how these industries represent over $100

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billion of economic impact in the region and support over 483,000 jobs. Whether it’s the economic impact of the industries Farm Credit East serves or the other great things our customer owners are doing, policymakers of both parties are receptive when we can get their attention. Farm Credit East is fortunate to have strong relationships with many members of Congress across the region, all of whom understand the positive impact of our customer owners and Farm Credit East’s role in supporting them. Among Farm Credit associations, very few have more members of Congress in their territory than Farm Credit East. And while about one-third of Northeast districts have very little agriculture, forestry or commercial fishing, these industries have a significant presence in the other districts throughout the Northeast. We know this because every five years the USDA conducts the Census of Agriculture, a comprehensive measure of U.S. agriculture by number of farms, acreage, farmer demographics, value of production by commodity, etc. The statistics are broken down by state and county and are also tabulated by Congressional district. The most recent census (2012) shows agriculture’s significance across the region. While the Northeast only

has two Congressional districts in the national top 100 in terms of the value of agricultural production, nine districts have more than $250 million in agricultural sales and 19 districts have more than $100 million. There’s another group of 19 districts which may not be thought of as agricultural, but in which the industry is still important within certain communities. These districts have less than $100 million but more than $10 million in agricultural sales. If we look at the census data by farm numbers, it tells a similar story: while a third of Northeast districts have fewer than 100 farms, there are 18 districts with more than 1,000 farms. This data set reflects the fact that in New England there are several districts with numerous, but on average, smaller farms as measured by value of production. The bottom line is that all farms, large and small, have an important impact on the local and regional economies and quality of life. It should be noted that the Census of Agriculture does not track forest products or commercial fishing, so adding those natural resource-based businesses to the equation would highlight an even larger impact in many Congressional districts. The importance of agriculture in the states served by Farm Credit East is reflected by the fact we have four

Agriculture in Northeast Congressional Districts members serving on the House Agriculture Committee (Gibson, NY; Kuster, NH; Maloney, NY; and McGovern, MA). In addition, Senator Kirsten Gillibrand (NY) sits on the Senate Agriculture Committee. Clearly, these members know the importance of agriculture to their constituents or they wouldn’t have sought those committee assignments. There are a number of members in the Northeast delegation who are on other committees of interest to Farm Credit East. Ten members from our region are on the House Financial Services Committee and four serve on the Senate Banking Committee. It’s important to develop relationships with these members as well. That’s why it’s critical that Farm Credit East members tell their story in their local community, to local and state officials and to their representatives in Congress. Even if agriculture is not the largest industry in their district, members of Congress need to know that it remains significant and merits their attention and support.

Value of Ag Production Top 10 Northeast congressional districts by market value of products sold

19 19 21

districts where agricultural sales are $100 million or more districts where agricultural sales are $10 to 100 million districts with less than $10 million in agricultural sales, fall within an urban community or where USDA does not have ag production numbers

Number of Farms 4

Top 10 Northeast congressional districts by number of farms.

3 1

5 2

5 4

9 10

7 Representative

Market Value of Products Sold Representative

Market Value of Products Sold

Number of Number of Representative Farms Representative Farms

1 Rep. Collins

$1,219m

6 Rep. Hanna

$493m

1 Rep. Reed

8,716

6 Rep. Collins

4,674

2 Rep. Reed

$1,055m

7 Rep. LoBiondo

$482m

2 Rep. Stefanik

6,108

7 Rep. Courtney

2,762

3 Rep. Stefanik

$977m

8 Rep. Gibson

$462m

3 Rep. Poliquin

5,523

8 Rep. Katko

2,712

4 Rep. Poliquin

$671m

9 Rep. Courtney

$272m

4 Rep. Gibson

5,314

9 Rep. Pingree

2,650

5 Rep. Katko

$667m

10 Rep. Zeldin

$196m

5 Rep. Hanna

4,770

10 Rep. LoBiondo

2,409 FALL 2015

FINANCIAL PARTNER is for the customers, employees and friends of Farm Credit East. Farm Credit East is a farmer-owned lending cooperative serving the farm, commercial fishing and forest products businesses in Maine, New Hampshire, Massachusetts, Connecticut, Rhode Island, New York and New Jersey. Part of the national Farm Credit System, Farm Credit East is a fullservice lender dedicated to the growth and prosperity of agriculture.

Farm Credit East 240 South Road Enfield, CT 06082-4451

PRSRT STD U.S. Postage PAID Permit No. 690 Springfield, MA

Address Service Requested

HOW TO REACH US: Whether you want to praise us, complain, ask our advice or just let us know what’s on your mind, we’d like to hear from you. WRITE: Kristie Schmitt, Editor, Farm Credit East, 240 South Road, Enfield, CT 06082-4451. CALL: 860.741.4380. E-MAIL: kristie.schmitt@farmcrediteast.com. Copyright © 2015 by Farm Credit East, ACA. All rights reserved. Farm Credit East is an affirmative action, equal opportunity employer. FINANCIAL PARTNER is printed on recycled paper.

COMMUNITY Support Maine Oyster Farmer Receives FarmStart’s 150th Investment FarmStart’s 150th investment, and first investment in a new Maine business, was to Long Cove Sea Farm, an oyster farm in Deer Isle, Maine. Owner Abigail Barrows has always wanted to provide locally produced seafood to the area, while also improving the marine environment. So, when the opportunity to purchase an existing oyster farm presented itself earlier this year, she was excited at the prospect. However, she lacked the funds she’d need to make the purchase. She turned to FarmStart. “I have a passion for aquaculture, but not much of a business background, so my FarmStart advisors have been great to work with as I’ve gotten started,” said Abigail. “They understand the seasonality of my business and have created a flexible payment schedule to match. My payments are lumped into the months I am actually producing oysters, instead of when my farm is under a foot of ice in January — and that’s huge.” “This investment is an exciting milestone for FarmStart,” said Lynn Weaver, FarmStart program manager. “We initiated this unique program to give new entrants into the agriculture, commercial fishing and forest products industries a healthy start. With each new investment, we continue to support our mission of a vibrant, entrepreneurial agricultural community in the Northeast.” FarmStart invests up to $50,000 in working capital to help beginning Northeast farmer-owned businesses become operational. A FarmStart advisor works with participants to help new businesses stay on track in achieving their business objectives.

Abigail Barrows, owner of Long Cove Sea Farm, at her oyster farm in Deer Isle, Maine, with FarmStart advisor Kathryn Hall, of Farm Credit East’s Auburn, Maine branch office.

For more information on FarmStart please visit FarmCreditEast.com/FarmStart.