Rural Grant Program Linked to Employment Growth, Business Survival

A new report finds that Value-Added Producer Grants administered by the USDA Rural Business-Cooperative Service “enable recipient businesses to reduce the risk of failing and to provide more jobs” compared to similar businesses that did not receive grants.

Expanding value-added agriculture is one strategy to try to increase rural employment and income. The Value-Added Producer Grants (VAPG) provide capital to farmers and ranchers to conduct activities like processing foods into new products (such as berries into jam). The grant program also covers work such as organic production, traceability efforts, farm-based renewable energy, and marketing locally produced food products, all of which add value to agricultural commodities.

The program awards grants via a national competition. Applications are ranked according to the nature of the proposed project, qualifications of project personnel, commitments and support, work plan, and budget. Technological feasibility, operational efficiency, profitability, and economic sustainability are important project criteria.

Grantees must contribute at least $1 of matching funds or in-kind contributions for every $1 of grant funding. The funds can be used for planning (including feasibility studies and business plans), working capital, salaries, and marketing. The average grant is $136,000, and the FY16 program budget was $11 million.

Findings

• Businesses that received the grants were less likely to fail. VAPG recipients were 89% less likely to fail 2 years after receiving the grant compared to similar non recipients and 57% less likely to fail after 6 years.
• Recipient business provided more jobs. Grant recipients employed 5-6 more workers on average than nonrecipients in the 1 to 5 years after the grant was received.
• Larger grants had larger impacts. The risk of failing decreased significantly with grant size, and increasing the grant by $100,000 increased employment on average by 2-4 jobs for up to 4 years after the grants.
• Other factors may affect business survival and employment growth. The same factors that enabled recipients to obtain VAGP funding may enable them to access other sources of capital.

The VAPG program and its characteristics may provide useful lessons for other small business and rural employment support initiatives. This report itself provides a good program evaluation example, showing “the potential to combine program administrative data with other data sources to provide rigorous evidence on the impacts” of an economic development program.

Learn more from this research summary or download the full report.

Anil Rupasingha, John Pender, and Seth Wiggins. USDA’s Value-Added Producer Grant Program and Its Effect on Business Survival and Growth, ERR-248, U.S. Department of Agriculture, Economic Research Service, May 2018.