Congress reconsiders federal agricultural policy every five years in a massive piece of legislation called the Farm Bill. The latest Farm Bill, passed in 2018, made some big changes to the Farm Credit System (FCS).

One of the more important provisions enacted by the Farm Bill is a directive to the Government Accountability Office (GAO), commonly known as “Congress’ watchdog,” to investigate the agricultural credit needs of Indian tribes, what barriers stand in the way, and how Farm Credit’s lending activities play into the status quo. Continue Reading

The Farm Credit System (FCS) has a legal obligation to furnish sound and constructive credit to young, beginning and small (YBS) farmers and producers. And after a number of questions were raised about many loans the system has made to these farmers, the FCS’s regulator, the Farm Credit Administration (FCA), has decided that after twenty long years, it needs to reform its regulations on YBS farmers.

But not if Farm Credit Council (the FCS’s lobbying arm) has its way.

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Every five years the U.S. Department of Agriculture (USDA) conducts a Census of Agriculture to gather information on the state of agriculture in the US. And this year brings bad news for the Farm Credit System (FCS) and the young, beginning and small farmers and producers that it has a legal duty to serve.

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It’s no secret that rural America has seen tough times in recent years. Low commodity prices, tariffs and poor weather haven’t helped. In the words of Compeer Financial’s CEO Rod Hebrink, “There’s a bleeding going on.”

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Too often, the Farm Credit System’s (FCS) regulator, the Farm Credit Administration (FCA) defends the FCS when it should be rigorously regulating it. It doesn’t matter whether the FCS is under Congress’s, the news media’s or even taxpayers’ scope – the FCA always seems to have the System’s back and consistently covers for it.

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One of the biggest benefits the Farm Credit System (FCS) has is its tax-advantaged status. The FCS is exempt from certain taxes: profits from non-real estate lending are exempt from state and local taxes, and income from real estate lending is exempt from corporate income taxes. Compared to other lenders, the FCS has massive advantages that tilt the playing field unfairly, meaning farmers and other producers can’t help but go to Farm Credit.

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The Farm Credit System (FCS) operates under the Farm Credit Administration (FCA). As the FCS’s regulator, the FCA is supposed to keep an eye on the FCS’s various dealings. It’s a monumental task because the FCS is a colossus, with $335 billion in total assets.

The FCA needs resources to adequately monitor and examine all of the System’s institutions. On March 11, FCA Board Chairman and CEO Dallas Tonsager said as much when he presented testimony before the House and Senate Agriculture Appropriations Subcommittees. And to Tonsager’s credit, he has highlighted one of the FCA’s glaring deficits: it doesn’t have nearly enough examiners.

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In 2017, Lone Star Ag Credit, a Farm Credit System (FCS) association in Texas, broke horrible news to its customers: Lone Star’s management was unable to issue its normal financial statements due to “appraisal and accounting irregularities affecting a segment of the Association’s lending portfolio.”

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The Farm Credit Administration (FCA) is the Farm Credit System’s (FCS) regulator. But more often than it should, the FCA acts as Farm Credit’s facilitator. Under the FCA’s “regulation,” the FCS has gotten away with making loans to huge telecoms, letting a co-op go bankrupt due to lack of oversight, and merging its institutions to an intolerable degree. It has done all of this while failing to provide sufficient credit for young, beginning and small farmers.

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As a veteran banker with a large agricultural portfolio in Kansas, I worked diligently with my colleagues from across rural America to convince Congress to stay the course and prevent granting the Farm Credit System additional lending authority in the recently enacted five-year farm bill. The ideas presented in the recent BankThink column by Lee Reiners to pursue the opposite path fundamentally ignore the reality on the ground in agricultural lending today. While rural America needs investment and support to thrive, any plan for long-term success should have commonsense proposals informed by full consideration of the facts. Simply put, the U.S. needs to let ag banks be ag banks, subject to the stringent regulations that protect consumers and taxpayers and ensure that the FCS adheres to its statutory mission. Continue Reading