Last month the House Agriculture Subcommittee on Commodity Exchanges, Energy, and Credit held a hearing to review agricultural credit conditions and the Farm Credit System’s (FCS) role in creating those conditions. Testifying before the subcommittee was Glen Smith, the Chairman of the Farm Credit Administration (FCA), the FCS’s regulator.
The question: should we be worried about agricultural credit conditions?
Last week the House Agriculture Committee announced that it would hold an oversight hearing on the Farm Credit System (FCS) and its regulator, the Farm Credit Administration (FCA). It’s been four years since this committee has held a formal oversight hearing – in the meantime, it held a (scathing) “review” in 2017 following the Senate Agriculture Committee’s oversight hearing in 2016 and the House Appropriations Agriculture Subcommittee’s oversight hearing in 2017.
It’s safe to say that Farm Credit is due for another oversight hearing.
In the past two years, Farm Credit has earned its reputation for mission creep and inadequate service to the farmers who need the most support. In the past two years, Farm Credit has extended loans to health care and senior living facilities, to home-buyers of dubious qualification, and to professional show-jumpers purchasing equestrian property from a billionaire. These are noteworthy and illustrative, but not exhaustive. While Farm Credit has strayed far from its mission, it has become a massive entity, with more than $352 billion in total assets.
The sad and shocking story of multimillion dollar embezzlement at the Ashby Farmers Cooperative Elevator (AFCE) in Minnesota keeps getting worse. CoBank and its regulators didn’t perform their due diligence, and now CoBank’s farmer-owners are set to receive only a small fraction of their investment in restitution.
CoBank is the largest financial institution in the Farm Credit System (FCS) with more than $138 billion in total assets. It alone has the authority to lend to cooperatives which provide services related to agriculture, and AFCE is one of those cooperatives.
Last year, AFCE closed its doors because its manager, Jerry Hennessey, embezzled money from the cooperative for years, “with much of the money spent on big-game hunting trips around the globe.” During all of this time, CoBank had maintained a financial relationship with AFCE, lending it millions of dollars. Continue Reading
This week at a press briefing in Washington, DC, three CEOs of Farm Credit System (FCS) institutions – AgriBank, Carolina Farm Credit and American AgCredit – announced that the System’s portfolio of “stressed” agricultural loans nearly doubled, from four percent to seven percent. Not long after, the System’s regulator, the Farm Credit Administration (FCA), released its 2020 National Oversight Plan.
It could not come at a better time. The FCA’s record on enforcing the Farm Credit Act and keeping the System in line is spotty at best. American agriculture is at risk, and the FCA needs to increase its oversight of the System so that it doesn’t leave farmers – especially young, beginning and small farmers – out to dry like it has in 2018.
The Farm Credit Administration (FCA) is the Farm Credit System’s (FCS) ostensible regulator. Occasionally, it does its job and enforces the letter and the spirit of the Farm Credit Act. But usually, it falls woefully short of holding the FCS accountable, such as allowing it to extend loans to a publicly-traded real estate investment trust (REIT) for “server farms.” At the very least, its inefficacy is public.
But last week the FCA unveiled a nasty surprise. On September 12, the FCA issued a news release providing a recap of the FCA’s monthly board meeting. Buried at the bottom of the release is a list of “notational votes,” which are “actions taken by the FCA board between board meetings.” On August 9, the FCA board “approved a request by AgCredit, ACA, to purchase bonds to be issued by a skilled nursing and rehabilitation facility in rural Wyoming.”
As a sprawling, $349 billion government-sponsored enterprise (GSE), the Farm Credit System (FCS) needs a government regulator to make sure it’s acting lawfully and in line with its mission. The System’s regulator, the Farm Credit Administration (FCA), is largely ineffective, letting the System get away with underserving Indian tribes and socially disadvantaged farmers and ranchers, and failing young, beginning and small farmers in 2018.
It’s hard to imagine things getting worse.
The Farm Credit System (FCS) has a legal obligation to support young, beginning and small farmers (YBS) by providing them with sound and reliable credit. This is the most important function of the System — to preserve and maintain the future of American agriculture. If the United States government, or any government-sponsored enterprise (GSE) like Farm Credit, wishes to serve farmers, it must serve the country’s more vulnerable farmers – YBS farmers.
But new numbers are out, and they show that Farm Credit is continuing to fail its most important mission year after year.
In 2018, Farm Credit failed YBS farmers. The numbers in the Farm Credit Funding Corporation’s annual reports don’t lie (2018 annual report, 2017 annual report). The number of loans outstanding to YBS farmers fell in every category: 5.5% for young, 3.4% for beginning and nearly 7% for small. That’s more than 10,000 loans for young farmers, more than 9,000 for beginning, and 34,000 for small farmers.
The drop in new loans to YBS farmers is even worse: nearly 18% for young, nearly 15.5% for beginning, and more than 16% for small. That’s a drop in 10,000, loans for young, 11,000 loans for beginning and 22,000 for small.
Outstanding loans of less than $50,000 have also plummeted. YBS farmers desperately need these loans – it could be the difference between keeping their operation running or having to sell the farm. The total number of outstanding loans less than $50,000 fell more than 23%, and the total dollar amount fell more than 29%. The total number of new loans less than $50,000 fell by nearly 48%, and the total dollar amount fell by 30.5%.
The FCS’s regulator, the Farm Credit Administration (FCA), believes that “the decrease in the number of new and outstanding loans was primarily driven by the way System institutions have been tracking loan participations.” Its explanation for such a plunge in numbers is what amounts to a clerical change. Sorry, but reasonable observers don’t buy that.
The Farm Credit System failed YBS farmers in 2018. Fewer YBS farmers received new loans from the Farm Credit System. The YBS farmers who have outstanding loans are now fewer. And for those critical loans of $50,000 or less, the number of loans and number of dollars loaned decreased drastically. Farm Credit failed.
This has all happened while, according to the FCA, the total loan dollar volume (i.e. the amount of money loaned out) has increased by 3.2%. So there’s more money going out in loans – who is actually getting it if it isn’t YBS farmers?
It’s not too hard to find out what kinds of entities benefit from Farm Credit’s expansion – real estate investment trusts (REITs) which own “server farms,” purchasers of luxury properties in Hawaii and multinational corporations that need to shore up their foreign ventures.
This is nothing new. The Farm Credit System failed to adequately serve YBS farmers in 2017.
Farm Credit is a GSE. It has a public mission. YBS farmers are a part of the public, and are identified as a part which needs extra support from Farm Credit specifically. Farm Credit has failed to fulfill that mission.
The FCA seems willing to accept and propagate excuses that most wouldn’t swallow. It’s up to Congress to take this issue head-on: more oversight hearings, more inquiries and more explanations. Congress should demand nothing less.
It’s campaign season! Even though the 2020 elections are more than a year away, presidential candidates have hit the campaign trail to discuss policy and share their vision with voters.
Reform Farm Credit is pleased to announce that reforming Farm Credit is now a 2020 campaign issue!
Earlier this month, Senator Elizabeth Warren (D-MA) released her proposal for “A New Farm Economy.” Detailed and thorough, it outlines her many ideas on how to reinvigorate rural America, including how to expand farmers’ access to credit by reforming the Farm Credit System (FCS).
When Congress reconsidered federal agricultural policy in the 2018 Farm Bill, it made a few changes to the Farm Credit System (FCS).
Among the Farm Bill’s many important provisions, Congress tasked the Government Accountability Office (GAO), commonly known as “Congress’ watchdog,” with investigating how Farm Credit is addressing the agricultural credit needs of socially disadvantaged farmers and ranchers (SDFRs).
Farm Credit’s got a lot of work to do.
The Farm Credit System’s (FCS) constituent associations are no strangers to funding luxury purchases extraneous to its mission to support American agriculture. Loans for mansions in the Denver suburbs, purchasing the naming rights for a golf tournament and loans for luxury properties in Hawaii find their place on Farm Credit associations’ ledgers.
Those entries won’t be lonely any time soon.