Capital Farm Credit Showcases Farm Credit Merger Problem

The Farm Credit System (FCS) is supposed to serve the entire country through its local associations, which are supposed to make sure that farmers, ranchers and producers have access to credit from a local source. That local source – the association – can best serve the needs of its clients because it’s close by; it understands the local economic pressures, the community and can keep an eye on things.

But what happens if the associations aren’t local to their clients?

Bad news. Last week, a rancher in Montana with a 16-year relationship with Capital Farm Credit in Texas was found to have committed wire fraud by fabricating the number of cattle he owned across his multiple operations in Oklahoma, Texas, Wyoming and Montana.

“Starting in 2015, Hartley began to inflate the amount of cattle he was running on those properties,” Drover’s Magazine reports. “Auditors from Capital Farm Credit attempted to schedule an inspection of Hartley’s cattle in July 2017. A month later the vice president of lending for Capital Farm Credit flew to the Wyoming ranch to inspect the cattle.”

It’s difficult for any credit institution to make sure the farmers and ranchers they serve are giving the right information. But it’s even harder to verify that information if the institution’s employees have to fly over a few states to get to the client.

Why is Capital Farm Credit setting itself up for failure? Capital Farm Credit serves all of Texas, and it was providing credit for the rancher’s ranch in Wyoming. Why wasn’t the ranch in Wyoming using credit from Farm Credit Services of America or Western AgCredit, both of which have branches in Wyoming? Wouldn’t it make more sense for a Wyoming ranch to have a Wyoming source of credit so that the lender can check in on the operation more easily? Why was Capital Farm Credit, under the jurisdiction of the Farm Credit Bank of Texas, making loans for operations outside of its jurisdiction?

To make matters worse, this is the second instance of “irregularities” from a Farm Credit institution in Texas. Lone Star ACA is still working through its “appraisal and accounting irregularities” once it discovered them more than a year ago.

The likelihood of missing irregularities is greater when the Farm Credit institution providing the credit isn’t local. And that’s the result of dozens of mergers between FCS associations since the 1980s. Since then, Farm Credit’s 900 associations have shrunk to only 80. Those associations, like Farm Credit Services of America, are gargantuan: Farm Credit Services of America has more than $28 billion in total assets.

While the associations get larger and larger, less and less attention is paid to local farmers, ranchers and producers that need guidance, and more importantly, credit. That’s especially the case with young, beginning and small farmers who often don’t get the attention they need from Farm Credit, even though it’s legally required to help them.

Congress can address this issue head-on: one, it can launch an investigation into the Farm Credit Bank of Texas to determine why it has failed in its oversight of its associations; and two, it can work on legislation to prevent further mergers between Farm Credit institutions so that they can actually serve their local farmers, ranchers and producers.

Capital Farm Credit Showcases Farm Credit Merger Problem

The Farm Credit System (FCS) is supposed to serve the entire country through its local associations, which are supposed to make sure that farmers, ranchers and producers have access to credit from a local source. That local source – the association – can best serve the needs of its clients because it’s close by; it understands the local economic pressures, the community and can keep an eye on things.

But what happens if the associations aren’t local to their clients?

Bad news. Last week, a rancher in Montana with a 16-year relationship with Capital Farm Credit in Texas was found to have committed wire fraud by fabricating the number of cattle he owned across his multiple operations in Oklahoma, Texas, Wyoming and Montana.

“Starting in 2015, Hartley began to inflate the amount of cattle he was running on those properties,” Drover’s Magazine reports. “Auditors from Capital Farm Credit attempted to schedule an inspection of Hartley’s cattle in July 2017. A month later the vice president of lending for Capital Farm Credit flew to the Wyoming ranch to inspect the cattle.”

It’s difficult for any credit institution to make sure the farmers and ranchers they serve are giving the right information. But it’s even harder to verify that information if the institution’s employees have to fly over a few states to get to the client.

Why is Capital Farm Credit setting itself up for failure? Capital Farm Credit serves all of Texas, and it was providing credit for the rancher’s ranch in Wyoming. Why wasn’t the ranch in Wyoming using credit from Farm Credit Services of America or Western AgCredit, both of which have branches in Wyoming? Wouldn’t it make more sense for a Wyoming ranch to have a Wyoming source of credit so that the lender can check in on the operation more easily? Why was Capital Farm Credit, under the jurisdiction of the Farm Credit Bank of Texas, making loans for operations outside of its jurisdiction?

To make matters worse, this is the second instance of “irregularities” from a Farm Credit institution in Texas. Lone Star ACA is still working through its “appraisal and accounting irregularities” once it discovered them more than a year ago.

The likelihood of missing irregularities is greater when the Farm Credit institution providing the credit isn’t local. And that’s the result of dozens of mergers between FCS associations since the 1980s. Since then, Farm Credit’s 900 associations have shrunk to only 80. Those associations, like Farm Credit Services of America, are gargantuan: Farm Credit Services of America has more than $28 billion in total assets.

While the associations get larger and larger, less and less attention is paid to local farmers, ranchers and producers that need guidance, and more importantly, credit. That’s especially the case with young, beginning and small farmers who often don’t get the attention they need from Farm Credit, even though it’s legally required to help them.

Congress can address this issue head-on: one, it can launch an investigation into the Farm Credit Bank of Texas to determine why it has failed in its oversight of its associations; and two, it can work on legislation to prevent further mergers between Farm Credit institutions so that they can actually serve their local farmers, ranchers and producers.

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