Key Topics for Farm Credit Oversight Hearing

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.

And all this time, as the System has ballooned, it has failed many of the farmers it needs to serve. Farm Credit has a legal mandate to support young, beginning and small farmers (YBS farmers). But it hasn’t fulfilled that mandate. In 2017, Farm Credit failed to prioritize lending to YBS farmers, with lending falling around 10 percent for each category. 2018 was no better – Farm Credit generated 18 percent fewer loans for young farmers, 15.5 percent fewer for beginning farmers, and 16 percent fewer for small farmers. These past two years, Farm Credit has failed to support YBS farmers.

Some are trying to succeed where Farm Credit fails. In Maine, young farmers are banding together to form their own lending institution to fill in the gaps created by Farm Credit East. And the FCA, to its credit, issued a notice in 2019 to review how it collects YBS loan data. Better late than never, though it’s unsurprising that the Farm Credit Council, which protects the interest of Farm Credit lenders, is opposed to changing the status quo. 

Farm Credit’s failure to help vulnerable farmers extends beyond YBS farmers. The 2018 Farm Bill required the Government Accountability Office (GAO) to examine Farm Credit’s record of lending to socially-disadvantaged farmers and to farmers in tribal lands. Both studies found severe deficiencies on Farm Credit’s part.

Farm Credit is massive. But despite its size, its regulator is largely feckless, and Farm Credit is happy to keep things that way. The executive leadership of the FCA comprises a board of three members, with two required for a quorum. At present, the board has only two members, leaving it vulnerable to paralysis if anything should happen to one of them. Even though this is a pressing concern, the Farm Credit Council opposes the president’s nominee, Rod Brown.

When considered in context, however, it makes sense for Farm Credit to neutralize its regulator. Why would Farm Credit want its regulator preventing it from investing in potentially lucrative investments? Farm Credit has already set this process in motion: when the Agriculture Committees were considering the 2018 Farm Bill last year, Farm Credit tried to introduce provisions that would allow Farm Credit institutions to bypass the FCA’s approval process on investments unrelated to farming, creating a system where Farm Credit could lend for any purpose, and would only be reined in when the FCA examines its loans, once every 12 to 18 months. Even though the Agriculture Committees prudently decided against including those provisions, Farm Credit is still trying to introduce them by appealing to the Appropriations Agriculture Subcommittees – a shameless attempt to bypass the authorizing committee which had already expressed its disinterest in such reckless policy.

Farm Credit faces little regulation. If Farm Credit  were regulated as a bank, it would be the seventh largest in the country and would face extensive regulatory burden. And unlike other financial institutions, Farm Credit doesn’t pay that much in taxes, and receives an exemption from taxation on income derived from agricultural real estate loans. In 2018, the System made $5.46 billion in profits in 2018 but paid only $126 million in income taxes – an effective tax rate of only 2.3 percent.

The government provides tax exemptions for services and activities which it holds are to the benefit of the public. Charities, for example, receive tax exempt status for their charitable activities and the operations needed to sustain them. Farm Credit receives its tax exemption because it purportedly provides a public good – supporting YBS farmers and sustaining American agriculture. But when it stops doing those activities for the public good, should it still maintain its privileged tax status?

No! Farm Credit has strayed far from its mission. It has pursued the profitable over the necessary. And when that happens, its privileged status must be reviewed. At the very least, it must receive proper oversight from Congress. The House Committee on Agriculture deserves credit and thanks for holding this oversight hearing. Let’s hope that Farm Credit gets the message and gets back to doing what it’s supposed to do: supporting young, beginning and small farmers and preserving American agriculture.

Key Topics for Farm Credit Oversight Hearing

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.

And all this time, as the System has ballooned, it has failed many of the farmers it needs to serve. Farm Credit has a legal mandate to support young, beginning and small farmers (YBS farmers). But it hasn’t fulfilled that mandate. In 2017, Farm Credit failed to prioritize lending to YBS farmers, with lending falling around 10 percent for each category. 2018 was no better – Farm Credit generated 18 percent fewer loans for young farmers, 15.5 percent fewer for beginning farmers, and 16 percent fewer for small farmers. These past two years, Farm Credit has failed to support YBS farmers.

Some are trying to succeed where Farm Credit fails. In Maine, young farmers are banding together to form their own lending institution to fill in the gaps created by Farm Credit East. And the FCA, to its credit, issued a notice in 2019 to review how it collects YBS loan data. Better late than never, though it’s unsurprising that the Farm Credit Council, which protects the interest of Farm Credit lenders, is opposed to changing the status quo. 

Farm Credit’s failure to help vulnerable farmers extends beyond YBS farmers. The 2018 Farm Bill required the Government Accountability Office (GAO) to examine Farm Credit’s record of lending to socially-disadvantaged farmers and to farmers in tribal lands. Both studies found severe deficiencies on Farm Credit’s part.

Farm Credit is massive. But despite its size, its regulator is largely feckless, and Farm Credit is happy to keep things that way. The executive leadership of the FCA comprises a board of three members, with two required for a quorum. At present, the board has only two members, leaving it vulnerable to paralysis if anything should happen to one of them. Even though this is a pressing concern, the Farm Credit Council opposes the president’s nominee, Rod Brown.

When considered in context, however, it makes sense for Farm Credit to neutralize its regulator. Why would Farm Credit want its regulator preventing it from investing in potentially lucrative investments? Farm Credit has already set this process in motion: when the Agriculture Committees were considering the 2018 Farm Bill last year, Farm Credit tried to introduce provisions that would allow Farm Credit institutions to bypass the FCA’s approval process on investments unrelated to farming, creating a system where Farm Credit could lend for any purpose, and would only be reined in when the FCA examines its loans, once every 12 to 18 months. Even though the Agriculture Committees prudently decided against including those provisions, Farm Credit is still trying to introduce them by appealing to the Appropriations Agriculture Subcommittees – a shameless attempt to bypass the authorizing committee which had already expressed its disinterest in such reckless policy.

Farm Credit faces little regulation. If Farm Credit  were regulated as a bank, it would be the seventh largest in the country and would face extensive regulatory burden. And unlike other financial institutions, Farm Credit doesn’t pay that much in taxes, and receives an exemption from taxation on income derived from agricultural real estate loans. In 2018, the System made $5.46 billion in profits in 2018 but paid only $126 million in income taxes – an effective tax rate of only 2.3 percent.

The government provides tax exemptions for services and activities which it holds are to the benefit of the public. Charities, for example, receive tax exempt status for their charitable activities and the operations needed to sustain them. Farm Credit receives its tax exemption because it purportedly provides a public good – supporting YBS farmers and sustaining American agriculture. But when it stops doing those activities for the public good, should it still maintain its privileged tax status?

No! Farm Credit has strayed far from its mission. It has pursued the profitable over the necessary. And when that happens, its privileged status must be reviewed. At the very least, it must receive proper oversight from Congress. The House Committee on Agriculture deserves credit and thanks for holding this oversight hearing. Let’s hope that Farm Credit gets the message and gets back to doing what it’s supposed to do: supporting young, beginning and small farmers and preserving American agriculture.

JOIN US!

Help us Reform Farm Credit

Scroll to top