The Farm Credit System (FCS) and its defenders often spout the spurious claim that they’re “helping farmers, ranchers and rural communities.”
Far from the truth.
The FCS has neglected the credit needs of young, beginning and small farmers for at least a decade. Instead of making loans to the people who need credit the most, FCS lenders have dominated the agricultural real estate lending market, holding over half of all real estate loans. These loans are immensely more profitable than production loans because they are tied to a stable asset and have a steadier payment stream – a house and the land it’s built on are longer lasting than a season’s worth of produce, and if a producer has to make a choice between paying off a real estate loan or a production loan, they’ll pay off the former. In addition to holding these profitable loans, the FCS also holds special tax exemption on the interest accrued.
Thanks to the efforts of a Kansas Congresswoman, the playing field may be on track for a much-needed levelling.
US Rep. Lynn Jenkins (R-KS) is taking on the entrenched FCS and its fancy Beltway lobbyists by introducing HR 2025, the Enhancing Credit Opportunities in Rural America Act of 2017 (ECORA). ECORA would amend the tax code and level the playing field by allowing other potential creditors, like rural farm banks, to also make those loans and to also exempt from taxes the interest gained on the loans.
This’ll mean more competition, which leads to lower interest rates and better service. As it stands now, FCS lenders can undercut everyone else in the market and provide substandard service. With this law in place, farmers can get lower interest rates on real estate loans. The money that doesn’t go to interest payments on their (very likely) FCS-originated real estate loan can be used for thousands of other purposes. But most importantly, that money would stay in the community, and would help revitalize small rural towns that are sorely lacking investment.
US Rep. Jenkins’ bill is a step in the right direction, and the RFC team endorses it with enthusiasm. By supporting this bill, members of Congress can take action to relieve small farmers and revitalize rural America. The stage is set: Congress, pass this bill! Farmers, ranchers and producers across the country will thank you for it.
The FCS has neglected the credit needs of young, beginning and small farmers for at least a decade. Instead of making loans to the people who need credit the most, FCS lenders have dominated the agricultural real estate lending market, holding over half of all real estate loans.