All Aboard the Merger Train: A Summer of Never-Ending Consolidations

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The Farm Credit System’s (FCS) consolidation into fewer retail lenders serving farmers, ranchers and producers has not slowed. Just recently, South Carolina Farm Credit and AgSouth announced their intention to mergeFarm Credit East absorbed Yankee Farm CreditFarm Credit of New Mexico announced that it intends to merge into American AgCreditAgChoice Farm Credit and MidAtlantic Farm Credit have announced that they will merge to form Horizon Farm Credit, and Farm Credit West has announced that it will be merging with Northwest Farm Credit Services. That’s not even all of it. With all of this activity, it’s shocking that there’s been comparatively little investigation.

Until now. Covering the merger between Farm Credit West and Northwest Farm Credit Services, Capital Press has reported that some academics are speaking up about the full range of effects of Farm Credit’s move toward consolidation.

Setting the scene and describing Farm Credit’s footprint, the report cites Susan Schneider, a law professor at the University of Arkansas School of Law, who notes that “in the mid-1940s there were more than 2,000 lending associations in the Farm Credit System. That fell to about 900 in 1983, 200 in 1998 and 74 in 2016. In 2022, 69 lenders remain.” Professor Schneider’s estimate may include the service corporations and Farm Credit Banks; the Farm Credit Administration (FCA), Farm Credit’s regulator, counts only 63 associations

Though Farm Credit executives invariably paint a rosy picture of what mergers and consolidations entail when they announce them, some experts have noted clear downsides. The report notes that critics say that larger associations providing larger loans “incentivizes lenders to focus on serving big operations at the expense of smaller farms.” That is certainly true, and given Farm Credit’s record with insufficient lending to young, beginning, and small farmers (YBS), policymakers should be cautious to let mergers proceed and incentivize lenders in such a way.

Erik Hanson, assistant professor of agribusiness and applied economics at North Dakota University, notes that borrowers could see “loss of local control” because “As the business gets bigger, the individual farmer maybe has less and less of a say, less and less of a connection to the way that decisions are being made for that business.” This dynamic could very well be observed right in Professor Hanson’s backyard, given the recent merger of AgCountry Farm Credit Services and Farm Credit Services of North Dakota.

Loss of local control is one likelihood arising from mergers that Reform Farm Credit has noted often. It, along with the other downsides identified, should be at the front of regulators’ minds as they consider the approval of pending mergers and future mergers. The FCA has the power to review and approve mergers. Is it considering the downsides noted by experts when it does so? Is it considering the loss of local control faced by YBS farmers and ranchers, among others?

Experts have noted that there are downsides to mergers and that it’s not as simple as Farm Credit executives say. Given the rate that Farm Credit institutions have been consolidating, Congress should determine whether the FCA is considering the needs of farmers—particularly YBS farmers—when it considers each merger. If it isn’t doing so, or is doing so insufficiently, then Congress needs to step in to make sure all farmers have a voice.