FCS Escapes Scrutiny of its Failures to Support YBS and SD Farmers

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On March 24, Farm Credit lucked out at a key congressional hearing.  The House Appropriations Committee’s Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies held an oversight hearing featuring the Farm Credit Administration (FCA), the Farm Credit System’s (FCS) regulator.

The FCS escaped full examination of its failure to adequately support young, beginning and small farmers (YBS farmers), its errant loans for “non-agricultural purposes”, and its out-of-control problem with institution consolidation.

But it didn’t escape all sticky points. Rep. Betty McCollum (D-MN) asked a question about the FCS’s foray into health care:

“One of those inequities is a lack of access for rural Americans’ to good health care…Compeer Financial Farm Credit has joined with local banks, credit unions and the USDA in a public-private partnership to help finance critical access hospitals and senior living facilities. These partnerships were happening prior to the pandemic… I think we need to see more of these innovative partnerships that can not only strengthen the rural health care system, but also help with long, overdue infrastructure needs…Currently the FCA’s board of directors must provide specific individual approval for each community facility investment made by institutions…what can you do to enhance and expand the Farm Credit System’s ability to increase these partnerships?”

Glen Smith, Chair of the FCA Board of Directors, replied:

“I couldn’t agree with you more, Congresswoman, about the need for good health care facilities in rural areas…At times we bump up against our authority, if that could be expanded on by Congress we’d be all for it.”

There is a reason why Farm Credit often bumps against its authority: time and again, it lends outside of the scope of its mission to support farmers, ranchers and producers. Health care facilities are worthy of investment. But are they worthy of investment from Farm Credit? Aren’t there other lenders who can provide this sort of investment? Rep. McCollum mentioned that banks, credit unions, and the USDA have joined with Compeer Financial – an FCS institution – to finance access to health care facilities. Surely there are enough private institutions to accomplish this, right? Why should Congress authorize an expansion of Farm Credit’s mission when it’s already failing its core mission to foster American agriculture by supporting young, beginning, and small farmers, ranchers and producers?

That’s not the only area where Farm Credit is failing. Rep. Barbara Lee (D-CA) raised concerns about a Government Accountability Office (GAO) report on Farm Credit’s inadequate lending to socially-disadvantaged farmers and ranchers:

“It was determined and reported from this GAO study that socially-disadvantaged farmers and ranchers (SDFR) receive a disproportionately small share of farm loans, and so I’m wondering about some of these barriers that have caused this lack of access to resources and how you’re beginning to address this based on the GAO recommendations.”

Chairman Smith replied:

“The Farm Credit System is in business to lend to all credit-worthy borrowers, large or small, and oftentimes those urban, startup enterprises are small enterprises. In 2014, FCA put out a directive to system institutions to develop and analyze a plan on the demographics of the area, including socially-disadvantaged groups, how engaged they are in lending activities and come up with a plan for outreach to those groups. This plan is regularly examined by our FCA examiners. I believe our emphasis on young, beginning and small farmers is in part an answer to reach out to those socially-disadvantaged groups as well.”

The GAO’s July 2019 report found that:

“Despite some outreach, some SDFR advocates we spoke with said that Farm Credit System associations’ outreach has had limited effects on the amount of credit provided to SDFRs and SDFRs’ familiarity with the system. One SDFR advocate we spoke with said that while some Farm Credit System associations engage with socially disadvantaged communities, the outreach has not increased the diversity of the system’s borrowers. Others said that Farm Credit System outreach to SDFR communities has been insufficient and that some SDFRs are still not aware of the Farm Credit System.”

Clearly, Farm Credit institutions are not doing nearly enough to solve this problem. According to Chairman Smith, FCA issued a directive to Farm Credit institutions to develop a plan to address this in 2014. Their plan is regularly examined by FCA examiners. And in 2019, the GAO’s audit revealed that the plan is insufficient. And to say that Farm Credit institutions’ YBS programs are sufficient to address this problem is risible when the System is failing to support its YBS farmers. 

What is Farm Credit’s answer here? Why hasn’t it improved its outreach to socially-disadvantaged farmers and ranchers? If the YBS program is sufficient to handle this issue (it isn’t), then how does it explain its failure to support YBS farmers?

Above all, this hearing demonstrated that Farm Credit has more than it can handle. Farm Credit is trying to expand the bounds of acceptable lending, aggressively turning to health care to such a degree that it may as well be called Health Care Credit. At the same time, it’s failing to help both YBS farmers and socially-disadvantaged farmers. Farm Credit needs to get back to focusing on farmers, ranchers and producers, and lawmakers need to keep Farm Credit true to its mission.