Farm Credit Institutions Protect Profits at Expense of Farmers

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There are few things more important in agriculture than making sure that farmers have enough credit to operate their farms. Kansas recognizes this: it gives farmers easy access to credit by providing lenders with some helpful but limited tax incentives for lending to farmers. And the federal government recognizes this to an extent by granting the Farm Credit System (FCS) – and only the Farm Credit System – an exemption from federal income taxes on profits earned on real estate lending.

Some Farm Credit institutions are jealously guarding this tax advantage at the expense of farmers.

At the Kansas Livestock Association’s (KLA) annual convention this past week, the KLA Tax Committee voted in support of a broad resolution to support any tax incentives that would lower costs for farmers: “The Kansas Livestock Association supports deductions or exemptions that ensure equal competition among agricultural lenders and equal access to credit for agricultural borrowers.

This resolution was defeated in the KLA’s plenary session because of an aggressive campaign orchestrated by Farm Credit Services of America (FCS America) and Frontier Farm Credit.

Why would FCS America and Frontier Farm Credit do such a thing?

Farm Credit is afraid of competition, and it needs to maintain its leg-up on other lenders. And it’s a giant leg-up too. Farm Credit’s total debt holdings amount to $159 billion. Of that $159 billion, $108 billion is for real estate debt. That means that the interest yielded from two-thirds of Farm Credit’s debt holdings is not subject to federal income taxes.

With this monumental advantage, it can offer more attractive rates, reap profits, and cycle those profits to its member-owners. While it does this, it fails young, beginning and small farmers who need credit the most. 

Fortunately, some federal lawmakers have noticed and are taking action. Earlier this year, Rep. Steve Watkins introduced the Enhancing Credit Opportunities in Rural America (ECORA) Act. If this bill were enacted, other lenders would have the same advantage that Farm Credit has. Farmers across the country, and anyone that purports to support farmers, should support this bill.

But if FCS America’s and Frontier Farm Credit’s behavior is any indication, then the Farm Credit Council, the System’s lobbying arm, will fight the ECORA Act with tooth and nail. Congress needs to scrutinize this behavior – who exactly does Farm Credit serve? Does Farm Credit serve all farmers, or just itself? And if Farm Credit only serves itself, why does it receive preferential tax treatment? These questions need answers sooner rather than later.