New GAO Report Finds that Farm Credit is Underserving Socially Disadvantaged Farmers and Ranchers

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When Congress reconsidered federal agricultural policy in the 2018 Farm Bill, it made a few changes to the Farm Credit System (FCS).

Among the Farm Bill’s many important provisions, Congress tasked the Government Accountability Office (GAO), commonly known as “Congress’ watchdog,” with investigating how Farm Credit is addressing the agricultural credit needs of socially disadvantaged farmers and ranchers (SDFRs).

Farm Credit’s got a lot of work to do.

In its report, GAO found that information on outreach and lending to SDFRs is limited. Even still, the report indicated that Farm Credit isn’t doing enough to provide credit to SDFRs, which the United States Department of Agriculture (USDA) defines as “members of certain racial and ethnic minority groups and women.”

Among the report’s disappointing findings is this damning appraisal of Farm Credit’s outreach efforts:

“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.”

Even though Farm Credit has no legal mandate to support SDFRs, it absolutely should support them. The System is backed by the implicit guarantee of the federal government, and by extension, taxpayers. It receives a massive tax break every year – in 2018, it paid an effective tax rate of only 2.3 percent. If it continues to benefit from the public’s largesse, then it should serve the public better. And that should include increased outreach and lending to SDFRs.

Tracking outreach in this way isn’t unprecedented. In fact, many financial institutions are already required to do so by the Home Mortgage Disclosure Act (HMDA), which requires them to produce data to determine “whether financial institutions are serving the housing needs of their communities” and to identify “possible discriminatory lending patterns.” If GAO has demonstrated insufficient outreach by Farm Credit, and there’s already a legal mechanism to provide a specific remedy, then why isn’t Farm Credit subject to providing that remedy?

Farm Credit’s insufficient outreach efforts to SDFRs is all the more concerning given the GAO’s grim report of Farm Credit’s willingness and ability to meet the agricultural credit needs of Indian tribes.

But this should come as no surprise to those familiar with Farm Credit. It is legally obligated to serve the credit needs of other vulnerable groups, specifically young, beginning and small farmers (YBS farmers). And in 2017, it failed YBS farmers.

Farm Credit has displayed a disturbing pattern of behavior: it goes after big, legally dubious deals with telecoms and real estate investment trusts while ignoring the needs of vulnerable groups in need of credit. Policymakers should take note, and Congress should hold annual oversight hearings until this troubling pattern of behavior is corrected.