New Year, Same Problem: Another Farm Credit Merger

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The Farm Credit System (FCS) has a merger and consolidation problem. In the past few years, the number of Farm Credit associations, the brick-and-mortar retail lenders in the FCS, has decreased. In just the past year, Carolina Farm Credit and AgSouth announced their intent to merge, as did AgChoice and MidAtlantic Farm Credit, and North Carolina’s Cape Fear Farm Credit and AgCarolina Farm CreditFarm Credit West’s merger with Northwest Farm Credit Services became official on January 1

When will it end? 

It doesn’t look like anytime soon. Now Lone Star Ag Credit and Ag New Mexico Farm Credit have announced their intent to pursue a merger. With the former holding $2.6 billion in assets and the latter holding $400 million, this deal looks more like an absorption, and it will be the second merger in New Mexico in the past year, with Farm Credit of New Mexico having announced that it intends to merge into American AgCredit.

According to Lone Star Ag Credit’s Chairman, they are pursuing the merger in part because “a dynamic and diversified market provides for improved operating efficiency and a stable source of competitive credit.” Ag New Mexico Farm Credit’s Chair notes that “this merger could strengthen both associations with greater lending capacity to better serve the agricultural producers who provide food, fuel and fiber for the nation.” As is often the case with this sort of deal, the leadership of both institutions have made clear that “no branch closures or branch staffing changes are anticipated.”

Whether any of this is true is up in the air – these claims are often repeated by Farm Credit institutions’ executives. What’s left out of the story is whether the farmers, ranchers, and producers who live in the institutions’ districts, but who are not yet members, are being adequately served by Farm Credit, and whether they even have a shot after the merger. 

This question becomes even more salient given Lone Star Ag Credit’s recent history of mismanagement. In 2017, it shamefully issued a public notice that its financial statements “as of and for the year ended December 31, 2016, as well as the three months ended March 31, 2017, should no longer be relied upon,” due to “appraisal and accounting irregularities.” Should Lone Star be absorbing another association given its recent troubling history of accounting irregularities?

The Farm Credit Administration (FCA) is the FCS’s regulator, and it has the final say on whether any merger proceeds. Before it even considers this merger, it should thoroughly audit and examine Lone Star Ag Credit’s books, commission an impact study on the farmers in the associations’ jurisdictions, and invite farmers from those jurisdictions to submit testimony in support or opposition to the merger. The FCA ought to keep a watchful eye on this deal in particular – it’s the very least it can do.