Farm Bill Programs
- The Farm Bill (The Agriculture Act of 2014) expires in 2018. A strong Farm Bill provides stability to the volatile farm sector. ICBA will work with the administration and Congress to ensure the next farm bill facilitates private sector community banks working with farm and ranch customers to survive low commodity prices.
- Crop insurance is a successful public-private program critical to the ability of farmers and ranchers to survive weather-related disasters and repay farm loans. ICBA is working to protect the program from further cuts or adverse changes that would discourage farmer and rancher participation or undermine private sector delivery.
- USDA farm loan guarantee programs benefit family farmers and allow community banks to better manage lending risks of farmers and ranchers who would otherwise be unable to obtain commercial credit.
- ICBA supports changes to the USDA loan guarantee program that would significantly increase the program’s loan limits, raise the number of loans made, and provide additional funding to meet increased demand.
Farm Credit System
- FCS lenders enjoy unfair competitive advantages over rural community banks, leveraging their tax and funding advantages as a government sponsored enterprise (GSE) to siphon the best loans away from community banks’ portfolios. Such abusive activities wreak havoc on community banks’ lending portfolios, jeopardizing the viability of many community banks and the economic strength of the thousands of rural communities they serve.
- ICBA strenuously opposes the Farm Credit Administration’s (FCA’s) “case-by-case approval” of FCS’s (non-farm) “investments.” This program is a successor to the FCA’s “Rural Community Investments” proposal, which was withdrawn in November 2013, but has now been implemented via regulatory guidance.
- ICBA further rejects proposed legislation by the Farm Credit Council to allow blanket approval authority of FCS investments without FCA approval.
- ICBA believes numerous changes to the Farm Credit Act are necessary to reform the FCS, ensuring its adherence to its historical mission of serving bona fide farmers and ranchers while preventing it from engaging in below-market pricing of loans and non-farm lending including the extension of credit to America’s largest corporations.
Community Banks and the Rural Economy
Thousands of community banks are located in rural areas. Approximately 2,500 community banks are classified as "agricultural" banks and more than 3,000 community banks have agriculture-related portfolios of at least $5 million. Community banks under $10 billion in asset size finance approximately three-fourths of all farm loans from the banking sector.
Farm Bill Reauthorization
The Agriculture Act of 2014 expires Sept. 30th, 2018. It provides lenders and farm customers a long-term policy framework for business and planning decisions. The Farm Bill provides billions of dollars through various programs, including commodity support programs such as price loss coverage (PLC) and Ag Risk Coverage (ARC) options. This money circulates through the farm sector in America’s rural communities. The 2014 Farm Bill significantly enhanced crop and revenue insurance programs to better support producers’ risk management strategies and ensure their ability to repay bank loans. The new Farm Bill must protect these enhancements and ensure all programs work effectively on behalf of producers and their lenders.
ICBA has suggested five key principles for the next farm bill:
- Provide adequate funding to weather a potential farm income or credit crisis.
- Consider any program changes that help producers and the banks that serve them.
- Require agencies to reduce current regulatory burden and require that any new regulation not increase regulatory burden and must be based on specific statutes.
- Require agencies to treat program participants and stakeholders equally.
- Ensure direct government loan programs compliment – not displace – community bank lending.
In 2016, 1.1 million polices protected more than 100 different crops covering approximately 280 million acres, an area larger than Texas and California combined, with an insured value of over $100 billion. Crop insurance plays a vital role in surviving weather-related disasters and must be preserved in the new farm bill.
USDA Guaranteed Loans
USDA's guaranteed loan programs allow community banks to lend to higher-risk borrowers with a guarantee of repayment of 90 percent of principal. USDA’s guaranteed farm ownership (real estate) loan program is fully self-funding, and the guaranteed operating loan program has a negligible cost. Congress should significantly raise loan limits and increase funding for loan guarantee programs to meet increased loan demand in times of farm financial stress. Increasing the loan limit significantly will allow more family farmers and ranchers to have access to these important programs. ICBA successfully fought to eliminate term limits on guaranteed farm loans in the current farm bill and would oppose any reinstatement of term limits.
Farmer Mac was created to serve as a secondary market providing rural lenders the option to sell agricultural real estate and rural housing loans, thereby enhancing community bank liquidity. Farmer Mac should continue to focus on its primary mission of improving secondary market access for community banks.
Farm Credit System
FCS lenders enjoy unfair advantages over rural community banks and leverage their tax and funding advantages as a government sponsored enterprise (GSE) to siphon the best loans away from community banks. The FCS is the only GSE that competes directly against private sector lenders at the retail level. FCS was chartered by Congress to serve bona fide farmers and ranchers and a narrow group of farm-related businesses that provide on-farm services, but has in recent years sought numerous non-farm lending powers in an effort to compete directly with commercial banks for non-farm customers.
FCS’s compliant regulator, the FCA, has also sought to expand FCS activities through regulatory initiatives such as the “Rural Community Investments” proposal to provide authority for non-farm lending by FCS lenders under the guise of “investments” even when such lending goes beyond the constraints of the Farm Credit Act. Although this proposal was supposedly withdrawn in 2013, it is being implemented via regulatory guidance to authorize non-farm “investments” on a case-by-case basis. Additionally, the Farm Credit Council has proposed replacing the FCA’s case-by-case approval regime with unlimited FCS authority to finance any investment without FCA oversight. ICBA opposes the Farm Credit Council’s legislative proposal seeking carte blanche investment authority.
Congress should, among other actions, reform and refocus the FCS by equalizing tax treatment between community banks and FCS lenders; prohibiting non-farm lending including “similar entity” and other types of loans to large corporations; prohibiting predatory, below-market pricing of loans; enforcing deposit taking prohibitions and changing the makeup of the FCA board.
Staff Contact: Mark Scanlan