Agricultural Policy: Enacting a New Farm Bill and Reforming the Farm Credit System

Position

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 new administration and a new Congress to ensure a new bill helps ensure a robust future by allowing private sector community banks to continue working with their farm and ranch customers to survive low commodity prices and other challenges.
  • Crop insurance is a successful public-private program that is critical to the ability of farmers and ranchers to survive weather disasters and repay their 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 farmers and help community banks manage lending risks to farmers and ranchers who would otherwise be unable to obtain commercial credit.
  • ICBA supports changes to the USDA loan guarantee program that would significantly raise volume caps and provide additional funds.

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. Such abusive activities wreak havoc on community banks’ lending portfolios jeopardizing the future of many community banks and the rural communities they serve.
  • ICBA strenuously opposes the successor to the Farm Credit Administration’s “Rural Community Investments” proposal, withdrawn in November 2013 but now adopted via regulatory guidance as part of the Farm Credit Administration (FCA’s) “case-by-case approval” of FCS’s (non-farm) “investments.”
  • ICBA believes numerous changes to the Farm Credit Act are necessary to modernize the System to correct the FCS’s ability to engage in predatory, below-market pricing of loans and other abusive practices. Congress should, among other actions, reform the FCS by equalizing tax treatment between community banks and FCS lenders; prohibiting FCS non-farm lending and loans to corporate borrowers and changing the structure of the FCA board.

Background

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. Historically, community banks have provided over one-half of all commercial bank agricultural financing.

Farm Bill Reauthorization. The Agriculture Act of 2014 expires in 2018 and may be reauthorized in 2017. 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, that circulate through the farm sector and 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 make necessary changes to ensure all of its programs work as intended. Programs authorized for cotton and dairy producers may need to be re-examined to enhance effectiveness.

Crop Insurance. In 2015, 1.2 million polices were sold protecting more than 120 different crops covering 285 million acres, an area larger than Texas and California combined, with an insured value of over $100 billion.

USDA Guaranteed Loans. USDA's guaranteed loan programs allow community banks to lend to higher risk borrowers with a guarantee of repayment. USDA’s guaranteed farm loan programs are fully or near fully self-funding. Congress should remove volume caps and significantly raise the total amount of such loans that can be made. In addition, loan size limits should be significantly increased to ensure USDA farm loan programs continue to meet the needs of family farmers and ranchers. ICBA successfully fought to eliminate term limits on guaranteed farm loans, and believes such limits should not be reinstated.

Farmer Mac. 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’ agricultural lending.

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, 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, which would provide authority for non- farm lending by FCS lenders. This proposal was withdrawn in 2013 but has now been implemented via regulatory guidance to authorize non-farm “investment” lending on a case-by-case basis.

Congress should, among other actions, reform the FCS by equalizing tax treatment between community banks and FCS lenders; prohibit non-farm lending including loans to large corporations; and change the makeup of the FCA board.

Staff Contact: Mark Scanlan