Congress is expected to begin drafting a new farm bill in 2022. The new farm bill should build upon the success of the 2018 Farm Bill, which expires September 30, 2023. The 2023 farm bill should continue to provide essential assistance to the farm sector and to rural America. Robust price support programs provide a financial safety net for many producers during times of low commodity prices.
The new farm bill should maintain a strong crop insurance program, a successful public-private partnership critical to the ability of farmers and ranchers to survive weather-related disasters and repay farm loans.
USDA farm loan guarantee programs benefit family farmers and ranchers and allow community banks to better manage the lending risks of producers who would otherwise be unable to obtain commercial credit. These programs should remain primarily financially geared to establishing successful farm and ranch operations. Program fee levels should not discourage participation by community bank borrowers and should not be set at levels that overfund government collections.
The Farm Bill legalizes hemp in states with plans approved by the USDA and also makes significant changes to rural development programs.
Farmer Mac should continue to focus on its primary mission of improving secondary market access for community banks. ICBA opposes allowing the Farm Credit System to operate their own secondary market independent from or in competition with Farmer Mac.
Rural America and farm and ranch families have benefitted from low interest rates, ample energy supplies, and a de-regulatory environment. Congress should not enact policies that discourage business innovation and activity in rural areas. Congress should also adjust farm programs to allow producers to manage surging inflation levels.
Climate change programs should not increase regulatory or economic burdens, particularly for small businesses, agricultural producers, or the community banks that serve them.
The U.S. Department of Agriculture reports that net farm income has increased approximately 20 percent or more during the past two years (19.9 percent and 23.2 percent respectively). The 2021 estimate of 116.8 billion in net farm income is the highest level since 2013 and is more than 24 percent above the $94 billion average of the past twenty years.
Direct government payments, after increasing by $23.2 billion (103.5 percent) in 2020 relative to 2019, were forecast to fall by $18.5 billion (40.4 percent) from $45.7 billion in 2020 to $27.2 billion in 2021. The decrease is expected due to lower supplemental and ad hoc disaster assistance for COVID-19 relief compared with 2020.
Meanwhile, total production expenses were forecast to increase by almost $30 billion (over 8 percent) to $388 billion (in nominal terms) in 2021. Spending on nearly all categories of expenses is expected to rise. ICBA is concerned that inflation, particularly in key inputs such as fertilizer and fuel costs, are rising much faster than currently shown in USDA forecasts.
ICBA worked with the administration and Congress to ensure the 2018 Farm Bill facilitated private sector community banks working with farm and ranch customers. In the next farm bill, ICBA will advocate for provisions relating to commodity programs, crop insurance, credit and rural development titles and other relevant issues.
Farm bill provisions are intended, in part, to provide lenders and farm customers a long-term policy framework for business and planning purposes. Farm Bill money circulates through the farm sector in America’s rural communities strengthening rural economies and boosting employment and economic activity.
Crop Insurance. The Federal Crop Insurance Program (FCIP) plays a prominent role in helping producers manage financial risk. In crop year 2019, the program sold more than 2 million policies and insured crops and livestock valued at more than $116 billion, equivalent to about 28 percent of the value of U.S. agricultural production. More than 90 percent of planted acres for corn, soybeans, and cotton and more than 85 percent of wheat planted acres were insured through the FCIP. In all, the FCIP provided coverage for 124 commodities and offered 19 types of insurance policies. Sixteen companies sold crop insurance to farmers, who enrolled a record high 380 million acres.
Crop insurance plays a vital role in helping farmers survive weather-related disasters and repay bank loans. ICBA will continue urging Congress to protect previously adopted enhancements including expanding crop insurance and revenue insurance programs to better support producers’ risk management strategies and ensure their ability to repay bank loans.
ICBA is closely monitoring all aspects of the new bill’s implementation to ensure community bank interests are understood and adopted to protect these programs during the life of the bill from miscellaneous legislation targeting crop insurance for budget cuts.
The introduction of a new hemp program should ensure community banks’ ability to finance hemp growers and related businesses that utilize hemp for commercial products such as CBD oils and other uses once a hemp market becomes established. Crop insurance has also been added for hemp producers. ICBA has encouraged expeditious approval of state plans that will allow hemp production. Likewise, the current farm bill created insurance-style coverages for dairy producers. USDA should continue providing necessary educational materials for producers, lenders, and interested stakeholders.
USDA Guaranteed Farm 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.
ICBA urged Congress to increase loan limits for USDA guaranteed farm loan programs and appreciates the modest increase from the previous $1.4 million level to a higher level of $1.75 million indexed for inflation.
Congress should ensure the inflation index keeps up with the actual rates of inflation in land values, which have increased in some states by over 20 percent in just the past year. Additional increases in guaranteed loan limits are warranted given the costs of current land prices and operating expenses, particularly with inflation levels reaching their highest rates in the past 40 years.
Increased loan limits allow community banks to work with more family farmers particularly during times of financial stress. ICBA successfully fought to eliminate term limits on guaranteed farm loans in the 2014 farm bill and would oppose any efforts to reinstate term limits.
Social targeting, or quotas, or similar requirements should be minimized in favor of expanding the program’s borrower base as widely as possible. A new supply chain guaranteed loan program has been introduced by USDA, and ICBA encourages this program to be made widely available to community banks.
Rural Development Loans. The 2018 farm bill made several key changes for rural development programs. Congress increased population limits for three USDA rural development programs to communities of 50,000 or less. These three programs are the Community Facilities, Water and Waste Management, and Broadband programs.
These programs will have a zero-subsidy rate, meaning they will not be tied to Congressional appropriations, possibly providing a greater volume of loans from the private sector rather than relying on USDA funding. The farm bill also requires USDA to study whether to apply the zero-rate subsidy concept to the Business and Industry (B&I) program and Rural Energy for America Program (REAP). Implementation of these programs should ensure community banks’ perspectives are considered.
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.
ICBA appreciates Farmer Mac’s efforts in recent years to reach out to the community banking sector to encourage greater use of the secondary market to assist family farm and ranch borrowers. ICBA opposes efforts to allow the Farm Credit System to implement their own secondary market in competition with Farmer Mac.
Climate Change. ICBA believes that any policies adopted by Congress or regulators should not increase regulatory or economic burdens upon the business sector, particularly small businesses and agricultural producers, and the community banks that provide credit to these businesses and individuals. Rather, such efforts should incentivize all producers by providing additional payments for practices that help establish healthy soil and water on farming operations.
ICBA believes policies adopted to address climate change should provide economic and regulatory relief incentives to undertake scientifically backed mitigation responses rather than impose new burdens or mandates.
Staff Contact: Mark Scanlan
April 20, 2022
The Consumer Financial Protection Bureau issued a report on the challenges faced by Americans in rural communities.
Report Details: The report says many in rural communities lack access to physical bank branches, are more likely to seek credit from nonbanks, and are heavily affected by medical bills. The CFPB said it will expand its efforts to address these and other challenges facing rural America.
ICBA Letter: The report follows a recent ICBA letter to the bureau noting that regulatory compliance burdens are driving consolidation while exacerbating the decline of rural businesses and their ability to access low-cost credit.
Community Bank Impact: In its letter, ICBA said community banks proportionally maintain more branches than larger institutions and are robust lenders to minority and low-to-moderate-income borrowers.
Recommendations: ICBA also encouraged policymakers to:
Support the ECORA Act, which would exempt from taxation interest income on farm real estate and rural mortgage loans.
Enhance the farm bill’s rural safety net, particularly through guaranteed loan programs.
Examine the tax and regulatory advantages of credit unions and Farm Credit System entities as well as credit union acquisitions of community banks.