Bankers, small farmers disagree over whether FSA loan limits should be increased
At a House Agriculture Commodity Exchanges, Energy and Credit Subcommittee hearing on farm credit and the next farm bill, several bankers testified in favor of increasing the limits on Farm Service Agency guaranteed loans, but a representative of small farmers said the change could result in loans going to bigger farmers, with smaller producers left out.
Doug Thiessen, CEO of Alabama Ag Credit testifying on behalf of the Farm Credit System; Nate Franzen, president of Agri-Business at First Dakota National Bank in Yankton, S.D., testifying on behalf of the American Bankers Association; and Steve Handke, president and CEO of the Union State Bank of Everest, Kan., testifying on behalf of the Independent Community Bankers of America, all said that the current guarantee limit of $1.4 million is too low and does not reflect the current structure of farms.
All of them said they would support the “Beginning Agriculturist Lifetime Employment (Bale) Act” introduced by Rep. Mike Bost, R-Ill, that would boost the guaranteed loan limit to $2.5 million.
Thiessen said, however, that “Farm Credit recognizes that increasing the loan limits could have the unintended consequence of having fewer producers served by these programs because the current level of funding does not reflect the actual costs associated with agriculture production and the need for larger loan limits. To that end, we also support increasing the level of funding for both FSA guaranteed and direct loans.”
But Scott Marlow, the executive director, Rural Advancement Foundation International USA, Pittsboro, N.C., testifying on behalf of the National Sustainable Agriculture Coalition, said, “Some lenders have urged you to increase FSA loan limits across the board as you consider the next farm bill. We strongly urge you to resist that idea.“
“If loan caps are increased across the board in the next farm bill in order to accommodate the needs of the largest farms — those with the best chance to find private sources of credit and capital — family-scale farms, including beginning and socially disadvantaged farmers, will ultimately feel the brunt of the impact and face fiercer competition for a limited pool of federal loan funding,” Marlow said.
AG MORTGAGE LOANS
Timothy L. Buzby, president and chief executive officer of the Federal Agricultural Mortgage Corp. (Farmer Mac), which provides a secondary market for agricultural loans, testified that Farmer Mac receives requests from lenders of all types to provide credit protection for agricultural mortgage loans secured by parcels of land larger than 1,000 acres, but cannot accept those requests due to a limitation in its charter.
“We have heard from many customers who believe that this ‘1,000-acre rule’ is counterintuitive and inconsistent with Farmer Mac’s mission of increasing the availability of credit in rural America because it limits the amount of loans for larger operations that generally have a significant need for capital, while smaller operations with generally lower capital needs have no statutory loan limit,” Buzby said.
The witnesses said economic statistics still show farm balance sheets in fairly good shape, but individuals, especially smaller and beginning farmers are experiencing difficulties in obtaining operating loans.
“While we may not have reached the great upheaval of the ’80s farm crisis, I assure you that the fact that it was worse then is cold comfort to the many farm families who are struggling to make ends meet,” Marlow said.
“We at RAFI are seeing a different picture,” he said. “Our calls are up, especially from commodity farmers who have been turned down for their operating loans. The severity and sense of frustration of those calls have increased. Our partners at Farm Aid are seeing a significant increase in calls this winter, with a 27 percent increase year to date over the same time period and an increase in the severity of the calls.”
Rep. Austin Scott, R-Ga., the subcommittee chairman, said in an opening statement, “Many farmers and ranchers have been unable to access credit through traditional loans, and FSA loan requests have increased dramatically, According to USDA, as of Sept. 2, 2016, FSA had a backlog of 1,900 approved but unfunded loans, projecting a 30 percent shortfall of funds for the end of the fiscal year. As we approach farm bill deliberations, we need to prioritize access to credit.” ❖