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Monday, February 25, 2013

Agricultural Credit: Institutions and Issues

Jim Monke
Specialist in Agricultural Policy

The federal government provides credit assistance to farmers to assure adequate and reliable lending in rural areas, particularly when farmers cannot obtain loans elsewhere. Federal farm loan programs also target credit to beginning farmers and socially-disadvantaged groups.

The primary federal lender to farmers is the Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA). It issues direct loans to farmers who cannot qualify for regular credit, and guarantees repayment of loans made by other lenders. FSA thus is called a lender of last resort. Of about $250 billion in total farm debt, FSA provides about 2% through direct loans, and guarantees about another 4%-5% of loans.

Another federally related lender is the Farm Credit System (FCS), a cooperatively owned but federally chartered lender with a statutory mandate to serve agriculture-related borrowers. FCS makes loans to creditworthy farmers, and is not a lender of last resort. FCS accounts for nearly 43% of farm debt. Commercial banks are the other primary agricultural lender, holding slightly more than FCS with over 43% of total farm debt.

Generally speaking, the farm sector’s balance sheet has remained strong in recent years. While delinquency rates on farm loans increased from 2008 into 2010, farmers and agricultural lenders did not face credit problems as severe as those of other economic sectors. Since 2010, loan repayment rates have improved. But appropriations for the FSA loan program—and the ability of FSA to meet demand for its loans and guarantees—have been constrained during an era of tight federal budgets.

Statutory authority for FSA and FCS is permanent, but periodic farm bills often make adjustments to eligibility criteria and the scope of operations. In the 112
th Congress, both the Senate-passed farm bill (S. 3240) and the House-reported farm bill (H.R. 6083) would have made relatively small policy changes to USDA’s credit programs in Title V. Term limits on the number of years that borrowers may remain eligible for loans may be an issue, as well as expanding existing loan programs to serve non-traditional farm producers, such as producers for local and regional food systems. In 2013, USDA created a microloan program to expedite small operating loans to nontraditional agricultural producers. Finally, efforts to expand Farm Credit System activities into new mission areas using regulatory powers may continue.

Date of Report: February 7, 2013
Number of Pages: 16
Order Number: RS21977
Price: $29.95

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