Agriculture needs predictable safety net, bank leader says

Government assistance to agriculture over the past several years of depression era crop prices “has meant the difference between survival and bankruptcy for many farmers,” the president of a major farm credit bank says.

“We encourage (Congress) to continue to provide additional support for producers during this difficult time,” F.A. Lowrey, president and chief executive officer of AgFirst Farm Credit Bank told a hearing of the House Agriculture Committee's Subcommittee on Conservation, Credit, and Rural Development to obtain input for development of a new farm bill.

While he said the 15 states served by his bank “are blessed with a high degree of crop and livestock diversification, “indications are that again in 2001, as in the past two years, many crop producers are facing extremely challenging times.”

Even with “very significant federal government support,” Lowrey said, returns have been negative for many farmers and “the globalization of agricultural markets continues to put pressure” on them.

“We can readily see the impact of federal assistance,” he noted.

To add to the current dismal outlook for much of agriculture, Lowrey said “there are indications in our territory that availability of ag credit from commercial banks is shrinking as a result of consolidations and low market returns.”

Subcommittee Chairman Frank D. Lucas, R-Okla., said federal assistance the last few years “has kept farmers afloat and lenders able to stay with most of their customers through another cycle.”

But, he said “this assistance is not healthy — and probably unsustainable. Congress must provide a safety net that is predictable, and it must be a long term assurance that the federal government will be there during down times in agriculture.”

Witnesses testified that the state of agricultural lending institutions is generally sound, due in large part to the emergency economic assistance provided by Congress over the past four years, but that continued low crop prices and the uncertainty of future federal assistance are beginning to create increased concern for lenders.

They urged that new farm legislation provide for predictability of economic assistance to producers, which will allow lenders and their customers to make better financing decisions and to have a better picture of cash flow.

“The credit title of the farm bill will be of utmost importance to agricultural producers and rural communities,” Rep. Lucas said. “This title, in conjunction with rural development and research titles, may be the key to producers being able to create strong, viable value-added concepts for themselves and their communities.”

AgFirst's Lowrey said in order for the Farm Credit system to continue meeting rural credit needs:

  • Farm Credit's charter needs updating. It's last significant change was in 1971, and it's lending authority “is becoming outdated.” Producers are becoming more dependent on new and existing value-added agricultural businesses to provide markets for new commodities, he said. “Farm Credit, agriculture's traditional lender, must be able to finance these operations, but unfortunately we are restrained from doing this by an outdated charter.”

  • Increased availability of equity capital should be made available for farmer-owned cooperatives and other rural businesses. “Rural America is not sharing fairly in the unprecedented prosperity of the rest of the country,” Lowrey said. “There is a real need to more broadly diversify our rural economies and to generate new sources of equity capital for rural business development.

    “We encourage the Congress to consider legislation to encourage private investment in value-added agriculture enterprises, producer owned cooperatives, and other projects that existing venture capital funds do not accommodate. These would provide off-farm income, additional markets for agricultural products, and new business opportunities in rural communities.”

  • The Farm Credit Administration should abide by the direction given to it by Congress in the Farm Credit System Reform Act of 1996, in reviewing and eliminating regulations that are unnecessary, unduly burdensome or costly, or not based on law.

“FCA has yet to fully implement this statutory directive,” Lowrey said. “Having them do so would go a long way toward providing Farm Credit institutions the flexibility they need to continue to serve farmers, ranchers, and cooperatives in the future.”

e-mail: [email protected]

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