Opinion: It's time to reform the Farm Credit System
By Leonard Wolfe
On
May 19, the U.S. Senate Committee on Agriculture, Forestry & Nutrition took the Farm
Credit System to task
for its history of unacceptable business practices, only six months after the
House Committee on Agriculture did the same. It had been some years since the
House Committee on Agriculture examined the System, and it had been over ten
years since the Senate Committee on Agriculture had. This critical examination
has re-sparked an important debate, while also enshrining in the public record
what many producers, community bankers, lawmakers and taxpayers had suspected:
the Farm Credit System is exceeding its mandate, lending for non-agricultural
purposes all while benefitting from tax exemption.
A
robust dialogue on the Farm Credit System’s business practices is in the best
interest of producers and taxpayers across the nation. Naturally, the System’s
proponents will shy away from a thorough examination of its practices, mission
and role in the marketplace. But that’s to be expected – while the System’s
investments in small farmers have decreased precipitously since 2003, profits
have soared. What obviously transparent deflection would you use if you were in
the System’s position?
The
hard truth is that the System’s investment in small farmers has dropped, and in
its place the System has increased its lending to large entities. These
include, but are not limited to, large telecommunications companies, a casino
and huge agribusinesses. The standard defense is that the Farm Credit Act
permits loans to entities similar to farms and rural cooperatives. But no
reasonable person would compare Verizon to a rural telecommunications
cooperative, nor Saratoga Casino and Raceway to a horse farm, nor the New Zealand-based
subsidiary of a real estate investment trust to a tree farm. These are only a
few examples, but more egregious examples have been uncovered by
lawmakers
and other concerned members of rural communities.
While
rationalizations and other feeble defenses for these unacceptable practices
abound, a new defense reared its head at the recent Senate hearing. In response
to a question asked by Sen. Amy Klobuchar (D-MN) on whether it was appropriate for
System institutions to make non-agricultural loans, Farm Credit Administration Board Member Dallas Tonsager said:
“So
when the Farm Credit System is loaning to an individual producer, if that
producer is a fulltime farmer, the System can lend to him for all of his credit
needs, including if he establishes other businesses.”
This
may well be true, and it may be in accordance with current law. But would any
reasonable person, when they imagine the values and purpose behind the Farm
Credit System, believe that it was created so that it could fund carwashes and
restaurants?
I
firmly believe that the Farm Credit System can have a beneficial role to play
in sustaining rural life throughout the country, and I tried to reflect that
sentiment in my testimony before the Senate Committee on Agriculture. That’s
why this dialogue is important – both sides are seeking to define the values
and goals of the Farm Credit System. On one side are the entrenched interests,
those who think that business as usual is good enough, and that the System
should have no reservations about engaging in non-agricultural, non-rural
lending. On the other side are those that believe in the System’s original
purpose: to provide reliable access to credit for every producer, not just huge
agribusinesses, large telecommunications companies or other “similar entities.”
Community
banks and the Farm Credit System can compete, but there needs to be a level
playing field, and that can only happen if the System is kept in check by its
regulators and Congress. And I earnestly believe that the Farm Credit System
and community banks can work together to make sure America’s farmers keep
feeding the nation and the world. But the Farm Credit System needs to conduct a
rigorous examination of its mission, its values, its practices and how these
comport with the spirit of its founding law. Congress has begun that work
and we will continue to insist that they do so annually. That is the least we
can expect for a government-sponsored enterprise.
Wolfe
is president, CEO and chairman of the board of United Bank and Trust in
Marysville, Kansas. He’s also chairman of the American Bankers
Association’s Agricultural Credit Task Force.
#30
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