Opinion: It's time to reform the Farm Credit System

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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.

Together we can feed the Bees"

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.

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