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Farm Credit System
Last updated: September 20, 2011
Farm Credit System — As the leading lenders to the agriculture sector, the Farm Credit System and commercial banks compete aggressively to provide the capital necessary to fuel agriculture's production, processing, and marketing costs. This competition results in lower borrowing costs and better service for farmers, ranchers, cooperatives, and eligible agribusinesses. In addition, Farm Credit's presence in the market ensures the availability of credit through the inevitable good and bad cycles of agriculture.
NASDA supports the Congressionally-established mission of the Farm Credit System, recognizes the unique nature of agriculture sector financing, and supports a nationwide system. The Farm Credit System has a mission to serve the financial needs of agriculture and rural America by providing capital, expert advice and competitive financial services and products.
NASDA supports modernizing the Farm Credit charter to enable Farm Credit institutions to finance all of production agriculture including commercial fisheries and forestry and, to purchase entire farm loans from commercial banks on a voluntary basis. Leveraging Farm Credit to provide credit to all agricultural processing companies, rural businesses, rural homeowners, and others in rural America should also be considered.
NASDA opposes any efforts to restructure the Farm Credit System to the extent that farmers would be replaced on boards of directors with commercial bankers. As a cooperative owned and controlled by its customer-members, any governance structure changes to Farm Credit institutions should require stockholder approval. NASDA supports the continued cooperative ownership of the Farm Credit System and its status as a government sponsored enterprise; and supports maintaining the Farm Credit Administration as the System’s independent regulator and the agency’s focus on Farm Credit System safety and soundness and mission fulfillment.
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Capital and Credit Needs
Last updated: September 20, 2011
Capital and Credit Needs — Both the Farm Credit System and commercial banks compete aggressively to provide capital to low risk borrowers. This practice, however, leaves behind many borrowers, who are highly leveraged, are recovering from economic or production losses, or are beginning farmers. Financial tools that assist beginning and financially distressed producers should be developed and enhanced through a combination of federal, state, and private resources.
Modern agriculture’s capital needs continue to increase and beginning farmers and ranchers often lack the equity or cash reserves necessary to enter the competitive ag sector, even as the average age of our nation’s farmers and ranchers continues to increase. NASDA supports efforts and policies that seek to retain these future generations of agricultural producers.
NASDA also supports policies that provide beginning/limited resource farmers and ranchers with access to low interest credit through state, federal and private sources. In particular, NASDA supports a definition of “substantial real estate” in the IRS Code that reflects a realistic modern farm size. NASDA also supports increasing and indexing the loan and bond limit on depreciable property in the IRS Code.
NASDA considers the capitalization of beginning farmers, and retention of entry-level, socially disadvantaged and small, existing farmers as priority capital and credit needs. Given the typical financial position of a beginning farmer, comprehensive capital must be available. Establishing a successful farm or ranch operation requires capital for land ownership or lease payments, equipment and breeding livestock, operating, marketing and risk management costs, retained ownership of grains and livestock, and living expenses.
Moreover, retention programs for socially disadvantaged, small existing and entry level farmers should be designed for producers that generate between $100,000 and $500,000 annual gross income. Retention programs should be based on some of the same foundations as beginning farmer programs; namely providing adequate financial resources at affordable rates with cross-collateralization capabilities. Farmer retention efforts should also include programs to help producers acquire marketing skills and avail themselves of value-added opportunities.
NASDA believes the FSA beginning farmer down payment program should be improved by extending the program's current loan amortization from 15 to 30 years and that all FSA loan programs be maintained with adequate funding.
USDA's Rural Development Agency should consider guaranteed loans for producers who have organized as Limited Liability Companies or other business entities for the purpose of value driven marketing programs. The Rural Development agency should not be limited, however, to "brick and mortar" assistance programs with market enhancement programs. NASDA urges the IRS tax code be changed to allow livestock feeding programs (including dairy and egg producers) to be considered as grain processing (biological processing) which would make some Rural Development programs available for value-added marketing alternatives.
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Aggie Bonds
Last updated: September 20, 2011
Aggie Bonds — NASDA recommends removing "Aggie Bonds" from the individual state limits on bond volumes. This would greatly increase the opportunities for the use of Aggie Bonds for entry level and less established producers for purchases such as land, breeding, livestock, machinery, and equipment. Removing the volume cap would also help value added and agribusiness programs to acquire affordable credit. Recently Aggie Bonds have been authorized for use with environmental programs for expansion and compliance. Existing regulations do not allow Farm Service Agency (FSA) to guarantee Aggie Bonds, though the addition of Aggie Bonds to the IRS list of possible exceptions through FSA is appropriate. Indeed, there are exceptions to the code already on the books, such as the Federal Housing Administration, Veterans Administration, and Student Loan Administration.
The current $250,000 maximum bond base is insufficient, however, even in the event of other necessary reforms. Land or other purchases are often in excess of the $250,000 and lenders currently charge conventional interest rates on the balance. A larger maximum on the Aggie Bond base will provide an additional tool in agriculture financing. Changing the value limit to $250,000 to match the percentage change is a needed tool for "entry level" producers.