12.8 Financing For Agricultural Cooperatives

Farmer-owned cooperatives are an important and integral part of American agriculture. For decades, cooperatives have provided many necessary services and products to farmers and have been a critical tool for farm profitability. In the current global economic environment, however, agricultural cooperatives face many new challenges. One major challenge is access to equity capital needed to modernize and expand as well as to capitalize on new market opportunities.

In an effort to better finance and capitalize their businesses, farmers and cooperatives are looking at various business models and structures that were not contemplated just a few years ago. Because of dated eligibility requirements established under federal law, cooperatives that adopt new business structures may no longer be able to borrow from CoBank, which has been the primary source of credit for farmer cooperatives for more than 70 years.

NASDA supports legislation that provides greater flexibility for farmer cooperatives to maintain their eligibility for CoBank financing. Such legislation should: 

• Clarify that entities with both a producer and investor class of membership are eligible for CoBank financing, provided the producer class holds at least 50 percent of the voting control and operates on a cooperative basis. 

• Permit agricultural cooperatives organized consistent with revised state laws to continue to be eligible for CoBank financing. 

• Allow cooperative customers that are adopting new business structures to continue to be eligible for CoBank financing as long as the customer maintains at least 50 percent farmer ownership or control. 

• Provide that cooperatives that are existing CoBank customers, but which restructure in a manner that would make them ineligible for CoBank financing (fails to meet 50 percent farmer ownership control criteria) can remain eligible for a five-year transition period while the cooperative establishes new lending relationships.