On Wednesday, June 25, the House Agriculture Committee’s subcommittee that deals with rural development and farm credit issues held an oversight hearing on credit availability in rural America.  As is so often the case in these types of hearings, it quickly turned into a slug fest between the Farm Credit System and the banking industry over their respective competitive positions, egged on by some Members of the subcommittee anxious to take sides and stir things up.  While that perennial fight may have stolen the show, there were nonetheless important contributions during the hearing that should not go unreported:

• Jill Long Thompson, herself a former member of the subcommittee, testified in her role as the Board Chair of the Farm Credit Administration, the regulator of the Farm Credit System.  The former Congresswoman and former USDA Under Secretary for Rural Development noted that the FCA in the last few years has issued regulations to encourage the FCS banks to serve nontraditional customers, including woman and minority farmers and farmers producing for the local food market.  She also noted they are in the process of issuing regulations to revise requirements for mergers and consolidations of FCS institutions and to implement requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
• Chris Beyerhelm, Deputy Administrator for Farm Loan Programs at USDA’s Farm Service Agency (FSA), noted that very low delinquency and loss rates have enabled budgets for FSA direct lending programs to increase, with even more substantial increases pending in the agriculture appropriations bills that will, if passed, enable FSA to eliminate the usual big backlogs and long waiting lists for credit.  Beyerhelm also stressed the positive graduation rates of FSA borrowers to commercial credit, a significant increase in the number of loans made to woman and minority farmers, and a big and growing interest in microloans, especially among beginning farmers.  Beginning farmers have accounted for over 70 percent of microloans since the program started in 2013.  He indicated that the increase in the loan limit for microloans to $50,000, as stipulated by the 2014 Farm Bill, would be implemented as an interim final rule in October.
• Nathan Kauffman with the Federal Reserve Bank of Kansas City noted that credit conditions are fairly rosy across agriculture today, though loan demand has increased this year as commodity prices have tempered.  He stressed that young and beginning farmers and others with low levels of equity are the most vulnerable to financial stress, particularly as farm income and cropland values fall from historic highs, as they are projected to do by Federal Reserve and USDA surveys.

Brett Melone Testimony

Brett Melone, a farm loan officer for California FarmLink, testified for FarmLink and on behalf of the National Sustainable Agriculture Coalition (NSAC).  While Melone’s testimony was the only one to focus on credit for beginning and minority farmers, in a sign of how far we have come on these issues, each of the other panelists – representing banking associations and the Farm Credit System – touched on what they are doing in this arena and on credit for local food production.

FarmLink has entered the farm lending business in recent years, serving a target market of immigrant and underserved beginning and small farmers.  In 2011 they achieved eligible lender status with the Farm Service Agency, able to make private loans in conjunction with FSA federal loan guarantees.  In the same year they also started making Rural Microentrepreneur Assistance Program (RMAP) loans, an NSAC priority program administered by USDA Rural Business-Cooperative Service.  In 2013, FarmLink became a certified Community Development Financial Institution (CDFI), one of just a few nationwide that focus on farm lending.

Melone stressed the importance of technical assistance services in addition to financial products in serving higher risk, lower equity borrowers.  California FarmLink delivers a package of services, including financial management, credit counseling, land access strategies, and marketing assistance, along with its farm loans.

Melone thanked the subcommittee for backing the authorization for FSA microloans, an NSAC initiative in the 2014 Farm Bill.  He urged them to help ensure speedy implementation of the new, higher $50,000 loan cap, and the new cooperative lending pilot project that will allow CDFIs to expand the reach of microloans and financial training to beginning, veteran, and socially disadvantaged farmers.

In addition, Melone pleaded with the Members of the subcommittee to sponsor an amendment to the pending House Agriculture Appropriations bill to fund the Beginning Farmer Individual Development Account pilot program.  This farm bill program is designated to receive $2.5 million, as requested by USDA, in the pending Senate agriculture appropriations measure, but to date has not be designated for funding in the House bill.  FarmLink has first hand knowledge of the need and effectiveness of IDA matched savings accounts in helping to build equity for new limited resource farmers.

In the same manner, Melone urged the Members to get the $3.3 million requested by USDA for the RMAP program into the pending House funding bill.  Highly targeted, equity-based, farm and job creating programs should be supported in both houses and both sides of the aisle.

Nearly all of the witnesses pointed to the critical role that federal crop insurance plays in backstopping farm credit.  Melone pointed out, though, that the farmers FarmLink is working with, and sustainable and organic farmers more broadly across the whole country, lack effective crop insurance options, which prevents them from participating and damages their prospects for obtaining commercial credit.  He urged USDA to begin Whole Farm Revenue Protection, an NSAC priority program authorized as part of the 2014 Farm Bill, as quickly as possible, and to expand it to nationwide coverage.  He pointed out that the California counties where FarmLink makes most of their loans are to date not included in the program, putting Hispanic and other fruit and vegetable growers in the region at a distinct disadvantage.  Whole Farm is oriented to diversified farms of all types, including specialty crop farms and mixed grain and livestock operations.

Q&A Highlight

During the question and answer portion of the hearing, Representative Michelle Lujan Grisham (D-NM) made eloquent comments about the aging of America, and the coming large number of retirements, including in her home state of New Mexico.  She urged her colleagues and the witnesses to think hard about how we are going to “grow new, young  farmers” in this country and improve our public policies to make that happen.  She urged FSA to move quickly on making loan applications available online to reduce the number of trips borrowers need to make to USDA offices.  She also urged FSA and the FCS to broaden their partnerships with community-based and NGO lenders and technical assistance providers.

In response, Beyerhelm indicated that an online application process is under development and said they are looking forward to using their new authority under the 2014 Farm Bill to undertake pilot projects to improve their reach to underserved producers.  He also brought up a hard reality that few in Congress seems to be truly grappling with.  Even while there is good news that FSA direct lending funds are increasing and the waiting lists of farmers trying to get loans are therefore declining, at the same time the FSA farm loan division has lost 25 percent of its staff over the past four years due to budget cutbacks.  In essence, then, they are being asked to make significantly more loans with far fewer loan officers.  Clearly this is an issue that Congress needs to address if we are truly serious about assisting new farmers to enter agriculture.