The Farm Credit System (FCS), agriculture’s government sponsored enterprise (GSE), is a nationwide network of customer-owned lenders with a mission to support rural communities and agriculture. The National Sustainable Agriculture Coalition (NSAC) 2023 Farm Bill Platform includes a proposal that requires FCS, agriculture’s GSE, to grant 15 percent of its annual profits to support underserved producers and food systems enterprises. These grants will build upon successful programs already facilitated by some Farm Credit associations and help fulfill its mission and public mandate to serve young, beginning, and small farmers and ranchers. 

Background

FCS is one of the country’s biggest lenders for agriculture and rural communities, holding approximately 44 percent of farm debt. A quasi-private lender, Farm Credit’s GSE status includes significant tax advantages and lower costs of funds due to its implied federal government guarantee. In 2022 Farm Credit reported $7.3 billion in net income, reflecting these GSE advantages. Last year, with our proposal, a 15 percent grant would have equaled almost $1.1 billion flowing to rural communities.

An FCS grant program is in-line with what Congress requires of our nation’s housing GSEs. Congress mandates high-impact grant programs from the Federal Home Loan Banks (FHLBs), Freddie Mae and Freddie Mac. The FHLBs’  Affordable Housing Program (AHP) has granted over $6 billion in grants while arguably strengthening the GSEs. In fact, the FHLBs did not oppose an effort in Congress last year to increase the grant requirement to 15 percent of annual net income. Some FHLBs, such as Chicago, are voluntarily increasing their grant program contributions. 

Of note, a University of Florida study on the economic benefits of FHLB-Atlanta’s AHP found that “for every $1 million invested in AHP, $14.3 million of housing is constructed or rehabilitated and 158 jobs are created.” When including the economic multiplier effect, every $1 million of AHP helps generate $24.6 million in economic activity. A 2018 Florida State University study of all FHLB AHP programs found that “… for every dollar of AHP-enhanced funding, there is a multiplier effect of $33.68 in Rental, Home Construction and Rehabilitation, and of $30.04 in Home Purchases.” Fannie Mae and Freddie Mac are required to grant 4.2 basis points (or .042%) of the principal balance of new loan purchases to the Housing Trust Fund and the Capital Magnet Fund. The 2022 grant amount was $1.1 billion.

As evidenced by successful programs required of housing GSEs, a Farm Credit grant mandate will likely produce a positive economic spillover effect that could grow Farm Credit’s overall profitability and help its current member-borrowers by providing even more income to share.  

Existing Farm Credit Grant Programs 

Several Farm Credit associations already offer innovative, niche programs to support underserved farmers. A congressionally mandated FCS grant presents an opportunity for these programs to be replicated and expanded – which helps maximize the public’s investment in agriculture’s GSE.

Existing Farm Credit grant programs include:

• Farm Credit East, Farm Start – FarmStart makes working capital investments of up to $75,000 to Northeast agricultural ventures showing promise of success with limited financial resources. The program is primarily intended to support beginning farmers that do not qualify for normal lines of credit.

• Farm Credit Illinois, FreshRoots – FreshRoots provides lending assistance and learning incentives to farmers 40 years of age or younger or those in their first 10 years of farming. The program offers loan pricing discounts and vouchers of up to $2,000 to participate in business development workshops. In addition, each year FreshRoots Directors Cup honorees receive a $5,000 cash reward.  

• Compeer Financial, Beginning with Compeer Financial Grant Program – The Beginning with Compeer Financial Grant Program offers beginning farmers grant opportunities ranging from $250 to $2,000, depending on the relationship to Compeer. 

• AgGeorgia Farm Credit, AgAware – AgAware is a comprehensive business and financial literacy workshop series designed to promote and educate the next generation of young, beginning, small, and minority farmers. AgAware’s one-day, seven hour workshops are free to attend and address a range of topics, including budget preparation, risk management, succession planning, and more. 

• GreenStone Farm Credit, CultivateGrowth – CultivateGrowth supports young, beginning, and small farmers through funding, networking, education, and financing. This includes up to $40,000 annually in grants between $500 and $1,000 to support participation in educational events, as well as up to $60,000 annually in scholarships to incoming and upper-class college students planning to major in an agricultural field of study. 

• Farm Credit Mid-America, Growing Forward – Growing Forward is designed to help reduce barriers for new farmers by providing access to capital and financial education opportunities. This includes an annual Know to Grow conference, a two-day workshop where farmers learn to assess the strengths and weaknesses of their operations and network with other young and beginning farmers. 

These are some program examples that a Farm Credit grant mandate could grow by orders of magnitude. A congressionally mandated Farm Credit grant program should provide some credit to acknowledge existing grant programs, but these programs are only the beginning of what is possible given Farm Credit’s profitability and GSE advantages. 

Additional Farm Credit Grant Opportunities 

In addition to expanding the voluntary programs currently offered by Farm Credit associations, an FCS grant set-aside at over $1 billion presents enormous opportunity to exercise creativity when designing programs that support underserved farmers. For example, a significant use of funds could be downpayment assistance to help small, new and underserved farmers buy farmland. Additional grant initiatives could promote local and regional food production, or help farmers invest in the adoption of soil-health practices to build long-term resilience and improve their economic bottom-lines.

A team of Duke University graduate students framed several additional opportunities in a 2021 report. These include flexible funding direct grants for underserved producers, grants to help farmers purchase farmland, and financial support for Historically Black Colleges and Universities and Minority Serving Institutions to promote agricultural research led by directly impacted communities. 

Local Advisory Councils comprised of community members, including young, beginning, small, and socially disadvantaged farmers, as well as Farm Credit customers and extension or farm nonprofit employees would ultimately be responsible for determining how funds are distributed by a respective Farm Credit association or district bank. This direct community engagement would promote equitable distribution of funds and foster innovative projects to meet real needs.

Congress created Farm Credit in 1916, the country’s first GSE, to support American farmers and rural communities. Over 100 years later, Farm Credit’s profitability – underpinned by its taxpayer-backed advantages – is a great deal for its farmer-members. But it’s of limited value to many farmers and food system entrepreneurs who continue to face difficulty accessing credit and who are not deemed eligible to become a Farm Credit member-owner. A congressionally mandated Farm Credit program would change that reality and help FCS more fully meet its mission.