The American Bankers Association testified this week before the House Agriculture Committee’s Commodity Exchanges, Energy, and Credit Subcommittee on necessary reforms to the upcoming Farm Bill and the importance of credit for rural communities.
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“Banks continue to be one of the first places that farmers and ranchers turn when looking for agricultural loans,” said Nathan Franzen, president of agri-business at First Dakota National Bank in Yankton, South Dakota, testifying on behalf of ABA. “To bankers, agricultural lending is good business and we make credit available to all who can demonstrate they have a sound business plan and the ability to repay.”
Franzen also discussed the successes of the 2014 Farm Bill, including its protection of crop insurance, the Conservation Reserve Program (CRP), and the removal of term limits on FSA Guaranteed Loan Programs.
However, he expressed concerns about the changing agricultural landscape and identified several reforms for inclusion in the upcoming Farm Bill.
“The most important change that should be made to the next Farm Bill is an increase to the current loan limit on FSA Guaranteed Loans,” Franzen said, referring to the current $1.399 million limit. “The formula for indexing the programs has not kept up with the increasing costs of agriculture. It is much more costly for a young, beginning or small farmer to get into agriculture, and the guaranteed loan programs need to reflect that reality.”
Also, Franzen suggested modernizing the loan programs by upgrading and improving technology, as well as addressing the rapid retirement rates of FSA staff.
Further, Franzen recommended improving the Federal Agricultural Mortgage Corp. – or Farmer Mac. Farmer Mac is a government sponsored entity that provides loans for agricultural real estate and rural housing.
“Farmer Mac is a valuable tool in the toolbox for agricultural bankers because it provides another avenue for banks to increase credit availability,” Franzen said. “With the agricultural economy potentially going through some stressful times in the near future, Farmer Mac will need legislative changes. ABA believes the most needed change is the removal of the current 1,000 acre limitation.”
Franzen expressed concern about the growing size, complexity and tax advantages of the Farm Credit System. He called for it to refocus its mission on helping farmers and ranchers in need of subsidized credit.
“Congress created the Farm Credit System as a public option for farm finance when farmers were having trouble getting the credit they needed from non-government sources,” Franzen said. “The conditions that led to the creation of the Farm Credit System nearly 100 years ago no longer exist, and yet we continue to have a government-assisted, tax-advantaged farm lender providing credit to customers who would be able to easily borrow from taxpaying institutions like mine.”
The hearing was conducted by subcommittee chairman U.S. Rep. Austin Scott (R-GA) and ranking member U.S. Rep. David Scott (D-GA).