Illinois Council Eyes Farm Financing Giant

The Illinois Local Food Farms Jobs Council is developing plans for a comprehensive financial infrastructure to grow local food economies. The Council—a community-led coordinating body authorized by state law—finds that solving the food-system-funding challenge may mean reinventing the century-old Farm Credit System  (FCS).

FCS is a nationwide network of 85 customer-owned cooperatives. Created by Congress to serve all of agriculture, FCS is America’s largest agricultural lender, booking nearly $192 billion in loans and earning more than $4 billion in profits in 2012.

Its lenders take pride in being able to close loans in a matter of minutes for relatively low risk borrowers who are beneficiaries of federal subsidy programs. No wonder Farm Credit affiliates are well-known within agribusiness circles and an enigma in the local food marketplace.

Keeping local food constituencies at arm’s length is not an effective strategy for FCS to retain its status as a “Government Sponsored Enterprise” (GSE).  That helps to explain the purpose of a new federal regulation requiring FCS affiliates to submit annual marketing plans reflecting “diversity and inclusion” in their market territory. Farm Credit Administration regulatory official Mark Johansen told the Illinois Council  that the FCA expects to see “strategies and actions” demonstrating service to “all eligible and creditworthy persons.”

The Illinois Council intends to reach out to FCS affiliates and help ensure that they become a dynamic force among farmers eager to supply consumer demand for healthy, green, fair, and affordable products sourced from nearby farms. The Council views its statewide networking capability as a tool FCS can use to create a systemic approach to reconstructing regional food economies throughout the Midwest.

New face on an old problem

FCS is the outgrowth of federal legislation that filled a financial-services vacuum impeding agricultural development in the early 20th Century.  In his 1913 State of the Union address, President Woodrow Wilson advocated legislation enabling farmers to secure “their own abundant and substantial credit resources…as a foundation for joint, concerted local action in their own behalf.”

The 1916 Federal Farm Loan Act authorized $9 million to start 12 Federal Land Banks.

This first federal farm aid program created a pathway for borrowers to own the new banking system. As rural America gained easy access to Wall Street capital markets, Washington invested massive federal resources in a cheap food system. In 1966, President Lyndon Johnson praised that Farm Loan Act for having “opened the door to modern farming.”

In 2008, as a consultant for Farm Credit’s Washington lobbying organization, I co-authored an internal report to inform the FCS network about the local food marketplace. “Growing Opportunity” identified long-term economic potential and short-term political risk.  FCS affiliates were not keen to hear their loan portfolio supports a widely reviled global food system. The report caught the eye of their federal regulator which has since advised proactive engagement with local food constituencies to avoid “losing relevance in the marketplace.”

Proactive role for Congress?

Congress could help by requiring a dedicated funding stream.  There is the precedent of another GSE, the Federal Home Loan Bank. FHLB fiercely opposed a provision in the 1989 savings-and-loan bailout requiring allocation of a portion of profits for affordable housing grants. Today, FHLB touts that 10 percent set-aside as a demonstration of its public purpose.

In 2012, FCS lobbyists squashed two Farm Bill measures that sought to replicate the FHLB precedent.  The first proposed “10 percent rule” would have meant $400M+ a year in loans and grants to grow local food economies at no cost to the federal government.  A second one would have tapped FCS’ annual $600M+ in federal real estate exemptions.  After both measures were killed without so much as a hearing, an anonymous Capitol Hill staffer told me in a private conversation: “the single greatest reason local food systems aren’t growing more rapidly is that Farm Credit isn’t doing the job it was created to do.”

Effective implementation of the new reg could accomplish the same end.  FCS has much to gain by developing a plan to phase in an annual investment of 10 percent of profits to grow a vibrant nationwide network of small-scale farmers.

Community reinvestment

For starters, FCS affiliates should rethink their longstanding “mission” from Congress to supply credit and “related services” to young, beginning, and small farmers.  The main response has been discounted loan terms.  A more expansive view of “related services” could provide resources to energize foodshed planning initiatives nationwide.

The Illinois Council will seek FCS help leveraging $2 million in USDA farmer training funds that Illinois groups received in fiscal year 2012 to increase the number of farmers supplying nearby markets. FCS participation could attract other financial sector players and spur investment in all components of the supply network—including aggregation, processing, distribution, marketing, and waste management.

Food councils are “much-needed mechanisms” to “identify and advocate for food system change,” according to a new report by Harvard University’s Food Law and Policy Clinic.  State food councils could become much-needed partners for FCS to retool itself to adequately meet both large-scale and small-scale needs of 21st Century agriculture.

The Illinois Council views effective implementation of the new “diversity and inclusion” regulation as a means to lay the groundwork for brokering the peace in America’s agriculture wars.  Such a step could be essential to ensuring that President Obama will want to give a speech in 2016 honoring the Farm Credit System’s centennial.

2 thoughts on “Illinois Council Eyes Farm Financing Giant

  1. We own a small (15 acres) diversified produce farm in western Washington, and have been very happy with our local FCS branch (NW Farm Credit Services). I think the critique in this article is quite correct, but do want to point out that FCS is often the ONLY bank that will even consider making loans to small and beginning farmers. Home lenders and commercial banks want nothing to do with rural real estate transactions. Maybe we should be looking at more than just FCS to find credit solutions for innovative food and farm businesses.

  2. Siri Erickson-Brown: Thank you for your comment. I’m glad to hear that you’ve had a positive experience with the Farm Credit System affiliate serving Washington state. I agree about the need to look at FCS as just one part of the credit solution for innovative food and farm businesses. My point is that FCS–as a creature of Congress–should recognize that it has an obligation to provide leadership in the development of comprehensive approaches to scaling up local food economies. In the article, I note that such leadership could “attract other financial sector players and spur investment in all components of the supply network—including aggregation, processing, distribution, marketing, and waste management.” That’s a big part of what America needs today from agriculture’s Government Sponsored Enterprise (GSE). A century ago, Congress created this first GSE after President Theodore Roosevelt’s Country Life Commission exposed the fact that many farmers nationwide lacked access to long-term mortgage products. Does President Obama have to create a national commission to find out why so many small, beginning and transitioning farmers are having trouble supplying consumer for products sourced from nearby farms? Wouldn’t it make more sense to sort through these issues through the current Farm Bill process? Last year, FCS lobbyists quickly squashed a Congressional effort to impose greater transparency in the reporting process for Farm Credit’s young, beginning and small farmer programs. What was that about? Could it be that FCS is afraid that a little sunshine might expose the possibility that agriculture’s GSE views its public purpose pretty much ONLY as the sale of government-guaranteed debt to creditworthy borrowers?