In 1916, President Woodrow Wilson signed legislation that led to the creation of the Farm Credit System (FCS) and reliable financing for generations of farmers and ranchers.  Over the last century, this national network of taxpayer-supported lending associations has facilitated consolidation of America’s food and farm sector.

As the first “government-sponsored enterprise,” FCS was designed to use the strength of the federal balance sheet to ensure the availability of large pools of private capital to help grow the U.S. agricultural economy.  Today, FCS is very large ($229 billion in assets in 2011) and very profitable ($4 billion in earnings)—including $600 million in federal tax exemptions for real estate lending.

However, Congress needs to become better attuned to market forces beginning to decentralize America’s food and farming systems.  New agricultural markets are forming in response to consumers wanting to know how food is produced, where and by whom.  Yet, the 2012 Farm Bill is unlikely to clarify FCS’ responsibility to be a catalyst in this process.   

Fortunately, an act of Congress isn’t needed to force this financing giant to do its job.  Last month, FCS’ federal regulator, Farm Credit Administration (FCA) issued a rule requiring the 85 individual lending associations to create marketing plans which show how they serve all segments of agriculture.

FCA’s “diversity and inclusion” regulation could embolden FCS to help revitalize the grassroots foundation of the U.S. economy.  That’s the good news. The bad news is the local food movement will never realize this potential when so few people know what Farm Credit System is and why it exists.

FCS is an indispensable asset within the tight-knit circle of agribusiness.  But it is an enigma among local food constituencies that are coming together in urban, suburban, exurban and rural communities nationwide.

With a little nudging, FCS can also become an indispensable asset in the development of food-and-farm networks that shorten the geographic distance between farm and fork–like food hubs.

This judgment is based on my experience consulting for FCS’ Washington trade group (Farm Credit Council). From 2004 to 2010, I supplied internal briefs on the depth of the local food phenomenon and strategies to transform this movement into a marketplace.

The engine of local food economies has been the farmers market. There were 340 in 1970 and 7,100 in 2011.  Now, the demand for direct-market-type food products penetrates high-volume, wholesale markets.  Increasingly, restaurants, grocery stores, and institutional food services (for example, universities, schools, hospitals and hotels) see a competitive advantage of telling the story of food they serve.

In Illinois alone, the production end of these fledgling networks will require 5,000 new small farmers by 2020. Most lack access to business planning, farmland and financing—all surmountable barriers if FCS were truly on task.

The Rural Coalition is a national alliance representing small farmers, including African Americans, American Indians, and Latinos.  It reported to FCA “a universal perception” among 70+ community-based member organizations that FCS “institutions are not accessible to the underserved farmer and have failed to conduct outreach to these communities to educate them regarding the institutions’ programs and services.”

FCS institutions submit annual reports to their regulator—as required by Congress—with total loan volumes to “young, beginning and small” (YBS) producers.  The double counting of YBS loans yields inflated numbers that muddy the picture of FCS service to producers outside of industrial agriculture.

The explicit YBS mission is to supply “credit and related services” to “eligible and “creditworthy” agricultural producers.  This “related services” piece should mean finding ways to help “eligible” farmers and ranchers become “creditworthy.” This responsibility is widely ignored which may explain why the new regulation requires each lending institution to “study and know its marketplace.”

Personnel in the hundreds of FCS offices nationwide wouldn’t have to go far to find a local food initiative. Stakeholder groups recognize farmers and ranchers as the lynchpin in the emerging food supply networks.

The challenge is to create traceable wholesale channels conveying “good food value” attributes imbedded in products now available through popular direct market channels.  These values begin with nutritious food—fresh-picked fruits and vegetables, and products processed with whole ingredients—produced through environmentally-sound practices.

FCS needs to lend intellectual capital to the discussion about how to deliver large volumes of healthy, green, fair and affordable farm products to nearby markets.  FCS has expertise that will help grow the number of successful small farm operations.  Increased supply will attract additional capital for network development from socially responsible investors, community development financial institutions, community and commercial banks and credit unions.

Robust capitalization of sustainable food systems hinges on FCS. It’s understandable why this farm-financing institution migrated towards low risk, high-profit loans. However, FCS can easily meet its larger public purposes by augmenting its core activities with products and services that respond to imperatives driving development of a 21^st century food-and-farm sector.