Farm Credit Is Resisting a Farm Bill Push Toward Equity | Civil Eats

Farm Credit Can Make or Break Farms. Should It Be More Equitable?

The biggest lender in American farming is in the spotlight for resisting a requirement to report the demographic details of its loan recipients.

a black farmer picks tomatoes while waiting for him farm credit loan to come through

Ed Hunt grew up on a farm in Robeson County, North Carolina, one of four counties that make up the territory of the Lumbee Tribe, of which he and his family are members. As a child, Hunt said he watched his father struggle to get funding. Once, he said, his dad went to a bank ready to put down a 50 percent down payment on 100 acres of land, but the banker wouldn’t give him the loan unless he put up the deed to his house as collateral. “After that slap in the face, he gave up,” Hunt said.

Years later, now farming on his own, Hunt went to his local Farm Credit bank to purchase land. He was turned down because his debt-to-income ratio was too high, he said, despite having good credit and cash on hand.

Hunt partially attributes his family’s struggles to secure capital to systematic racism embedded in the agricultural banking system. Late last year, he was one of about a dozen BIPOC farmers who gathered for a roundtable discussion organized by the HEAL Food Alliance, the Federation of Southern Cooperatives, and other partners to share stories of discrimination they had faced while seeking farm loans.

Hunt’s family story, he said, illustrates how past discrimination prevented many farmers of color from creating generational wealth that could help their descendants succeed in agriculture today. “If you don’t inherit land, you’re in trouble, you’re not farming,” he said. “So for a person of color, it’s not gonna happen.”

Over the last several years, the U.S. Department of Agriculture (USDA) has been attempting to correct a well-documented history of discrimination in lending. After earlier settlements barely scratched the surface in the process of righting historic wrongs, the agency has implemented debt relief programs and an equity commission, and it has worked to resolve heirs’ property challenges that have caused Black farmers to lose land.

“If you don’t inherit land, you’re in trouble, you’re not farming. So for a person of color, it’s not gonna happen.”

But USDA lending doesn’t impact farmers’ lives in the same way it once did. Today, the agency only makes 3 percent of the country’s farm loans, and little attention has been paid to the much larger private banking system, the one that Hunt and many other farmers recognize as a much larger piece of the same puzzle.

“We’ve heard a ton of stories [on discrimination], and we know it’s happening, but there’s no data on it because commercial lenders have never been required to track the demographics of loan applicants,” said Maleeka Manurasada, a national organizer for HEAL Food. “It’s hard to prove anything without the big-picture data.”

One loan source stands out as particularly significant: the nation’s Farm Credit system, which is now the country’s largest farm lender, providing 44 percent of farm loans. While Farm Credit is not a federal entity, it is a government-sponsored enterprise (GSE), a status that confers tax advantages and better terms as a result of the federal government’s backing. Despite Farm Credit’s growing size and power in agricultural financing, it has largely flown under the public’s radar.

Now, Farm Credit is the focus of growing scrutiny, a result of its opposition to a new rule—referred to as 1071—that would require small business lenders to collect and report detailed demographic data on its borrowers.

Farm Credit’s leadership has been working to get an exemption from the requirements written into the upcoming 2023 Farm Bill. But a coalition of farm and food groups, including HEAL Food Alliance, hope to prevent that from happening.

“We will have a much better sense of where discrimination is happening, how frequently, and to whom,” if Farm Credit lenders are required to report demographics, Manurasada said. “We find it incredibly critical to creating more fair and just lending.”

“Our whole mission is to support agriculture and rural communities. That’s just what we do.”

At the same time, many of those same groups say this is happening alongside a shift, where the Farm Credit system has strayed from its responsibility to support small farms. By number, the majority of the banks’ loans are still $250,000 or less. But more of the overall funds go to large operations, and Farm Credit has emerged as a key funder of operations within the supply chains of the biggest global meatpackers.

To make sure small and beginning farmers are truly benefiting, the National Sustainable Agriculture Coalition (NSAC), which represents a broad coalition of progressive farm and rural organizations, is leading a push to require Farm Credit to grant 15 percent of its profits to benefit underserved farmers and food businesses. The effort is modeled on programs already in place for other government-sponsored entities such as Fannie Mae.

Farm Credit Council President and CEO Todd Van Hoose called the proposal “misguided” and said it will take money out of farmers’ pockets. “Our whole mission is to support agriculture and rural communities,” he said. “That’s just what we do.”

Depending on what happens over the next year, there could be big changes coming to how Farm Credit supports agriculture, how much the public knows about its processes—and who’s benefiting.

What We Know About Farm Credit’s Lending

Established in 1916 by Congress, the Farm Credit system is a cooperative made up of local associations and regional banks. Farmers who receive loans become member-owners of the co-op and receive a portion of the banks’ profits each year, called “patronage.” The Farm Credit Council is a trade association that lobbies on behalf of the entire system, while the Farm Credit Administration is the government agency tasked with regulating the system.

Earlier in the 20th century, Farm Credit was one of many varied farm lenders, but the system has come to dominate the field. In the 1960s, it held less than 20 percent of the country’s farm debt; today that number is 44 percent. At the end of 2021, Farm Credit’s loan portfolio totaled $344 billion, including more than $210 billion in farm loans. Like the rest of the farm economy, the Farm Credit system has consolidated over time. In the 1980s, there were more than 400 associations and banks within the system; at the end of 2022, there were 50 associations and just four regional banks left.

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Since the beginning, Congress’ intention was for Farm Credit to support rural families who had trouble accessing credit elsewhere. In the 1980s, lawmakers amended the law to require the banks to explicitly support small-scale, young, and beginning farmers. And Van Hoose was quick to challenge the premise that the system has moved away from that mandate in any way. “Small farmers have been and continue to be an enormous part of what we do,” he said.

For example, he said, in 2022, 72 percent of Farm Credit’s loans were less than $250,000. While that is true, it also underscores a steady decline over the last decade: In 2012, it was 87 percent, and by 2017, it had dropped to 76 percent.

Critics of Farm Credit’s shrinking support of small- and mid-size producers point to another way of looking at the numbers. According to a Civil Eats analysis of Farm Credit’s own data, over the past decade, more actual dollars began flowing toward the largest loans, of $25 million or more, and fewer went to loans under $250,000.

In 2014, the total money funding those large loans surpassed the money funding the smallest ones for the first time; that trend has continued for the last eight years. Another way of looking at it: In the end, that 72 percent of small farm loans reported in 2022 only accounted for 9 percent of the total money loaned. More than half of the funding went to loans of $5 million or more; 40 percent went to loans that exceeded $25 million. Van Hoose said the discrepancy in dollars comes from the fact that “small farms tend to borrow less.”

Last year, university researchers published an analysis looking at the financing that has enabled the biggest pork companies to consolidate their operations and market power. They found that Farm Credit was at the center of it all, funding the construction of the biggest concentrated animal feeding operations within the supply chains of global players including Smithfield and Prestage Farms.

“Outside of the pork powerhouses themselves, financial firms are the key players,” the authors concluded. “The Farm Credit System is at the helm. [It] enables or disables certain types of agriculture by choosing to finance it.”

Improving Farm Credit Lending Data—and Increasing Equity

Still, from small organic vegetable growers in the Mid-Atlantic to regenerative ranchers in the South, Farm Credit funding is certainly helping many small-scale, young, and beginning farmers succeed. “We do know that young farmers in our network are benefiting from Farm Credit loans, and we know that Farm Credit system lenders are a really important piece of the [credit] puzzle,” said David Howard, the policy development director at the National Young Farmers Coalition (NYFC).

“The Farm Credit System . . . enables or disables certain types of agriculture by choosing to finance it.”

Credit is a major focus of NYFC’s advocacy during the 2023 Farm Bill process. In the group’s 2011, 2017, and 2022 surveys of young farmers across the country, most of whom operate small and mid-sized farms, land access was consistently identified as the No. 1 challenge, “and access to credit is inextricably linked to that,” Howard said.

In the 2022 survey, 76 percent of respondents said gaining access to capital (for land or other business needs) was at least a little bit of a challenge, while 41 percent said it was very or extremely challenging. Those numbers were significantly higher for BIPOC farmers, especially Black farmers.

That’s one reason NYFC is pushing to make sure the 1071 rule applies to Farm Credit and all other farm lenders. “It will require there to be a deeper, more detailed understanding about racial demographics, and . . . what the outcomes are,” Howard said. “We just need a better, more detailed picture of what's happening out there to understand exactly what policy solutions we need.”

Ed Hunt’s experience getting turned down for a Farm Credit loan, for example, could have been transformed into a meaningful data point, rather than existing only as a painful faded memory.

Van Hoose, however, insists that having to comply with the rule will hurt Farm Credit’s member-owners because increased regulatory costs could reduce profits and therefore the patronage that’s paid out to farmers. What some lawmakers have proposed in the legislation that is now being considered for inclusion in the farm bill is allowing Farm Credit to do their own data collection on a smaller number of borrowers instead.

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“We don't object to collecting this information. We don't object to giving it to the regulator. We don't object to the regulator making it public,” Van Hoose said. Instead, he argues that complying with the rule will require banks to set up a “complex regulatory regime” and sees the proposed alternative as a more “reasonable” way to collect data that fits agriculture and the Farm Credit system, specifically.

“Farm Credit’s argument is that this will hurt rural communities because there will be an extra burden on banks . . . and therefore an extra cost to consumers, but we don't believe that's true,” Manurasada said. “The requirements are pretty minimal, and it will ultimately create more fair and equitable lending.”

David Beck, the policy director for Self-Help Credit Union, which has been working with HEAL Food and NYFC in their push for Farm Credit to be included in tracking, pointed to the fact that Farm Credit banks are already required to track and report racial demographics in their home mortgage lending.

Advocates say acquiring more demographic data on who receives Farm Credit loans is key to building a more equitable future.

A small sample of statistics from that data suggests that improvements are likely needed to make that lending more equitable. In March, the Center for Responsible Lending analyzed data on Farm Credit home loans awarded from 2018 to 2021. Of more than 46,500 mortgages, less than half of 1 percent went to Black households—even though a 2018 USDA estimate showed Black residents make up about 8 percent of the rural population.

There are many factors that could explain the disparity. For example, centuries of discrimination have left Black families with less wealth, which means they may be applying for mortgages at a much lower rate. But advocates say that’s why acquiring more data is key to building a more equitable future.

“The most vocal opponent to the 1071 regulation has been the Farm Credit system,” Beck said during a webinar for local food producers in North Carolina in February. In that conversation, he pushed back on many of Van Hoose’s arguments around the regulatory burden as the reason for resistance. “The much more likely reason is that reporting race and ethnicity is going to expose the fact that the vast majority of their loans go to white farmers. Part of that is natural because most farmers in the country are white, but I think even after adjusting for that, it will be shocking.”

That data could then increase support for a grant system like the one proposed by NSAC to help level the playing field. NSAC estimates the program would result in more than $1 billion annually that could be used to invest in local and regional agriculture and give underserved producers a leg up.

A version of the grant program was proposed at least one time before, in the lead up to the 2014 Farm Bill, but was not included in the final bill.

Supporters say that by both spreading the system’s wealth further and building more accountability into data reporting, Farm Credit will more effectively provide real public benefit, which is why Congress created it more than 100 years ago. “We believe 1071 is definitely pro-farmer and pro-rural communities,” Manurasada said, “because it really gives everyone a fair shot.”

Lisa Held is Civil Eats’ senior staff reporter and contributing editor. Since 2015, she has reported on agriculture and the food system with an eye toward sustainability, equality, and health, and her stories have appeared in publications including The Guardian, The Washington Post, and Mother Jones. In the past, she covered health and wellness and was an editor at Well+Good. She is based in Baltimore and has a master's degree from Columbia University's School of Journalism. Read more >

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  1. Michael Slack
    In a Local coop meeting held recently a group of ag college student's looking at ag career's were asked which aspect of ag they were going into. When asked about being or someday becoming a actual producer no one raised their hand. My wife and I are planting our 44th crop year. Started out with 81 acres in 1979. It can be done. But i must admit, it was a battle. These young people don't want to face that battle. I don't blame them. That is the core issue.

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