Bankers Give Panel Farm Policy Recommendations

May 17, 2001

The nation's bankers gave the Senate Agriculture Committee Wednesday a list of farm policy preferences they'd like to see incorporated into law. The American Bankers Association (ABA) urged Congress to make funding for USDA's Farm Service Agency (FSA) loan programs a priority, permanently repeal the 15-year term limit on guaranteed loan eligibility, and to increase the ceiling on low documentation FSA guaranteed loan applications to $150,000.

Four policy recommendations were on the mind of the Independent Community Bankers of America: 1) pass a fourth consecutive farm-aid package; 2) pass a new farm bill that includes flexible budgeting, counter-cyclical income mechanisms and "farmer 401(k)" individual savings plans; 3) provide full funding for USDA-guaranteed loan programs; and 4) adopt new policies to attract capital and business opportunities to rural America.

The ABA also expressed strong support for Farm, Fishing and Ranch Risk Management (FFARRM) accounts while opposing increased loan fees on Business and Industry (B&I) guarantees. "At the end of 2000, banks had nearly $75 billion outstanding to farmers and ranchers; for every dollar of agricultural credit outstanding, 41 cents is loaned by the banking industry." said Gary Canada, president of the Bank of England in England, AR, and chairman of the ABA's Agricultural and Rural Bankers Committee.

"Loan quality remains strong. Losses on all farm loans have been low. However, continued low commodity prices and the uncertain nature of future federal assistance to agriculture has heightened our concern about the continued viability of our farm and ranch customers," he said.

From January to May of this year, the ABA Center for Agricultural and Rural Banking conducted 19 "listening sessions" in 14 states with nearly 1,000 bankers to discuss issues ranging from federal support for agriculture to FSA program delivery and recommendations for the 2002 farm bill. "Of the many policy options that we discussed during our listening sessions, there was consensus about the need to create a farm policy that is consistent and allows for some level of certainty, for both producers and the bankers that finance them," said Canada.

Included in recommendations from the listening sessions was the urgency to make funding for FSA loan programs a priority along with repealing the 15-year term limit on guaranteed loan eligibility. Canada also urged Congress to increase the ceiling on low documentation FSA guaranteed loan applications to $150,000."The guaranteed farm loan programs offered by FSA are some of the most cost-effective tools that Congress can provide to farmers and ranchers during difficult economic times," said Canada.

Canada also said that bankers at the listening sessions strongly supported FFARRM accounts. "FFARRM accounts will encourage producers to save cash when they have a surplus and will allow them to balance their cash flow when their earnings are down," said Canada. "Additionally, FFARRM accounts will provide a new source of deposits to banks that will then lend these funds back to businesses and individuals in the community.

The ABA also said that more credit could be made available by banks to more beginning farmers if aggie bonds were exempted from federal revenue bond volume caps. "One of the best sources of lower cost loans for beginning farmers are loans that are originated by banks using state industrial revenue bonds," said Canada. "Aggie bonds allow banks to use the bonding authority of participating states to fund qualified beginning farmer loans."

ICBA official D.L. Evans of Evans Bank, Burley, ID, told the committee, "Unfortunately, farmers today face the triple whammy of despairingly low prices, sharply rising energy and input costs and an unlevel playing field in the international trade arena." Evans is and vice chairman of ICBA's Agriculture-Rural America Committee.

He asked for ample funding flexibility for farm-aid packages to cover the next two years, saying "funds may need to be front loaded to address immediate needs before a new farm bill is passed." He also suggested a new farm bill needs a counter-cyclical payment program. He stated farm payments should work together with new "farmer 401(k)" plans or similar savings accounts so producers can build long-term assets and transition from reliance on government payments.

Moreover, Evans suggested that "maximizing farmer participation was essential" for any new savings account options and could be accomplished by "allowing a portion of new government payments to be funneled into the accounts which producers could partially match from other income."

Evans said 90% of farmers' total household income was from off-farm sources and communities relying largely on agriculture were losing population. He said solutions were to increase federal deposit insurance and index it to inflation to allow more local funds to recycle in rural communities and provide new investment opportunities; to significantly increase funding and options for USDA guaranteed loan programs; to establish a private-sector rural equity fund to help local lenders fund business start-ups and expansions; and to adopt policies to attract broadband and telecommunications technologies into rural America.