Des Moines Business Record
09-14-07
Will banks keep Farm Credit down on the farm?
BY JOE GARDYASZ
As the ethanol industry continues to grow throughout the Midwest, Farm Credit
Services of America wants to play a bigger role in providing financing for the
multimillion-dollar production plants, as well as for other emerging agriculturerelated businesses.
Currently, the Omaha-based cooperative lender, which operates throughout rural
Iowa, can provide loans only to farmer-owned businesses or cooperatives with
majority ownership by farmers and to homeowners in very small towns. As part of
the Farm Credit System, FCSAmerica is seeking changes to its congressionally
mandated authorities that would enable it to broaden its lending to more rural
businesses and homeowners.
However, the Iowa Bankers Association and other banking groups say the Farm
Credit System's proposals are a calculated effort to shift billions of dollars in
loans from rural banks and move it away from the mission it was designed to
serve.
Bankers say letters they sent to House Agriculture Committee members helped
keep the proposal out of the House version of the 2007 farm bill, which passed
on July 27. The Farm Credit Council has launched its own letter-writing
campaign, and hopes the U.S. Senate will include the initiatives in its version of
the farm bill to be debated this fall.
Sen. Tom Harkin, who chairs the Senate Committee on Agriculture, Nutrition and
Forestry, does not at this time plan to include Farm Credit's initiative in his
markup of the farm bill, said Kate Cyrul, majority communications director for the
committee. "But we're continuing to take a careful look at it," she said. It's
possible that the item could be added as an amendment by the committee before
it reaches the Senate floor, Cyrul added.
Created by Congress in 1916 as the first Government Sponsored Enterprise designed to enhance the flow of credit to a targeted sector of the economy - the
Farm Credit System now services a portfolio of more than $103 billion in loans
for more than a half-million growers and cooperatives. Its national network of five
Farm Credit Banks, including FCSAmerica, provides funding and services to
approximately 100 locally owned Farm Credit associations and cooperatives.
The proposals stem from Farm Credit's Horizons initiative, an evaluation of
emerging trends in agriculture and rural America.
"This is not so much about Farm Credit Services, but the changing needs of the
marketplace and customers, and how we can meet those needs from our
perspective," said Doug Stark, president and CEO of Farm Credit Services of
America.
According to the Farm Credit Council, the three primary goals of the proposals
would:
• Provide more financing options for farm- and fishing-related businesses by
allowing them to borrow from Farm Credit. Eligible businesses would be limited
to those primarily engaged in providing needed inputs directly to producers or
that purchase or handle farm products directly from producers.
• Make home mortgage loans available to more rural families by expanding the
definition of rural populations to cities with populations of up to 50,000, a major
change from the current limit of lending to residents in towns with populations of
2,500 or less. A limit that rural home mortgage lending cannot exceed 15 percent
of a Farm Credit association's loan portfolio would remain in place.
• Modernize Farm Credit's ability to set cooperative stock requirements. Local
association directors would be given the flexibility to set minimum stock purchase
requirements while retaining one-member, one-vote cooperative control.
The Iowa Bankers Association is one of several financial industry groups, among
them the American Bankers Association, America's Community Bankers, the
Independent Insurance Agents & Brokers and the Mortgage Bankers
Association, which oppose Farm Credit's proposals.
John Sorensen, president and CEO of the Iowa Bankers Association, said the
IBA's primary concern is that the proposals are so broadly written that they would
allow Farm Credit to significantly broaden its lending activity away from its core
mission of providing financing for farmers.
"It opens up the possibility for them to make loans up and down Main Street," he
said. "There does not appear to be a credit gap, and they would be financing
businesses that would compete with the farmer-owned cooperatives that Farm
Credit is designed to assist."
As a Government Sponsored Enterprise, the Farm Credit System receives
significant tax and interest-rate advantages, Sorensen added. "I think we're very
open to competition that is on a level playing field, where we're all operating on
the same tax and regulatory structure," he said. "That's not the case here."
Ken Auer, president of the Farm Credit Council in Washington, D.C., said
bankers simply don't want more competition, and are fighting Farm Credit in the
same manner that they have opposed credit unions and industrial loan
companies. But the additional capital that Farm Credit could provide for major
projects such as ethanol plants would benefit rural banks in the long run, he said.
"The way we operate, the Farm Credit bank is able to go to Wall Street (for
investment funds) and bring that money to rural communities," Auer said. "We
are not a depository institution, so the payroll from that plant goes to the bank,
the same with local financing. So instead of whining that we're taking business
away from them, (bankers) ought to realize how this would ultimately benefit
them by creating more economic activity. The people who own the Farm Credit
System are out there in the rural communities. The last thing they want to do as a
co-op owned by farmers is to do something that would be harmful to their
community."
Bob Jolly, an economics professor at Iowa State University who has
researched the credit needs of rural communities, said competition among
institutions varies widely, depending upon the specific area.
"I would say that the places that really stand out as being underserved or lacking
competition are those that are either really rural or really poor," Jolly said.
Jolly said he believes the Farm Credit System will continue to push to expand its
charter.
"They have a lot of advantages to serve the agricultural market; that's who they
were created to serve," he said. "That's not a fast-growing market in loans; I
would describe it as a mature market. And when you have a mature market, you
end up fighting over market share, which in a sense iswhat's going on here."