University of Wisconsin–Madison

Farm Credit

Overview


Created to provide a reliable, consistent source of credit for agriculture and rural communities, Farm Credit continues to carry out its mission through a network of 77 financial cooperatives, each of which is owned by its customers. Its consumer base includes agricultural producers of all kinds, agricultural cooperatives, agribusinesses, rural infrastructure providers, rural home owners, and young, beginning and small producers.

Farm credit organizations provide over $200 billion in loans, leases and related services, or more than 40% of rural credit needs. In addition to extending dependable credit, Farm Credit provides services such as crop insurance, cash management services, insurance, and industry sector reporting.

Farm Credit is a pure lender and finances its agricultural lending through the issuance of debt securities.

History


The Federal Farm Loan Act, enacted in 1916, founded the Farm Credit System (FCS). It established a credit delivery system to the agricultural sector by creating Federal Land Banks (FLBs) in 12 regions of the U.S. These land banks provided funds to regional banks and associations so that they could provide long-term mortgage financing to farmers.

During the Great Depression, the Farm Credit Act of 1933 was enacted to bolster agricultural production by funneling short-term credit through 12 Production Credit Associations and 13 Banks for Agricultural Cooperatives. Simultaneously, the Emergency Farm Mortgage Act was mobilized to refund the FLBs as an aid package to farmers facing foreclosures and debt defaults.

Until the 1980s, banks took care of the lending needs of a specific geographic district and the associations operated within a geographic district.

The FCS underwent major reorganizing in response to the farm financial crisis of the 1980s. Falling commodity prices and farm land values, and an increasing farm debt-to-asset ratio led to record losses for FCS institutions.

In response, the Farm Credit Amendments Act of 1985 restructured the Farm Credit Administration, increasing its oversight, regulatory, and enforcement powers. The Agricultural Credit Act of 1987 authorized a Farm Credit System Financial Assistance Corporation to issue bonds for re-capitalizing FCS institutions in financial distress, and the Farm Credit System Insurance Corporation to ensure timely payments on obligations issued by FCS banks. Other structural changes to the FCS system were mandated, and over the next 10 years additional organizational changes were implemented.

In 2005, FCS returned to being fully owned by its customers, after repaying the last of the federal capital provided during the farm crisis.

Organizational Structure


There are nearly 80 Farm Credit associations, which receive their funding through one of four regional wholesale banks.

Most FCS institutions operate on a cooperative basis, and are subject to single taxation under Subchapter T of the Internal Revenue Code. Income allocated to its customer-owners on the basis of patronage may be taxed at the member level, while the cooperative pays taxes on any earnings that are unallocated and retained.

As cooperatives, Farm Credit institutions are governed by a board of directors that is primarily elected by its borrower-owners.

FCS has Government Sponsored Enterprise (GSE) status, which is granted to support consistent access by targeted economic sectors to national debt markets. GSE status for the borrower-owned FCS institutions ensures that Farm Credit can provide a reliable credit option to rural borrowers, and a more competitive market with private banks.

Farm Credit’s funds for its loan programs are raised through debt securities issued by the Federal Farm Credit Banks Funding Corporation. The Farm Credit System Insurance Corporation administers the insurance fund established through annual insurance premiums paid by System banks.

The Farm Credit Administration regulates Farm Credit institutions, and is an independent federal agency.