Agricultural Credit: Institutions and Issues
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Agricultural Credit: Institutions and Issues
April 21, 2021July 13, 2022
A variety of lenders A variety of lenders, from the federal government to commercial banks from the federal government to commercial banks, make loans to farmers make loans to farmers and ranchers..
The federal government provides credit assistance to farmers The federal government provides credit assistance to farmerswho cannot obtain loans elsewhere,and ranchers who
Jim Monke
cannot obtain loans elsewhere, and helps assure credit availability across rural areas. At and helps assure credit availability across rural areas. At Specialist in Agricultural Congress’s direction, federal farm loan Congress’s direction, federal farm loan
Specialist in Agricultural
programs target beginning farmers and socially programs target beginning farmers and socially
Policy
disadvantaged groups based on race, ethnicity, or disadvantaged groups based on race, ethnicity, or
Policy
gender.gender.
Description of Lenders
The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) is a small but The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) is a small but
important lender for family-sized farms that do not qualify for credit elsewhere. FSA also guarantees payments on some important lender for family-sized farms that do not qualify for credit elsewhere. FSA also guarantees payments on some
loans made by other lenders. At the end of loans made by other lenders. At the end ofFY2019FY2020, FSA had a portfolio of $, FSA had a portfolio of $1213.6 billion of direct loans to billion of direct loans to 87nearly 89,000 borrowers ,000 borrowers
and loan guarantees of $and loan guarantees of $1617.3 billion for 39,000 billion for 39,000 borrowers. Thus, out of the $borrowers. Thus, out of the $423441 billion market for farm debt, FSA had a direct billion market for farm debt, FSA had a direct
market share of 3% of loans and loan guarantees that covered about another market share of 3% of loans and loan guarantees that covered about another54% of the market. For % of the market. For FY2021, FY2022, annual annual
appropriations support $appropriations support $9.910.4 billion of new FSA direct loans and guarantees. billion of new FSA direct loans and guarantees.
The Farm Credit System (FCS) has the next-largest The Farm Credit System (FCS) has the next-largestamount of government interventiondegree of connection to the government. FCS is a private lender with a . FCS is a private lender with a
federal charter and a statutory mandate to serve creditworthy farmersfederal charter and a statutory mandate to serve creditworthy farmers and ranchers, certain agribusinesses, cooperatives, and rural , certain agribusinesses, cooperatives, and rural
homeowners in towns with less than 2,500 population. At the end of homeowners in towns with less than 2,500 population. At the end of20202021, FCS had a total loan portfolio of $, FCS had a total loan portfolio of $315 344 billion, billion,
including over $including over $190210 billion of farm loans ( billion of farm loans (4344% of farm debt). As a government-sponsored enterprise (GSE), FCS has tax % of farm debt). As a government-sponsored enterprise (GSE), FCS has tax
advantages and lower costs of funds. Capital is raised through the sale of bonds on Wall Street. Four large banks allocate advantages and lower costs of funds. Capital is raised through the sale of bonds on Wall Street. Four large banks allocate
funds to 67 regional credit associations that, in turn, make loans to eligible creditworthy borrowers. funds to 67 regional credit associations that, in turn, make loans to eligible creditworthy borrowers.
Another GSE for farm loans is Farmer Mac, a privately held secondary market. Farmer Mac purchases agricultural mortgages Another GSE for farm loans is Farmer Mac, a privately held secondary market. Farmer Mac purchases agricultural mortgages
and issues guarantees on mortgage-backed securities that are bought by investors. Other agricultural lenders without and issues guarantees on mortgage-backed securities that are bought by investors. Other agricultural lenders without
government support or mandates include commercial banks (government support or mandates include commercial banks (4036% market share of farm debt); individuals, merchants, and % market share of farm debt); individuals, merchants, and
dealers (dealers (810%); and life insurance companies (4%).%); and life insurance companies (4%). Commercial banks’ and FCS’s shares of farm debt have grown in recent
years as others’ shares have decreased.
Farm Sector Balance Sheet
The farm sector’s balance sheet has remained strong in recent years. The farm sector’s balance sheet has remained strong in recent years.Inflation-adjusted debt levelsDebt-to-asset and debt-to- and debt-to-assetincome ratios ratios
(debts divided by assets(debts divided by assets) and debt divided by net income, respectively) remain near historical averages and are below peak stress levels during the 1980s are below peak stress levels during the 1980s (figure). The delinquency rates on FSA direct and . The delinquency rates on FSA direct and
guaranteed loans have remained fairly steady in recent years through guaranteed loans have remained fairly steady in recent years throughthe trade disruption and the COVID-19 pandemic. trade disruption and the COVID-19 pandemic.
About 30% of all U.S. farms have farm debt. About 30% of all U.S. farms have farm debt.
Farm Debt-to-Asset Ratio
Since 2018, more of net farm income has come from the Since 2018, more of net farm income has come from the
government in the form of trade aid payments and COVID-government in the form of trade aid payments and COVID-
19 assistance. During the pandemic, USDA has suspended
new foreclosures on farm loans. FSA borrowers may use a
Disaster Set-Aside (DSA) provision to move a loan
payment to the end of the loan or extend an annual
operating loan by a year19-related assistance. .
Issues in Agricultural Credit
A 2019 Government Accountability Office report found A 2019 Government Accountability Office report found
that socially disadvantaged farmers that socially disadvantaged farmers or ranchers (SDFRs) had proportionately had proportionately
fewer FSA direct and guaranteed loans than other farmers, fewer FSA direct and guaranteed loans than other farmers,
and that socially disadvantaged farmers continued to face and that socially disadvantaged farmers continued to face
difficulties because of historic, systemic discrimination.
The American Rescue Plan Act of 2021 (P.L. 117-2)
contains a provision to pay socially disadvantaged farmers
Source: CRS, using USDA Economic Research Service data.
120% of their balances on FSA direct loans, FSA
Notes: 2021 is the USDA forecast.
guaranteed loans, and Farm Storage Facility Loans as of
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Agricultural Credit: Institutions and Issues
January 1, 2021. The payment is intended to retire loan balances and cover tax liabilities and fees, since debt forgiveness is
subject to income taxes. The provision uses a definition of socially disadvantaged farmer that includes only racial and ethnic
minorities, which is narrower than the definition used to make farm loans that also includes gender. The Congressional
Budget Office estimates the debt forgiveness provision will cost $4 billion.
difficulties because of historic, systemic discrimination. Data for FY2021 show that a majority of the number and amount of FSA direct loans were to beginning and socially disadvantaged producers. Direct loans to beginning farmers were more than double the number of loans to SDFRs and more than three times the amount of loans to SDFRs. The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) contained a debt forgiveness provision for SDFRs on FSA direct and guaranteed loans. Courts blocked implementation of the ARPA provision after the relief was found to be race-based and not narrowly tailored to meet a compelling state interest. The House-passed Build Back Better Act (H.R. 5376, 117th Congress) would rescind and replace the ARPA provision and is tailored to economically distressed borrowers. The BBBA plan would provide more debt relief than the ARPA provision. Competition between FCS and commercial banks remains an issue in agricultural lending. FCS is unique among the GSEs Competition between FCS and commercial banks remains an issue in agricultural lending. FCS is unique among the GSEs , ,
because it is a retail lender making loans directly to farmers and thus is in direct competition with commercial banks. because it is a retail lender making loans directly to farmers and thus is in direct competition with commercial banks.
Because of this direct competition for creditworthy borrowers, FCS and commercial banks often have an adversarial Because of this direct competition for creditworthy borrowers, FCS and commercial banks often have an adversarial
relationship in the policy realm. Commercial banks relationship in the policy realm. Commercial banksassert unfair competition from FCS for borrowers because of tax
advantages that can lower the relative cost of funds for FCS. FCS counters b y citing its statutory mandate to serve only
agricultural borrowers and despite economic conditions. Commercial banks and FCS both support the FSA loan guarantee and FCS both support the FSA loan guarantee
program and do not see FSA as a competitor because FSAprogram and do not see FSA as a competitor because FSA allows them to make and service loans that otherwise might not be allows them to make and service loans that otherwise might not be
possible at acceptable risk levels. possible at acceptable risk levels.
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Contents
Description of Government-Related Farm Lenders ........................................................................ 1
USDA Farm Service Agency .................................................................................................... 1 1
Farm Credit System ................................................................................................................... 2
Farmer Mac ............................................................................................................................... 3 2
Current Situation ............................................................................................................................. 3
Market Shares of Farm Debt ..................................................................................................... 3
The Farm Balance Sheet ........................................................................................................... 4
Delinquency Rates on Farm Loans ........................................................................................... 6 Targeting Loans ........................ 5
Issues in Agricultural Credit................................................................................................. 7
Issues in Agricultural Credit 7
Debt Forgiveness for Social y Disadvantaged Farmers .................................................... 7
Competition Between Farm Credit System and Commercial Banks ............................................... 7
Term Limits on USDA Farm Loans....... 14
Debt Forgiveness for Socially Disadvantaged Farmers or Ranchers ........................................ 14 Competition Between Farm Credit System and Commercial Banks ...................................... 815
Figures
Figure 1. Market Shares by Lender of Total Farm Debt,1960-2019 1980-2020 .......................................... 3.... 4
Figure 2. Farm Assets ...................................................................................................................... 5 4
Figure 3. Farm Debt ........................................................................................................................ 5 4
Figure 4. Farm Debt-to-Asset Ratio ................................................................................................ 5
Figure 5. Farm Debt-to-Income Ratio ............................................................................................. 5
Figure 6. Net Farm Income and Government Payments ................................................................. 5
Figure 7. Delinquent and Nonperforming Agricultural Loans ................................................. 6
Tables
Table 1. Term Limits on Farm Service Agency (FSA) Loans .................................................. 8
Contacts
Author Information ......................................................................................................... 8
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, 2010-2022Q1 ................................ 7 Figure 8. Number of FSA Targeted Loans Made to Beginning and Socially Disadvantaged Producers, FY2021 .............................................................................................. 8 Figure 9. Amount of FSA Targeted Loans Made to Beginning and Socially Disadvantaged Producers, FY2021 ....................................................................................................................... 9 Figure 10. Number of FSA Direct SDFR Loans Made by Race, Ethnicity, and Gender, FY2019 ....................................................................................................................................... 10 Figure 11. Number of FSA Guaranteed SDFR Loans Made by Race, Ethnicity, and Gender, FY2019 .......................................................................................................................... 11 Figure 12. Number and Amount of FSA Direct Loans Made by Size, FY2019 ............................ 12 Figure 13. Number and Amount of FSA Guaranteed Loans by Size, FY2019 ............................. 12 Figure 14. FCS Loans Made (Number and Amount) to Young, Beginning and Small (YBS) Producers, 2020 .............................................................................................................. 13 Figure 15. FSA Loans (Number of Direct and Guaranteed) Made to YBS Producers, FY2019 ....................................................................................................................................... 14 Tables Table 1. Term Limits on Farm Service Agency (FSA) Loans ......................................................... 2 Table 2. FSA Farm Loan Program Targeted Funds, FY2022 .......................................................... 8 Table 3. FSA Lending to Socially Disadvantaged Farmers or Ranchers (SDFR) ........................... 9 Congressional Research Service link to page 20 Agricultural Credit: Institutions and Issues Contacts Author Information ........................................................................................................................ 16 Congressional Research Service Agricultural Credit: Institutions and Issues
Description of Government-Related Farm Lenders
The federal government has a long history of assisting farmers with obtaining loans for farming. The federal government has a long history of assisting farmers with obtaining loans for farming.
This intervention has been justified at one time or another by many factors, including the This intervention has been justified at one time or another by many factors, including the
presence of asymmetric information among lenders or between lenders and farmers,1 the lack of presence of asymmetric information among lenders or between lenders and farmers,1 the lack of
competition in some rural areas, insufficient lending resources, and the desire for targeted lending competition in some rural areas, insufficient lending resources, and the desire for targeted lending
to disadvantaged groups (such as to disadvantaged groups (such assmal small farms or farmers farms or farmers who are social y and ranchers who are socially disadvantaged based on disadvantaged based on
race, ethnicity, or gender).2 race, ethnicity, or gender).2
Several types of lenders make loans to farmers. Some are government entities or have a statutory Several types of lenders make loans to farmers. Some are government entities or have a statutory
mandate to serve agriculture. The one most closely controlled by the federal government is the mandate to serve agriculture. The one most closely controlled by the federal government is the
Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA). FSA receives federal Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA). FSA receives federal
appropriations to make direct loans to farmers and to issue guarantees on loans made by other appropriations to make direct loans to farmers and to issue guarantees on loans made by other
lenders to farmers who are unable to obtain credit elsewhere.lenders to farmers who are unable to obtain credit elsewhere.
The lender with the next-largest amount of government intervention is Farm Credit System The lender with the next-largest amount of government intervention is Farm Credit System
(FCS). It is a private, government-sponsored enterprise (GSE) with a federal charter and a (FCS). It is a private, government-sponsored enterprise (GSE) with a federal charter and a
statutory mandate to serve only agriculture-related borrowers.3 FCS makes loans to creditworthy statutory mandate to serve only agriculture-related borrowers.3 FCS makes loans to creditworthy
farmers and is not a lender of last resort. Third is Farmer Mac, another privately held GSE, which farmers and is not a lender of last resort. Third is Farmer Mac, another privately held GSE, which
provides a secondary market for agricultural loans by provides a secondary market for agricultural loans by resel ingreselling these loans to private investors.4 these loans to private investors.4
Other lenders do not have direct government involvement in their funding or existence. These Other lenders do not have direct government involvement in their funding or existence. These
lenders include commercial banks, life insurance companies, individuals, merchants, and dealers. lenders include commercial banks, life insurance companies, individuals, merchants, and dealers.
USDA Farm Service Agency
FSA is considered a FSA is considered a lender of last resort because it makes direct farm ownership and operating because it makes direct farm ownership and operating
loans to family-sized farms that are unable to obtain credit elsewhere. FSA also guarantees timely loans to family-sized farms that are unable to obtain credit elsewhere. FSA also guarantees timely
payment of principal and interest on qualifiedpayment of principal and interest on qualified loans made by commercial banks and FCS. loans made by commercial banks and FCS. Farm
bil sPeriodic farm bills may modify the permanent authority for FSA’s lending activities in modify the permanent authority for FSA’s lending activities in the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 1921 et seq7 U.S.C. 1921 et seq.). At the . At the
end end of FY2020of FY2019, FSA had a portfolio of $, FSA had a portfolio of $12 bil ion 13.6 billion of direct loans to of direct loans to 87nearly 89,000 borrowers and loan ,000 borrowers and loan
guarantees of $guarantees of $16 bil ion 17.3 billion for 39,000 borrowers.5 FSA direct loans were about 3% of the market for 39,000 borrowers.5 FSA direct loans were about 3% of the market
for farm debt and FSA loan guarantees covered about another for farm debt and FSA loan guarantees covered about another 5% of the market.
During FY2021, an appropriation of $68 mil ion in budget authority (plus $307 mil ion for
salaries and expenses) is supporting $9.9 bil ion of new direct loans and guarantees.6 Direct farm
4% of the market. Although FSA has a relatively small share of the market compared with other lenders, it is an important lender for certain segments of the agricultural industry. Part of the FSA loan program is 1 Asymmetric information is a type of market failure that arises when parties have different insights about a transaction. 1 Asymmetric information is a type of market failure that arises when parties have different insights about a transaction.
2 Charles Moss, 2 Charles Moss, Agricultural Finance (New (New York: Routledge,York: Routledge, 2013). 2013).
3 A government-sponsored enterprise (GSE) is3 A government-sponsored enterprise (GSE) is a federally chartered, nongovernment entity with certain benefits (such a federally chartered, nongovernment entity with certain benefits (such
as tax exemption, implicit federal guarantees, or risk management tools) that overcome barriers to private markets in as tax exemption, implicit federal guarantees, or risk management tools) that overcome barriers to private markets in
achieving a stated goal. For the Farm Credit System (FCS),achieving a stated goal. For the Farm Credit System (FCS), its charter is limited to serving agriculture-related its charter is limited to serving agriculture-related
businessesbusinesses and rural homeowners. Other examples of GSEsand rural homeowners. Other examples of GSEs include include the Federal National Mortgage Association (Fannie the Federal National Mortgage Association (Fannie
Mae), FederalMae), Federal Home Loan Mortgage Corporation (Freddie Mac), FederalHome Loan Mortgage Corporation (Freddie Mac), Federal Home Loan Bank System,Home Loan Bank System, and Federal and Federal
AgriculturalAgricultural Mortgage Corporation (Farmer Mac). Mortgage Corporation (Farmer Mac).
4 A secondary market purchases qualified4 A secondary market purchases qualified loans from originating lenders, pools them, and may sellloans from originating lenders, pools them, and may sell them to investors as them to investors as
securities or hold them in its own portfolio. securities or hold them in its own portfolio.T hisThis provides a risk management option that provides a risk management option that let slets lenders make more loans lenders make more loans
and satisfy regulatory requirements. and satisfy regulatory requirements.
5 U.S. 5 U.S. Department of Agriculture (USDA), Farm Service Agency (FSA),Department of Agriculture (USDA), Farm Service Agency (FSA), “Farm Loan Programs Loan Servicing Data,” “Farm Loan Programs Loan Servicing Data,”
at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data. at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data.
6 CRS Report R46437, Agriculture and Related Agencies: FY2021 Appropriations.
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reserved for beginning farmers and ranchers (7 U.S.C. 1994 (b)(2)). For direct loans, 75% of the funding for farm ownership loans and 50% of operating loans are reserved for the first 11 months of the fiscal year. For guaranteed loans, 40% is reserved for farm ownership and operating loans for the first half of the fiscal year. Funds also are targeted to farmers who are “socially disadvantaged” by race, gender, and ethnicity (7 U.S.C. 2003). Using these provisions, FSA is known as a lender of first opportunity for many borrowers.6 For more information, see “Targeting Loans.”
During FY2022, an appropriation of $62 million in budget authority (plus $314 million for salaries and expenses) is supporting $10.4 billion of new direct loans and guarantees.7 Direct farm ownership loans (real estate) are limited to $600,000 per borrower, direct operating loans are ownership loans (real estate) are limited to $600,000 per borrower, direct operating loans are
limitedlimited to $400,000, and microloans are limited to $50,000 for both ownership and operating to $400,000, and microloans are limited to $50,000 for both ownership and operating
loans. Guaranteed loans may be up to $1.loans. Guaranteed loans may be up to $1.776 mil ion825 million (adjusted for inflation). Direct emergency (adjusted for inflation). Direct emergency
loans up to $500,000 are available for disasters if loans up to $500,000 are available for disasters ifthea farm suffers a 30% loss in a designated or farm suffers a 30% loss in a designated or
contiguous county.contiguous county.7
Part of the FSA loan program is reserved for beginning farmers and ranchers (7 U.S.C. 1994
(b)(2)). For direct loans, 75% of the funding for farm ownership loans and 50% of operating loans
are reserved for the first 11 months of the fiscal year. For guaranteed loans, 40% is reserved for
farm ownership and operating loans for the first half of the fiscal year. Funds also are targeted to
farmers who are “social y disadvantaged” by race, gender, and ethnicity (7 U.S.C. 2003). Using
these provisions, FSA is known as a lender of first opportunity for many borrowers.88
Congress added term limits to the farm loan program in 1992 and 1996 to limit eligibility for government farm loans and to encourage farmers to “graduate” to commercial loans. The term limits place a maximum number of years that farmers are eligible for certain types of FSA loans or guarantees. For a period until the end of 2010, Congress had suspended enforcement of a term limit on guaranteed operating loans to prevent some farmers from being denied credit. The 2014 farm bill (P.L. 113-79) eliminated the term limit on guaranteed operating loans (Table 1).
Table 1. Term Limits on Farm Service Agency (FSA) Loans
(maximum number of years that farmers are eligible for loans)
Type of FSA Loan
Direct Loans Term Limits
Guaranteed Loans Term Limits
Farm Operating Loans
6 years, plus possible 2-year extensiona
No term limitb
Farm Ownership Loans
10 yearsc
No term limit
Source: CRS, based on statute and unpublished USDA data. Notes: Term limits are different from the maximum maturity or duration of an individual loan, which may be as long as 40 years for a farm ownership loan or as short as 1 year for a farm operating loan. a. Direct operating loans are limited to a six-year period. In certain cases, borrowers may qualify for a one-
time, two-year extension (7 U.S.C. 1941(c)(1)(C) and (c)(4)).
b. The 2014 farm bil (P.L. 113-79) permanently removed this term limit. Guaranteed operating loans had been
limited to a 15-year period, though enforcement was suspended by statute through 2010.
c. A borrower is eligible to receive new direct farm ownership (real estate) loans for a maximum of 10 years
after the first loan is made (7 U.S.C. 1922(b)(1)(C)). The repayment term may exceed the term limit.
Farm Credit System
Congress established FCS in 1916 to provide a dependable and affordable source of credit to rural Congress established FCS in 1916 to provide a dependable and affordable source of credit to rural
areas at a time when commercial lenders avoided farm loans. FCS is not a government agency, areas at a time when commercial lenders avoided farm loans. FCS is not a government agency,
nor is it guaranteed by the U.S. government; it is a network of borrower-owned lending nor is it guaranteed by the U.S. government; it is a network of borrower-owned lending
institutions operating as a GSE. It is not a lender of last resort but a for-profit lender with a institutions operating as a GSE. It is not a lender of last resort but a for-profit lender with a
statutory mandate to serve agriculture. Funds are raised through the sale of bonds on statutory mandate to serve agriculture. Funds are raised through the sale of bonds onWal Street.
Four large banks al ocateWall Street.
6 CRS In Focus IF10641, Farm Bill Primer: Federal Programs Supporting New Farmers. 7 CRS Report R46951, Agriculture and Related Agencies: FY2022 Appropriations. 8 FSA, “Farm Loan Program,” at http://www.fsa.usda.gov/dafl.
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Four large banks allocate these funds to 67 credit associations that, in turn, make loans to eligible these funds to 67 credit associations that, in turn, make loans to eligible
creditworthy borrowers. creditworthy borrowers.
Statutes and oversight by the House and Senate Agriculture Committees determine the scope of Statutes and oversight by the House and Senate Agriculture Committees determine the scope of
FCS activity (Farm Credit Act of 1971, as amended; 12 U.S.C. 2001 et seq.). Benefits such as tax FCS activity (Farm Credit Act of 1971, as amended; 12 U.S.C. 2001 et seq.). Benefits such as tax
exemptions for FCS lenders and bondholders also are provided. Loan eligibilityexemptions for FCS lenders and bondholders also are provided. Loan eligibility is limited to is limited to
farmersfarmers and ranchers, certain farm-related agribusinesses, rural homeowners in towns with a population of , certain farm-related agribusinesses, rural homeowners in towns with a population of
fewer than 2,500, and cooperatives.9 The federal regulator is the Farm Credit Administration fewer than 2,500, and cooperatives.9 The federal regulator is the Farm Credit Administration
(FCA).10 (FCA).10
At the end of At the end ofFY20202021, FCS had a total portfolio of $, FCS had a total portfolio of $315 bil ion 344 billion of loans, including of loans, including over $190
bil ion about $210 billion of farm loans.11 FCS holds about of farm loans.11 FCS holds about 4344% of the share of farm debt. % of the share of farm debt.
Farmer Mac
Farmer Mac is a GSE that is a secondary market for agricultural loans. Some consider Farmer Farmer Mac is a GSE that is a secondary market for agricultural loans. Some consider Farmer
Mac to be related to FCS because FCA regulates both Farmer Mac and FCS, and both were Mac to be related to FCS because FCA regulates both Farmer Mac and FCS, and both were
created by the same legislation; however, Farmer Mac is created by the same legislation; however, Farmer Mac isfinancial y and organizational yfinancially and organizationally a a
separate entity from FCS. Farmer Mac purchases mortgages from lenders and guarantees separate entity from FCS. Farmer Mac purchases mortgages from lenders and guarantees
mortgage-backed securities that are bought by investors.12
7 FSA, “Farm Loan Program,” at http://www.fsa.usda.gov/dafl.
8 CRS In Focus IF10641, Farm Bill Primer: Federal Programs Supporting New Farmers.
9 CRS Report RS21278, Farm Credit System .
10 CRS In Focus IF10767, Farm Credit Administration and Its Board Members.
11 Federal Farm Credit Banks Funding Corporation, 2020 Annual Information Statem ent of the Farm Credit System ,
March 2021.
12 CRS In Focus IF11595, Farmer Mac and Its Board Members.
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mortgage-backed securities that are bought by investors.12 Current Situation
Market Shares of Farm Debt
Figure 1 shows that, based on USDA data for shows that, based on USDA data for20192020, FCS and commercial banks provide most of , FCS and commercial banks provide most of
the farm credit (the farm credit (4344% and % and 4036%, respectively) followed by individuals and others (%, respectively) followed by individuals and others (810%) and by life %) and by life
insurance companies (4%).13 FSA provides about 3% of farm debt through direct loans. FSA also insurance companies (4%).13 FSA provides about 3% of farm debt through direct loans. FSA also
guarantees about another guarantees about another 54% of the market through loans that are made by commercial banks and % of the market through loans that are made by commercial banks and
FCS.FCS.
The total amount of farm debt ($ The total amount of farm debt ($432 bil ion441 billion at the end of 2020) is concentrated relatively more in at the end of 2020) is concentrated relatively more in
real estate debt (real estate debt (6465%) than in %) than in non-realnonreal estate debt ( estate debt (3635%). FCS is the largest lender for %). FCS is the largest lender for farm real estate real estate
(47(49%). Commercial banks are the largest lender for %). Commercial banks are the largest lender for non-realnonreal estate estate farm loans ( loans (4641%). %).
AsAs Figure 1 shows, both commercial banks’ and FCS’s shares have grown since the 1980s as shows, both commercial banks’ and FCS’s shares have grown since the 1980s as
other lenders’ shares have decreased. other lenders’ shares have decreased. FSA holds a much smaller share of farm debt today than it held during the 1980s farm financial crisis. Commercial banks held relatively littleCommercial banks held relatively little farm real estate debt farm real estate debt
through 1985 but now hold a sizeable amount, which has increased their share of total farm debt. through 1985 but now hold a sizeable amount, which has increased their share of total farm debt.
Recently, the share of farm debt held by FCS has increased relative to commercial banks. The share of loans from “individuals and others” The share of loans from “individuals and others”hashad steadily decreased over time,
9 CRS Report RS21278, Farm Credit System. 10 CRS In Focus IF10767, Farm Credit Administration and Its Board Members. 11 Federal Farm Credit Banks Funding Corporation, 2020 Annual Information Statement of the Farm Credit System, March 2021.
12 CRS In Focus IF11595, Farmer Mac and Its Board Members. 13 USDA, Economic Research Service (ERS), “Farm Income and Wealth Statistics,” at http://www.ers.usda.gov/data-products/farm-income-and-wealth-statistics.aspx.
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following fewer private contracts for farm real estate, but has stabilized and may be increasing from a mix of dealer financing and nontraditional lenders.14 steadily decreased over time, following
fewer private contracts for farm real estate and despite an increasing mix of dealer financing. FSA
holds a much smal er share of farm debt today than it held during the 1980s farm financial crisis.
Figure 1. Market Shares by Lender of Total Farm Debt,1960-20191980-2020
Source: Congressional Congressional Research ServiceResearch Service (CRS), using year-end data from the U.S. Department (CRS), using year-end data from the U.S. Department
of Agricultureof Agriculture (USDA) Economic Research Service(USDA) Economic Research Service (ERS), as of February (ERS), as of February 5, 20214, 2022. .
Notes: Percentages on the right are for Percentages on the right are for2019. FSA = Farm Service Agency2020 and are rounded to the nearest percent. Shares in the graph are for . Shares in the graph are for
direct loans. Guarantees are not showndirect loans. Guarantees are not shown (FSA; Farm Service Agency guarantees about guarantees about 54% of farm loans that are included in % of farm loans that are included in
the shares of commercialthe shares of commercial banks and the Farmbanks and the Farm Credit System. Credit System).
13 USDA, Economic Research Service (ERS), “Farm Income and Wealth Statistics,” at http://www.ers.usda.gov/data-
products/farm-income-and-wealth-statistics.aspx. Hereinafter, ERS, “ Farm Income and Wealth Statistics.”
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The Farm Balance Sheet
As a whole, farm assets have remained strong and grown steadily since the end of the 1980s, As a whole, farm assets have remained strong and grown steadily since the end of the 1980s,
though inflation-adjusted growth has slowed since 2014. At the end of though inflation-adjusted growth has slowed since 2014. At the end of 20202022, farm sector assets , farm sector assets
totaled totaled nearly $3.3 trillion$3.1 tril ion, according to USDA , according to USDA (Figure 2), which was , which was 41% below their 2014 peak in % below their 2014 peak in
inflation-adjusted terms. Real estate accounted for about 82% of total farm assets in 2020; inflation-adjusted terms. Real estate accounted for about 82% of total farm assets in 2020;
machinery and vehicles were the next-largest category, at about 9% of the total.machinery and vehicles were the next-largest category, at about 9% of the total.1415 USDA forecasts USDA forecasts
that farm assets that farm assets wil will increase by 1.increase by 1.83% in % in 20212022. .
Farm debt reached a historic high of $ Farm debt reached a historic high of $432 bil ion 454 billion at the end of at the end of 2020 2021 (Figure 3). About 30% of About 30% of
U.S. farms have farm debt.U.S. farms have farm debt.1516 USDA forecasts that debt USDA forecasts that debt wil will increase by 2.increase by 2.29% in % in 20212022. In . In
inflation-adjusted terms, this forecast debt is approaching, but remains inflation-adjusted terms, this forecast debt is approaching, but remains 1.2% below, the peak level below, the peak level ofof
farm debt in the 1980s.
farm debt in the 1980s. 14 Brady Brewer, Jennifer Ifft, and Nigel Key, “Guest editorial: Nontraditional Credit in U.S. Agriculture,” Agricultural Finance Review, vol. 82, no. 2 (March 2022), pp. 205-213. 15 ERS, “Farm Income and Wealth Statistics.” 16 ERS, “Debt Use by U.S. Farm Businesses, 1992-2011,” EIB-122, April 2014, p. 3. Updated by ERS in special tabulations for the author, March 5, 2021. Congressional Research Service 4 link to page 9 Agricultural Credit: Institutions and Issues Figure 2. Farm Assets
Figure 3. Farm Debt
Source: CRS, using ERS data. CRS, using ERS data.
Source: CRS, using ERS data. CRS, using ERS data.
Notes:20212022 is forecast, is forecast, as of February as of February 5, 20214, 2022. .
Notes:20212022 is forecast, is forecast, as of February as of February 5, 2021.4, 2022.
Figure 4. Farm Debt-to-Asset Ratio
Figure 5. Farm Debt-to-Income Ratio
Source: CRS, using ERS data.
Source: CRS, using ERS data.
Notes: 2022 is forecast, as of February 4, 2022.
Notes: 2022 is forecast, as of February 4, 2022.
Figure 6. Net Farm Income and
Government Payments
Financial risk to a sector is indicated when the debt-to-asset ratio (debts divided by assets) is Financial risk to a sector is indicated when the debt-to-asset ratio (debts divided by assets) is
high. Farm debt-to-asset ratio levels have declined fairly steadily since the farm crisis of the high. Farm debt-to-asset ratio levels have declined fairly steadily since the farm crisis of the
1980s 1980s (Figure 4). When farm asset growth paused in 2009-2010, the debt-to-asset ratio rose ). When farm asset growth paused in 2009-2010, the debt-to-asset ratio rose
before returning to a historic low in 2012. The debt-to-asset ratio has been slowly rising due to before returning to a historic low in 2012. The debt-to-asset ratio has been slowly rising due to
lower farm incomes, trade disruption, and the COVID-19 pandemic, although lower farm incomes, trade disruption, and the COVID-19 pandemic, althoughthe farm sector is
it remains at historic
Source: CRS, using ERS data. Notes: 2022 is forecast, as of February 4, 2022.
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averages and is not as highly leveraged as it was in the 1980s.not as highly leveraged as it was in the 1980s.17
Another indicator of leverage is the debt-to-income ratio (debt divided by net income, or the Another indicator of leverage is the debt-to-income ratio (debt divided by net income, or the
number of years of current income to cover debtnumber of years of current income to cover debt; Figure 5). The farm debt-to-income ratio is ). The farm debt-to-income ratio is
more variable than the debt-to-asset ratio. The decline in net farm income from 2013 to 2016 more variable than the debt-to-asset ratio. The decline in net farm income from 2013 to 2016
caused the ratio to rise to levels not seen since the 1980s, until high income from government caused the ratio to rise to levels not seen since the 1980s, until high income from government
payments in 2020 returned the ratio to near its 10-year average.
14 ERS, “Farm Income and Wealt h Statistics.”
15 ERS, “Debt Use By U.S Farm Businesses, 1992-2011,” EIB-122, April 2014, p. 3. Updated by ERS in special
tabulations for the author, March 5, 2021.
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Figure 4. Farm Debt-to-Asset Ratio
Figure 5. Farm Debt-to-Income Ratio
Source: CRS, using ERS data.
Source: CRS, using ERS data.
Notes: 2021 is forecast, as of February 5, 2021.
Notes: 2021 is forecast, as of February 5, 2021.
Figure 6. Net Farm Income and
Government Payments
payments in 2020 returned the ratio to near its 10-year average. Net farm income has become more variable, Net farm income has become more variable,
especial yespecially since 2000 since 2000 (Figure 6). Net farm . Net farm
income reached highs in 2011 and 2013 but income reached highs in 2011 and 2013 but
fel fell below the 10-year average for the next six below the 10-year average for the next six
years, through 2019. Large government years, through 2019. Large government
payments in payments in20202019-2021 raised farm income to a raised farm income to a
near high absolute level and improved near high absolute level and improved
farmersproducers’ debt-repayment capacity during the ’ debt-repayment capacity during the
pandemic. Although government payments to pandemic. Although government payments to
farmersproducers have risen from decades ago, have risen from decades ago,
however, these payments do not these payments do not alwayscompletely offset offset
income variabilityincome variability when net farm income when net farm income
fal sfalls. Since 2018, an increasing portion of net . Since 2018, an increasing portion of net
Source: CRS, using ERS data.
farm income has come from the government farm income has come from the government
Notes: 2021 is forecast, as of February 5, 2021.
in the form of trade aid payments and COVID-19in the form of trade aid payments and COVID-19 -related assistance.assistance.1618 A forecast decline in government A forecast decline in government
payments in payments in 20212022 may reduce net farm income. may reduce net farm income.
Delinquency Rates on Farm Loans
During the COVID-19 pandemic, USDA During the COVID-19 pandemic, USDAhas suspended loan accelerations (i.e., the requirement suspended loan accelerations (i.e., the requirement
for immediate repayment) and new foreclosures on farm loans. FSA also temporarily expanded for immediate repayment) and new foreclosures on farm loans. FSA also temporarily expanded
the Disaster Set-Aside (DSA) provision to the Disaster Set-Aside (DSA) provision toal owallow more payment flexibility. The DSA provision more payment flexibility. The DSA provision
al ows allows a borrower to move a loan payment to the end of the loan or, in the case of an annual a borrower to move a loan payment to the end of the loan or, in the case of an annual
operating loan, to extend the payment by a year. Interest continues to accrue on the deferred operating loan, to extend the payment by a year. Interest continues to accrue on the deferred
16 CRS In Focus IF11770, U.S. Farm Income Outlook: February 2021 Forecast.
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principal; neither the interest nor the principal is forgiven.principal; neither the interest nor the principal is forgiven.1719 About 4,000 borrowers used the DSA About 4,000 borrowers used the DSA
provision in 2020.provision in 2020.18
20 Delinquency rates include loans that are 30 days or more past due and are Delinquency rates include loans that are 30 days or more past due and arestil still accruing interest. accruing interest.
The delinquency rate on FSA direct loans is about The delinquency rate on FSA direct loans is about 54.3% (of loan portfolio value) % (of loan portfolio value) and has remained
fairly steady through the trade disruption and the pandemicat the end of FY2020, the most recent data available, and has decreased through the trade disruption and the pandemic likely as a result of higher government payments, despite FSA being a lender of last , despite FSA being a lender of last
resort. The delinquency rate on FSA guaranteed loans is lower, at about 1.resort. The delinquency rate on FSA guaranteed loans is lower, at about 1.65%, arguably reflecting %, arguably reflecting
the comparatively higher quality of these loans made by other lenders the comparatively higher quality of these loans made by other lenders (Figure 7).
A more severe measure of loan performance problems is nonperforming loans: nonaccrual loans A more severe measure of loan performance problems is nonperforming loans: nonaccrual loans
and interest-accruing loans 90 days or more past due. These loans are more in jeopardy than and interest-accruing loans 90 days or more past due. These loans are more in jeopardy than
delinquent loans and represent a delinquent loans and represent asmal ersmaller subset of loans. The nonperforming rate on farm loans at subset of loans. The nonperforming rate on farm loans at
commercial banks rose after the financial crisis in 2009 but recovered through 2016. Lower farm commercial banks rose after the financial crisis in 2009 but recovered through 2016. Lower farm
incomes incomes in recent yearsthrough 2019, along with trade disruption and the pandemic, , along with trade disruption and the pandemic, have again increased the increased the
rate of nonperforming loans, but not to the levels of a decade ago. rate of nonperforming loans, but not to the levels of a decade ago. The rate of nonperforming loans at commercial banks has recovered, decreasing through 2021 after the first year of the pandemic. AtAt FCS, nonperforming loans FCS, nonperforming loans
recovered after the 2007-2009 financial crisis and have remained steady through the period of recovered after the 2007-2009 financial crisis and have remained steady through the period of
lower farm income after 2013, owing in part to lower farm income after 2013, owing in part to government support during the trade disruption and the pandemic.
17 For more on the trade disruption, see CRS Report R45310, Farm Policy: USDA’s 2018 Trade Aid Package. 18 CRS Report R47051, U.S. Farm Income Outlook: 2021 Forecast. 19 CRS Insight IN11415, COVID-19 and USDA Farm Loan Flexibilities. 20 Based on CRS communication with the deputy administrator for Farm Loans Programs, USDA FSA, March 26, 2021.
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trade disruption and the pandemic.
Figure 7. Delinquent and Nonperforming Agricultural Loans, 2010-2022Q1
Sources: Compiled Compiled by CRS, using USDA, FSA,by CRS, using USDA, FSA, ” “Farm Loan ProgramsFarm Loan Programs Loan Servicing Data,” FY2010-FY2020; Federal Loan Servicing Data,” at
https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/progra m-data/index; Federal Reserve Reserve
Bank of Kansas City, CommercialBank of Kansas City, Commercial Bank Bank Cal Call Report Data, “Delinquent Farm LoansReport Data, “Delinquent Farm Loans”,” 2010-2021Q3; and Federal; and Federal Farm Farm
Credit Banks Funding Corporation, “Information Statements:Credit Banks Funding Corporation, “Information Statements: Nonperforming Nonperforming Assets.”Assets,” 2010-2022Q1.
Notes: FCS = Farm Credit System; FSA = USDA Farm FCS = Farm Credit System; FSA = USDA Farm Service Agency. DelinquenciesService Agency. Delinquencies include nonaccrual include nonaccrual
loans and accruing loans that are 30 days or moreloans and accruing loans that are 30 days or more past due. Nonperforming loans include nonaccrual loans past due. Nonperforming loans include nonaccrual loans
and accruing loans 90 days or moreand accruing loans 90 days or more past due. Percentages are of past due. Percentages are of the dol ar amounts of loans.
Targeting Loans Socially disadvantaged farmers or ranchers (SDFRs) were originally defined for the FSA farm loan program in 1987 as those who have been subjected to racial or ethnic prejudice (7 U.S.C. §2003).21 Congress expanded the definition for the farm loan program in 1992 to include gender.22 SDFR targets are determined at the county level based on local demographic information for the population of farmers and ranchers. The farm loan program also reserves funds for beginning farmers and ranchers for part of the fiscal year (7 U.S.C. §1994(b)(2)).
The targeting and reservation requirements combine to become a targeted funding amount for FSA loans annually. Table 2 indicates that FSA’s targeted ratios in FY2022 exceed the statutory reservation requirement for beginning farmers and ranchers, implying that some amount of the target is for socially disadvantaged borrowers. These amounts are available prospectively at the beginning of the fiscal year. Non-targeted borrowers may borrow from the non-targeted pool of funds but may face agency-level borrowing authority limits before the group of targeted borrowers.23
21 P.L. 100-233, §617 (Agricultural Credit Act of 1987); 7 U.S.C. §2003 (Target Participation Rates). For more background, see CRS Report R46727, Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief.
22 P.L. 102-554 (Agricultural Credit Improvement Act of 1992) added gender to the definition in 7 U.S.C. §2003(e). 23 See USDA-FSA, “Funding Frequently Asked Questions,” at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/funding.
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Table 2. FSA Farm Loan Program Targeted Funds, FY2022
(dollars in millions)
Overall
Reservation required
Available
Targeted
targeted
for beginning
Program
Funds
funds
rate
farmers and ranchers
Direct Operating
$2,303
$1,423
62%
50%
Direct Farm Ownership
$2,800
$2,277
81%
75%
Guaranteed Operating
$3,091
$1,263
41%
40%
Guaranteed Farm Ownership
$3,500
$1,926
55%
40%
Source: Compiled by CRS, using USDA-FSA data. Farm Loan Program Funding, at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/funding/index, accessed July 8, 2022. Notes: Targeted amounts are determined FSA and cover both beginning and socially disadvantaged producers. Statutory reservation rates for beginning farmers and ranchers are for part of the year and are shown for comparison (7 U.S.C. §1994(b)(2)); an amount is not specified in statute to be targeted to sociallydol ar amounts of loans.
17 CRS Insight IN11415, COVID-19 and USDA Farm Loan Flexibilities.
18 Based on CRS communication with the deputy administrator for Farm Loans Programs, USDA FSA, March 26,
2021.
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Issues in Agricultural Credit
Debt Forgiveness for Socially Disadvantaged Farmers
The American Rescue Plan Act of 2021 (P.L. 117-2) contains a provision (§1005) to pay social y
disadvantaged farmers 120% of their outstanding FSA direct loans, FSA guaranteed loans, and
Farm Storage Facility Loans (made by the Commodity Credit Corporation) as of January 1, 2021.
The payment is intended to retire loan balances and cover tax liabilities and fees, since debt
forgiveness is subject to income taxes. The provision uses a definition of socially disadvantaged
farmer that includes racial and ethnic minorities (7 U.S.C. §2279(a)); this definition is narrower
than the one used for targeting social y disadvantaged disadvantaged farmers or ranchers (7 U.S.C. §2003).
Figure 8 and Figure 9 show the actual lending activity by FSA in FY2021, for lending that occurred under the targeted amounts above. A majority of FSA’s direct loans (by both number and amount) were to targeted groups. Direct loans to beginning farmers and ranchers were more than double the number of loans to SDFRs and more than three times the amount of loans to SDFRs. Some producers qualify as both beginning and socially disadvantaged producers; therefore, the sum of the two categories exceeds the combined amount of targeted activity.
Figure 8. Number of FSA Targeted Loans Made to Beginning and Socially
Disadvantaged Producers, FY2021
Source: Compiled by CRS, using USDA-FSA, Farm Loan Program Data, “FY 2021 Funding Accomplishments.” Notes: Targeted loans include both socially disadvantaged and beginning producers. Because some producers may qualify in both categories, the combined number of targeted loans is less than the sum of the groups individually.
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Figure 9. Amount of FSA Targeted Loans Made to Beginning and Socially
Disadvantaged Producers, FY2021
(dollars in millions)
Source: Compiled by CRS, using USDA-FSA, Farm Loan Program Data, “FY2021 Funding Accomplishments.” Notes: Targeted loans include both socially disadvantaged and beginning farmers. Because some producers may qualify in both categories, the combined amount of targeted loans is less than the sum of the groups individually.
Over the past five years (FY2017-FY2021), the share of FSA lending to SDFRs has remained fairly steady (Table 3). The number of direct loans to SDFRs has decreased, and the share has decreased a few percentage points, but the amount of SDFR direct loans has increased. For FSA guaranteed loans, the shares of the number and amounts of loans to SDFR borrowers have increased, particularly in FY2021.
Table 3. FSA Lending to Socially Disadvantaged Farmers or Ranchers (SDFR)
Direct loans
Number of loans made
Amount ($ millions)
Year
Total
SDFR
%
Total
SDFR
%
FY2017
28,680
7,759
27%
$2,328
$454
19%
FY2018
26,157
6,805
26%
$2,258
$416
18%
FY2019
24,629
5,804
24%
$2,621
$436
17%
FY2020
25,999
5,864
23%
$3,360
$569
17%
FY2021
21,824
5,193
24%
$3,156
$582
18%
Guaranteed loans
Number of loans made
Amount ($ millions)
Year
Total
SDFR
%
Total
SDFR
%
FY2017
9,604
945
10%
$3,645
$378
10%
FY2018
8,375
849
10%
$3,205
$350
11%
FY2019
7,611
752
10%
$3,107
$353
11%
FY2020
8,966
988
11%
$4,157
$520
12%
FY2021
7,218
984
14%
$3,514
$558
16%
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Source: Compiled by CRS, using USDA-FSA, Farm Loan Program Data, “Funding Accomplishments” (various years), at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data. Notes: Includes farm operating and farm ownership loans only; excludes emergency loans.
Regularly reported FSA loan data do not identify borrower demographics within the SDFR category. However, the 2018 farm bill contained a reporting provision (§5413 of P.L. 115-334) that provided additional demographic detail. Such data are available, as of this date, for FY2019 only. Figure 10 and Figure 11 show the distribution of SDFR borrowers by race, ethnicity, and gender for direct and guaranteed loans. Because borrowers may identify in multiple categories (e.g., non-White Hispanic or Black female), the sum of the demographic records exceeds the number of SDFR borrowers. The figures show that women account for about 60% of direct loan SDFR borrowers and 45% of guaranteed loan SDFR borrowers. While women may account for some of the overlap in the SDFR category, their addition to the SDFR category for farm loans in 1992 significantly affects the SDFR representation.
Figure 10. Number of FSA Direct SDFR Loans Made by Race, Ethnicity, and Gender,
FY2019
Source: Compiled by CRS, using data from USDA-FSA, “Section 5413 Report to Congress,” as mandated by the
2018 farm bil (P.L. 115-334), September 2020; and USDA-FSA, Farm Loan Program Data, “FY2019 Funding Accomplishments.” Notes: Socially disadvantaged farmers or ranchers (SDFRs) include both categories of race (*), ethnicity (**), and gender (***). Because some producers may identify in multiple categories, the combined SDFR number is less than the sum of the individually identified groups. Indian=Native American; AK=Alaska Native; Hawaiian=Hawaiian Native, PI=Pacific Islander.
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Figure 11. Number of FSA Guaranteed SDFR Loans Made by Race, Ethnicity, and
Gender, FY2019
Source: Compiled by CRS, using data from USDA-FSA, “Section 5413 Report to Congress,” as mandated by the 2018 farm bil (P.L. 115-334), September 2020; and USDA-FSA, Farm Loan Program Data, “FY2019 Funding Accomplishments.” Notes: Socially disadvantaged farmers or ranchers (SDFRs) include both categories of race (*), ethnicity (**), and gender (***). Because some producers may identify in multiple categories, the combined SDFR number is less than the sum of the individually identified groups. Indian=Native American; AK=Alaska Native; Hawaiian=Hawaiian Native, PI=Pacific Islander.
Figure 12 and Figure 13 show the distribution by size of loan for the number and amount of all FSA direct and guaranteed loans. This is separate from the lending requirements for beginning and socially disadvantaged producers. A natural occurrence with such distributions is that a large number of small borrowers may represent a small proportion of the dollar amount of loans. The smallest category of loans in Figure 12 is the FSA microloan category (loans under $50,000). Microloans were 46% of the number of FSA direct loans made in FY2019 but were 8% of the loan volume. By contrast, the largest two categories of direct loans (loans over $500,000) were less than 2% of the number of loans but were 9% of the loan volume. Figure 13 shows similar relationships for the guaranteed loan program.
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Figure 12. Number and Amount of FSA Direct Loans Made by Size, FY2019
Source: Compiled by CRS, using data from USDA-FSA, “Section 5413 Report to Congress,” as mandated by the 2018 farm bil (P.L. 115-334), September 2020.
Figure 13. Number and Amount of FSA Guaranteed Loans by Size, FY2019
Source: Compiled by CRS, using data from USDA-FSA, “Section 5413 Report to Congress,” as mandated by the 2018 farm bil (P.L. 115-334), September 2020.
Unlike FSA, FCS has a different statutory mandate that does not limit its lending to family-sized farms that are unable to obtain credit elsewhere. The FCS is to be responsive to the needs of all types of creditworthy agricultural producers. However, FCS has a statutory requirement to serve young, beginning, and small (YBS) farmers and ranchers.24 According to the FCA, the FCS is not statutorily mandated to focus on providing financial opportunities to any other group.25 A proposed rule by the Consumer Financial Protection Bureau (CFPB) could impose a reporting requirement on lenders, including the FCS, about racial and ethnic demographics.26 The rule
24 12 U.S.C. § 2207(a). 25 Government Accountability Office (GAO), Agricultural Lending: Information on Credit and Outreach to Socially Disadvantaged Farmers and Ranchers Is Limited, GAO-19-539, July 11, 2019.
26 Consumer Financial Protection Bureau, “Small Business Lending Data Collection Under the Equal Credit Opportunity Act (Regulation B),” 86 Federal Register 56356-56606, 2021.
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would implement changes to the Equal Credit Opportunity Act made by the Dodd-Frank Act (§1071 of P.L. 111-203) to collect data on small business credit applications, including those owned by women or minorities.
YBS lending by FCS does not have a quota but has only a reporting requirement. FCA defines young farmers as those who are 35 years old or younger, beginning farmers as those who have been farming for 10 years or less, and small farms or ranches as those with gross annual sales of less than $250,000.
FCA has maintained that because the YBS mission focuses on each borrower group separately, it reports data separately for each group and does not provide a combined summary, even though there is likely significant overlap. Without a category that combines the YBS groups (like FSA combines beginning and socially disadvantaged producers), the FCS data for YBS can only be used separately. Adding the loans across categories would not be accurate.
Figure 14 shows FCS lending to YBS in 2020 compared with all FCS farm loan activity. Of nearly 371,000 FCS loans made, about 18% were to young farmers, 25% to beginning farmers, and 45% were to small farms or ranches. Since YBS loans are typically smaller than the average FCS loan, the percentages of the $120 billion of loans made were smaller than for the number of loans: about 12% of the amount of loans were to young farmers, 19% to beginning farmers, and 20% to small farmers.
Figure 14. FCS Loans Made (Number and Amount) to Young, Beginning and Small
(YBS) Producers, 2020
Source: Compiled by CRS, using FCA data, “Fact sheet on Farm Credit System young, beginning, and small (YBS) farmer lending results for 2020,” August 13, 2021.
For comparison, Figure 15 shows FSA lending activity to similar groupings of young, beginning, and small farms or ranches. Available FSA data are for FY2019, which is the only year with available farm loan data for these categories and is available for the number of loans only and not the amount. As may be expected, for a lender of first opportunity, the share of the number of FSA direct loans made to farmers who are young (50%), beginning (65%), or small (51%) was higher than for FCS. Similarly, a relatively high share of the number of FSA loan guarantees are to young (26%) and beginning (41%) farmers, facilitating their transition to commercial sources of credit, such as the FCS.
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Figure 15. FSA Loans (Number of Direct and Guaranteed) Made to YBS Producers,
FY2019
Source: Compiled by CRS, using data from USDA-FSA, “Section 5413 Report to Congress,” as mandated by the 2018 farm bil (P.L. 115-334), September 2020. Notes: na=Data by size of farm (farm sales) were not available for guaranteed loans.
Issues in Agricultural Credit
Debt Forgiveness for Socially Disadvantaged Farmers or Ranchers The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) contains a farm loan debt forgiveness provision for SDFRs, using a definition that excludes gender.27 Eligible loans included FSA direct and guaranteed loans and USDA Farm Storage Facility Loans. The payments were intended to retire loan balances, with a 20% excess payments over 100% to cover tax liabilities and bank fees associated with debt forgiveness.28 The Congressional Budget Office (CBO) initially estimated the debt forgiveness provision would cost $4 billion.29
USDA issued a Notice of Funds Availability for direct loan forgiveness in May 2021 and began to collect applications.30 However, various courts blocked implementation of the ARPA debt forgiveness program after the relief was found to be race-based and not narrowly tailored to meet a compelling state interest.31 Legal restrictions on USDA making payments have included a temporary restraining order in Wisconsin (Faust v. Vilsack), a preliminary injunction in a Florida case (Wynn v. Vilsack), and a class action suit certified and pending in Texas (Miller v. Vilsack).32
27 CRS Report R47066, Racial and Ethnic Equity in U.S. Agriculture: Selected Current Issues. 28 Federal, state, or local tax provisions may treat debt forgiveness as taxable income. Lenders may charge fees associated with early repayment of loan balances.
29 CBO, Estimated Budgetary Effects of H.R. 1319, American Rescue Plan Act of 2021, March 10, 2021, at https://www.cbo.gov/publication/57056. USDA later estimated that between 11,000 and 13,000 individuals would be eligible to receive direct loan forgiveness. See Laura Reiley, “USDA to start debt forgiveness and payouts to some 13,000 Black, Hispanic and other minority farmers in June,” Washington Post, May 21, 2021.
30 USDA, “Notice of Funds Availability; American Rescue Plan Act of 2021 Section 1005 Loan Payment (ARPA),” 86 Federal Register 28329, May 26, 2021. See also USDA, “American Rescue Plan Debt Payments” at https://www.farmers.gov/loans/american-rescue-plan.
31 CRS Legal Sidebar LSB10631, The American Rescue Plan Act: Equal Protection Challenges. 32 National Agricultural Law Center, “Judge Certifies Two Classes in Lawsuit Challenging Minority Debt Relief
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After the ARPA debt forgiveness payments were blocked, the House passed the Build Back Better Act, Title I (BBBA; H.R. 5376, §12101, 117th Congress).33 The BBBA provision would rescind and replace the ARPA provision.34 The BBBA provision is tailored to “economically distressed borrowers” instead of being based on race and ethnicity.35 The CBO estimates the BBBA plan would provide more debt relief than the ARPA provision—$11.7 billion made up of two parts:36
1. such sums as necessary, estimated to be $10.7 billion, to forgive USDA direct
loans—(a) either in full for economically distressed borrowers or, (b) for borrowers not meeting economically distressed criteria, up to $150,000 reduced by payments from the Coronavirus Food Assistance Program (CFAP) and Market Facilitation Program (MFP) from 2018 to 2020; and
2. $1 billion of loan modifications for “at-risk” borrowers, using USDA’s authority
to reduce or write-off direct or guaranteed FSA loans.37
Most SDFRs with FSA debt targeted for relief under the ARPA provision would likely remain eligible under the BBBA provision targeting economically distressed farmers.38 The proportion of debt retired may be higher for socially disadvantaged borrowers based on individual economic qualifications. In contrast, the $1 billion portion of the BBBA relief package for guaranteed loan modifications may not reduce those loans as much as the ARPA provision for guaranteed loans of SDFRs. The BBBA provision would not provide payments to cover any tax liabilities or fees from debt forgiveness. It has similarities to the debt forgiveness proposed in S. 2023 (117th Congress), the Relief for America’s Small Farmers Act, which has an eligibility limit based on adjusted gross income and would provide up to $10 billion in debt relief.
Competition Between Farm Credit System and Commercial Banks FCS is unique among the GSEs because it is a retail lender making loans directly to farmers and thus is in direct competition with commercial banks. Because of this direct competition for creditworthy borrowers, FCS and commercial banks often have an adversarial relationship in the policy realm. Commercial banks assert unfair competition from FCS for borrowers because of tax
Payments,” August 3, 2021, at https://nationalaglawcenter.org/judge-certifies-two-classes-in-lawsuit-challenging-minority-debt-relief-payments/.
33 For the text of H.R. 5376 as modified by the Committee on the Budget and passed by the House, see U.S. Congress, House Committee on Rules, Text of H.R. 5376, Build Back Better Act, committee print, 117th Cong., 1st sess., November 3, 2021, CP-117-18.
34 For more background, see CRS In Focus IF11988, Build Back Better Act: Agriculture and Forestry Provisions. 35 Economically distressed borrowers is defined in the Build Back Better Act (BBBA) by several factors, including being 90 days delinquent, owing more interest than principal, undergoing bankruptcy or foreclosure, receiving a farm loan program disaster set-aside during the COVID-19 pandemic (see CRS Insight IN11415, COVID-19 and USDA Farm Loan Flexibilities), engaging in certain debt restructuring, or farming in zip codes or counties with more than 20% poverty or on land held by an Indian tribe or Indian.
36 CBO, “Estimated Budgetary Effects of Title I, Committee on Agriculture, H.R. 5376, the Build Back Better Act As Posted on the Website of the House Committee on Rules on November 3, 2021 (Rules Committee Print 117-18),” November 15, 2021, at https://www.cbo.gov/publication/57618.
37 At-risk borrowers is defined in BBBA to be at the Secretary of Agriculture’s discretion, using factors such as whether a borrower is a limited resource farmer (e.g., low income or low wealth) and the amount (or, in some cases, the absence) of payments received by the borrower under CFAP.
38 The CBO score of $10.7 billion of debt forgiveness for FSA direct loans implies that more than 75% of the $13.6 billion FSA direct loan portfolio may be retired. See FSA, “Direct Loan Executive Summary,” at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data.
Congressional Research Service
15
Agricultural Credit: Institutions and Issues
advantages that can lower the relative cost of funds for FCS.39 Commercial banks often call for increased congressional oversight. FCS counters by citing its statutory mandate (and limitations) to serve agricultural borrowers in good times and in bad times.40
In contrast, FSA’s loan programs are supported by both FCS and commercial banks. FSA is not regarded as a competitor, since it serves farmers who otherwise may not be able to obtain credit. Commercial banks and FCS particularly support the FSA loan guarantee program, because it allows them to make and service loans that otherwise might not be possible (or to do so at a reduced level of risk).
Author Information
Jim Monke
Specialist in Agricultural Policy farmers in the farm loan programs, which
also includes gender (7 U.S.C. §2003).
The Congressional Budget Office estimates the debt forgiveness provision wil cost $4 bil ion.
A 2019 Government Accountability Office (GAO) report, which was mandated by the 2018 farm
bil (P.L. 115-334, §5416), observed that despite specific preferences, social y disadvantaged
farmers and ranchers had proportionately fewer FSA direct and guaranteed loans than non-
social y disadvantaged producers. GAO found that social y disadvantaged farmers and ranchers
face difficulties in obtaining farm loans and highlighted the historic, systemic discrimination
against such farmers.19
Data that describe annual FSA lending to social y disadvantaged borrowers do not reflect the
impact of the debt relief provision for racial minorities, since gender is included in the loan
program data.20 Agricultural Census data indicate that White women comprise a majority of this
social y disadvantaged category.21
Competition Between Farm Credit System and Commercial Banks
FCS is unique among the GSEs because it is a retail lender making loans directly to farmers and
thus is in direct competition with commercial banks. Because of this direct competition for
creditworthy borrowers, FCS and commercial banks often have an adversarial relationship in the
policy realm. Commercial banks assert unfair competition from FCS for borrowers because of tax
advantages that can lower the relative cost of funds for FCS.22 Commercial banks often cal for
increased congressional oversight. FCS counters by citing its statutory mandate (and limitations)
to serve agricultural borrowers in good times and in bad times.23
In contrast, FSA’s loan programs are supported by both FCS and commercial banks. FSA is not
regarded as a competitor, since it serves farmers who otherwise may not be able to obtain credit.
Commercial banks and FCS particularly support the FSA loan guarantee program, because it
19 Government Accountability Office (GAO), Agricultural Lending: Information on Credit and Outreach to Socially
Disadvantaged Farm ers and Ranchers Is Lim ited, GAO-19-539, July 11, 2019. Hereinafter, GAO-19-539.
20 FSA, “Program Data,” at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data.
21 “T able 1. Producers Identified as Socially Disadvantaged Farmers and Ranchers (SDFR), 2017,” in GAO -19-539, p.
6.
22 For example, letter from the American Bankers Association to the House and Senate Agriculture Committees,
February 2, 2015.
23 For example, letter from the Farm Credit Council to the House and Senate Agriculture Committees, February 5,
2015.
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link to page 12 link to page 12 link to page 12 link to page 12 Agricultural Credit: Institutions and Issues
al ows them to make and service loans that otherwise might not be possible (or to do so at a
reduced level of risk).
Term Limits on USDA Farm Loans
Congress added term limits to the USDA farm loan program in 1992 and 1996 to restrict
eligibility for government farm loans and to encourage farmers to “graduate” to commercial
loans. The term limits place a maximum number of years that farmers are eligible for certain
types of FSA loans or guarantees. However, until the end of 2010, Congress had suspended
enforcement of term limits on guaranteed operating loans to prevent some farmers from being
denied credit. The 2014 farm bil (P.L. 113-79) eliminated the term limit on guaranteed operating
loans (Table 1).
Table 1. Term Limits on Farm Service Agency (FSA) Loans
(maximum number of years that farmers are eligible for loans)
Guaranteed Loans Term
Type of FSA Loan
Direct Loans Term Limits
Limits
Farm Operating Loans
6 years, plus possible 2-year extensiona
No term limitb
Farm Ownership Loans
10 yearsc
No term limit
Source: CRS, based on statute and unpublished USDA data.
Notes: Term limits are different from the maximum maturity or duration of an individual loan, which may be as
long as 40 years for a farm ownership loan or as short as 1 year for a farm operating loan.
a. Direct operating loans are limited to a six-year period. In certain cases, borrowers may qualify for a one-
time, two-year extension (7 U.S.C. 1941(c)(1)(C) and (c)(4)).
b. The 2014 farm bil (P.L. 113-79) permanently removed this term limit. Guaranteed operating loans had been
limited to a 15-year period, though enforcement was suspended by statute through 2010.
c. A borrower is eligible to receive new direct farm ownership (real estate) loans for a maximum of 10 years
after the first loan is made (7 U.S.C. 1922(b)(1)(C)). The repayment term may exceed the term limit.
Author Information
Jim Monke
Specialist in Agricultural Policy
Congressional Research Service
8
Agricultural Credit: Institutions and Issues
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report shouldn otnot be relied upon for purposes other be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.
39 For example, letter from the American Bankers Association to the House and Senate Agriculture Committees, February 2, 2015. 40 For example, letter from the Farm Credit Council to the House and Senate Agriculture Committees, February 5, 2015. Congressional Research Service Congressional Research Service
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16
A variety of lenders A variety of lenders, from the federal government to commercial banks from the federal government to commercial banks, make loans to farmers make loans to farmers and ranchers.
The federal government provides credit assistance to farmers The federal government provides credit assistance to farmers
Jim Monke
cannot obtain loans elsewhere, and helps assure credit availability across rural areas. At and helps assure credit availability across rural areas. At Specialist in Agricultural Congress’s direction, federal farm loan Congress’s direction, federal farm loan
Description of Lenders
The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) is a small but The U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) is a small but
important lender for family-sized farms that do not qualify for credit elsewhere. FSA also guarantees payments on some important lender for family-sized farms that do not qualify for credit elsewhere. FSA also guarantees payments on some
loans made by other lenders. At the end of loans made by other lenders. At the end of
and loan guarantees of $and loan guarantees of $
market share of 3% of loans and loan guarantees that covered about another market share of 3% of loans and loan guarantees that covered about another
appropriations support $appropriations support $
The Farm Credit System (FCS) has the next-largest The Farm Credit System (FCS) has the next-largest
federal charter and a statutory mandate to serve creditworthy farmersfederal charter and a statutory mandate to serve creditworthy farmers and ranchers, certain agribusinesses, cooperatives, and rural , certain agribusinesses, cooperatives, and rural
homeowners in towns with less than 2,500 population. At the end of homeowners in towns with less than 2,500 population. At the end of
including over $including over $
advantages and lower costs of funds. Capital is raised through the sale of bonds on Wall Street. Four large banks allocate advantages and lower costs of funds. Capital is raised through the sale of bonds on Wall Street. Four large banks allocate
funds to 67 regional credit associations that, in turn, make loans to eligible creditworthy borrowers. funds to 67 regional credit associations that, in turn, make loans to eligible creditworthy borrowers.
Another GSE for farm loans is Farmer Mac, a privately held secondary market. Farmer Mac purchases agricultural mortgages Another GSE for farm loans is Farmer Mac, a privately held secondary market. Farmer Mac purchases agricultural mortgages
and issues guarantees on mortgage-backed securities that are bought by investors. Other agricultural lenders without and issues guarantees on mortgage-backed securities that are bought by investors. Other agricultural lenders without
government support or mandates include commercial banks (government support or mandates include commercial banks (
Farm Sector Balance Sheet
The farm sector’s balance sheet has remained strong in recent years. The farm sector’s balance sheet has remained strong in recent years.
(debts divided by assets(debts divided by assets
guaranteed loans have remained fairly steady in recent years through guaranteed loans have remained fairly steady in recent years through
About 30% of all U.S. farms have farm debt. About 30% of all U.S. farms have farm debt.
government in the form of trade aid payments and COVID-government in the form of trade aid payments and COVID-
Issues in Agricultural Credit
A 2019 Government Accountability Office report found A 2019 Government Accountability Office report found
that socially disadvantaged farmers that socially disadvantaged farmers or ranchers (SDFRs) had proportionately had proportionately
fewer FSA direct and guaranteed loans than other farmers, fewer FSA direct and guaranteed loans than other farmers,
and that socially disadvantaged farmers continued to face and that socially disadvantaged farmers continued to face
difficulties because of historic, systemic discrimination. Data for FY2021 show that a majority of the number and amount of FSA direct loans were to beginning and socially disadvantaged producers. Direct loans to beginning farmers were more than double the number of loans to SDFRs and more than three times the amount of loans to SDFRs. The American Rescue Plan Act of 2021 (ARPA; P.L. 117-2) contained a debt forgiveness provision for SDFRs on FSA direct and guaranteed loans. Courts blocked implementation of the ARPA provision after the relief was found to be race-based and not narrowly tailored to meet a compelling state interest. The House-passed Build Back Better Act (H.R. 5376, 117th Congress) would rescind and replace the ARPA provision and is tailored to economically distressed borrowers. The BBBA plan would provide more debt relief than the ARPA provision. Competition between FCS and commercial banks remains an issue in agricultural lending. FCS is unique among the GSEs Competition between FCS and commercial banks remains an issue in agricultural lending. FCS is unique among the GSEs
because it is a retail lender making loans directly to farmers and thus is in direct competition with commercial banks. because it is a retail lender making loans directly to farmers and thus is in direct competition with commercial banks.
Because of this direct competition for creditworthy borrowers, FCS and commercial banks often have an adversarial Because of this direct competition for creditworthy borrowers, FCS and commercial banks often have an adversarial
relationship in the policy realm. Commercial banks relationship in the policy realm. Commercial banks
program and do not see FSA as a competitor because FSAprogram and do not see FSA as a competitor because FSA
possible at acceptable risk levels. possible at acceptable risk levels.
Congressional Research Service Congressional Research Service
link to page 5 link to page 5 link to page 6 link to page link to page 5 link to page 5 link to page 6 link to page
Contents
Description of Government-Related Farm Lenders ........................................................................ 1
USDA Farm Service Agency .................................................................................................... 1
Farmer Mac ............................................................................................................................... 3
Current Situation ............................................................................................................................. 3
Market Shares of Farm Debt ..................................................................................................... 3
Delinquency Rates on Farm Loans ........................................................................................... 6 Targeting Loans ........................
Figures
Figure 1. Market Shares by Lender of Total Farm Debt,
Figure 2. Farm Assets ...................................................................................................................... 5
Figure 3. Farm Debt ........................................................................................................................ 5
Figure 4. Farm Debt-to-Asset Ratio ................................................................................................ 5
Figure 5. Farm Debt-to-Income Ratio ............................................................................................. 5
Figure 6. Net Farm Income and Government Payments ................................................................. 5
Figure 7. Delinquent and Nonperforming Agricultural Loans
, 2010-2022Q1 ................................ 7 Figure 8. Number of FSA Targeted Loans Made to Beginning and Socially Disadvantaged Producers, FY2021 .............................................................................................. 8 Figure 9. Amount of FSA Targeted Loans Made to Beginning and Socially Disadvantaged Producers, FY2021 ....................................................................................................................... 9 Figure 10. Number of FSA Direct SDFR Loans Made by Race, Ethnicity, and Gender, FY2019 ....................................................................................................................................... 10 Figure 11. Number of FSA Guaranteed SDFR Loans Made by Race, Ethnicity, and Gender, FY2019 .......................................................................................................................... 11 Figure 12. Number and Amount of FSA Direct Loans Made by Size, FY2019 ............................ 12 Figure 13. Number and Amount of FSA Guaranteed Loans by Size, FY2019 ............................. 12 Figure 14. FCS Loans Made (Number and Amount) to Young, Beginning and Small (YBS) Producers, 2020 .............................................................................................................. 13 Figure 15. FSA Loans (Number of Direct and Guaranteed) Made to YBS Producers, FY2019 ....................................................................................................................................... 14 Tables Table 1. Term Limits on Farm Service Agency (FSA) Loans ......................................................... 2 Table 2. FSA Farm Loan Program Targeted Funds, FY2022 .......................................................... 8 Table 3. FSA Lending to Socially Disadvantaged Farmers or Ranchers (SDFR) ........................... 9 Congressional Research Service link to page 20 Agricultural Credit: Institutions and Issues Contacts Author Information ........................................................................................................................ 16 Congressional Research Service Agricultural Credit: Institutions and Issues
Description of Government-Related Farm Lenders
The federal government has a long history of assisting farmers with obtaining loans for farming. The federal government has a long history of assisting farmers with obtaining loans for farming.
This intervention has been justified at one time or another by many factors, including the This intervention has been justified at one time or another by many factors, including the
competition in some rural areas, insufficient lending resources, and the desire for targeted lending competition in some rural areas, insufficient lending resources, and the desire for targeted lending
to disadvantaged groups (such as to disadvantaged groups (such as
Several types of lenders make loans to farmers. Some are government entities or have a statutory Several types of lenders make loans to farmers. Some are government entities or have a statutory
mandate to serve agriculture. The one most closely controlled by the federal government is the mandate to serve agriculture. The one most closely controlled by the federal government is the
Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA). FSA receives federal Farm Service Agency (FSA) in the U.S. Department of Agriculture (USDA). FSA receives federal
appropriations to make direct loans to farmers and to issue guarantees on loans made by other appropriations to make direct loans to farmers and to issue guarantees on loans made by other
The lender with the next-largest amount of government intervention is Farm Credit System The lender with the next-largest amount of government intervention is Farm Credit System
(FCS). It is a private, government-sponsored enterprise (GSE) with a federal charter and a (FCS). It is a private, government-sponsored enterprise (GSE) with a federal charter and a
farmers and is not a lender of last resort. Third is Farmer Mac, another privately held GSE, which farmers and is not a lender of last resort. Third is Farmer Mac, another privately held GSE, which
Other lenders do not have direct government involvement in their funding or existence. These Other lenders do not have direct government involvement in their funding or existence. These
USDA Farm Service Agency
FSA is considered a FSA is considered a lender of last resort because it makes direct farm ownership and operating because it makes direct farm ownership and operating
loans to family-sized farms that are unable to obtain credit elsewhere. FSA also guarantees timely loans to family-sized farms that are unable to obtain credit elsewhere. FSA also guarantees timely
payment of principal and interest on qualifiedpayment of principal and interest on qualified
end end of FY2020
guarantees of $guarantees of $
4% of the market. Although FSA has a relatively small share of the market compared with other lenders, it is an important lender for certain segments of the agricultural industry. Part of the FSA loan program is 1 Asymmetric information is a type of market failure that arises when parties have different insights about a transaction. 1 Asymmetric information is a type of market failure that arises when parties have different insights about a transaction.
2 Charles Moss, 2 Charles Moss, Agricultural Finance (New (New
3 A government-sponsored enterprise (GSE) is3 A government-sponsored enterprise (GSE) is
as tax exemption, implicit federal guarantees, or risk management tools) that overcome barriers to private markets in as tax exemption, implicit federal guarantees, or risk management tools) that overcome barriers to private markets in
achieving a stated goal. For the Farm Credit System (FCS),achieving a stated goal. For the Farm Credit System (FCS),
businessesbusinesses
Mae), FederalMae), Federal
AgriculturalAgricultural
4 A secondary market purchases qualified4 A secondary market purchases qualified
securities or hold them in its own portfolio. securities or hold them in its own portfolio.
and satisfy regulatory requirements. and satisfy regulatory requirements.
5 U.S. 5 U.S.
at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data. at https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/program-data.
limitedlimited
loans. Guaranteed loans may be up to $1.loans. Guaranteed loans may be up to $1.
loans up to $500,000 are available for disasters if loans up to $500,000 are available for disasters if
Farm Credit System
Congress established FCS in 1916 to provide a dependable and affordable source of credit to rural Congress established FCS in 1916 to provide a dependable and affordable source of credit to rural
areas at a time when commercial lenders avoided farm loans. FCS is not a government agency, areas at a time when commercial lenders avoided farm loans. FCS is not a government agency,
nor is it guaranteed by the U.S. government; it is a network of borrower-owned lending nor is it guaranteed by the U.S. government; it is a network of borrower-owned lending
statutory mandate to serve agriculture. Funds are raised through the sale of bonds on statutory mandate to serve agriculture. Funds are raised through the sale of bonds on
Statutes and oversight by the House and Senate Agriculture Committees determine the scope of Statutes and oversight by the House and Senate Agriculture Committees determine the scope of
FCS activity (Farm Credit Act of 1971, as amended; 12 U.S.C. 2001 et seq.). Benefits such as tax FCS activity (Farm Credit Act of 1971, as amended; 12 U.S.C. 2001 et seq.). Benefits such as tax
exemptions for FCS lenders and bondholders also are provided. Loan eligibilityexemptions for FCS lenders and bondholders also are provided. Loan eligibility
farmersfarmers and ranchers, certain farm-related agribusinesses, rural homeowners in towns with a population of , certain farm-related agribusinesses, rural homeowners in towns with a population of
At the end of At the end of
Farmer Mac
Farmer Mac is a GSE that is a secondary market for agricultural loans. Some consider Farmer Farmer Mac is a GSE that is a secondary market for agricultural loans. Some consider Farmer
Mac to be related to FCS because FCA regulates both Farmer Mac and FCS, and both were Mac to be related to FCS because FCA regulates both Farmer Mac and FCS, and both were
created by the same legislation; however, Farmer Mac is created by the same legislation; however, Farmer Mac is
separate entity from FCS. Farmer Mac purchases mortgages from lenders and guarantees separate entity from FCS. Farmer Mac purchases mortgages from lenders and guarantees
mortgage-backed securities that are bought by investors.12 Current Situation
Market Shares of Farm Debt
Figure 1 shows that, based on USDA data for shows that, based on USDA data for
the farm credit (the farm credit (
insurance companies (4%).13 FSA provides about 3% of farm debt through direct loans. FSA also insurance companies (4%).13 FSA provides about 3% of farm debt through direct loans. FSA also
The total amount of farm debt ($ The total amount of farm debt ($
other lenders’ shares have decreased. other lenders’ shares have decreased. FSA holds a much smaller share of farm debt today than it held during the 1980s farm financial crisis. Commercial banks held relatively littleCommercial banks held relatively little
through 1985 but now hold a sizeable amount, which has increased their share of total farm debt. through 1985 but now hold a sizeable amount, which has increased their share of total farm debt.
Recently, the share of farm debt held by FCS has increased relative to commercial banks. The share of loans from “individuals and others” The share of loans from “individuals and others”
Figure 1. Market Shares by Lender of Total Farm Debt,
Source:
of Agricultureof Agriculture
Notes: Percentages on the right are for Percentages on the right are for
direct loans. Guarantees are not showndirect loans. Guarantees are not shown
the shares of commercialthe shares of commercial
The Farm Balance Sheet
As a whole, farm assets have remained strong and grown steadily since the end of the 1980s, As a whole, farm assets have remained strong and grown steadily since the end of the 1980s,
totaled totaled nearly $3.3 trillion
inflation-adjusted terms. Real estate accounted for about 82% of total farm assets in 2020; inflation-adjusted terms. Real estate accounted for about 82% of total farm assets in 2020;
machinery and vehicles were the next-largest category, at about 9% of the total.machinery and vehicles were the next-largest category, at about 9% of the total.
Farm debt reached a historic high of $ Farm debt reached a historic high of $
U.S. farms have farm debt.U.S. farms have farm debt.
inflation-adjusted terms, this forecast debt is approaching, but remains inflation-adjusted terms, this forecast debt is approaching, but remains 1.2% below, the peak level below, the peak level of
farm debt in the 1980s. 14 Brady Brewer, Jennifer Ifft, and Nigel Key, “Guest editorial: Nontraditional Credit in U.S. Agriculture,” Agricultural Finance Review, vol. 82, no. 2 (March 2022), pp. 205-213. 15 ERS, “Farm Income and Wealth Statistics.” 16 ERS, “Debt Use by U.S. Farm Businesses, 1992-2011,” EIB-122, April 2014, p. 3. Updated by ERS in special tabulations for the author, March 5, 2021. Congressional Research Service 4 link to page 9 Agricultural Credit: Institutions and Issues Figure 2. Farm Assets
Figure 3. Farm Debt
Source: CRS, using ERS data. CRS, using ERS data.
Source: CRS, using ERS data. CRS, using ERS data.
Notes:
Notes:
Financial risk to a sector is indicated when the debt-to-asset ratio (debts divided by assets) is Financial risk to a sector is indicated when the debt-to-asset ratio (debts divided by assets) is
high. Farm debt-to-asset ratio levels have declined fairly steadily since the farm crisis of the high. Farm debt-to-asset ratio levels have declined fairly steadily since the farm crisis of the
1980s 1980s (Figure 4). When farm asset growth paused in 2009-2010, the debt-to-asset ratio rose ). When farm asset growth paused in 2009-2010, the debt-to-asset ratio rose
before returning to a historic low in 2012. The debt-to-asset ratio has been slowly rising due to before returning to a historic low in 2012. The debt-to-asset ratio has been slowly rising due to
lower farm incomes, trade disruption, and the COVID-19 pandemic, although lower farm incomes, trade disruption, and the COVID-19 pandemic, although
Another indicator of leverage is the debt-to-income ratio (debt divided by net income, or the Another indicator of leverage is the debt-to-income ratio (debt divided by net income, or the
more variable than the debt-to-asset ratio. The decline in net farm income from 2013 to 2016 more variable than the debt-to-asset ratio. The decline in net farm income from 2013 to 2016
caused the ratio to rise to levels not seen since the 1980s, until high income from government caused the ratio to rise to levels not seen since the 1980s, until high income from government
payments in 2020 returned the ratio to near its 10-year average. Net farm income has become more variable, Net farm income has become more variable,
income reached highs in 2011 and 2013 but income reached highs in 2011 and 2013 but
payments in payments in
near high absolute level and improved near high absolute level and improved
pandemic. Although government payments to pandemic. Although government payments to
income variabilityincome variability
Delinquency Rates on Farm Loans
During the COVID-19 pandemic, USDA During the COVID-19 pandemic, USDA
for immediate repayment) and new foreclosures on farm loans. FSA also temporarily expanded for immediate repayment) and new foreclosures on farm loans. FSA also temporarily expanded
the Disaster Set-Aside (DSA) provision to the Disaster Set-Aside (DSA) provision to
operating loan, to extend the payment by a year. Interest continues to accrue on the deferred operating loan, to extend the payment by a year. Interest continues to accrue on the deferred
20 Delinquency rates include loans that are 30 days or more past due and are Delinquency rates include loans that are 30 days or more past due and are
resort. The delinquency rate on FSA guaranteed loans is lower, at about 1.resort. The delinquency rate on FSA guaranteed loans is lower, at about 1.
A more severe measure of loan performance problems is nonperforming loans: nonaccrual loans A more severe measure of loan performance problems is nonperforming loans: nonaccrual loans
and interest-accruing loans 90 days or more past due. These loans are more in jeopardy than and interest-accruing loans 90 days or more past due. These loans are more in jeopardy than
delinquent loans and represent a delinquent loans and represent a
commercial banks rose after the financial crisis in 2009 but recovered through 2016. Lower farm commercial banks rose after the financial crisis in 2009 but recovered through 2016. Lower farm
rate of nonperforming loans, but not to the levels of a decade ago. rate of nonperforming loans, but not to the levels of a decade ago. The rate of nonperforming loans at commercial banks has recovered, decreasing through 2021 after the first year of the pandemic. At
recovered after the 2007-2009 financial crisis and have remained steady through the period of recovered after the 2007-2009 financial crisis and have remained steady through the period of
Figure 7. Delinquent and Nonperforming Agricultural Loans, 2010-2022Q1
Sources:
Bank of Kansas City, CommercialBank of Kansas City, Commercial
Credit Banks Funding Corporation, “Information Statements:Credit Banks Funding Corporation, “Information Statements:
Notes: FCS = Farm Credit System; FSA = USDA Farm FCS = Farm Credit System; FSA = USDA Farm
loans and accruing loans that are 30 days or moreloans and accruing loans that are 30 days or more
and accruing loans 90 days or moreand accruing loans 90 days or more
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should under the direction of Congress. Information in a CRS Report should
than public understanding of information that has been provided by CRS to Members of Congress in than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material. copy or otherwise use copyrighted material.
39 For example, letter from the American Bankers Association to the House and Senate Agriculture Committees, February 2, 2015. 40 For example, letter from the Farm Credit Council to the House and Senate Agriculture Committees, February 5, 2015. Congressional Research Service Congressional Research Service
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