Magazine article American Banker

Agricultural Lenders Support Crop Insurance Reform Proposal

Magazine article American Banker

Agricultural Lenders Support Crop Insurance Reform Proposal

Article excerpt

WASHINGTON -- Agricultural lenders may be able to breathe easier when making loans to farmers if Congress adopts the Clinton Administration's crop insurance reform proposal.

The proposed Federal Crop Insurance Reform Act of 1994 would combine crop insurance and disaster funds and make government crop subsidies contingent upon a grower carrying the basic, low-priced, federally provided protection.

The bill, sponsored in the House by the chairman of the Agriculture Committee, E. "Kika" de la Garza, D-Tex., has not aroused opposition in the House, according to industry lobbyists, and has a better than even chance of passing.

Hearing Likely in Senate

Similar legislation has not yet emerged in the Senate, but legislation backed by the administration is usually assured of at least a hearing.

"It's a top priority for us," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "We left behind briefing papers on the Hill when our members were here for our spring meetings."

Many agricultural lenders would rather rely on crop insurance than the uncertainty of disaster aid to protect the collateral on their operating loans, according to James Hart, president and chief executive of Hand County State Bank, a community bank in Miller, S.D.

"To put it very simply, we would rather lend on a contract than a promise," Mr. Hart testified before the House Agriculture Committee's environment, credit, and rural development subcommittee last week.

'Reliable Backstop'

"A crop insurance policy is an effective and reliable backstop for ag loans; ad hoc disaster payments, which may or may not be there when needed, are not," he said.

In his testimony, Mr. Hart stressed the importance of ending such disaster payments, saying that removing them will create an incentive for farmers to "self-protect" by purchasing insurance and in turn encouraging lenders to do business even with small or marginal operations. …

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