Farm Credit Bailout; Saving the System, Not the Farmers

By Schwab, Jim | The Nation, January 18, 1986 | Go to article overview

Farm Credit Bailout; Saving the System, Not the Farmers


Schwab, Jim, The Nation


FARM CREDIT BAILOUT

Saving the System, Not the Farmers

The new farm bill that President Reagan signed on December 23 seeks to reduce farm prices in an effort to make U.S. products more competitive overseas. According to the Food and Agriculture Policy Research Institute in Missouri, however, the law will reduce farm income by 23 percent. The result, says Gary Lamb, an aide to Iowas Senator Tom Harkin, is a "growing sense of desperation among farmers.'

The Farm Credit System bailout bill that Reagan signed the same day will also do little to still the growing insurgency against the system's lending and foreclosure policies, and its plans to centralize its local associations. Many farmers feel the system has been more interested in saving itself than in helping them, and the bailout does nothing to dispel this impression. The new law provides scant direct aid to strapped farmers and only a modest borrowers' bill of rights, including the right of a farmer to examine his own loan file. The law also provides a Federal charter for the Farm Credit System Capital Corporation, which will buy up delinquent loans held by member banks in the system. For the first time the system is given a line of credit to the Treasury Department, which can grant additional funds at the discretion of Secretary James Baker. The end result is to put a Congressional stamp of approval on the consolidation moves that have been bitterly criticized by farmers who fear the remaining vestiges of local control will be wiped out.

Despite a decline from its peak $82 billion loan portfolio of 1983, the Farm Credit System is still by far the nation's leading agricultural lender, providing over one-third of all real estate and operating credit for farmers and their marketing and production cooperatives. It raises funds by selling bonds on Wall Street, and its members acquire "stock' by leaving a percentage of their loans on deposit. Each stockholder gets one vote in his local association. Local Production Credit and Federal Land Bank associations are represented on the boards of the twelve districts. Those boards each govern three regional subsidiaries--the Banks for Cooperatives, as well as the Federal Land Banks and the Federal Intermediate Credit Banks, which oversee the Production Credit Associations (P.C.A.).

Long before Congress passed the Farm Credit System bailout law, the system was moving to curtail the local autonomy enjoyed by the Production Credit and Land Bank associations. A report called Phase III-Project 1995, which was leaked a year ago, alerted members to this plan. "They are seizing an opportunity when farmers generally are in great trouble to centralize the system,' complained Luman Holman, executive director of Grassroots, an independent group of nationwide stockholders.

The report envisioned the formation of a central bank that would expand the system's services to include insurance, brokerage and related businesses not authorized in the Farm Credit System's Congressional charter. More significant, the report called for a reorientation toward serving larger farmers. "Votes according to [loan] volume, rather than membership, may be critical,' it said. In other words, the principle that each stockholder would have an equal vote would be abandoned in favor of voting according to the number of shares, as in a private corporation. "The system can no longer afford the luxury of a slow, methodical decision-making process that involves grass-roots input to the extent utilized in the past,' the report said. "The system needs national leadership that is accountable and positioned to move swiftly and take decisive action within appropriate checks and balances.' Accountable to whom? disgruntled farmers are asking.

Under the bailout bill, a national farm credit bank company will buy up nonperforming loans (those not being paid off), using cash advanced by other system banks, and by the U. …

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