The Farm Credit System (FCS) is a nationwide network of cooperatively owned banks and associations in the United States. The system provides credit and financial services to farmers, ranchers, agricultural cooperatives, rural homeowners, and other agribusinesses in the United States. It’s function is to provide a source of credit for American agriculture by making loans to qualified borrowers at competitive rates and providing insurance and related services.
The Farm Credit System is a government sponsored entity, also known as a GSE, and the system plays a crucial role in supporting the agricultural sector by providing access to affordable credit and financial services, promoting rural development, and ensuring the stability of rural economies.
Structure of the Farm Credit System
- Farm Credit Banks
- Bank for Cooperatives
- Farm Credit System Districts
- Agricultural Credit Associations
- Federal Farm Credit Banks Funding Corporation
- Federal Agricultural Mortgage Corporation
History of the Farm Credit System
- Origins and Early Challenges
- Establishment of the Farm Credit System
- Expansion and Evolution
- Modernization and Regulatory Changes
- Continued Adaptation and Challenges
As of 2023, the Farm Credit System provided loans and credit to approximately 600,000 clients in the United States. The entire system had approximately 1 million loans totaling over $400 billion in total loan volume.
Structure of the Farm Credit System
The Farm Credit System was chartered by the United States Congress with the Federal Farm Loan Act in 1916 by Congress. Several legislative updates since then have helped shaped the overall structure of the system.
The Farm Credit System is overseen by the Farm Credit Administration (FCA), which is a federal government agency . Additionally, the Farm Credit System Insurance Corporation (FCSIC) ensures the prompt repayment of principal and interest on debt securities issued by the Farm Credit System.
Within the Farm Credit System, there are four primary institutions:
- AgFirst Farm Credit Bank
- AgriBank
- Farm Credit Bank of Texas
- CoBank
AgFirst, AgriBank and Farm Credit Bank of Texas are Farm Credit Banks, whereas CoBank is a Bank for Cooperatives.
Each of these institutions are chartered to provide funding to specific regions of the country:
Farm Credit Banks
Farm Credit Banks (FCBs) form an essential part of the cooperative structure within the FCS. They specialize in providing funding to other FCS institutions, such as agricultural credit associations (ACAs) and production credit associations (PCAs), as well as certain agricultural cooperatives.
FCBs primarily focus on offering wholesale financing and liquidity support to the FCS network, rather than engaging in direct lending to farmers or rural homeowners. Their funding is sourced through the issuance of Farm Credit Systemwide debt securities in the capital markets, backed by the collective strength of the FCS.
Farm Credit Banks may also provide services, operational support and information technology services to the individual Agricultural Credit Associations (see below).
Banks for Cooperatives
On the other hand, Banks for Cooperatives, exemplified by CoBank, operate as cooperative banks within the Farm Credit System. CoBank predominantly serves agricultural cooperatives, rural utilities, and other agribusinesses. Unlike FCBs, CoBank functions as a direct lender, offering a range of financial products and services, including loans, leases, and financial solutions, directly to its cooperative customers. Its primary focus lies in providing retail financing and banking services to agricultural cooperatives and related businesses, aiming to support their operational and capital needs. Additionally, CoBank participates in syndicated loans and provides capital market services to its customers.
In essence, while both Farm Credit Banks and Banks for Cooperatives are integral components of the Farm Credit System, they fulfill distinct roles within the agricultural finance landscape. Farm Credit Banks primarily serve as wholesale financiers to FCS institutions, while Banks for Cooperatives specialize in retail banking services tailored to agricultural cooperatives and related businesses.
Farm Credit System Districts
AgFirst Farm Credit Bank (yellow), headquartered in Columbia, South Carolina, oversees a district ranging across the East Coast from Pennsylvania through the Louisiana, and also provides funding and services for Puerto Rico. Note that part of the AgFirst district is shared with Farm Credit Bank of Texas.
AgriBank (green), headquartered in Minneapolis, Minnesota, provides funding to associations throughout the Midwest and Central United States.
Farm Credit Bank of Texas (FCBT) (red), headquartered in Austin, Texas, provides funding and services for associations in the southern United States from Alabama to New Mexico. Part of the FCBT district is shared with AgFirst Farm Credit Bank and CoBank.
CoBank (blue), headquartered in Denver, Colorado, is the largest of the agriculture financial institutions. CoBank’s territory covers the western United States and portion of the northeast, as well as Alaska and Hawaii.
Within each of these territories are several individual smaller banks that offer direct financing to farmers, ranchers and agribusiness operations.
Agricultural Credit Associations (ACAs)
An Agricultural Credit Association (ACA) is a key component of the Farm Credit System (FCS) in the United States. ACAs may also be known in shorthand as an “association” for brevity.
ACAs are financial institutions that provide direct credit and financial services to farmers, ranchers, agricultural cooperatives, rural homeowners, and other agribusinesses. These associations offer a wide range of credit products, including short-, intermediate-, and long-term loans, to meet the diverse financial needs of their customers.
ACAs obtain funds from Federal Intermediate Credit Banks (FICBs) or Agricultural Credit Banks (ACBs) within the Farm Credit System. These funds are then used to provide financing for various agricultural purposes, such as operating expenses, equipment purchases, land acquisition, livestock, and other production-related needs. Additionally, ACAs may extend credit for basic processing and marketing activities, as well as for farm-related businesses.
One distinctive feature of ACAs is their parent-subsidiary structure. Typically, ACAs operate as the parent entity, with wholly owned subsidiaries such as Production Credit Associations (PCAs) and Federal Land Credit Associations (FLCAs). This structure allows ACAs to provide comprehensive financial services to agricultural producers and rural communities while maintaining operational efficiency and regulatory compliance.
Federal Farm Credit Banks Funding Corporation
The Federal Farm Credit Banks Funding Corporation (FFCBFC) serves as the centralized funding entity for the Farm Credit System (FCS) in the United States. Federal Farm Credit Banks Funding Corporation plays a vital role in supporting the mission and operations of the Farm Credit System by providing access to affordable funding and promoting the financial stability of the agricultural sector in the United States.
Its primary function is to raise funds on behalf of the FCS by issuing debt securities in the capital markets. These securities are backed by the collective strength of the FCS, which includes Farm Credit Banks, Agricultural Credit Banks, and other institutions within the system.
The FFCBFC plays a crucial role in ensuring the availability of sufficient funding for the FCS to meet the credit needs of farmers, ranchers, agricultural cooperatives, and rural communities. By issuing debt securities on behalf of the FCS, the Funding Corporation helps to maintain liquidity in the agricultural finance market and facilitates the efficient allocation of capital to support agricultural production, rural development, and related activities.
Federal Agricultural Mortgage Corporation (Farmer Mac)
The Federal Agricultural Mortgage Corporation, commonly known as Farmer Mac, is a government-sponsored enterprise (GSE) in the United States that was established in 1988.
Farmer Mac’s primary mission is to provide liquidity and access to capital for agricultural mortgage loans, rural housing mortgage loans, and rural utility loans. It achieves this by purchasing agricultural and rural housing mortgage loans from lenders, pooling them together, and issuing securities backed by these pools of loans in the capital markets. These securities are then sold to investors, providing lenders with additional liquidity to originate new loans. Farmer Mac also offers loan guarantees and other financial services to agricultural lenders, rural utility providers, and other participants in the agricultural finance sector.
Governance & Oversight
Farm Credit Administration
The Farm Credit Administration (FCA) is a vital regulatory agency within the United States government tasked with overseeing and regulating the Farm Credit System (FCS). The primary responsibility of the FCA is to regulate and supervise all aspects of the Farm Credit System, which includes various cooperative banks and associations providing credit and financial services to agriculture and rural communities.
The Farm Credit Administration (FCA) undertakes a multifaceted approach to regulate and oversee the Farm Credit System (FCS). This includes conducting regular examinations and audits of FCS institutions to evaluate their financial health, risk management practices, and adherence to regulations. Furthermore, the FCA plays a proactive role in developing and implementing regulatory policies, guidelines, and standards aimed at ensuring the stability and integrity of the Farm Credit System. Additionally, it offers guidance and technical support to FCS institutions to assist them in meeting regulatory requirements and addressing emerging challenges effectively. Moreover, the FCA enforces compliance with laws and regulations through various corrective measures, such as issuing cease and desist orders and imposing civil monetary penalties when necessary. Furthermore, the FCA conducts extensive research, analysis, and reporting on agricultural credit markets, trends, and issues to provide valuable insights to policymakers, stakeholders, and the public, thereby contributing to informed decision-making and transparency within the agricultural finance sector.
The Farm Credit Administration (FCA) is a cornerstone of stability and resilience within the agricultural finance system of the United States. It plays a pivotal role in ensuring that farmers, ranchers, cooperatives, and other stakeholders in the agricultural sector have access to dependable and affordable credit, thereby fostering the growth and sustainability of rural communities. Through its regulatory oversight and supervision of Farm Credit System (FCS) institutions, the FCA effectively mitigates systemic risks and bolsters the overall integrity of the financial system. Furthermore, by enhancing transparency, accountability, and confidence in agricultural lending practices, the FCA facilitates the flow of capital and encourages investment in agriculture and rural development initiatives, thereby advancing the economic prosperity of rural America.
The FCA operates with a board of directors appointed by the President of the United States and confirmed by the United States Senate. The board consists of three members, each serving a six-year term, with one designated as Chairman. It also includes an Office of Examination, Office of Regulatory Policy, Office of Secondary Market Oversight, and other administrative offices to carry out its regulatory functions effectively.
Farm Credit Insurance Corporation
The Farm Credit System Insurance Corporation (FCSIC) is a vital component of the United States’ agricultural finance infrastructure, providing insurance coverage for debt securities issued by entities within the Farm Credit System (FCS).
The Farm Credit System Insurance Corporation (FCSIC) serves a crucial role in safeguarding the interests of investors and maintaining stability within the Farm Credit System (FCS). Its primary objective is to offer insurance coverage for the prompt repayment of principal and interest on various debt securities issued by FCS institutions, encompassing bonds, notes, and other financial instruments. By providing this coverage, the FCSIC effectively mitigates credit risk for investors, assuring them of repayment in case of default by FCS issuers. Furthermore, the FCSIC diligently assesses and manages the risks associated with its insurance obligations, employing prudent underwriting standards, rigorous risk monitoring practices, and maintaining sufficient financial reserves to uphold its commitments and ensure the continued resilience of the Farm Credit System.
Through its provision of insurance coverage for Farm Credit System (FCS) debt securities, the Farm Credit System Insurance Corporation (FCSIC) plays a pivotal role in bolstering market confidence in the creditworthiness and reliability of FCS issuers. This insurance coverage not only reassures investors but also promotes liquidity and efficiency within the agricultural finance market by facilitating the issuance and trading of covered debt securities. Moreover, the FCSIC’s insurance program significantly contributes to the stability and resilience of the agricultural finance sector. By providing this crucial layer of protection, it supports the availability of affordable credit to farmers, ranchers, and rural communities, thereby fostering economic growth and sustainability in agricultural regions.
The FCSIC was established by the Agricultural Credit Act of 1987 to provide insurance coverage for the timely repayment of principal and interest on debt securities issued by Farm Credit System institutions. Its legal authority is derived from the Farm Credit Act of 1971 and subsequent amendments, which empowered the Farm Credit Administration (FCA) to establish and operate the FCSIC as a government-sponsored entity (GSE).
The FCSIC operates under the oversight of the Farm Credit Administration (FCA), which regulates and supervises the Farm Credit System. It is governed by a board of directors appointed by the President of the United States and confirmed by the Senate, consisting of five members, including the Chairman. The board oversees the operations, financial management, and strategic direction of the FCSIC to ensure the effective fulfillment of its insurance mandate.
History of the Farm Credit System
The history of the Farm Credit System (FCS) in the United States is deeply intertwined with the challenges faced by American agriculture and the need for reliable credit sources to support farmers and rural communities. Here’s a detailed overview of its evolution:
Origins and Early Challenges (Late 19th to Early 20th Century)
The concept of a farm bank in the United States dates back to pre-Revolutionary War times with when the first farmers cooperative was established in New London, Connecticut in 1732. During the early years of the country, the government also made long term loans available in conjunction with free land made available as part of the Homestead Act of 1862.
However, the sophistication and availability of reliable credit was generally difficult to come in the nineteenth century. Banks were seldom in a position to lend to farmers and ranchers, and even in the case they did, interest rates were high and terms were not favorable.
The late 19th century witnessed significant transformations in American agriculture, including technological advancements, expansion of commercial farming, and increased dependence on credit. Farmers often faced difficulties accessing affordable credit from traditional sources such as banks, which led to the proliferation of private lenders charging exorbitant interest rates.
These challenges were compounded by the many banking crises of the late-19th century which shook confidence in the solvency of banks and created problems for farmers looking for reliable sources of credit. Concerns over the financial stability of agricultural lending and the need for a more reliable credit system prompted policymakers to explore legislative solutions.
Establishment of the Farm Credit System (Early 20th Century)
Beginning in 1908 during President Theodore Roosevelt’s administration, both the Country Life Commission and congressional committees undertook studies to address the challenges confronting rural families, who comprised the majority of households in America at that time. The commission advocated for a nationalized extension service. This recommendation materialized with the passage of the Smith-Lever Act in 1914. Additionally, the commission proposed a campaign for rural progress and encouraged further fact-finding surveys. These initiatives led to the emergence of agricultural economics and rural sociology programs in universities and the federal government.
The Farm Credit Act of 1916
In the years 1912 and 1913, Presidents William Howard Taft and Woodrow Wilson dispatched commissions of ambassadors to Europe to examine cooperative land-mortgage banks, rural credit unions, and other entities promoting agriculture and rural development. Based on their findings, the Wilson commission suggested the establishment of agricultural banks to furnish both long-term land-mortgage credit and short-term credit to address recurring needs. In response, Congress passed the Federal Farm Loan Act of 1916.
This act created the Farm Credit System and its series of Federal Land Banks (FLBs), National Farm Loan Associations (NFLAs), and Federal Intermediate Credit Banks (FICBs), each serving specific functions in agricultural lending.
Expansion and Evolution (Mid-20th Century):
After its founding, the Farm Credit System expanded its mission across the country to support the needs of farms, ranches and rural communities. For the first time in the nation’s history a reliable source of funding was made available, enabling expansion of the US agriculture base and driving demand for inputs to support the industry.
The early- to mid-20th century witnessed a major expansion of mechanization practices that boosted the nations output and scaled the size and breadth of the nations farms.
The Farm Credit Act of 1933
The Farm Credit Act of 1933 was a landmark piece of legislation enacted during the Great Depression era in the United States. This act aimed to address the financial hardships faced by American farmers by establishing a system of cooperative credit institutions known as the Farm Credit System (FCS). The act created several entities within the FCS, including Federal Land Banks (FLBs), National Farm Loan Associations (NFLAs), and Federal Intermediate Credit Banks (FICBs), with the goal of providing farmers with access to affordable credit for agricultural purposes. Additionally, the Farm Credit Act of 1933 provided regulatory oversight and financial support to stabilize rural credit markets and promote agricultural development during a period of economic turmoil and agricultural distress.
Great Depression and Dust Bowls
The Great Depression had a profound and lasting impact on agriculture in the United States, plunging the farming sector into a state of severe crisis. Falling demand for agricultural products, coupled with plummeting commodity prices, devastated farm incomes and led to widespread financial distress among farmers. Many farmers faced foreclosure on their lands and were forced into bankruptcy, while others struggled to make ends meet as crop prices hit historic lows. The collapse of rural banks and the tightening of credit further exacerbated the plight of farmers, making it difficult for them to obtain the financing needed to sustain their operations. As a result, rural communities across the country experienced widespread unemployment, poverty, and social upheaval. The Great Depression fundamentally reshaped the agricultural landscape in the United States, leaving a lasting legacy of economic hardship and social dislocation that reverberated for decades to come.
The Dust Bowl, a severe environmental disaster characterized by prolonged drought and dust storms, occurred during the 1930s in the United States. It primarily affected the southern Plains region, including parts of Texas, Oklahoma, Kansas, Colorado, and New Mexico. The most intense period of the Dust Bowl lasted from about 1934 to 1939, with some of the worst dust storms occurring in 1935.
During these times, the Farm Credit System continued to provide support and guidance for the American farmer and helped sustain the country’s agriculture through one of its most trying times.
The Farm Credit Act of 1953
In 1953, a pivotal moment in the history of the Farm Credit Administration (FCA) unfolded with the passage of the Farm Credit Act. This legislation reinstated the FCA’s status as an independent agency, marking a significant shift in its governance structure. Under this act, a Federal Farm Credit Board was established, consisting of 13 part-time members. Each member represented one of the 12 agricultural districts, with an additional member appointed by the Secretary of Agriculture. This board was entrusted with the crucial task of formulating policy directives for the FCA.
One of the most notable changes introduced by the Farm Credit Act was the alteration in the appointment process for future governors of the FCA. Unlike before, it was no longer the prerogative of the president to appoint governors. Instead, this responsibility fell to the newly formed Federal Farm Credit Board. In 1954, this board exercised its newfound authority by appointing Robert B. Tootell as the first governor under this revised governance structure.
The impact of these changes reverberated throughout the Farm Credit System, particularly in the realm of production credit associations. Notably, more than half of these associations managed to repay their government capital. This achievement stands as a testament to the diligent efforts spearheaded by Governor Carl Arnold, who had previously served as the production credit commissioner. Arnold’s unwavering commitment and strategic leadership played a pivotal role in facilitating the successful repayment of government capital by these associations, thereby bolstering the financial stability and sustainability of the Farm Credit System.
Modernization and Regulatory Changes (Late 20th to Early 21st Century)
The 1980s witnessed a severely stressful period for US agricultural. This was a period of profound turmoil and hardship for American agriculture, characterized by plummeting land values, skyrocketing interest rates, and widespread farm foreclosures. A confluence of factors, including oversupply, high debt levels, declining commodity prices, and tight monetary policies, contributed to the crisis, pushing many farmers to the brink of financial ruin.
Farmers, particularly those in the Midwest, faced mounting debt burdens as the value of their land and crops plummeted, while interest rates soared to unprecedented levels. The crisis led to a wave of farm bankruptcies and forced many families off the land they had worked for generations. Rural communities were devastated, with widespread unemployment and economic dislocation. This period has since become known as The Farm Debt Crisis of the 1980s.
The Agricultural Credit Act of 1987 established the Farm Credit System Insurance Corporation (FCSIC) to provide insurance coverage for debt securities issued by FCS institutions, enhancing market confidence and liquidity.
Subsequent legislative reforms, including the Farm Credit System Reform Act of 1996, aimed to enhance the safety and soundness of the Farm Credit System, streamline regulatory oversight, and promote rural development.
Continued Adaptation and Challenges (21st Century)
In the 21st century, the Farm Credit System continues to play a critical role in providing credit and financial services to agriculture and rural communities. It faces ongoing challenges, including shifting demographics, agricultural market volatility, environmental concerns, and technological disruptions. The Farm Credit System remains resilient and adaptive, leveraging innovation, partnerships, and regulatory oversight to fulfill its mission of supporting American agriculture and rural development.
Further Reading
Farm Credit, About Us – https://farmcredit.com/about
Farmer Mac – https://www.farmermac.com/
Farm Credit Administration – https://www.fca.gov/about/about-fca