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36–367 2007

REVIEW THE AVAILABILITY OF CREDIT IN RURAL 

AMERICA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSERVATION, CREDIT, 

ENERGY, AND RESEARCH 

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

MARCH 27, 2007 

Serial No. 110–08 

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

( 


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COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH, South Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia, 

Ranking Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘RANDY’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

WILLIAM E. O’CONNER, JR., Minority Staff Director 

SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, AND RESEARCH

TIM HOLDEN, Pennsylvania, Chairman 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

DAVID SCOTT, Georgia 

JOHN T. SALAZAR, Colorado 

NANCY E. BOYDA, Kansas 

KIRSTEN E. GILLIBRAND, New York 

DENNIS A. CARDOZA, California 

STEVE KAGEN, Wisconsin 

JOE DONNELLY, Indiana 

FRANK D. LUCAS, Oklahoma, 

Ranking Minority Member 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

TIM WALBERG, Michigan 

TERRY EVERETT, Alabama 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MARILYN N. MUSGRAVE, Colorado 

NONA DARRELL, Subcommittee Staff Director 


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C O N T E N T S 

Page 

Holden, Hon. Tim, a Representative in Congress from the State of Pennsylvania, Opening statement ................................................................................... 1 

Prepared statement .......................................................................................... 49 

Peterson, Hon. Collin C., a Representative in Congress from the State of 

Minnesota, Prepared statement .......................................................................... 51 

Lucas, Hon. Frank D., a Representative in Congress from the State of Oklahoma, Opening statement ................................................................................... 2 

Prepared statement .......................................................................................... 54 

Goodlatte, Hon. Bob, a Representative in Congress from the State of Virginia, 

Prepared statement ................................................................................................. 55 

WITNESSES 

Keppy, Hon. Glen L., Associate Administrator, Farm Service Agency, Farm 

Service Agency, Accompanied by Carolyn Cooksie, Deputy Administrator, 

Farm Service Agency, U.S. Department of Agriculture, Oral statement ........ 3 

Prepared statement .......................................................................................... 112 

Pellett, Hon. Nancy C., Chairman of the Board and CEO, Farm Credit Administration, Accompanied by Charlie Rawls, General Counsel, Farm Credit 

Administration, Oral statement .......................................................................... 4 

Prepared statement .......................................................................................... 126 

Pinto, Hon. Frank, President, Pennsylvania Association of Community Bankers, on behalf of Independent Community Bankers of American and America’s Community Bankers, Harrisburg, Pennsylvania, Oral statement .......... 27 

Prepared statement .......................................................................................... 142 

Greenlee, Jeff, President, NBanc, on behalf of American Bankers Association, 

Altus, Oklahoma, Oral statement ....................................................................... 28 

Prepared statement .......................................................................................... 160 

Stark, Doug, President, Farm Credit Services of America, Omaha, Nebraska, 

Oral statement ..................................................................................................... 32 

Prepared statement .......................................................................................... 171 

Apple, Armin, Director, Agribank, McCordsville, Indiana, Oral statement ....... 30 

Prepared statement .......................................................................................... 180 

Zippert, John, Federation of Southern Cooperatives, and Chairman, Rural 

Coalition, Eppes, Alabama, Oral statement ...................................................... 33 

Prepared statement .......................................................................................... 185 

Stettler, Karen, Director, LSP Farm Beginnings, on behalf of Land Stewardship Project, Lewiston, Minnesota, Oral statement .......................................... 35 

Prepared statement .......................................................................................... 204 

SUBMITTED MATERIAL 

Answers to submitted questions ............................................................................. 56 

Independent Community Bankers Association and Association of Community 

Banks, submitted material .................................................................................. 68 

The Financial Services Roundtable, Washington, D.C., submitted statement ... 71 

The Farm Credit Council, Washington, D.C., submitted statement ................... 73 

National Association of Realtors, Washington, D.C., submitted statement ........ 76 

Kelment, Jessica, Government Affairs Director, Federal Managers Association, Alexandria, Virginia, submitted statement ............................................... 78 

Horne, Savi, Executive Director, North Carolina Association of Black Lawyers’ Land Loss Prevention Project, Durham, North Carolina, submitted 

statement .............................................................................................................. 87 

Kling, Lou Anne, Project Administrator, American Indian Credit Outreach 

Initiative, Box Elder, Montana, submitted statement ...................................... 98 


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HEARING TO REVIEW THE AVAILABILITY OF 

CREDIT IN RURAL AMERICA 

TUESDAY, MARCH 27, 2007 

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, AND RESEARCH, Washington, DC. 

The Subcommittee met, pursuant to call, at 10 a.m., in room 

1302 of the Longworth House Office Building, Hon. Tim Holden 

(Chairman of the Subcommittee) presiding. 

Members present: Representatives Holden, Herseth, Costa, Ellsworth, Space, Walz, Salazar, Boyda, Gillibrand, Peterson (ex officio), Lucas, Rogers, Fortenberry, Schmidt, Moran, Graves, Bonner, 

Musgrave, and Goodlatte (ex officio). 

Staff present: Nona Darrell, Scott Kuschmider, Rob Larew, John 

Riley, Sharon Rusnak, Anne Simmons, Debbie Smith, Kristin 

Sosanie, Kevin Kramp, Josh Maxwell, and Jamie Weyer. 

STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF PENNSYLVANIA 

Mr. HOLDEN. This hearing on the Subcommittee on Conservation, Credit, Energy and Research to review the availability of credit in rural America will come to order. I would like to welcome our 

witnesses and guests to today’s hearing. I hope this hearing will 

provide a good perspective on how we can best help our agriculture 

producers and rural residents obtain credit and create opportunity 

for development. Farmers have opportunity for credit from several 

sectors. The Department of Agriculture’s Farm Service Agency 

issues direct loans and offers guarantees on loans made by commercial lenders. 

But FSA is only a lender of the last resort for those who cannot 

obtain credit from the traditional market. The Farm Credit System 

like commercial banks make loans to credit worthy farmers and it 

is not a lender of last resort. The Farm Credit System was created 

to provide a permanent, reliable source of credit to U.S. agriculture. Back in the early part of the last century credit was often 

unavailable or unaffordable in rural areas. Many lenders avoid 

such loans because agriculture was such a high risk. 

So Congress created the Farm Credit System which is authorized 

by statute to lend to farmers, ranchers, and harvesters of aquatic 

products. Loans may be also made to finance the processing and 

marketing activities of these borrowers for home ownership in 

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tural aquatic and public utility cooperatives. Commercial banks 

also lend to agricultural producers and businesses, as well as rural 

homeowners. Other sources of credit for agriculture include life insurance companies, individuals, merchants, and dealers. 

Together, commercial banks, life insurance companies, and individuals and others provide 63 percent of the total farm debt without federal support or federal mandate. Both the Farm Credit System and commercial banks also work collaboratively with each 

other and with farm and commodity groups, agri businesses, rural 

businesses, and civic leaders in search of financial solutions to a 

wide range of service and product needs. 

This hearing today will review the availability of credit in rural 

America. I hope we can answer the questions. Are we doing enough 

to assist beginning and young farmers and ranchers who obtain 

credit, and are our agricultural needs being met across America. I 

will ask members to submit opening comments with three exceptions, and only one of them is here right now, so I would ask the 

ranking member, Mr. Lucas from Oklahoma, for his opening statement. 

[The information appears at the conclusion of the hearing.] 

STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF OKLAHOMA 

Mr. LUCAS. Thank you, Mr. Chairman. For once in my life, I am 

proud to be an exception under that scenario, and thank you for 

having this hearing today which gives the members of this subcommittee an opportunity to learn more about the availability of 

credit to producers. Providing credit to American’s farmers and 

ranchers is a necessary and serious undertaking for many lenders 

in the United States. Today’s hearing is going to provide a venue 

where we can discuss the various sources of credit available to producers through the Farm Service Agency, Farm Credit System and 

commercial banks. 

Both the Farm Credit System and commercial banks have done 

an outstanding job of servicing their community’s credit needs. It 

is Congress’ job to insure that credit needs are met in a manner 

that provides fair and equitable competition. Congress has spent a 

great deal of time the last few years modernizing America’s finance 

laws. We just enable rural America to keep pace with the rest of 

the world. According to the Congressional Research Service, commercial banks lend the largest portion of the farm sector’s total 

debt at 37 percent. The Farm Credit System currently holds 30 

percent of the farm sector’s total debt while the Farm Service 

Agency provides three percent of the debt through direct loans and 

guarantees and another four percent of the market. These numbers 

reflect a healthy balance among our lending institutions. 

There are several policy issues for us to consider as we discuss 

the next farm bill. Should we increase the $200,000 limit per farmer on FSA direct farm ownership and operating loans? What should 

the term limits be for producers to receive FSA direct and guaranteed operating loans? And should the Farm Credit Act of 1971 be 

updated? There are many questions that will be asked today but 

none more important than discussing if producers have access to 


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the credit they need. Access to credit is critical to all businesses 

and agriculture is no different. 

Today’s witnesses will provide us with insight as to the current 

status and the availability of credit to producers, and we must determine if any changes are needed regarding the current law. I 

look forward to today’s hearing and its testimony. And I thank you, 

Mr. Chairman, for his hearing opportunity. 

[The information appears at the conclusion of the hearing.] 

Mr. HOLDEN. I thank the ranking member. And we would like to 

welcome our first panel to the table, Associate Administrator Glen 

L. Keppy from the Farm Service Agency, accompanied by Deputy 

Administrator Carolyn Cooksie; Administrator Nancy Pellett, 

Chairman of the Board and CEO of the Farm Credit Administration, and she is accompanied by Mr. Charlie Rawls, General Counsel for Farm Credit. Administrator Keppy, we will begin with you, 

please. 

STATEMENT OF GLEN L. KEPPY, ASSOCIATE ADMINSTRATOR, 

FARM SERVICE AGENCY, USDA, ACCOMPANIED BY CAROLYN 

COOKSIE, DEPUTY ADMINISTRATOR, FARM SERVICE AGENCY, USDA 

Mr. KEPPY. Mr. Chairman, members of the committee, thank you 

for the opportunity to review the current status of the Farm Loan 

Program or better known as FLP at the Department of Agriculture. 

It is an honor for me to be here today with my good friend, Nancy 

Pellett, and later on Carolyn Cooksie and I will be happy to answer 

questions. Before I accepted this position a little less than a year 

ago, today I was getting ready to plant corn and was taking care 

of my livestock back in Iowa. 

FLP is a success story. We make direct and guaranteed farm 

ownership and operating loans to family-size farmers and ranchers 

who cannot otherwise obtain commercial credit from a bank, Farm 

Credit System, or other lenders. Our current portfolio includes $6.2 

billion in direct loans and $9.2 billion in guaranteed loans. The 

quality of our portfolio has improved significantly. Here are just a 

few of the highlights. Losses, our direct loan program have dropped 

2.9 percent. That is the lowest level since 1986. Losses in our guaranteed loan program are less than 1⁄2 of one percent, and that is 

the lowest since 1985. 

Delinquency rate for direct loans are 8.1 percent and 1.4 percent 

for guaranteed loans, again the lowest in more than 10 years. Last 

year we graduated 2,824 borrowers out of FSA and into commercial 

credit. The direct loan case load to beginning and SDA farmers has 

more than quadrupled from 1995 to 2006. The guaranteed loan 

case load has more than doubled from 1997 to 2006. FSA continues 

to help minority farmers in proportion greater than the demographic percentage of the total farming population, and we remain 

committed to small farms in America. 

Research at the University of Arkansas studied FSA direct loan 

originations during fiscal year 2000 through 2003 found that 92 

percent of direct loans originated went to small farmers with less 

than 250,000 in gross sales. They also determined that 78 percent 

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ries, but our attention is clearly focused on some of the challenging 

curves up ahead. Term limits in the present statute place quality 

restrictions for direct operating loan borrowers. That means that 

7,000 borrowers have one year left of eligibility and 11,000 borrowers have two years left. 

The Federal work force is getting older. As many as 26 percent 

of our current FSA loan officers will be eligible to retire within the 

next three years. The 2007 Farm Bill proposals relate to credit 

seeking to help beginning and socially disadvantaged farmers overcome some of the increased financial hurdles that they face in becoming established operators. We propose to increase direct loan 

funding targets to better focus direct funding and its special features on beginning and SDA farmers, modify the existing down 

payment loan program to better fit the current needs of beginning 

and SDA farmers, and increase the direct loan limits that have 

been unchanged for over 20 years to improve our ability to meet 

the increased capital requirements beginning and SDA farmers 

face in today’s agriculture. 

Through modernization, a steadfast focus on farmers, and meeting farm loan program objectives, each enhanced by the hard work 

and dedication of FSA employees, we have made great strides in 

performance improvements. Using our farm business plan FSA borrowers are now processed through a real time, web-based system. 

Our commitment to FLP streamlining has reduced direct and guaranteed loan application processing time by almost 30 percent, and 

we have developed the Farm Loan Risk Assessment Program, 

which provides risk base oversight that areas of potential concern 

within our portfolio can easily be identified. 

Thanks to having a rural delivery system coupled with the dedication and hard work of our existing team of experienced loan officers, FSA is well positioned to continue high quality delivery of existing programs and new initiatives to American farmers. We look 

forward to working with this committee so that together we might 

strengthen the livelihoods of farm families while ever improving 

the viability of rural America. As I said, Carolyn and I will be 

happy to answer questions at the end of the panel. 

[The prepared statement of Mr. Keppy appears at the conclusion 

of the hearing.] 

Mr. HOLDEN. Thank you, Mr. Keppy. Administrator Pellett. 

STATEMENT OF NANCY C. PELLETT, CHAIRMAN OF THE 

BOARD AND CEO, FARM CREDIT ADMINISTRATION, ACCOMPANIED BY CHARLIE RAWLS, GENERAL COUNSEL, FARM 

CREDIT ADMINISTRATION 

Ms. PELLETT. Chairman Holden, Ranking Member Lucas, and 

members of the subcommittee, I am Nancy Pellett, Chairman and 

CEO of the Farm Credit Administration. I would ask that the committee include my full written statement for the record. And I too 

am pleased to be on this panel this morning with my good friend, 

Glen Keppy. Also joining me today is my fellow board member, Lee 

Strom from Illinois. Dallas Tonsager from South Dakota is ill this 

morning and could not be here. But I must tell you that I am very 

fortunate to have the opportunity to work with these two very 

thoughtful, dedicated individuals who love agriculture and rural 


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America. Also, at the table with me this morning is Charles Rawls, 

our General Counsel. 

The FCA is an independent arm’s length safety and soundness 

regulator established by Congress to oversee the Farm Credit System. Specifically, we are responsible for approving regulations and 

examining the institutions of the Farm Credit System. The system 

is a cooperative structured government-sponsored enterprise that 

Congress established to improve the income and well-being of 

American farmers and ranchers by furnishing sound, adequate, and 

constructive credit, and closely related services to them, their cooperatives and to selected farm businesses. 

We also regulate and examine Farmer Mac, who provides a secondary market operation for agriculture mortgage loans. Mr. Chairman, as you well know, the health of rural America is so crucial 

to the future of agriculture and our country. If we are going to continue to encourage young people and new entrants to get involved 

in agriculture rural America must be able to offer the basic infrastructure and amenities that will entice them to return to these 

rural areas. We believe the system has a congressional mandate to 

assist in providing credit and capital for these important projects 

and must play a meaningful role going forward in strengthening 

rural America. 

Directly linked to this is the importance of serving young, beginning, and small farmers. The system continues to increase its service to these important groups, and FCA will continue to closely examine the system’s service to ensure that these important groups 

are served in a constructive, safe and sound manner. One of the 

ways we have encouraged system institutions to continue their 

service to rural communities has been to use the broad investment 

authority provided in the Farm Credit Act. FCA issued guidance in 

January of 2005 that gave system institutions a provisional opportunity to make mission-related investments through pilot programs 

supporting investments in rural America. 

The pilot programs are intended to strengthen the system’s mission to provide for an adequate and flexible flow of funds to agriculture and rural communities across the country. Further, the 

pilot investment programs are intended to provide Farm Credit 

System institutions greater flexibility to partner with government 

agencies and other rural lenders in fulfilling their mission objectives. Through these programs the agency is looking to gain a better understanding of the diverse financing needs of agriculture in 

rural communities, and how Farm Credit System institution investments can help increase the availability and efficiency of funds 

to these markets. 

While we believe these programs are important for agriculture 

and for rural America, I do want to make it clear that FCA is very 

aware that safety and soundness must come first. With each of 

these pilot programs we place appropriate conditions on them to 

limit risk exposures and we can revise our approval any time safety and soundness comes into question. Mr. Chairman, first and 

foremost, I want to reiterate that the Farm Credit Administration 

is a safety and soundness regulator of the Farm Credit System. 

Most of our time and certainly the majority of our resources are 

dedicated to examination. Similar to the office of the Comptroller 


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of the currency and other banking regulators, we do have the regulatory enforcement and supervisory tools that we need to carry out 

our responsibilities. 

In fact, because of the experience of the ’80s, we do have the additional powers that some regulatory agencies lack. We also have 

responsibility to monitor and address how well the system is carrying out its mission as established by Congress. Overall, we believe that the system does do a very good job of using the authorities provided under the Farm Credit Act to meet the needs of farmers and ranchers and other authorized borrowers across the country. For example, with new emphasis on renewable fuels, specifically ethanol, various system institutions have responded by providing financing for this emerging market. Just a few weeks ago 

in this subcommittee you heard from the system regarding its commitment to funding renewable fuel projects. 

Now as the regulator FCA is supportive of these important 

projects while continuing to ensure the system’s safety and soundness. There are though, two areas where we think the subcommittee should consider changes in law to clarify the ability of 

system institutions to meet the needs of agricultural producers in 

rural communities. These suggested changes are clarifications of 

the statute and are explained more fully in my written statement 

and we would be pleased to have further discussions on them with 

you and your staff. In addition, the Farm Credit System Insurance 

Corporation will also be suggesting one technical change to the 

Farm Credit Act, and has outlined that in a separate letter to the 

subcommittee. 

In closing, I would report to you that the quality of loan assets, 

risk bearing capacity, stable earnings, and capital levels collectively 

reflect a healthy Farm Credit System. Additionally, capital levels 

continue to be strong especially when compared with the system’s 

risk profile. As we continue to see major changes in the lending 

landscape including higher energy and input costs the FCA is committed to maintaining our excellence in examination and being the 

strong arm’s length regulator that Congress intended. We will also 

continue to craft thoughtful and sound regulations that will ultimately benefit the all important end users whom we must always 

keep in the forefront of our mind, farmers and ranchers of rural 

America. Mr. Chairman, thank you for allowing me to testify today. 

This concludes my statement, and I would be happy to answer any 

questions that you may have. 

[The statement of Ms. Pellett appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. I thank the witnesses for their testimony. The 

Chair will remind members that they will be recognized for questions in order of seniority if they were at the beginning of the hearing, and after that based on the time of their arrival with the two 

exceptions of the Chairman and the Ranking Member of the Full 

Committee. Mr. Keppy, what did you say the default rate was for 

your agency on the loans? 

Mr. KEPPY. 8.1. 

Mr. HOLDEN. 8.1. Any idea how that compares to other government agencies such as SBA or rural development USDA business 

and industry guaranteed loans? 


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Ms. COOKSIE. I think we compare very well. I think we are lower 

than some of them and higher than some. I think we need to keep 

in mind the farmer that we deal with is a limited resource borrower that some of the other people that we would compare ourselves with don’t deal with as farmers. So I think for the farmer, 

the limited resource farmer that we deal with, the default rate and 

the loss rate is pretty good. 

Mr. HOLDEN. Also, Mr. Keppy, we hear an awful lot about shortages in your agency and other government agencies. I am just curious, do you have the resources and the staff to serve the needs of 

farmers? 

Mr. KEPPY. I feel very good about the staff. I just came from a 

farm loan chief’s meeting and we have—— 

Mr. HOLDEN. Excuse me, Mr. Keppy. Your mic is either not on 

or you need to move a little closer, sir. 

Mr. KEPPY. I just came from a farm loan chief meeting yesterday, 

and we have a staff that is very dedicated and working with our 

web-based business plan to be very proactive working with borrowers and trying to catch problems and catch existing situations 

before it gets out of hand. As far as funding, we are making do 

with the funding that has been allocated to our programs but with 

the changing agriculture and with the enthusiasm around ethanol 

and other things there is going to be a much higher input cost and 

more money is going to be needed. The farm bill addresses some 

of them issues but there is always a need, and I think that very 

easily and effectively the borrowers that Carolyn works with could 

see some benefit from increased funding. 

Mr. HOLDEN. Any idea of the number of applicants you have to 

decline services to, percentage? 

Ms. COOKSIE. Are you talking about the ones we decline because 

they just don’t qualify or because we don’t have money? 

Mr. HOLDEN. Both. 

Ms. COOKSIE. We have probably a 32 percent rejection rate because—— 

Mr. HOLDEN. 32? 

Ms. COOKSIE. Yes, because they don’t qualify. We have two categories basically that we carry over every year applications from 

year to year. That is usually the direct operating which is the farmer in the field, and the direct farm ownership, which is the real estate loans. And we also carry over some applications from year to 

year that are unfunded from one year to the next year, and the 

guaranteed OL interest assistance, the operating loan interest assistance, which is the program we buy down the interest rate. So 

we do have some carry over from year to year because we don’t 

have funding in those areas. 

Mr. HOLDEN. Thank you. Ms. Pellett, and we had this conversation when we met a few weeks ago, there are people who say that 

the Farm Credit System goes beyond its authority making loans to 

commercial activities at a hospital that we talked about as well, 

how is it that they are able to make that type of loan and where 

does the authority come from? 

Ms. PELLETT. Mr. Chairman, the authority to do these types of 

things comes from the investment authority given in the Farm 

Credit Act. We did have this conversation, and I in no way feel that 


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the system is going beyond their mission. The investment authority 

given to the Farm Credit System by the Farm Credit Act is again 

very broad powers, and I am delighted to be able to talk about 

some of this. As I mentioned in my testimony, a flow of funds to 

rural communities is imperative to keeping agriculture healthy and 

to getting new entrants into farming. If my sons or my daughters 

are going to come back to farming, they have got to have in their 

local communities the amenities that their college friends have in 

the urban areas. 

The investments in rural America project that we gave guidelines for in January of 2005 outlines some pilot programs that the 

system has taken advantage of, and the investment authority that 

they used to give financing to purchase bonds for this hospital in 

a rural area of Minnesota is a prime example. But it is merely a 

move of getting a flow of funds into these rural communities that 

is so necessary for agriculture and to get these entrants, new entrants, into agriculture and farming. 

Mr. HOLDEN. Thank you. I see my time has expired. I might have 

a few questions if we have a second round. The ranking member, 

Mr. Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. I think it is worth noting, 

Chairman Pellett, as we sit there and discuss this today, that 20 

years ago your institution, and for that matter all financial institutions that serve rural America was coming out of a very tough five 

year stretch, a stretch that put a great strain on everyone that 

changed the landscape of rural America and most surely the financial institutions that serve it. Now looking at not only Mr. Keppy’s 

statistics about how current his customers are, so to speak, but 

looking at the profit numbers in your testimony it looks to me like 

it is fair to say that rural America right now under the present 

farm bill under the present set of circumstances whether set aside 

in a few areas seems to be generally prosperous. Is it a fair statement to say that the people you are administrating are making 

record profits at the present time? 

Ms. PELLETT. And they are because agriculture is so very profitable today. We learned some very valuable, valuable lessons during 

that time 20 years ago. Farmers learned lessons. The Farm Credit 

System learned lessons. Congress did, and the Farm Credit Administration learned some valuable lessons. As a result of these times, 

Congress gave the Farm Credit Administration the powers that it 

needed to regulate and to produce a safe and sound Farm Credit 

System and this Farm Credit System is very safe and sound today. 

Mr. LUCAS. Which leads me to my next question. Do you believe 

you have the specific authorities because agriculture depending on 

world weather conditions and world market conditions can be very 

cyclical just like the cow-calf business is and has been for 200 

years. Do you believe you have, as we work our way into this new 

farm bill, the necessary authorities to provide the responsibilities 

you have? 

Ms. PELLETT. We as an agency do have the necessary authorities 

that we need to regulate and ensure that the Farm Credit System 

remains safe and sound. Now as far as the Farm Credit Act, the 

Farm Credit Act has not had a major overhaul for some 35 years. 

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culture has changed dramatically, and so maybe it is time to take 

an explorative, thoughtful look at the Farm Credit Act to ensure 

that the Farm Credit System does meet the needs of agriculture as 

it looks today. 

Mr. LUCAS. Mr. Keppy, I am fixing to go out and do my 20 town 

meeting road trip over the next two weeks, not quite the accomplishment of Mr. Moran but an accomplishment nonetheless. When 

you talk about expanding the ownership or the loan limits and 

those kind of things, I expect I will get the response back from 

some of my constituents does that risk meaning that we will have 

fewer resources for more producers if we allow ourselves to invest 

more through your agency than particular producers. How do I respond to that? 

Mr. KEPPY. I think that that is going to be the way that it may 

happen but I guess we are looking at the fact that because of the 

change in agriculture the loan limits do have to rise and that is 

with the limited resources that is probably one of the dilemmas 

that we will have to face. Carolyn, would you like to add to that? 

Ms. COOKSIE. Well, I think that is right. Loan limits haven’t 

changed the Con Act, which is where this is housed. It is 1978. We 

all know that farming has changed tremendously, prices have 

changed tremendously, so I think it is true that if the appropriation does not go up we are going to be making larger loans to fewer 

farmers, but I think we have to balance that by the need because 

there are many farmers out there now that we can’t reach because 

of the loan limit so we had to do a balancing act. And I think the 

fact that the Secretary’s proposal is saying 500,000 and any combination under that for operating and farm ownership is probably 

the best place we can be at this point. 

Mr. KEPPY. Because every borrower’s needs are different. Some 

may want to put it in farm ownership. Others need a higher operating line so they can use that 500,000; however in which one of 

the programs they can benefit the most out of so I think that is 

very positive to have that flexibility. 

Mr. LUCAS. Thank you, Mr. Chairman. 

Mr. HOLDEN. Thank the ranking member. Mr. Walz. 

Mr. WALZ. Thank you, Mr. Chairman, and thank you all for taking the time to come today. I come from that southern Minnesota 

district where that hospital is being built in St. James and toured 

that facility, and I can tell you that critical access hospital is absolutely part of the rural landscape, and understanding farm credit 

from a perspective of all the infrastructure that goes into rural development from the schools to the highways to the hospitals is critical so this is a very timely and important topic for this subcommittee, and it is one that I hear an awful lot about. So I had 

just a couple of questions on this. Mr. Keppy, you mentioned something I found pretty interesting. You said your loan rate to minority or some socially disadvantaged may be—possible borrowers is 

fairly high I heard you say and that you are doing pretty well with 

that. I guess my first question is how are you making yourselves 

accessible to that population? How are you getting out and marketing that? How are these people getting access to this credit to 

allow them to get on the land? 


cnoel on PRODPC60 with HEARING
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Mr. KEPPY. Well, we clearly are concentrating on beginning farmers at SDA and we have an outreach program and an education 

program to try to enhance their ability to know about the programs 

and to help them proceed and be successful borrowers and move 

them up the ladder, if you will, to ultimately being able to get commercial credit from some other segment. 

Mr. WALZ. The next thing I would say is that the Ranking Member I thought had a very insightful question, and I get the same 

question also as if we are concentrating some of these loans into 

small approvals. How are we going to expand it or what is going 

to be the nature of this with the limits that are on there. It is the 

one that comes up often. And I also get a lot of talk from bankers. 

They say they have got the access and they have got plenty of 

money and they want to get it out to them too. My question would 

be, and maybe to any of you on this, your response to some of those 

criticisms that there is plenty of credit out there, there is plenty 

of other resources, and that your coming in is an unfair advantage 

to try and give that. How do you respond to that because from my 

perspective is, what I want is, is I want the market to provide the 

most access to credit and capital possible for people out there, 

whatever that—if that mechanism is more lenders, great, if it is 

more on the side of the bankers. Whatever it is, I want to try and 

get a grasp of it. How would you explain that from your perspective? 

Mr. KEPPY. The Chairman laid out our guidelines very well. We 

are the lender of last resort. If a producer comes in and can get 

a loan at some commercial facility that is where he or she should 

get the loan. If they are denied and are not able to do it then FSA 

steps to the plate and provides the loan that they need so that they 

can progress, and it is a goal of all of our people in the field is to 

get the people moved up, get the producers moved up to where they 

can be a commercial loan, whether it be a commercial bank or 

Farm Credit System. 

Mr. WALZ. Did I hear that right, Ms. Cooksie? You said 32 percent are turned away also? 

Ms. COOKSIE. The rejection rate, the yearly rejection rate of applications that are either withdrawn or rejected for some reason. 

Mr. WALZ. Where do those people go? 

Ms. COOKSIE. Good question because we are the lender of last resort, and usually nine times out of ten it is based on their cash flow 

or their credit. 

Mr. WALZ. And the last question before I finish up and yield back 

my time, Mr. Chairman, I am not sure if you can quite answer this. 

Could you sum up where you think the current Administration is 

at on the ability to expand Farm Credit’s ability to lend? Where 

would you think our current Administration is at on that? 

Mr. KEPPY. The Administration is very proactive in beginning 

farmers and SDA. I think everybody in this room realizes the age 

of farmers today is my age or older, and we are not going to be in 

it that much longer and we need our sons and daughters and people to get involved, and so it is an immediate need that we address 

that, and I think in the proposal that the Administration laid in 

the center of the table for discussion provides that. 

Mr. WALZ. I yield back my time. Thank you, Mr. Chairman. 


cnoel on PRODPC60 with HEARING
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Mr. HOLDEN. Thank you. The Chair recognizes the Ranking 

Member of the Full Committee, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. Thank you for holding this hearing. Ms. Pellett, Mr. Keppy, everyone, welcome. We 

are very pleased to be talking about this issue. I know last year 

a little later in the year you and the other members of the Administration board and a number of others, in fact, some members of 

this subcommittee, were in Stanton, Virginia, when we resigned 

the original farm credit legislation that was adopted during Woodrow Wilson’s administration, he being a native of Stanton, Virginia. 

And I was pleased to hear you say that after 35 years it is time 

for the Farm Credit Act to be given a serious review. I agree with 

that. I know that the lender owned institutions have their proposal, 

the Horizons proposal, and we will certainly give very careful consideration to that to make sure that the Farm Credit System is 

modern and up to date and in touch with modern agriculture. 

I would like to ask you about another issue, however, this morning, and that is I would like to hear more about the recent processing and marketing proposed rule, and can you tell the committee more about how the need for this rule came to be and explain how this fits in with this structure of the law? 

Ms. PELLETT. Thank you, and I would be pleased to. This is a 

proposed marketing and processing regulation. It is a proposed regulation. The comment period has ended and our staff is now going 

through the many comment letters that have come in regard to this 

proposed regulation. It is an effort, it is a revision of a previous 

regulation, and it is an effort to respond to farmers and ranchers 

who are trying to bridge that gap between them as producers and 

the end user out here, the consumer. And there is a revision of a 

previous regulation as far as some of the structure that is involved 

here but just like all of agriculture has changed so has this structure of some of these endeavors by producers to get closer to that 

end consumer, and it is value added, a means of financing value 

added businesses which is given to the Farm Credit System by the 

statute that authority. Mr. Rawls, if you have anything that you 

would like to add to that. 

Mr. RAWLS. I think the only point since the question was raised 

about legal authority, this does come from Section 111 of the Act, 

which provides authority for system institutions to make loans to 

farmers basically for processing and marketing operations that are 

directly related to their operations. And what the agency is exploring in its rulemaking is that concept of directly related and so as 

the Chairman said we traditionally had a rule that said 50 percent 

ownership was the test for financing, processing, and marketing operations. What we are doing through this proposal is looking at 

other ways maybe to think about directly related and that would 

be farmers control the board of an operation, maybe farmers control management or otherwise have a contractual relationship such 

that they are in charge, and we think that that might fairly meet 

that test. 

And there are two other elements to this. We said, well, maybe 

if farmers own 25 percent of the entity or control 25 percent of 

owning stock and they need a 20 percent through put so you are 

getting a very significant measure of farmer involvement. And then 


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the last test is one where we are trying to capture what is happening where we see farmers creating different sorts of entities, for 

example, for their children also involved in those operations, and 

it would be an integration test. 

Mr. GOODLATTE. Thank you, Mr. Rawls. I want to get to one 

question to Mr. Keppy as well. What is the profile of the traditional 

borrower of the loan guarantee program, and how can we focus on 

getting these borrowers on track to qualify for available commercial 

credit? 

Mr. KEPPY. The traditional borrower is one as I just said earlier 

that has been denied the opportunity to get money from either 

commercial or Farm Credit. They are borrowers that we work with 

with our field staff to try to improve their efficiencies and their capabilities, their beginning and SDA farmers, and we are trying to 

move them up the ladder so that they can enter the commercial 

and Farm Credit. The profile is that there are small family farms, 

husband and wives family working together trying to make ends 

meet. There are a lot of challenges facing agriculture. There is a 

lot of opportunity and it is FSA’s goal to try to help the producers 

move on their ability to borrow the money. 

Mr. GOODLATTE. Thank you. Thank you, Mr. Chairman. I do 

have an opening statement I would like to submit for the record. 

Mr. HOLDEN. The Chair thanks the ranking members and recognizes the gentle woman from South Dakota, Ms. Herseth. 

[The information appears at the conclusion of the hearing.] 

Ms. HERSETH. Thank you, Chairman Holden, and thank you all 

for being here today. I would like to start, Mr. Keppy, with this 

focus on young and beginning farmers, and you describe in your 

testimony the Administration’s proposal as it relates to opportunities for new farmers for land purchases by reducing the interest 

rates and reducing the minimum producer contribution from 10 

percent of the property purchase price to five percent, and this is 

all a good step in the right direction, but could you describe again 

or further what the Administration is proposing, if anything, to assist younger producers with credit on the operating side? 

Mr. KEPPY. Well, as we talked about already the limits are going 

to go up to 500,000 and give the operator the choice of using the 

money for operating loans if that is what they need or to use the 

money for beginning—for the farm loan ownership side of the equation. 

Ms. HERSETH. And do you have any concerns that—if that is the 

primary focus of helping them on the operating side, do you have 

concerns that what young farmers are paying in cash rents will 

simply be subsumed by the increase in the borrowing authority or 

the limits, excuse me? 

Mr. KEPPY. The agency is very concerned about many facets of 

the changing agriculture and the FSA changes that we are seeing. 

We are going to try to stay ahead of them. It is a goal that we can 

help—our goal is to make sure that we are helping them producers 

get into mainstream lending procedure and ultimately graduate 

from FSA programs. 

Ms. HERSETH. Also, as a follow-up to Mr. Walz’s question with 

regard to how FSA is going to make itself available to minority or 

socially disadvantaged farmers, I do want to raise with you a conVerDate Aug 31 2005 02:16 Oct 05, 2007 Jkt 036367 PO 00000 Frm 00016 Fmt 6633 Sfmt 6602 E:\HR\OC\A367.XXX A367

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cern on the record today about the proposed FSA office closings. In 

the State of South Dakota most of the offices that are being proposed for closure are actually in counties where, well, it is Indian 

country, these counties, and if we are going to be helping Native 

American farmers and ranchers, many of whom are younger, I do 

want to raise with you the concern I have about these proposals 

and the accessibility of these individuals to access FSA programs. 

And so can you perhaps separate from the proposal of the office 

closings, have you had any specific discussions within the agency 

about outreach and making programs more accessible to Native 

American farmers and ranchers? 

Mr. KEPPY. It is the goal of the field staff that is working for 

FSA, that is absolutely their goal is to make sure that we make 

accessible all the programs that we have to all of the people that 

are out there and SDA is women and minorities and it is a goal 

that we make sure the programs go to them. 

Ms. HERSETH. And I appreciate that goal but have there been 

any specific recommendations that have been submitted to you or 

that you have folks you are working with that have generated specifically in working with tribal members whether it is disaster assistance, programs that are offered, specific programs authorized 

for tribal members within the farm bill? 

Mr. KEPPY. I am not prepared at this moment but the Administration has been talking. I know there has been dialogue to that 

effect. Carolyn, have you got anything specific? 

Ms. COOKSIE. No, but let me just say that as part of the outreach 

effort for all the states for socially disadvantaged beginning farmers we gave all our states and our loan officers goals for SDA and 

beginning farmers that they have to reach, so we attached those to 

their annual performance plans. So I feel confident in saying that 

when a state director in your state put his plan together he would 

have had to have addressed the issue of how all of those under 

served areas are going to be served in the plan. We could do some 

follow-up for you on that. I think that would probably be better. 

Ms. HERSETH. I would appreciate that very much. Thank you. 

And my time is also up, and I may have more questions if there 

is another round. But, Ms. Pellett, thank you for being here, and 

I don’t know if this is clarification from Mr. Walz’s questions but 

if I have a second round I will come back to you, but I did want 

to ask one further question. Administrator Keppy, does the Administration have a position on expanding the lending authority with 

the Farm Credit System in particular? I know that in the proposals 

of the Administration for young farmers and beginning farmers as 

you have described anything that we can do to expand the lending 

opportunities but specifically on expanding lending authority for 

the Farm Credit System. Does the Administration have a position? 

Mr. KEPPY. I am not aware of a position but I will look into that 

further and respond to you later. 

Ms. HERSETH. Thank you. Thank you, Mr. Chairman. I do hope 

there will be opportunity for a second round. 

Mr. HOLDEN. There will be. The Chair thanks the gentle woman 

and recognizes the gentleman from Kansas, Mr. Moran. 

Mr. MORAN. Mr. Chairman, thank you very much. Let me although I thought I would avoid this topic of office closures since 


cnoel on PRODPC60 with HEARING
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Ms. Herseth raised the topic I would add my concern about access 

being eliminated in regard to a series of county consolidation and 

office closures going on across the country but especially in my 

home state, and I would appreciate you conveying our concern, in 

fact, my opposition to the plan to the folks at FSA. Let me direct— 

I think most of my questions will come for the second panel but let 

me direct to Madam Chairman the issue of the scope of lending of 

Farm Credit. How has that scope, how has permissible lending 

changed over the history of the Farm Credit System? Is Farm 

Credit now able to make loans that they were not originally able 

to make? Have they become legislatively, congressionally or administratively permissible or have there been expansions of definitions 

that have allowed the scope of lending to be increased? 

Ms. PELLETT. Congressman, the Farm Credit Administration carries out the will of Congress in its regulation of the Farm Credit 

System. And as I mentioned earlier and as my testimony mentioned several times agriculture has changed so drastically. The 

Farm Credit Administration in its regulations albeit that it follows 

the statute has tried to ensure that the Farm Credit System meets 

the needs of the farmers and ranchers of today. And so I would say 

that probably the regulations have become a little more flexible although following the statute to a tee. 

Mr. MORAN. I would not expect you to suggest that you didn’t follow the statute but I was curious as to what kind of loan could be 

made today that was impermissible under previous rules. What 

would be an example that would be understandable? 

Ms. PELLETT. Let me think for a minute, and I would call upon 

my general counsel also. 

Mr. RAWLS. I think the short answer is a yes. Historically the act 

has been augmented to provide broader authorities. 

Mr. MORAN. The act has been as in Congress’ act? 

Mr. RAWLS. Yes. Now that has not occurred to a great extent in 

recent years. As the Chairman mentioned the last major rewrite 

was 1971, but there have been amendments. We have ended up 

with an act that is a little creaky because of various amendments 

and the changing structure of the system that came out of the ’80s 

but essentially there is fairly broad authority there to lend to agriculture, and then you look at one which deals with real estate 

loans, Title Two, production or shorter term credit, Title Three is 

broad loans to cooperatives and infrastructure, telecommunications 

and wastewater and so on, broad participation authority to work 

with commercial banks, to actually get into the larger agri business 

type loans with the commercial banks through participation or 

similar entity loans. So there is a lot there to work with but over 

time those have been—the act has been augmented. 

Mr. MORAN. While Ms. Pellett thinks of examples of a loan that 

can be made today that could not have been made in the past. Let 

me take my question in a slightly different direction. What is the 

underlying legislative history or purpose of the Farm Credit Act in 

regard to the suggestion that Farm Credit is a lender of last resort 

or is to make loans to those who are not otherwise commercially 

creditworthy? Is that part of the history, is that part of the law, 

and is that part of the atmosphere at Farm Credit? 


cnoel on PRODPC60 with HEARING
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Mr. RAWLS. No, that is not part of the history. The Farm Credit 

System was established as you know as a cooperative system of 

farmers who got together and wanted charters to establish their 

own lending institutions. And the lender of last resort, as I think 

was discussed earlier, is an aspect of the USDA program but has 

never been an element of the Farm Credit System. Farm Credit 

System is by and large a GSE but it essentially operates as a private lending institution. 

Mr. MORAN. And, therefore, the purpose of Farm Credit is to fill 

what nitch or gap that was not being met by other lenders? 

Mr. RAWLS. Reading back in the history there was a gap basically with farmers getting credit, access to credit, got certainly all 

types of loans at the time the system first came into being. 

Ms. PELLETT. Congressman, and the Farm Credit System is 

charged by Congress to be there during good times and bad, and 

that is where the Farm Credit System has been throughout time. 

And now when it is in this very—agriculture is in this very healthy 

state there are lots of lenders out there but as Congressman Lucas 

mentioned should this become cyclical as we know it does the Farm 

Credit System will be there at all times. The Farm Credit System, 

I would also like to say, sets maybe the standard for competitive 

rates and by that not just their borrowers can take advantage of 

a competitive rate set by the Farm Credit System but all farmers 

benefit from this competitive rate. 

And so I would say, and I would hope you might agree, competition is always good, and that is where the Farm Credit System has 

been throughout time also. 

Mr. MORAN. My time has expired. If there is a second round, I 

would like to follow up with a couple of thoughts and I would appreciate some examples of what has happened over time as far as 

lending ability. Thank you. Thank you, Mr. Chairman. 

Mr. HOLDEN. The Chair thanks the gentleman and recognizes 

the gentleman from Colorado, Mr. Salazar. 

Mr. SALAZAR. Well, thank you, Mr. Chairman. Mr. Keppy, you 

talked a little bit about term limits. Could you expand on that a 

little bit, and then also do you track people after they leave your 

system and they go into the private sector as to what the success 

rate is? Could you talk about that a little bit? 

Mr. KEPPY. Term limits were set up in the original statute to 

have FSA work with the borrower for a certain number of years 

and seven is the number that is in the book today, and it was the 

intent that they graduate to the next avenue of getting money either through Farm Credit or commercial banks. And, yes, it is a 

challenge. There are some individuals that after the seven year period are not ready to graduate, and it is a cold fact but those producers are going to have a challenge getting monies if they need 

to to expand their farming operation. 

Mr. SALAZAR. Do you kick them out of the system automatically 

at the seven year period or are there certain requirements that you 

can allow them to stay in longer? 

Mr. KEPPY. I would like Carolyn to answer that. 

Ms. COOKSIE. There are actually two limits. One of them is for 

the direct program as Mr. Keppy said, which is seven years. After 

they get—they have used a loan for seven years then they have to 


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go to another creditor somewhere else. The other one is for the 

guarantee program, which is 15 years, which is a combination of 

direct and guaranteed for 15. The guaranteed is now till September 

2007. Term limits for direct loans are not, and so we do have a lot 

of farmers that are going to hit that wall and we don’t have any 

other avenue for them. 

Once they hit that year limit there is no other avenue in the 

COT Act to move them or help them after that. They have to find 

credit elsewhere or they have to go out of business so it is a concern. 

Mr. SALAZAR. So is this something that Congress should change 

or do you think that this is something that you can change within 

your system? 

Ms. COOKSIE. Well, the problem with changing it within the system is that there are so many variables of farming that you are 

doing fine and you feel like next year you are going to be able to 

go to commercial credit, then you have a bad weather year and 

your cash flow goes down to nothing or energy prices go up as they 

have been, and so your cash flow becomes a problem. So for us to 

be able to deal with it in house is a problem for us because I don’t 

know that we can actually do that in a realistic way. 

Mr. SALAZAR. Ms. Pellett, thank you very much for being here as 

well, and you mentioned a couple of things. First of all, you said 

that agriculture was doing great, and I can agree with you, I guess, 

somewhat, but as you know fuel prices have gone up by 113 percent and fertilizer prices have gone up by some 60, 70 percent, so 

the bottom line isn’t as rosy as most Americans would like. You 

mentioned two things. You mentioned that you would like to see 

two changes in proposed law. Could you expand on that a little bit? 

Ms. PELLETT. The changes that we are suggesting are merely 

clarification of the existing, several existing USDA programs. One 

is the rural business investment corporations originally designed to 

promote economic development and create wealth and job opportunities. The Farm Credit System was mentioned specifically in this, 

and as when the regs were written the non-leveraged corporations 

were not included, and we would just like some clarification there. 

We think it would be another way to bring a flow of funds into 

rural America, and the Farm Credit System would like to be a part 

of that. 

The second one is a technical change in loan to value requirements with guaranteed loans just to make it consistent with USDA 

requirements, loan to asset requirements, so those two minor 

changes but both of them clarifications. 

Mr. SALAZAR. I do appreciate that. Thank you, Mr. Chairman, I 

yield back. 

Mr. HOLDEN. The Chair thanks the gentleman and recognizes 

the gentlewoman from Colorado, Ms. Musgrave. 

Ms. MUSGRAVE. Thank you very much, Mr. Chairman. I would 

be remiss if I did not add my concerns about office closures, proposed office closures, along with Ms. Herseth and Mr. Moran. You 

know, service is in the title there, and we want service and we 

want accessibility. I really have a two part question. Consolidation 

is really an issue to me. Farm Credit Service is rapidly consolidating and now has more than 20 institutions that are larger than 


cnoel on PRODPC60 with HEARING
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one billion. So there is an image there that it is farmer owned and 

farmer controlled. And I am really wondering about whether or not 

that will be the case as I assume this trend will continue, and I 

would like to know if that is your opinion whether or not this consolidation will continue. 

And really you have to look at the average agricultural bank 

there that is 84.5 million in assets to really see the comparison. In 

February of this year Farm Credit System issued a memorandum 

talking about non-mission activities that were taking place, and 

this kind of goes along with Mr. Moran’s question also. And some 

of the non-mission activities could be commercial real estate development. The reference is also made to speculation, and I would 

really like to know why this warning was issued and what are the 

specific non-mission activities that are occurring. Could I have 

some explanation about that, please? 

Ms. PELLETT. Non-mission activities are by far the exception 

rather than the rule, and when these are brought to our attention 

or our examiners find them during their process of examination our 

staff, our agency, takes prompt action to correct. 

Ms. MUSGRAVE. Could you tell me what some of those would be, 

a non-mission activity? 

Ms. PELLETT. A non-mission activity was one that you mentioned, and that is development. These might be agricultural areas 

that are going to be used for development. There is a fine line here 

as we define those areas, so development is not part of the mission 

of the Farm Credit System. Moderate housing, however, is. 

Ms. MUSGRAVE. Could you address that consolidation issue, 

please? 

Ms. PELLETT. Please help me and explain a little bit further, 

please. Excuse me. 

Ms. MUSGRAVE. Well, the rapid consolidation of the Farm Credit 

System now contains more than 20 institutions that are larger 

than one billion, and then when you think about what we think of 

farmer owned and farmer controlled, do you think that this has 

any bearing on who is really going to be controlling? 

Ms. PELLETT. No. The Farm Credit System is a very strong cooperative system and the borrowers are the owners. We have within 

the past year passed a governance regulation that firmly puts control of that association in the hands of the board of directors. 

Ms. MUSGRAVE. Could you elaborate on that? 

Ms. PELLETT. Yes. Yes. The board of directors have the firm control of that association. There are audit committees. There are internal auditing regulations. There are outside directors. Somebody 

on the board has to be a financial expert and these are just some 

things that are included in that governance regulation. But it has 

become somewhat of a model for other regulators. As far as consolidation in the Farm Credit System, it kind of follows the trend of 

agriculture. We in agriculture, I am a producer, we are trying to 

cut overhead. As Congressman Salazar said our input costs are 

going up. We are cutting overhead and doing our best to do that. 

The Farm Credit System has tried to do the same thing, and one 

of the means by which they have done that is through consolidation. 


cnoel on PRODPC60 with HEARING
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Ms. MUSGRAVE. So you do expect the consolidation to continue 

though. That is the trend that we are following now. 

Ms. PELLETT. It was a very rapid trend before I came on this 

board but it has slowed down tremendously since I came on the 

board, and I have been here about four and a half years. 

Ms. MUSGRAVE. Thank you very much. Thank you, Mr. Chairman. 

Mr. HOLDEN. The Chair thanks the gentle woman and recognizes 

the gentle woman from Kansas, Ms. Boyda. 

Ms. BOYDA. Thank you so much, Chairman Holden. Let me just 

start by saying thank you for being here today. This is obviously 

an important issue to my district, and let me just start by saying 

when I do get to speak with—spoke with some Farm Bureau people 

on Saturday morning in Allen County, Kansas, and my opening remarks was, okay, I heard, I get it. I can barely have a conversation 

without hearing about the FSA. And it is two things that I am 

hearing. One, you are closing them down, you are consolidating. It 

is just the wrong direction. It is very, very troublesome. But just 

the lack of technology means that now somebody has got to drive 

a couple of counties over to be told that things aren’t operating, 

and the next day they are going to have to drive back because the 

computer systems only work in the afternoon sometimes, and then 

come back a third day when things aren’t working well. So maybe 

other have been more polite, and I am just going to say there is 

outrage in my district about this closing and certainly ask what we 

can do in Congress’ role and seeing if we can reverse that trend. 

So my guess is we will be having further conversation about that. 

Thank you very much. 

I am concerned with the Farm Credit that it is going beyond its 

original boundaries and am concerned that its original intent was 

to be there when other lending sources weren’t available. Let me 

just ask a couple of questions and I will follow up maybe on what 

my colleague from Kansas also asked. The hospital that was built 

in Congressman and Representative Walz’s district, would that 

have been built with these Farm Credit funds 30, 40 years ago? 

Ms. PELLETT. Probably not because this was an investment by 

Farm Credit institutions. The Farm Credit System has not used 

the very broad authorities that the Farm Credit Act gives them in 

this investment area until quite recently. 

Ms. BOYDA. Were there no other funds available? Was it 

checked? I mean was Farm Credit the last resort, were there other 

commercial or bonds or other mechanisms that were aggressively 

used to fund that hospital? 

Ms. PELLETT. There have been although the project was stymied 

until the Farm Credit System came in and purchased those bonds 

to make the building of that hospital possible. USDA has come in 

with a guarantee at this point as well. 

Ms. BOYDA. I understand. Let me just ask another question. You 

were speaking about something where you were also making loans 

from Value Added. What were the two words that you used to describe that? I will ask later. It doesn’t matter. It was part of—— 

Ms. PELLETT. Processing and marketing. 

Ms. BOYDA. Yes, thank you very much. PM, let us call it. I would 

just like to add there my concern and as you make your regulations 


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having 50 percent ownership makes sense. Having a certain number of input from the local farmers that are there makes sense. 

Having people on boards, having titles, that is awfully easy to accomplish without actually having that very clear binding relationship, so I would certainly ask that you keep those relationships 

very strong. Keep the ties as you are offering any credit to people 

who are getting into the Value Added areas. I certainly would not 

support saying if somebody is just on a board or if they hold some 

titles in a corporation that that is reason for allowing that credit 

to go through. So I will yield back my time again. Thank you. 

Mr. HOLDEN. The Chair thanks the gentle woman and recognizes 

the gentleman from Michigan, Mr. Walberg. The gentleman passes. 

Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. I want to follow up on 

this questioning about the credit availability. I have heard conflicting things from Mr. Keppy and the counsel, Mr. Rawls, about 

this being a credit source of last resort. Mr. Keppy said it was his 

understanding that originally the intent was for Farm Credit availability to be a credit source of last resort for farmers. Was that not 

your statement? 

Mr. KEPPY. Well, FSA’s obligation is—— 

Mr. ROGERS. As far as Farm Credit is not meant to be a credit 

source of last resort. 

Mr. KEPPY. Thats right. 

Mr. ROGERS. So if the community bankers, which I think are 

going to be on the next panel, say that they can provide this credit 

to farmers you believe that the competition of your entity should 

be there to compete for that business, and, if so, why? 

Ms. PELLETT. Yes, sir, I do believe that the competition should 

be there, and it is probably as relevant today as it was 90 years 

ago when the Farm Credit System originated as Congressman 

Goodlatte commented on earlier. Competition is always good but 

the thing also is that the Farm Credit System is mandated by Congress to be there during good times and during bad times, and the 

commercial bankers don’t have that mandate. 

Mr. ROGERS. Let me ask, do you have any specific recommendations for this committee as to what, if any, changes you think 

should be made to the parameters within which Farm Credit can 

be made available? 

Ms. PELLETT. I don’t know as I am prepared to comment on that 

today. I do want to offer the assistance, technical assistance, of our 

staff as you go around evaluating and exploring the Farm Credit 

Act and the farm bill. I offer our staff for any assistance that they 

could offer to you. 

Mr. ROGERS. How about you, Mr. Rawls? 

Mr. RAWLS. I am with the Chairman. 

Mr. ROGERS. I was hoping you would peel off. I was afraid you 

wouldn’t but I was hoping you would peel off. Thank you, Mr. 

Chairman. That is all I have got. 

Mr. HOLDEN. The gentleman from Indiana, Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Mr. Chairman. Thank you all for 

coming. I guess we are all kind of beating the same horse here. I 

hate to call it a dead horse. I guess I am sitting here wondering 

why we are going—if this was a lender of last resort then why are 


cnoel on PRODPC60 with HEARING
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we having two panels here today because I am just going to go out 

on a limb and say that the next panel coming here will say that 

they are being unfairly treated because of these increases, so it is 

the lender of last resort. Why will the ICBA come in in the next 

15 or 20 minutes and tell us this is not a good idea? 

Ms. COOKSIE. I would be very surprised if they did for farm loan 

programs because we are certainly not in competition with any 

bank or Farm Credit. They are our lending partners in our guarantee program. But since we are the lenders of last resort, that 

means that people come to us for loans when they can’t get commercial loans from banks or Farm Credit. So I don’t believe that 

farm loan programs are in any way in competition with the banks 

or Farm Credit at all. 

Mr. ELLSWORTH. Anybody else? The next question would be can 

you explain to me, I have been here 3 months now and why the— 

I think this is like a lot of federal programs. They start off with 

really good intentions and then through amendments and add-ons 

sometimes get muddled up. I find that more and more. The reasoning behind going from a 2,500 making on population community 

to 50,000 as opposed to just doing an occupation. It says farm right 

there in the Farm Credit Administration. It doesn’t say town or 

city. Can you explain that to me for a newcomer why population 

matters? Why wouldn’t it just be if you are a farmer apply for this 

and you qualify? 

Ms. PELLETT. Congressman, this is part of the Act that probably 

does need some investigation and exploration. Our mandate is 

rural housing loans, and as we look at the landscape—I am from 

Iowa, I am from Atlantic Iowa, population around 7,000, 7,500. My 

town is purely rural, and yet the Farm Credit System cannot make 

loans, rural housing loans, in that town. And so just as agriculture 

has changed maybe the 2,500 population limit some place in between is where it should settle but I am frustrated that the Farm 

Credit System cannot make loans in some of these county seat 

towns that are more than 2,500 population scattered across the 

United States. 

Mr. ELLSWORTH. Are you pretty confident that has never occurred, and I don’t know, that a loan has been made in a community that say has 7,000, 10,000, 20,000, are you confident that that 

has never been done? 

Ms. PELLETT. I cannot say for absolute certainly, no, sir, but according to the statute that is the limitation, the 2,500 population. 

Mr. ELLSWORTH. Thank you very much. Mr. Chairman, I don’t 

have anything further. 

Mr. HOLDEN. The Chair thanks the gentleman and recognizes 

the gentleman from Missouri, Mr. Graves. 

Mr. GRAVES. Thank you, Mr. Chairman. I was actually very interested in what Mr. Moran what had to say, so I would like to 

yield my time to the gentleman from Kansas. 

Mr. MORAN. I thank the gentleman for yielding although I want 

to head down a different track. There was something that my colleague from Kansas indicated, and I would appreciate, Mr. Keppy 

or Ms. Cooksie, to speak about this issue of computers. My impression is that we are on the verge of a collapse at USDA in regards 

to the ability for our farmers and ranchers to access certainly the 


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FSA programs. I would be interested in knowing your perspective 

in regard to the lending aspect at FSA. Just within the last week 

a report from a farmer that he went to his local FSA office. They 

could not access the computer, over capacity. 

All the computers in the FSA office were closed down so that he 

could have a chance for the computer to work for him. I just think 

that Ms. Boyda raised a topic that this committee, the House Agriculture Committee, needs to pursue a lot of time—needs to spend 

a lot of time on but more importantly USDA from the Secretary 

down needs to grasp an issue that has been around USDA for a 

long time seemingly not getting any better and my guess is, my 

prediction is, something catastrophic is around the corner. Am I 

missing something? Would you like to reassure me that things are 

just fine? 

Mr. KEPPY. I have been in here for less than a year, and one of 

my biggest frustrations coming in to here was the fact to get my 

hands around the fact that the IT problems that exist. I had 

thought that the U.S. government and the county and state offices 

surely had some of the best technology available, and it was frustrating for me to find out that that is not the case. And it is frustrating for farmers when they come in to their office and have to 

wait for maybe their particular time zone to get time on the computer. There are challenges in that area. Dialogue had been taking 

place since last fall between our department and the Administration and the Hill, and we are very appreciative of that. 

I think that there are some solutions, there are some corrective 

activities that are going to take place. You are right, it is close to 

maybe being a disaster but I think that we started soon enough on 

the problem that—and maybe I should rephrase, not soon enough 

but we are addressing the issue now. I hope that we can resolve 

it. Also, within FSA we are looking at ways to make a signature 

authority and other things that take place in the office a little bit 

less complex but still meet the obligations that FSA has. 

As far as farm loans they are affected somewhat by the computer 

challenges but farm loan was very proactive and came up with the 

web-based business plan that the field staff is using, and they are 

not experiencing the degree of problems that FSA has in the rest 

of the areas, and I would like Carolyn to further comment. 

Mr. MORAN. Let me make sure I understand what you just said, 

and that is that it is the same computer you would access. It 

wouldn’t matter when you went to your county office what computer you were on but it is a different program and that program 

is more effective, more likely to work than the other side of FSA? 

Ms. COOKSIE. Absolutely. A few years ago, as you know, the farm 

loan portion of FSA came over from the Farmers Home Administration. When we came over in ’95, we had an outdated computer system so we had to start thinking about in farm loan programs how 

we are going to modernize more quickly than probably the rest of 

the agency did so we bought servers that are just for our systems 

and FLP. As Mr. Keppy said a few years ago, a couple years ago 

we bought some web-based systems off the shelf that we could use 

that is not dependent on the servers that FSA has, so we have not 

had some of the concerns that the rest of the agency has had. 


cnoel on PRODPC60 with HEARING
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Mr. MORAN. In the loan application process is the information 

that FSA, the farm program side of FSA, is it required in the loan 

process that do you need the information from FSA in order to 

evaluate a loan application? 

Ms. COOKSIE. I don’t need the information from farm programs 

part of FSA to evaluate an application for farm loan programs. 

Mr. MORAN. So their computer problems do not affect your computer? 

Ms. COOKSIE. There are only two times where we really have a 

problem. We have two common data bases that we interact with. 

One of them is called the SKIMS data base which is where you put 

the borrower information in and the other is the EOFF which is 

where you get indication to get into the system. When that is down 

for FSA then the farm loan program experiences problems. When 

it is not, which is not been the biggest problem then the farm loan 

program is pretty much up and running. 

Mr. MORAN. I thank the Chairman. I especially thank the gentleman from Missouri for yielding his time. 

Mr. HOLDEN. Thank the gentleman, and recognize the gentle 

woman from New York, Ms. Gillibrand. 

Ms. GILLIBRAND. Thank you, Mr. Chairman. I just spent part of 

my weekend talking to farmers in Washington County in my upstate New York district, and the biggest concern they have as dairy 

farmers is just staying in business. And one woman described to 

me what it is like to be a farmer today and how the high cost of 

fuel, the high cost of feed, the low prices of milk have really put 

her farm in a very difficult position, and she said that the farmers 

don’t want to answer their phones because it is creditors calling 

over and over again, and they have no ability to pay. And for the 

dairy industry it is even a bit more dire because they typically will 

have good times and bad times and when the milk prices are high 

they are able to pay everybody back and everything gets back on 

a level playing field. 

But what has happened is because these low milk prices, high 

gas prices, and high feed costs have continued for so long they don’t 

think they will be able to rebound, so my biggest concern is that 

we will have no dairy farms in upstate New York or in the northeast if we don’t change our current policies. So in the testimony I 

was particularly looking at Mr. Keppy’s testimony. You talk about 

delinquency rates and foreclosures, and you give a very rosy picture, and you say that for delinquency rates they are down to 8.1 

percent in ’06 from 23.8 percent in ’95, and you say the decrease 

was facilitated by expanded authority since 1996 to offset federal 

payments, salaries, and income tax refunds to delinquent buyers. 

I would like to comment on what percentage of these do you think 

are dairy farms, and are they overwhelmingly being hit whereas 

other farms may be doing well. And, second, what are other recommendations you can make to us as legislators about how we can 

help our farmers receive the credit they need, have the kind of 

flexibility they need to be able to sustain their farms and stay in 

business. 

Mr. KEPPY. The percentage question, Carolyn, I will give to you. 

Ms. COOKSIE. I don’t have data with me on the 8.1 percent, 

which one of those are dairy farmers. We do have that in our data 


cnoel on PRODPC60 with HEARING
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base. That could be a follow-up question we could get back with 

you. I would be happy to do that. You know, any delinquency rate 

and any foreclosure rate no matter how high it was years ago and 

low it is now that still represents somebody out there in trouble. 

And one of the dilemmas that we have in the loan program is trying to figure out how we help them pass the authorities that we 

have. We only have certain authorities. 

Now I do have to say in farm loan programs we have a little bit 

different thing because we do have the authority that some other 

lenders don’t have. When a borrower gets in trouble if they are 

going to get in financial trouble they probably want to get in financial trouble with us because we have something called the servicing 

actions that is mandated by law that we have to offer everybody 

who is 90 days delinquent to try to get them out of the situation 

there. We try to re-amortize. We try to restructure. We have a myriad of servicing actions that we try to work with them that a lot 

of other lenders just don’t have. And so we try all of those but at 

the end of the day whether it is a dairy farmer or a tobacco farmer 

or whatever, there are some people who are just not going to make 

it, and we don’t have any authority not to collect the loan back at 

some point. 

Ms. GILLIBRAND. Is that something you can look to us as Congress to begin to have a discussion about, is there anything that 

you need from the regulatory perspective that would allow for more 

flexibility for farmers, particularly those who are in industries that 

are in a difficult climate. And also we experienced some severe 

flooding in my district. We had extraordinary flooding in Delaware 

County in particular this past summer, and it really hurt our 

farms. And having another loan payment was not something they 

were able to take on, so I would really like you as our panelist and 

as leaders in our farming industry to begin to think creatively 

about what help we can give you to allow our farmers to sustain 

their business because I am very concerned that we are at a tipping point, and we need to make some serious decisions and make 

some effective and hopeful recommendations about how to move 

forward. 

Mr. KEPPY. As you know, we are very proud of the progress that 

FSA has made on making loans, but we are in a new era of today 

and there are new challenges that none of us really have a handle 

on in many different areas. You refer to dairy and we have done 

a lot of work in the dairy side. I have learned more about dairy the 

last short year than I ever knew before, but there are some challenges ahead and we need to continue to have the dialogue, and I 

think together we can come up with programs that can be beneficial as we move into these new challenges. 

High prices are great but along with high prices come higher 

input so the bottom line is just uncertain as of today, but you bring 

up some good concerns. 

Ms. GILLIBRAND. I welcome your activism. Thank you. Thank 

you, Mr. Chairman. 

Mr. HOLDEN. Thank the gentlewoman. I want to thank our witnesses for their testimony today and for their indulgence. Several 

members have indicated they want to follow up on questions so 

thank you for your indulgence on that. And I want to remind all 


cnoel on PRODPC60 with HEARING
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members any questions can be submitted for the record and answered. Ms. Boyda, I believe had a question, Mr. Keppy, that we 

will submit to you for a response specifically to Kansas. I really 

don’t have a question, but I would be remiss if I didn’t follow up 

and say that the Pennsylvania farmers are not thrilled about closing of offices either. So I am not trying to pile on but we need to 

chat, Mr. Keppy, and I recognize—— 

Mr. KEPPY. The points that have been—excuse me for interrupting but the points that have been made on that particular 

issue are well taken. We are in a very open process. We are in dialogue and we need input that you have provided and what the 

state people are going to provide. It is an effort to try to make sure 

that we are as efficient as can be. It is definitely from bottom up 

and we just need to continue to have dialogue so that we make 

sure that we are being proactive to the American taxpayers and 

have an efficient a program as possible. But we need a lot more 

dialogue and I appreciate the comments that I heard today. 

Mr. HOLDEN. We understand, and we will be talking to your people in all of our states but you are sitting in the seat so we just 

wanted to let you know. I recognize the ranking member, Mr. 

Lucas. 

Mr. LUCAS. Thank you, Mr. Chairman. And really just to speak 

more for some observations about what we have heard and what 

we are going through in this process. I think it is worth noting that 

I think for three of us in this room this will be our third farm bill, 

so a lot of us, we are together adjusting to the new world and working our way through it. But, Mr. Keppy, I just offer you an observation and being an ag economist by training at Oklahoma State and 

having been a farmer in that ’79, ’87 period so when it was so horrible, so horrible for everybody out across the country, I just note 

that your agency is designed and targeted to help challenged farmers, to help beginning farmers, but you can’t be, and I speak now 

to my colleagues as much as to you, but you can’t be a permanent 

source of credit forever. 

At some point our friends with the special challenges or from a 

beginning mode have to move on to regular sources of credit. You 

cannot be their source of credit for 30 some years or 40 years or 

50 years. That is why those limitations are in the bill. If it is not 

viable then the assets need to be provided to other challenged 

farmers or other beginning farmers. You just cannot be the permanent source of credit. It is not good for the system. And, Ms. 

Pellett, time and time again we have heard comments about maybe 

you are part of the system of last resort for credit. That is clearly 

not why Farm Credit was created. It was created in 1916 to provide more sources of credit to create more competition, to bring 

down the markets, to give farmers and ranchers a variety of opportunities to finance their operations, and it has been successful. 

And the competition that your entity has created with the commercial banking industry has driven them to more profitable, more 

aggressive—I say profitable, more advantageous products for consumers out there, and this is good but we all need to remember 

that when more credit is available chasing a fixed amount of assets, be it land or whatever the inputs are, we drive up prices so 

as we make credit more available and more effective it chases those 


cnoel on PRODPC60 with HEARING
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assets and up goes the price of land whether it is the beginning 

farmer or the established farmer or anyone else. 

I have tried in the ’96 Farm Bill and the 2002 Farm Bill to suggest to my colleagues that we look at the whole picture, the whole 

entire picture. Should we be allowing people to move a loss off their 

form F tax return over against the regular income? Does that encourage assets that are part-time farm, aren’t farm related to wind 

up competing with people trying to be farmers on a day-to-day 

basis? We need to look at the whole picture. I just say this. When 

you look at where agriculture is in this country, when I was a 

freshman at Oklahoma State or a sophomore that fall of ’79 the 

tractorcades were going on, and a number of our witnesses here remember the tractorcades up and down this town. It was a reflection of how tough the economy was back home that ’79 to ’87 period. 

We have had almost 20 amazing years under farm bills written 

by both Republicans and Democrats alike. Let us bear in mind the 

good place we begin from as we write this new farm bill. Let us 

help all of you help our constituents out there, but let us be realistic about this. We can’t save everybody. We can’t fix everybody’s 

problem but we can create an environment where everyone can 

compete effectively and in a realistic fashion, then rural America 

will prosper. I apologize, Mr. Chairman, for the tirade but I have 

lived through the tough times. These aren’t the tough times. We 

need to build off of the good times we are in right now. Thank you, 

sir. 

Mr. HOLDEN. The Chair thanks the ranking member. Ms. 

Herseth. 

Ms. HERSETH. Thank you, Mr. Chairman. I appreciate the comments of our ranking member given his experience, and I think he 

has highlighted and kind of brought us into focus particularly with 

some of what is being proposed for the Farm Credit System and 

an expansion of the lending authority. I do want to come back to 

that real quickly, but, first, Ms. Pellett, since the Rabobank experience where Rabobank tried to buy the Farm Credit Association 

that served Nebraska and South Dakota, Iowa, Wyoming. Have you 

had any other institutions wanting to leave the system? 

Ms. PELLETT. No, ma’am, there have not been. 

Ms. HERSETH. And were some of the governance provisions that 

were recently passed in part a response to the Rabobank experience? 

Ms. PELLETT. Possibly, but they were underway far before that 

experience. 

Ms. HERSETH. And finally you had mentioned a little bit earlier 

an area where you think deserves further investigation within the 

Horizons project that has been proposed as it relates to home mortgage lending for communities less than 50,000. Given that another 

proposed change in the lending authority is to enable the Farm 

Credit Council to lend to entities that are primarily engaged in 

processing farm production or furnishing goods and services to 

farmers, I know that this has been explored a bit in other questions, as the Farm Credit regulator will such an increase in authorities cause you any concern whatsoever? Do you feel that you 

have fully investigated the impact given what we have seen with 


cnoel on PRODPC60 with HEARING
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other government sponsored entities and the need for the regulator 

to be in a firm position to manage anticipated growth in the lending authorities that you have the tools available to you? 

Ms. PELLETT. We have not, Congresswoman, investigated any of 

their proposals in great depth. In fact, today is the first time that 

they have really been made public. But our attempt at processing 

and marketing has been the proposed regulation that has been 

talked about, and as we go about reading the comments and coming to a final rule that is our attempt under the present statute 

of bringing processing and marketing regulations up to date. It is 

not an attempt, however, to expand the authorities of the Farm 

Credit System in this area but it merely brings it more in focus 

with the intentions of farmers and ranchers today to get closer to 

that consumer. 

Ms. HERSETH. I appreciate your explanation. I think that that is 

an important point to make with regard to updating a system of 

regulations that keep track with how farming and ranching have 

evolved particularly with producers desire to get a percentage of 

that processing dollar. So thank you very much and thank you, Mr. 

Chairman. 

Mr. HOLDEN. Thank you. Does anyone else have a follow-up 

question that they wish to ask? I recognize the Chairman of the 

Full Committee. 

Mr. PETERSON. Thank you, Mr. Chairman, and I just want to 

thank you and the ranking member for your leadership and the 

other members in this hearing today and the other work that you 

are doing. And I am little tied up today so I apologize for the brief 

appearance, but we know that things are in able hands and we appreciate the work that you are doing. 

Mr. HOLDEN. Thank the Chairman. The Chair wishes to thank 

our witnesses today. Thank you. The second panel will convene momentarily. We welcome the second panel to the table. Mr. Frank 

Pinto, President of the Pennsylvania Association of Community 

Bankers, on behalf of Independent Community Bankers of America 

and America’s Community Bankers from Harrisburg, Pennsylvania. The Ranking Member would like to introduce the second 

panelist. 

Mr. LUCAS. Yes, sir, Mr. Chairman. Thank you for that opportunity. I would like to welcome Jeff Greenlee to the hearing today. 

Jeff grew up on a peanut, cattle, and wheat farm in Oklahoma. Jeff 

is a fellow agricultural economics graduate from Oklahoma State 

University. He currently serves as President of the NBanc in Altus, 

Oklahoma where he has worked since 1994, and he has been in the 

banking industry for over 20 years. Thank you, Mr. Chairman. 

Mr. HOLDEN. We would also like to welcome Mr. Doug Stark, 

President of the Farm Credit Services of America from Omaha, Nebraska; Mr. Armin Apple, Director of Agribank, McCordsville, Indiana; Mr. John Zippert, Federation of Southern Cooperatives, and 

Chairman of Rural Coalition, Epes, Alabama; Ms. Karen Stetler, 

Director of LSP Farm Beginnings, on behalf of Land Stewardship 

Project, Lewiston, Minnesota. The Chair would like to ask our witnesses to keep their comments or summation to five minutes and 

submit their full testimony for the record. Mr. Pinto, you can begin 

if you are ready, sir. 


cnoel on PRODPC60 with HEARING
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STATEMENT OF FRANK PINTO, PRESIDENT, PENNSYLVANIA 

ASSOCIATION OF COMMUNITY BANKERS, ON BEHALF OF 

INDEPENDENT COMMUNITY BANKERS OF AMERICA AND 

AMERICA’S COMMUNITY BANKERS, HARRISBURG, PA 

Mr. PINTO. Good morning, Chairman Holden, Ranking Member 

Lucas, and members of the subcommittee. Thank you for the invitation to testify. I am Frank Pinto. I am the President of the Pennsylvania Association of Community Bankers. I am also representing the America’s Community Bankers and the Independent 

Community Bankers of America. As Chairman Holden noted in his 

opening remarks, the commercial banking industry is the largest 

single sector provider of agricultural credit supplying nearly 40 

percent, and we are really proud of this. Since this is a hearing on 

availability of credit in rural America, I think we took two approaches. The Independent Community Bankers of America did a 

survey that was just concluded this past February with over 1,000 

bankers. 

In a survey of the Pennsylvania community bankers last week, 

we asked the question is there a lack of credit available in your 

market place. In both surveys 100 percent of the bankers responded no. Two-thirds had five or more competitors in the market 

place. Respondents overwhelmingly report that agri businesses 

have ample credit. So our two surveys then the findings are clear. 

In our eyes there is no lack of credit in rural America. There is no 

lack of competition. Numerous private sector lenders serve rural 

markets and agri businesses have ample credit available. Our surveys are reinforced if you look back in history at previous findings 

and the United States Treasury Department statements. 

A 1996 USDA study of almost 4,000 non-metro and metro manufacturing firms revealed that credit was equally available. In contrast to numerous findings the system has been pushing for well 

over a decade for expanded powers. Both the Clinton and Bush 

treasuries have warned against expanding Farm Credit powers because FSC is highly subsidized and could displace private sector 

competition. For example, in 2000 the Treasury stated FSC lenders 

are not just another competitor. The government is giving them 

significant competitive advantages. These proposals are not new. 

Back in 1995 the Farm Credit asked to lend to agri businesses, expand their mortgage finances, and remove borrower stock and borrower rights requirements. Congress did not act. 

Again this year the Farm Credit seeks to lend the non-farmer 

owned and non-farmer controlled corporations engaged in virtually 

any activities that either directly or indirectly benefit farmers. The 

language appears to allow FSC to lend to any mainstream businesses. This benefits FSC, not rural America. The result would significantly weaken the vibrant network of private sector lenders essential to a competitive rural market. Community banking would 

be weakened, implicit burden on government taxpayers expanded, 

public benefits would not be targeted to any verifiably underserved 

group. The FSC also seeks authority to provide mortgage products 

in cities of 50,000. There is no lack of mortgage credit. 

USDA indicates homeownership percentages are higher in nonmetro areas than in metro areas. FSC can offer mortgages in the 

suburbs of Washington, D.C., New York City, and Los Angeles. 


cnoel on PRODPC60 with HEARING
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Farm Credit desires to offer home equity loans which can be used 

for any purposes including any non-farm purpose. System income 

for mortgage and real estate lending is tax exempt offering significant advantages over the private sector. Another proposal removing 

borrowed stock requirements appears to allow FSC to engage in 

broad commercial and consuming lending. In our eyes there is no 

need for new powers. 

FSC, as you heard earlier, has experienced unprecedented 

growth with loan volume growing over 16 percent, the highest 

growth rate since 1981. FSC achieved this growth under current 

authority. At this rate the FSC assets will multiply 10 times within 

a decade and a half. FSC’s return on assets is over 1.5 percent. By 

contrast rural banks are always less than one percent. New authority as advocated would not be used to make new loans. FSC would 

shift existing loans from community banks and on to the Farm 

Credit books. State and local governments could lose taxes making 

it harder to sustain adequate services and infrastructure. Adding 

less than 100 FSC lenders in the rural business markets does not 

enhance competition when there are already 6,000 community 

banks serving towns of 20,000 or less. 

Farm Credit is unique. It is the only GSE retail competitor, and 

that is important for you guys and gals to understand. Introducing 

a highly subsidized lender into the market undermines robust private sector competition leading to fewer credit choices. FSC’s proposals will allow a dramatic shift away from farmers and into nonfarm lending. In regard to the regulator this year’s FSC plans to 

propose broad new scope and eligibility regulations allowing FSC 

to finance non-Farm Credit needs. We have numerous concerns 

here. We believe that the FCA should be required to testify annually to Congress providing assurances that no ineligible lending activities are current. 

In conclusion, rural America is awash in credit. The FCA is not 

supervising sufficiently to prevent ineligible lending. Farm Credit 

should not be allowed to shift their focus away from real farms and 

from agricultural credit needs. If FCS achieves their agenda there 

will be no incentive for the system to engage in loan participations 

with community banks. Congress should not pursue legislation that 

could displace countless community banks from the market. I ask 

that a letter of opposition to the system’s Horizons proposal from 

over 50 state banking associations be included in the record, and 

of course we look forward to questions. Thank you, Mr. Chairman. 

[The statement of Mr. Pinto appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. All testimony and all letters will be entered into 

the record. Mr. Greenlee. 

STATEMENT OF JEFF GREENLEE, PRESIDENT, NBANC, ON 

BEHALF OF AMERICAN BANKERS ASSOCIATION 

Mr. GREENLEE. Thank you, Mr. Chairman, and members of the 

committee. I am pleased to be here today representing the American Bankers Association to discuss the availability of credit in 

rural America. My name is Jeff Greenlee. I am President of NBC 

Bank, Altus, Oklahoma. We are a community bank chartered in 

Tulsa, Oklahoma with banks located in Tulsa, Altus, Enid, and 


cnoel on PRODPC60 with HEARING
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Kingfisher. I am pleased to report to you that the banking industry 

operates nearly 22,000 banking offices in rural and small town 

America. The services our industry provides guarantees that rural 

Americans have the same access to financial products and services 

that urban Americans enjoy. In agricultural production and agricultural real estate finance the banking industry had $106.9 billion 

loaned to American farmers and ranchers at the end of 2006. 

Nearly 40 cents of every dollar borrowed by producers comes 

from the banking industry. I am pleased to report to you that the 

agriculture loan portfolio is performing very well. The choices producers have to finance their operations have never been greater. 

Congress deserves much of this credit for what we have achieved 

in financing rural America by providing a safety net that supports 

agriculture. Congress strengthens the ability to farmers and ranchers to obtain credit that they need. Ninety years ago the Congress 

created the Farm Credit System, a government backed retail lender. It enjoys considerable tax advantages and relies on taxpayers 

to loan the FCS the credit rating so it can borrow lendable funds 

in the government sponsored bond market. 

For over a year the Farm Credit System has publicized the Horizons Project. FCS has touted how it assembled all of the stakeholders in rural America to solicit opinions what the FCS should 

do next. I wish to point out that no representative from the Farm 

Credit System ever consulted with the American Bankers Association or to my knowledge any banker in the country. The Horizons 

Project is about expanding the system, not a fresh vision for rural 

America. It would set the FCS on a path that would take them further away from financing agriculture producers. Today the FCS is 

a large, fast growing institution with a concentration of credit to 

large borrowers. 

In fact, almost 1⁄4 of all FCS loans are to borrowers who have 

borrowed more than $5 million. The recommendations of the Horizons report point to the fact that Farm Credit wishes to become a 

corporate lender to big business and to finance suburban housing 

and consumers who have little or no relationship to agricultural 

and rural America. Farm Credit System lenders have had the authority to finance farmer owned businesses that provide services directly related to producers on farm operating needs for decades. 

Over the years FCS lenders have gotten into more and more questionable types of business finance. Farm Credit wants to finance 

any ag related business and for the first time businesses that provide capital goods or equipment to farmers are those who would 

qualify under FCS regulations to be defined as farmers regardless 

of ownership requirement. 

CoBank, the last remaining bank for cooperatives, exists to lend 

the farmer owned and farmer controlled cooperatives. They now 

seek the authority to finance corporate entities regardless of the organizational structure of the entity being financed. If granted these 

new authorities, CoBank would be allowed to finance entities that 

compete directly with farmer owned cooperatives. Unlimited authority to finance agri business would be a radical change in the 

direction of Farm Credit and would be harmful to the farmer 

owned businesses and farmer owned cooperatives. Farm Credit 

wishes to expand their current authority to finance homes in towns 


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of 2,500 or less to cities of up to 50,000 people. There is no justification for such action. Rural America is not in cities of 50,000. 

What public policy mission does this fulfill? 

FCS wants to render the ownership structure of the system irrelevant. Farm Credit was created as a farmer owned and farmer controlled cooperative. FCS lenders want Congress to remove the stock 

ownership requirement from statute and allow the board of directors of each FCS institution to determine how much stock each borrower is required to buy. Such action will result in FCS that is 

owned by favored class of borrower while others who borrow would 

be barred from voting or from receiving other benefits of ownership. We urge Congress to reject Farm Credit’s expansion plan. The 

Farm Credit System was created to serve the credit needs of farmers and ranchers and farmer owned service businesses and farmed 

owned cooperatives. 

They should not be allowed to abandon their mission to serve 

these borrowers while retaining the tax, regulatory and other special benefits to serve a new base of non-farm borrowers. Mr. Chairman, I have included recommendations for improvements to the 

USDA Farm Service Agency guaranteed loan program in my statement. Currently, banks write more than 93 percent of the loans in 

this program. I urge you to look at those recommendations. In summary, the American Bankers Association appreciates the opportunity to discuss the issues of credit availability in rural America. 

Thanks to the banking industry rural Americans enjoy a limited 

opportunity to finance farms, ranches, businesses and homes at 

competitive rates and prices. 

We reject the Farm Credit System’s claim that something is 

missing in rural America. Our system works well because Congress 

has wisely chosen to restrict the role play by government backed 

lenders that compete directly with the private industry. I will be 

happy to answer any questions that you may have. 

[The statement of Mr. Greenlee appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. Thank you, Mr. Greenlee. Mr. Stark. 

Mr. STARK. Mr. Chairman, if it would be all right, I would like 

to offer the mike first to the farmers. At Farm Credit we let farmers speak first, and I would like our director to speak first if that 

is okay. 

Mr. HOLDEN. Without objection. Mr. Apple. 

STATEMENT OF ARMIN APPLE, DIRECTOR, AGRIBANK 

Mr. APPLE. Thank you, Mr. Chairman. I am here as a farmer 

from McCordsville, Indiana, and as borrower, stockholder, and Director of the Farm Credit System. I have been farming since my 

sophomore year in high school when I had borrowed equipment and 

40 acres of rented land. Today I farm over 1,400 acres. I started 

borrowing from Farm Credit in 1972. My father borrowed from 

Farm Credit as do my daughter and son-in-law. I know what it 

means for Farm Credit to stand by you in good times and bad. This 

background is important because it is people like me that direct 

system institutions and it is people like me who will continue to 

do so in the future. 


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We have excellent managers that run our institutions and make 

sure they comply with all regulations and disclosure requirements. 

It is the directors that keep these institutions focused on agriculture and rural America. This is the Farm Credit System which 

undertook the Horizons Project. System director and management 

together studied the dramatic changes occurring in agriculture and 

in the rural communities on which agriculture depends. We obtained broad input and then identified how current regulations and 

law limit Farm Credit’s ability to meet customer needs. While 

many issues were identified only four legislative items met our internal criteria that they enhanced Farm Credit’s ability to meet 

customer needs while maintaining our focus on agriculture and 

rural America. Mr. Stark will describe those in detail. 

I want to give you a sense of why change is necessary. In addition to being a farmer, I have been very active in my local community serving on several boards. I also spent 12 years as an elected 

county commissioner for Hancock County, Indiana, which made me 

a close observer of the change happening in my community. Our 

county is experiencing suburban sprawl. The population has grown 

and consolidation has occurred in agriculture, much of that due to 

farmers retiring. The bottom line is that there are fewer of us in 

rural crop production today to support the farm-related businesses 

we need to stay in business. 

With about 600 farm proprietors remaining in a county of 58,000 

residents the environment for farm-related businesses change. The 

typical small grain elevator disappears as does the local seed dealer 

and implement dealer. As this happens, the local banker can’t justify having an agricultural loan officer on staff. Interest in servicing farm-related businesses also declines. There are other nonfarm businesses lending opportunities available. When that happens farm-related businesses are left with few competitive credit 

options to turn to, and that speeds up their departure. When the 

farm-related infrastructure goes, the challenge for farmers to stay 

in agriculture becomes that much greater. 

Another trend occurs. Some local farmers start to adapt. A concentrated population brings the opportunity to adjust to higher 

value production. A field of feed corn might become a profitable 

field of sweet corn. A soybean field might shift to sod. Folks see 

ways to get more income out of high value land in order to resist 

the temptation of cashing out to development. To do this successfully though we need access to a whole new set of farm-related 

businesses different from what were there before. High value vegetable operations require a lot of labor that must be hired and managed. Pesticide application always has required care but greater 

regulation has increased the need for expertise especially in more 

populated areas. 

Even producing organic vegetables requires consultants on pest 

management and soil fertility. These new farm-related businesses 

as well as the old ones that still remain continue to be there to 

support farming operations they require access to competitive and 

reliable capital providers that know agriculture and are committed 

to serving farm-related businesses. In many cases, Farm Credit 

can’t directly serve those businesses. The Farm Credit Act says we 

are to support farm-related businesses necessary for efficient farm 


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operations but as those businesses have changed dramatically and 

their business structures have changed, the law has not. I have described just one small case study of one county in Indiana. We can 

provide you with many more examples that don’t involve suburban 

sprawl like the changing ownership structure of renewable fuel 

plants or the changing ownership of a local processing facility 

owned by a retiring farmer that provides an essential market for 

local producers or even the very small town that has grown by 50 

people in population that Farm Credit can no longer provide home 

mortgage financing. 

As the Farm Credit director, I take very seriously my responsibility for the stewardship of this system. We bring the benefit of 

access to national money markets, to agriculture and rural America, packaged in a cooperative organization that our farmers own. 

The changes we are suggesting won’t alter our focus, our mission 

or our ownership, but only improve our ability to serve the changing needs of your agricultural and rural constituents. Thank you, 

and I will be happy to answer your questions. 

[The statement of Mr. Apple appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. Thank you, Mr. Apple. Mr. Stark. 

STATEMENT OF DOUG STARK, PRESIDENT, FARM CREDIT 

SERVICES OF AMERICA 

Mr. STARK. Thank you, Mr. Chairman, and members of the subcommittee. I appreciate the opportunity to appear before you today 

on behalf of the Farm Credit System. I am Doug Stark, President 

and CEO of Farm Credit Services of America, headquartered in 

Omaha, Nebraska. Farm Credit Services of America is one of the 

100 cooperatively owned financial institutions that make up the 

Farm Credit System. We serve farmers, ranchers, and rural businesses in Nebraska, Iowa, South Dakota, and Wyoming. The Farm 

Credit System has identified a number of things that we can do to 

help agriculture producers in rural communities adapt to the new 

and evolving realities they face. We are here today to ask for the 

committee’s support for these proposals. 

We are recommending two very modest and incremental changes 

to our basic lending authority that will provide more benefits to 

farmers and rural communities. We also recommend two technical 

changes to the law governing Farm Credit’s cooperative stock. The 

first proposal would serve the needs of farming and fishing-related 

businesses. We ask Congress to recognize the modern business 

structures in agriculture by basing eligibility for Farm Credit financing on the activities undertaken by the company and not determined on the corporate structure under which the company operates. 

Under the proposal businesses are primarily engaged in processing, preparing for market, handling, purchasing, testing, grading, and marketing farm or aquatic products would be eligible for 

Farm Credit financing. In addition, the proposal would make eligible businesses that are primarily engaged in furnishing farm and 

aquatic business services, capital goods or equipment to farmers, 

ranchers or producers of aquatic products. These are the very businesses that farmers and aquatic harvesters depend upon to support 


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their operations. They are one step away from the farm gate. Farm 

Credit already finances many of these businesses. However, outdated law prevents us from fully serving the needs of this important sector of the agricultural economy. 

We also believe that more rural residents should be able to obtain a competitively-priced Farm Credit mortgage loan. Since 1971 

Farm Credit’s ability to provide home mortgage financing for rural 

home buyers has been strictly limited to rural areas with less than 

2,500 in population. This 36-year-old restriction no longer makes 

sense. We propose to modify the term of rural to conform it to the 

definition Congress included in the 2002 Farm Bill, which is any 

area other than a city or town that has a population of greater 

than 50,000 inhabitants, and the urbanized area contiguous and 

adjacent to such city or town. 

This proposal has been subject to a great deal of 

mischaracterization. Our proposal, and our intent, has never included authorizing home mortgage lending in urbanized areas like 

Beverly Hills, California, Darien, Connecticut, or McLean, Virginia. 

In addition, this proposal to redefine rural has no impact on any 

other authority other than Farm Credit’s home mortgage lending 

authority. We understand that opponents of this provision argue 

that it would permit Farm Credit to lend to anything in towns with 

less than 50,000 in population. That simply is not the case. We remain committed to our cooperative structure and farmer ownership 

and control. Nothing we propose has any impact on our cooperative 

structure nor does it impact farmer ownership or control of FCS institutions. 

Instead we propose to lower the barrier to entry for customers 

of the Farm Credit System associations by eliminating the minimum stock requirement from the statute. Borrowers would still 

have to own stock but the cost of purchasing that stock could be 

significantly lower. This insures that we maintain our customer 

owned cooperative structure. We also recommend that Congress 

give CoBank’s customer owner elected board of directors the authority to determine which of its customers is allowed to hold voting stock in that organization. This would allow CoBank’s non-cooperative rural utility customer base to vote for directors to the 

CoBank board. 

Mr. Chairman, these four proposals constitute our recommendations for updating the Farm Credit Act to meet the changing needs 

of rural customers. They are consistent with the system’s traditional mission. The changes are quite modest and incremental. 

They will benefit agriculture and rural communities by offering 

greater access to a competitive, reliable, dedicated, and customerowned source of credit. Thank you for holding this hearing today, 

and I look forward to the dialogue we will have here shortly. 

[The statement of Mr. Stark appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. Thank you, Mr. Stark. Mr. Zippert. 

STATEMENT OF JOHN ZIPPERT, FEDERATION OF SOUTHERN 

COOPERATIVES, AND CHAIRMAN, RURAL COALITION 

Mr. ZIPPERT. Good morning. I want to thank the committee for 

inviting me. I am John Zippert. I am the Director of Program OperVerDate Aug 31 2005 02:16 Oct 05, 2007 Jkt 036367 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 E:\HR\OC\A367.XXX A367

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ations of the Federation of Southern Cooperatives at our rural 

training and research center in Epes, Alabama, which is Sumter 

County, Alabama. I also am the chairperson of the Rural Coalition, 

and as such beyond our work with African-American farmers the 

Rural Coalition works with the Intertribal Agriculture Council, the 

National Latino Farmers and Ranchers Trade Association, the National Hmong American Farmers, and many other groups of people 

of color farmers, minority farmers, socially disadvantaged applicants. In the perspective of this hearing, I think I represent the 42 

percent of the people Ms. Cooksie said were rejected and not considered more or less for loan applications. 

Personally, I have been involved in this effort for over 40 years. 

I started as a teenager in the civil rights movement in Louisiana 

working with farmers in St. Landry Parish, Louisiana. In 1971, I 

moved with the federation to Sumter County where we have a 

1,000 acre demonstration farming facility committed to our movement of cooperatives and credit unions among poor people in the 

south. I think I have a gray hair in my beard today for every black 

farmer I have worked with and tried to assist over the years, and 

of course this work has been against great obstacles and we really 

stand now at a position of crisis. We have only three percent of the 

black farmers that we had at the turn of the century in 1910 still 

in existence, and we have small groups of other farmers, native 

American farmers, Latino farmers, Asian-American farmers, and 

unless this farm bill does something to address these people the 

issue of the ownership of land in this country and the issue of involvement in minorities and agriculture will have a dim future. I 

think we have a last chance here in this farm bill. 

We have a 20-page statement we made to the committee, and 

five minutes is impossible to deal with all of this. For instance, one 

of the things you heard today was that Farm Service is concentrating on beginning farmers and socially disadvantaged, but they 

don’t make a distinction. When you get down to the county level, 

that means different things in different places in America, and if 

you look on page four of our statement that for instance the beginning farmers program as good as it is that 92.5 percent of the recipients have been white males, and only four percent of the recipients have been women, and 3.9 percent of them have been white 

women. Now this information comes from the requirement we 

asked you to put in the last farm bill, Section 10–708 to give us 

information by race, by gender of all of the programs of USDA. 

So they produced 120,000 separate PBFs but they didn’t integrate them. They didn’t put them in the system that you could 

search with a computer so some of the information you need and 

we need that you asked for is not readily available to us to really 

evaluate these programs. I want to say that one of our main concerns is still foreclosures. We want you in the next farm bill to 

have an independent commission to look at every single foreclosure 

a Farm Service agency is about to carry out to make sure that people get all the benefits that they were supposed to receive. On 

pages 15 through 17 of our statement we have a detailed integrated program that would really help the constituents I represent 

in terms of outreach credit, risk management, collaborative marketing and all the rest. 


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And obviously I ran out of time but we really want to come and 

talk to you about what a meaningful farm bill would be for our constituents. Thank you very much. 

[The statement of Mr. Zippert appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. Thank you, Mr. Zippert, and your entire testimony 

will be entered into the record, and we look forward to talking to 

you. Ms. Stettler. 

STATEMENT OF KAREN STETTLER, DIRECTOR, LSP FARM 

BEGINNINGS, ON BEHALF OF LAND STEWARDSHIP PROJECT 

Ms. STETTLER. Good afternoon, Chairman Holden, and members 

of the subcommittee. My name is Karen Stettler. I am the Director 

of the Land Stewardship Project Farm Beginnings program, and I 

am happy to be here today to testify on the obstacles and the opportunities that are for beginning farmers and as it relates to credit. The Land Stewardship Project is a membership organization 

working primarily in rural committees in the Upper Midwest. My 

testimony reflects the realities and experiences of beginning, 

transitioning, and established farmers that we work with through 

the Land Stewardship Project Farm Beginnings training and education program. Sixty percent of the Farm Beginnings graduates 

are currently farming. In the last eight years, I have worked with 

hundreds of beginning farmers who have come from various backgrounds, current farmers, multi-generational families, those changing careers with little experience, all who are interested in a variety of agricultural enterprises from dairy to beef to hogs to community-supported agriculture. 

We also have an equity building livestock loan program. There 

is opportunity in agriculture today. It is important to know that 

there are people who desire and are committed to farming. For example, in our 10th year of offering the Farm Beginnings program, 

we have more participants than ever, and this is true of other organizations around the nation who are offering similar programs. 

There are other opportunities right now that make getting into 

farming an exciting proposition. One is the demand for organic. 

Local and regional markets are another. Growing crops for bio-fuels 

and farmer support and training that works that are making a difference are all helping beginning farmers get started. 

Despite the opportunities, obstacles remain. For America’s next 

generation of farmers to take advantage of these opportunities we 

need to initiate good public policies that assist beginning farmers 

and ranchers in overcoming barriers to getting started and succeeding. From our experiences in the Farm Beginnings program 

where we work intimately with a segment of our farmers often in 

need of credit a couple of the common struggles we hear from people are lack of technical assistance in guiding applicants through 

the process and a need for education of FSA and other lenders 

about the broadening variety of farm enterprises. From the lender’s 

side we hear that farmers are unprepared or lack the knowledge 

and tools needed to develop business plans. These obstacles can be 

overcome through community-based farmer training that helps beginning farmers develop the tools and know how to do sound busiVerDate Aug 31 2005 02:16 Oct 05, 2007 Jkt 036367 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\A367.XXX A367

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ness planning which will then assist the farmers in accessing affordable credit. 

By focusing on financial training and business planning, beginning farmers are coming to the lending institutions with carefully 

thought out plans and the numbers to support it. The beginning 

farmer and rancher development program authorized in the last 

farm bill would fund local programs that introduce beginning farmers to not only financial and business planning but also goal setting, whole farm planning, and on farm education, in addition to 

connecting with established farmers through mentorships. Our experience has been that offering quality training and then ongoing 

community support is the best combination for beginning farmers 

success. The new farm bill should fund the beginning farmer and 

rancher development program. In our view, this is the single most 

important beginning farmer and rancher request in the 2007 Farm 

Bill. 

Regarding the USDA credit programs, we believe that the existing loan structure can and has been successfully used in supporting 

beginning farmers. With some adjustments these programs can become more effective. The down payment loan program in the past 

has served beginning farmers well especially when there was higher interest rates in the ’90s. To make this program more successful 

with today’s realities of low interest rates an adjustment should be 

made to fix the interest rate provision to set it at four percent 

below the regular direct farm ownership interest rate or one percent, whichever is greater. The direct farm ownership and operation loans were last adjusted in the late ’70s and ’80s. We recommend increasing the loan limitations from $200,000 to $300,000 

to reflect increased land values and overall higher farming costs. 

Along with loan limit adjustments, the authorization level for direct farm ownership and operating loans should be increased. 

Individual development accounts would be another policy area 

that would aid beginning farmers in asset building. In summary, 

there are good opportunities in farming today for beginning and 

transitioning farmers. There are also obstacles and it is therefore 

important to have good public policies that provide smart, cost-effective start-up support and incentives for America’s next generation of family farmers. The opportunity is in the 2007 Farm Bill. 

We cannot afford to let these opportunities slip by. The time to act 

is now. Thank you very much. 

[The statement of Ms. Stettler appears at the conclusion of the 

hearing.] 

Mr. HOLDEN. Thank you, Ms. Stettler. I thank all the witnesses 

for their testimony. A Member of the Subcommittee, who will remain anonymous, when they walked into the room said to the 

Ranking Member and I, whose idea was it to have this hearing 

anyway, and I think pretty much he was right on target. We don’t 

have really have that many questions of where you stand on the 

issues, but we are really concerned with one thing, and that is that 

the credit needs are being met all across rural America and all 

across the agriculture community. So I would say to Mr. Stark and 

to Mr. Apple that again, and you pretty much covered it in your 

testimony as well as did Mr. Pinto and Mr. Greenlee, but first to 

Mr. Stark and Mr. Apple, if you can identify where you think there 


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are gaps in credit, needs and concerns that are not being met by 

the commercial banks or not being met by any other lenders, and 

how you think the proposal by Farm Credit can address that. 

Mr. STARK. I will take a first stab at that. Thank you for the 

question. I don’t think that even as we looked at this project it 

wasn’t as much about the gaps. It was about the issues that we put 

on the table, you and some members of the committee, providing 

competitive alternatives for producers in rural America. What we 

did with the Horizons Project initially was studied the changes that 

have occurred in rural America and in agriculture, and really not 

only looked back but tried to look forward in terms of what it is 

going to take to meet the changing needs of this very dynamic industry. 

And so with that, we came to the table with what we thought 

were some very modest proposals that would still keep the Farm 

Credit System focused on agriculture as our primary and core business but in addition then allow the Farm Credit System to support 

those businesses where they are becoming very integrated with the 

agricultural community, and that is really the essence of where we 

are coming from. 

Mr. HOLDEN. Mr. Apple, didn’t you mention a situation in Indiana where the credit needs are not being met? 

Mr. APPLE. Well, I think it is very much like Mr. Stark said. 

There is credit available, and there is always credit available no 

matter what the time is. It is just how much do you pay for it. And 

sometimes even in small communities some of the banks may not 

have the certain capacities to handle all of the particular credit for 

maybe one of these ag-related businesses so oftentimes the Farm 

Credit institutions and the local banks work in tandem with these 

businesses to provide these new businesses in these rural communities that can basically keep the jobs there, keep the young people 

in these communities. That is probably the goal that I would state 

there. 

Mr. HOLDEN. Mr. Pinto and then Mr. Greenlee, are credit needs 

being met in rural America in the agriculture community? 

Mr. PINTO. I feel like the fellow on television, the survey says no. 

I mean we explored—let us take your district, Congressman 

Holden. We have 26 financial institutions in the district. We have 

explored them. Their comments, I want to submit for the record. 

Generally speaking, there is an overabundance of availability. 

When these guys are talking about competitive alternatives and 

they are talking about credit availability the Farm Credit System 

is a retail provider. They already have the built-in advantages over 

the private sector. When they go to the market to get additional 

monies from Wall Street, when they get the tax break and everything, and even when Chairman Pellett alluded to the fact that 

competition is good, guess what, we employ that too but we just 

want it to be fair competition. 

When you build in all these factors our reading of this is that we 

have not seen—of course someone can take an isolated pocket. 

When you take the 8,000 commercial banks and thousands and 

thousands of branches, and we have covered this nation quite well, 

I don’t think you make national public policy based on isolated factors where there might be a lack of credit and if you do then you 


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have to look at the balance and say where is the competition, and 

how can we make it a more level playing field. 

Mr. HOLDEN. Mr. Greenlee, do you wish to add anything? 

Mr. GREENLEE. I would pretty much agree with Mr. Pinto on his 

comments. There is an abundance of competition in rural America 

at least as we see it in rural Oklahoma and as I have seen across 

the country with the various members that I serve on the committee with. I think what has been mentioned here is an inference 

of competition into how it will affect it. I want to point out that 

it is not pure competition. It is an unlevel competition that we are 

looking at right now, and I would ask the committee to keep that 

in consideration as they seek expansion of this area. When it comes 

into residential home lending there is no doubt that there is an 

overabundance of available credit out there especially with the 

technology of on line lending and other services. It just does not 

make sense that any part of this country is being underserved. 

Mr. HOLDEN. Thank you. Ms. Stettler, I appreciate your comments on beginning farmers, and I do not mean to ignore you or 

Mr. Zippert, but I want to ask a question about startup of beginning farmers because we are concerned about that. I am just curious, Mr. Stark and Mr. Apple, and then followup from Mr. Pinto 

and Mr. Greenlee, what does your portfolio look like with beginning 

farmers? Can a young farmer looking to get into the business look 

to you for credit and can you provide it? 

Mr. STARK. Mr. Chairman, very definitely so, and I think that 

again is one of the things we probably don’t do a good enough job 

of talking about is the what I would call the great service we provide to beginning operators. I would speak from our institutional 

perspective, we have many different programs all the way starting 

with loans to 4H and FFA kids. We have special programs that 

allow them to finance their 4H and FFA stock projects. We have 

scholarships and things along that line. But one of the key hallmarks of our program is what we would call a program to limited 

resource customers that are referred to here this morning basically 

those customers that can’t qualify for credit on a conventional 

basis. We have 700 of those customers in the 4 states that we serve 

to individuals that could be coming right out of college buying their 

first tractor, their first farm, renting a farm to operate on, and it 

is for over $130 million. 

In total our portfolio if you consider that we consider young as 

less than 35 years old, we have over 9,000 loans to customers that 

are in that category that are under 35 years of age. And so we 

think it is a great story that we have already done a very effective 

job at. 

Mr. HOLDEN. I see my time has expired. Mr. Pinto, are the community banks and the commercial banks engaged with beginning 

farmers? 

Mr. PINTO. Sure. We are looking—in our business, which is a 

regulated business, we are looking to be paid back, and unlike the 

lenders of last resort that USDA talked about, we have to make 

sure because of our regulators’ oversight, and constant oversight, 

that what we do is prudent, fiscally responsible, so we just can’t 

give it away. There has to be a quid pro quo there in the relationVerDate Aug 31 2005 02:16 Oct 05, 2007 Jkt 036367 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 E:\HR\OC\A367.XXX A367

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ship between the borrower and the lender, and I think we have excelled at that. 

Mr. HOLDEN. Thank you. The Chair recognizes the ranking member. 

Mr. LUCAS. Thank you, Mr. Chairman. Jeff, let us visit about 

Jackson County, Altus, America. Farm Credit is present in your 

county and in addition to NBC, how many other banks are there? 

Mr. GREENLEE. I believe there are seven other banks in Altus, 

and there are approximately four other banks in the outlying communities in Jackson County. 

Mr. LUCAS. So in the case of NBC, what is the biggest loan that 

you could make to a creditworthy farmer or for that matter, anybody else? 

Mr. GREENLEE. Legal lending limit is about $4.6 million of our 

bank organization. Because of our ownership structure, we have 

another bank that is under the same exact ownership that we generally participate loans out to go above that, and that can take our 

legal lending limit up to close to $10 million. However, because of 

relationships with area banks any organization that is looking at 

a loan larger than that, for example, if I can include this, we are 

working on a $20 million package for a cancer center in southwest 

Oklahoma, working with three regional hospitals. We were able to 

work with banks in the region to go above our legal lending limit 

to meet those needs. That is a rare moment but we can go above 

those limits and work with other banks and participate and take 

care of the needs. 

Mr. LUCAS. Mr. Apple, in your part of Indiana, which county was 

it again? 

Mr. APPLE. Hancock County, Indiana, east of Indianapolis. 

Mr. LUCAS. East of Indianapolis. Describe for me the financial 

circumstances in your county. Obviously, Farm Credit is there. 

What other—— 

Mr. APPLE. Farm Credit is there. That close to Indianapolis there 

are a multitude in my particular county, a multitude of things in 

that particular area. As you move out county by county from the 

large metropolitan areas though, that does increase or does decrease because you have less population and just less demand for 

those particular services. So there are banks there, yes. 

Mr. LUCAS. I asked the earlier panel, we discussed the general 

prosperity of the farm country out there, and I referenced that and 

credit and the cost of inputs and land and all those things going 

up, and I put this to all four of you in the financial business. How 

do you gauge the impact of land price changes, the trend over the 

last two—one, two, three, four, five years in that general time zone, 

are we seeing a consistent—— 

Mr. STARK. Your question is in terms of where land prices went? 

Certainly in almost all cases the four states we serve including 

South Dakota, we have seen significant increases in land prices 

even over the last six months particularly with corn and soybean 

prices moving up like they have. And so that varies by state 

though. South Dakota has probably been the most over a five and 

seven year time period been one of the highest in the rate of increases. Nebraska, however, has been very conservative relative to 


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that so it does vary depending on the state and economic conditions 

of each state and the various laws and regulations that you state. 

Mr. LUCAS. How would you describe land values in southwest 

Oklahoma, Jeff? 

Mr. GREENLEE. They have certainly been increasing like the rest 

of the country. I think if you get a group of bankers together the 

first guy doesn’t stand a chance as far as how high land prices are 

going in their area, but southwest Oklahoma certainly we have had 

lower per acre land prices than some other areas, but we have seen 

some great increases in the last five years. Most of that increase 

is coming in from non-farm demand. 

Mr. LUCAS. Which leads me to my next question. Thinking back 

to those horrid days of the ’80s that we all went through together, 

how would you describe the typical farm portfolio that you have, 

how much leverage is increasing or decreasing if there is such a 

thing as a typical farmer’s loan portfolio either NBC or at Farm 

Credit? 

Mr. GREENLEE. If I can answer that. I think we all would like 

to say we have learned our lessons. Unfortunately, bad loans are 

made during good times, and we can’t really recognize that right 

now. We have some times over the last 10 years especially in the 

cotton industry with weather-related issues that we have portfolios 

that have gotten a little bit weaker. And then thanks to restructuring programs and working with other programs out there got 

those customers back on their feet and made some improvements. 

There is a lot of swing right now going on between road crop farmers who are enjoying some of the benefits with some higher grain 

prices versus some of your livestock producers. There is that swing 

going on that we are seeing right now. Some of our livestock producers, especially grass people who are doing grass cattle are not 

seeing as good returns as they have in the past. 

Mr. STARK. In terms of portfolio, we feel very good about that. 

We have a philosophy, at least at Farm Credit Services of America, 

that we are going to be conservative in good times, we are going 

to be courageous in tough times, which means being consistent all 

the time regardless of the cycles. Actually going back three years 

ago, we started addressing this topic, and we lowered our advance 

rates on real estate loans because of the concern we had with escalating real estate prices. And so we took a conscious decision there. 

I have a year end portfolio management report that shows me on 

an ongoing basis what our penetration rates are on real estate and 

almost 80 percent of our portfolio is under a 60 percent loan value 

based on current prices. So, in essence, land values could drop 40 

percent and those producers would still have equity in their land. 

And probably there is over 60 to 65 percent of that is less than a 

50 percent loan to value so there is great equity in real estate even 

at today’s prices even if something would change. 

Mr. LUCAS. We did learn our lesson. Thank you. Thank you, Mr. 

Chairman. 

Mr. HOLDEN. The Chair thanks the ranking member and recognizes the gentlewoman from South Dakota, Ms. Herseth. 

Ms. HERSETH. Thank you, and thanks to all of you for your insightful testimony today. I would like to start with you, Mr. Stark 

and Mr. Apple, about this change in the home mortgage lending 


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authorities. Horizons proposes to enable Farm Credit entities to do 

home mortgage lending in communities up to 50,000. Now, Mr. 

Stark, as I know you are aware, if adopted that would exclude 

Farm Credit from exactly two communities in South Dakota. And 

in rural America cities that size are generally considered small. 

They are often time regional hubs of economic activity, and they 

often have vibrant mortgage banking opportunities and enterprises 

that compete clearly effectively against one another. 

So given that fact, why should Congress grant to the Farm Credit System such a significant increase in the size of community to 

which it can provide home mortgages? 

Mr. STARK. Yeah, thank you for the question. That really is a 

good one because internally as we developed our own recommendations we wrestled a lot with that. What is the right number, is it 

25, is it 50, is it higher, is it lower. What is right in South Dakota 

is not right in Pennsylvania, so we really wrestled with that a lot. 

We ended up coming back to the number and the definition that 

was already defined by Congress to define a rural area as a basis 

as some kind of external validation for what we could put in place. 

While we recognize that only two communities in South Dakota 

would be excluded most people would say Huron, South Dakota is 

not a metropolitan area, for example, and we believe that those 

communities and a lot of the businesses that are housed there really benefit agriculture as well and so there is a great mission tied 

to allow the Farm Credit System to be able to support those kind 

of communities. 

Ms. HERSETH. I appreciate your response. I live in Brookings, 

South Dakota. When you add in the students we are about 18,000 

or so. And I hear what you are saying about communities like 

Brookings and Huron but I also know from my experience in 

Brookings as well as the folks that I know in Huron and Aberdeen 

and other communities that are under 50,000, I haven’t heard concerns about the ability to get a competitive rate in a home mortgage in those communities given the competition that I think exists, not only with the banks, the commercial banks, that are in— 

and community banks in Brookings or Huron but also other mortgage lending opportunities whether they are in Sioux Falls, whether they are in Mitchell, Rapid City. So I appreciate your response 

and how you grappled with sort of the right size of the community. 

Within your membership, I know that currently with the 2,500 

or lower population that is the existing authority for the home 

mortgage lending, correct? 

Mr. STARK. Right. 

Ms. HERSETH. Where are you in terms of the 15 percent cap? 

Mr. STARK. We are still fairly low in that. There is room there. 

At the same time, and we need to speak to that, we are not asking 

for the other limits in Farm Credit’s authority for home mortgage 

to be changed. They have to be owner occupied, have to be single 

family, and we still have to stay within our current 15 percent cap, 

so we are not asking for the lid to be taken off and focus this into 

rental properties or those kinds of areas. 

Ms. HERSETH. Thank you for that clarification as well. Mr. Pinto 

and Mr. Greenlee, and I think, Mr. Greenlee, you in your testimony 

suggested what I think the answer is going to be to this question, 


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but let me pose it and explain where I am coming from on this. 

CoBank can currently lend farm cooperatives that seek to start 

ethanol plants and the like but many of these entities are changing 

their structures in a way that continues to have significant farmer 

involvement, and that was alluded to, I believe, in Mr. Stark’s testimony and Mr. Apple’s about these modern business structures 

that have evolved as the agricultural industry has evolved and 

these higher producers to be involved in some of the processing and 

marketing of their commodities and value added products. 

Now would you pose any changes that would enable CoBank to 

continue to loan to groups with significant farmer involvement if 

they don’t meet the current limits of CoBank’s lending authority? 

Mr. GREENLEE. I think the definition of farmer involvement is a 

question—I think a comment was made over here that perhaps you 

can window dress farmer involvement by the change of the board 

although the ownership is less than 50 percent or the control is 

less than 50 percent. The bottom line is in business control is everything. By having a board that is put on there that is predominantly by farmers or producers doesn’t necessarily meet the definition of control. So I would oppose any change to that and keep the 

ownership requirements the same. 

Ms. HERSETH. If I might, one follow up. Taking LLC, for example, where it is over 50 percent owned and controlled by individual 

farmers but they made decisions based on differential tax treatment of the structure whether it is a co-op or an LLC. Would you 

oppose a change to allow CoBank to lend to an LLC that really differed little in terms of the amount of farmer involvement, the farmer ownership, and the farmer control but because it changed, it 

transitioned from a co-op when it initially started to an LLC and 

so others followed suit and rather than using the cooperative structure use the LLC structure. 

Mr. GREENLEE. Like a lot of things at face value that may seem 

appropriate but what it does is open the doors for other things to 

come in its place. I think the law as it is defined right now is very 

adequate and those fine line areas that you are talking about as 

far as corporate structures being set up those projects can still be 

met by the private sector. I don’t think that those entities would 

be lacking in financing available. 

Ms. HERSETH. Thank you, Mr. Chairman. I may submit an additional question for the record. 

Mr. HOLDEN. The Chair thanks the gentlewoman and recognizes 

the Ranking Member of the Full Committee, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman, and let me follow up 

on some of the questions of Ms. Herseth and Mr. Lucas. I think Mr. 

Pinto and Mr. Greenlee commented that the 50,000 cap on home 

loan lending population areas is something you oppose, and it is a 

dramatic increase. I am not sure that I would agree with that significant increase. But let me ask Mr. Greenlee and Mr. Pinto, is 

there any number above 2,500 that you would support increasing 

that to cover very small communities that are in rural areas and 

are not able to be served by Farm Credit Service at this point. 

Mr. GREENLEE. Let me just say no. 

Mr. GOODLATTE. Okay. I appreciate that, but let me follow up 

with that. Should it be 2,500 or should it be zero? 


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Mr. GREENLEE. We are not asking for the—— 

Mr. GOODLATTE. I know you are not asking for it. What do you 

think it should be? 

Mr. GREENLEE. Realistically it should be zero because— 

Mr. GOODLATTE. Okay. Let me follow up then on a question that 

Mr. Lucas asked. I think this is an important aspect of what we 

are talking about here. I very strongly support my banks in all of 

the areas of my district, large and small, and they serve a very 

vital need. But there are certain circumstances and there are certain times in which banks simply aren’t there. And the Farm Credit System has the ability to offer loans because of the very subsidies that you have noted and complained about that you wouldn’t 

take the risk on. So aren’t we really talking here about whether or 

not there should be a Farm Credit Administration and Farm Credit 

System of lending in addition to what you are offering because 

right now in rural America times are in most places really good but 

there are really bad times as well, and during those times your 

banks by the very nature of their entity and their source of survival, you have to be accountable to the bottom line in a somewhat 

different way than the Farm Credit System does. Aren’t they unable to lend in situations where Farm Credit can’t, and shouldn’t 

they be able to do that or should people simply not be able to get 

credit under those circumstances? 

Mr. GREENLEE. Let me answer just briefly going around your 

question there and give by example your concern as far as when 

it comes to bad times, do banks tighten up where the Farm Credit 

System is not required to. If I can just answer that and just between 1984 and 1990 what we consider extremely bad times in agriculture. I think let the numbers speak for themselves. The Farm 

Credit System went from $61 billion in loans to $33 billion in 1990, 

a drop of 46 percent, while at the same time banks stood in there 

at $47 billion and went to $56 billion by the end of 1990, a 19 percent increase. In answer to your question, we are there in bad 

times as well as good times. 

Mr. GOODLATTE. Let me ask Mr. Stark and Mr. Apple if they 

want to respond to that. 

Mr. STARK. Well, I would agree that certainly we believe that 

there are opportunities for the Farm Credit System to be involved, 

and I am speaking to your question on the zero or the 2,500. We 

put the 50,000 limitation in there again going back to something 

that had already been tied in from a congressional mandate, and 

so we feel good about that. At the same time we recognize the 

banks have provided very good service over these years. We don’t 

deny that. We also believe the Farm Credit System as has been 

stated here learned some very valuable lessons in the 1980s. We 

are very well capitalized at this point in time. We are well prepared through the situation we are in today to finance agriculture 

in these rural communities as we go forward and we are looking 

forward to that. 

Mr. GOODLATTE. How would you differentiate yourself as a system from banks other than in the different administrative requirements and the different taxing requirements that you face that 

would enable you to justify a distinction here? 


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Mr. STARK. Well, a couple of ways. It is all about service, and 

that is what this whole program for us has been about anyway. It 

is about service to the customer. This has not been about what is 

good for the Farm Credit System or what is good for the commercial banks. It has been about what is good for the customer, and 

our focus is on that. So if we differentiate ourselves in terms of the 

home mortgage market or our farmer market we are going to make 

every attempt to differentiate ourselves based on service and quality of service. 

Mr. GOODLATTE. Well, what about the issue of risk though? It is 

my understanding that the Farm Credit System was originally established for that very purpose. There was a belief a long time ago 

that there were certain circumstances and certain times in certain 

parts of America when traditional forms of lending based entirely 

on private enterprise and private credit wouldn’t step in and lend 

money. Can you draw that distinction today? 

Mr. STARK. Well, I believe we can. At the same time Congress 

has also expected us to run and you expect FCA to regulate us in 

a safe and sound manner. We make every attempt to serve customers in tough times. Another way that we have done that is 

through the specialization of the focus strictly on agriculture in 

rural America we have. We know we don’t have any other option. 

We can’t pull out into another line of business so we are forced to 

stay there, and we expect our directors to keep us there as well. 

Mr. GOODLATTE. Can anybody tell me where the 2,500 number 

originally came from for home loan lending communities? 

Mr. STARK. In 1917 that was a pretty big number. 

Mr. GOODLATTE. Well, I know. Today it is not as big a number 

so is there some number that the four of you could agree upon that 

is less than 50,000 but greater than 2,500. 

Mr. PINTO. Well, had we been involved in discussions and had we 

been aware of this whole process, I mean this proposal has been 

bandied about internally for two and a half years. 

Mr. GOODLATTE. Sure, but that is simply a proposal by an outside group. The Congress is going to act based upon what we collectively think is in the best interest of consumers in rural America 

and the banks and the Farm Credit System to preserve and optimize all of them. 

Mr. PINTO. My observation then, Congressman, would be as long 

as you continue the subsidy and the special status of the Farm 

Credit System, I would keep everything the same even at the 

2,500. You are talking about a discrepancy in basis points anywhere from 30 to 200, the way the competitive nature of this whole 

thing is. And you used the word banks wouldn’t lend in certain 

times. Well, banks cannot lend in certain times. 

Mr. GOODLATTE. I acknowledge that. I don’t think they should 

lend in certain times. The question is whether the Farm Credit 

System was established for the purpose of enabling loans to be 

made in certain times but when banks couldn’t lend money because 

of the regulations and because of the fact that at the end of the 

day you got to have some money left in the bank. You can’t just 

take any risk that someone might want you to take. I think neither 

can they but supposedly there was a difference that caused the creation of their system. 


cnoel on PRODPC60 with HEARING
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Mr. PINTO. Well, I think as long as they can keep the farm in 

the Farm Credit System we would support most of their proposals. 

They have gone well beyond the Farm Credit System. 

Mr. GOODLATTE. My time has expired. Otherwise, Mr. Chairman, 

I would give Mr. Apple or Mr. Stark an opportunity to respond. 

Mr. HOLDEN. If the gentleman wants to continue. 

Mr. GOODLATTE. If they would like to respond to that observation 

which I think is a fair observation. 

Mr. APPLE. There are a couple of things there that we had talked 

about, and we talk about an unfair playing field. It is probably correct but we are not sure which side has the advantage. The banks, 

of course, have the deposits and the ability to get the CDs and 

things like that that they can use for their capital and for their 

lending purposes which the Farm Credit System does not. We have 

the GSE status. As far as the tax status of the institutions there 

is some question there because several of the banks, a little over 

2,000 of them, are Chapter S banks so their tax treatment is a lot 

different than what the regular commercial bank might be even 

that advantage somewhat there, and on the Farm Credit side the 

short and intermediate term loans are taxable, the income off of 

that is taxable. So it is not exactly just quite the appearance that 

we say it is nontaxable and taxable and that result. 

The other thing on the home loans and the 2,500, our association 

that I am a member of in Indiana, Iowa, Kentucky and Tennessee, 

Farm Credit Services of America, has a county in Tennessee that 

has a county wide government so they are classified as one community. That is Lynchburg, Tennessee, where Lynchburg, Tennessee 

is, and that is kind of a famous little town, but they are unable because there is a 17,000 population in that entire county, they are 

unable to make a rural home loan in that county. So somewhere 

that number may not be 50,000 but somewhere in between I think 

probably would be a fair number. 

Mr. GOODLATTE. One last question, Mr. Chairman, if I may, are 

there discussions going on between the independent community 

bankers and the American Bankers Association and the Farm 

Credit Services and the related institutions that work with you on 

trying to find some common ground here or is that a fruitless effort? 

Mr. PINTO. They will start at lunch time. If anything is going to 

happen here it has to start at lunch time. 

Mr. GOODLATTE. We would be encouraged by that. 

Mr. STARK. Mr. Goodlatte, I would just like to add an example, 

you asked for examples of where the Farm Credit System has 

stepped up in the absence of other lenders, and a couple weeks ago 

we had a testimony hearing on the ethanol industry and renewable 

fuels, and clearly the Farm Credit System stepped up both for financing farmer equity and ethanol plants and directly funding ethanol plants in the absence of other credit that was available at that 

time, and they also are probably one of the largest holders of senior 

debt on ethanol facilities in the country at this point. So I think 

that is a good example of the budding industry where the system 

has stepped up to help support these rural communities. 

Mr. GOODLATTE. Thank you, Mr. Chairman, and I apologize for 

taking the extra time. 


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Mr. HOLDEN. The Chair thanks the ranking member, and recognizes the gentleman from Kansas, Mr. Moran. 

Mr. MORAN. Mr. Chairman, thank you very much and I may try 

to follow up on some of Mr. Goodlatte’s observations and questions 

as well. This is a topic that is no fun. I assume that part of what 

we are about in trying to figure out Farm Credit’s role and our 

commercial banker’s role in lending to agriculture it revolves 

around this new proposal by Farm Credit, but my assumption is 

that that is the target because it is what is in front of us. Commercial bankers have much greater objections than just this proposal 

and it is with, I assume, what I just heard Mr. Apple help me 

begin to learn once again about the unlevel playing field, and so 

apparently there is a dispute between commercial bankers and 

Farm Credit as to who has the advantage. 

This topic we have had before. I remember asking these questions to a different set of witnesses within the last two or three 

years about what is the distinction between Farm Credit’s ability 

to access funds and the cost of those funds, and I would like to explore that again. Mr. Apple started down the path of indicating 

that there is uncertainly as to whether the Farm Credit System 

has the advantage or the commercial bankers have the advantage. 

Surely that is a determinable fact that one can determine what 

one’s cost of funds are. There is a designed answer to whether or 

not it costs more money over time to raise money with deposits 

made by bank customers versus accessing funds through GSE. 

I assume that there is a quantifiable amount of advantage or disadvantage that comes from the tax code, and in regard to property 

taxes, in regard to income taxes, in regard to the cost of funds is 

there an examination cost. Is there a difference between what 

Farm Credit goes through with the regulators as compared to what 

a commercial bank goes through? And it would be helpful to me if 

we could ultimately get to the point to understand who has the advantage and who has the disadvantage as we—I would guess that 

there is unless you are ready to convince me that Farm Credit was 

created for purposes of providing money to those who had greater 

risks to fill a nitch in the rural and agricultural lending opportunities for those who would otherwise not be creditworthy at a commercial bank. I assume ultimately in my mind this does revolve 

around whether or not there is a level playing field. 

If Farm Credit’s purpose continues today to be something different than what a commercial bank that is an important feature 

too. And so the question then becomes to me really it is quantifiable to who is Farm Credit lending to, who are commercial banks 

lending to. And then finally I don’t—I guess I should never admit 

I don’t know what is going on in rural America. My hometown in 

Kansas, I think the population today is about 1,000 less than when 

I graduated from high school. Today’s population is about 1,900. 

And yet when I was growing up as a kid, I would assume since the 

’30s since banks were closed, we had one commercial bank in our 

community. We now have four. And I don’t know whether—again 

I assume it is determinable whether those banks are lending to 

farmers, lending to rural America, making housing loans, or are 

they just collecting funds and sending that money off to be lent in 


cnoel on PRODPC60 with HEARING
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some bigger city where the rate of return is greater. Does anyone 

have a response to just the way I see this? 

Mr. PINTO. I think we all have a response but it is going to be 

a written response. I feel like a Shakespearian character. Somebody just handed me a note. 

Mr. MORAN. I also would point out that your written testimony 

is lengthy in and of itself so you probably have covered all my 

points previously, both Farm Credit and the commercial banks. 

Mr. PINTO. There is no question about it. If we had a chart together we can—and I think Doug can do the same thing. That 

might be best for you guys before you make your final determination. Just shooting from the hip, I would rather not shoot from the 

hip. I think this requires a written response to address. 

Mr. MORAN. I am happy to know if I am asking the wrong question. 

Mr. PINTO. You are asking the million dollar question. 

Mr. MORAN. And I am happy to have your evidence of the numbers at a different point in time. Farm Credit, is this the right line 

of questioning? 

Mr. STARK. Well, it is interesting that we probably both view it 

as the grass is greener on the other side of the fence. We envy their 

deposit taking with Federal backing, their access to the Federal 

home loan bank board, you know, their opportunities to tap into 

Fannie and Freddie as well as GSEs. They envy our GSE direct 

funding. I mean, I don’t know, we could have this debate all afternoon and not reach a conclusion. Again, as we looked at the issues 

we really tried to focus on what is good for the customer in rural 

America, not what is good for Farm Credit institutions and commercial banks as institutions. We looked at what is good in the customer’s eyes, and that is what we focused on. That is why we kept 

bringing our proposals back to that very issue. I don’t think we 

have enough time to debate all the issues around the level playing 

field. Certainly, I think both of us would agree that we think the 

others have advantages. Our limited resource charter. We can go 

into other—all those things, as you said, really play into—— 

Mr. MORAN. Mr. Stark, then would your point be that regardless 

of whether we agree upon a level playing field the issue is about 

who is able and willing to make loans to agriculture in rural America? That is the crux of the issue is that as I look at this as policy 

maker what I ought to be looking at is how do we increase the 

amount of funds and lower the price of funds for rural America? 

Mr. STARK. That is exactly it. What we came to the table with 

is what we thought was a proactive approach to serving people in 

rural communities. We weren’t trying to undermine what anybody 

else was doing. We were trying to say how can the Farm Credit 

System bring solutions to rural America. 

Mr. MORAN. Let me ask, if I may, Mr. Chairman, that then if you 

follow that, I assume then at some point in time that if you assume 

an advantage to Farm Credit then over time there is a disadvantage that will take away the role that commercial banks play in 

rural America so it ultimately can’t just—even if it is just about 

service the level playing field comes back into play because to provide service I would think we would all agree that we want the 

commercial banks in the market as well. 


cnoel on PRODPC60 with HEARING
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Mr. STARK. We certainly do, and certainly the market data would 

show that they are very effective. And I think it really refutes the 

point that we are running them out of business. At 60 percent market share we have not driven commercial banks out of business. 

Mr. MORAN. And my own hometown is somewhat intriguing to 

me but how can a town of 1,900 who lived with one commercial 

bank, one community bank for nearly my lifetime to this point, now 

have four. Something is going on in rural America that is different 

over time than it was in the past. My time is way past, but I appreciate the opportunity to explore this, Mr. Chairman. Thank you. 

Mr. HOLDEN. Thank the gentleman. Ms. Musgrave. 

Ms. MUSGRAVE. Mr. Chairman, we were talking about the 15 

percent cap. Mr. Stark, I think, and Ms. Herseth said that. How 

close are you to that 15 percent cap? 

Mr. STARK. Excuse me again? 

Ms. MUSGRAVE. When Ms. Herseth asked the question about the 

home loans being able to be made in communities of 2,500 or less, 

and then she talked about the certain percentage that you were 

able to make, how close are you to the 15 percent cap right now? 

Mr. STARK. We are significantly below it. I don’t know what the 

actual number is. We could certainly supply that to you. 

Ms. MUSGRAVE. Okay. I would really like to also talk about 

young farmers, minority farmers. What in the Horizons project is 

targeted specifically for this group? 

Mr. STARK. Well, really there isn’t anything specifically in here 

about young farmers other than the access, the expansion to be 

able to allow our ability to invest and finance non-farm or these 

businesses that we are talking about here. A lot of young producers 

have to have off farm jobs and they have to have other—they have 

other businesses that they may want to invest in. This allows the 

Farm Credit System to tie in to their farming operations. They get 

started in farming and also to help them with these other operations and in the communities that they live in and work other 

types of jobs. 

Ms. MUSGRAVE. Thank you, Mr. Chairman. Thank you to the witnesses. 

Mr. HOLDEN. The Chair wishes to thank the witnesses for this 

lively discussion and very important information gathering session 

that we had today. Under the rules of committee the record of today’s hearing will remain open for 10 days to receive additional 

material and supplementary written responses from witnesses to 

any question posed by a member of the panel. The hearing of the 

Subcommittee on Conservation, Credit, Energy, and Research is 

adjourned. 

[Whereupon, at 12:50 p.m., the Subcommittee was adjourned.] 


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cnoel on PRODPC60 with HEARINGInsert offset folio 196 here 36367A.065
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cnoel on PRODPC60 with HEARINGInsert offset folio 197 here 36367A.066
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cnoel on PRODPC60 with HEARINGInsert offset folio 200 here 36367A.069
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cnoel on PRODPC60 with HEARINGInsert offset folio 208 here 36367A.077
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cnoel on PRODPC60 with HEARINGInsert offset folio 209 here 36367A.078
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cnoel on PRODPC60 with HEARINGInsert offset folio 210 here 36367A.079
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cnoel on PRODPC60 with HEARINGInsert offset folio 221 here 36367A.090
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cnoel on PRODPC60 with HEARINGInsert offset folio 226 here 36367A.095
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cnoel on PRODPC60 with HEARINGInsert offset folio 228 here 36367A.097
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cnoel on PRODPC60 with HEARINGInsert offset folio 235 here 36367A.104
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cnoel on PRODPC60 with HEARINGInsert offset folio 239 here 36367A.108
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cnoel on PRODPC60 with HEARINGInsert offset folio 241 here 36367A.110
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cnoel on PRODPC60 with HEARINGInsert offset folio 247 here 36367A.116
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cnoel on PRODPC60 with HEARINGInsert offset folio 248 here 36367A.117
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cnoel on PRODPC60 with HEARINGInsert offset folio 249 here 36367A.118
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168 


cnoel on PRODPC60 with HEARINGInsert offset folio 251 here 36367A.120
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cnoel on PRODPC60 with HEARINGInsert offset folio 265 here 36367A.134
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cnoel on PRODPC60 with HEARINGInsert offset folio 266 here 36367A.135
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cnoel on PRODPC60 with HEARINGInsert offset folio 267 here 36367A.136
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cnoel on PRODPC60 with HEARINGInsert offset folio 274 here 36367A.143
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cnoel on PRODPC60 with HEARINGInsert offset folio 276 here 36367A.145
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cnoel on PRODPC60 with HEARINGInsert offset folio 277 here 36367A.146
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cnoel on PRODPC60 with HEARINGInsert offset folio 278 here 36367A.147
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cnoel on PRODPC60 with HEARINGInsert offset folio 279 here 36367A.148
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cnoel on PRODPC60 with HEARINGInsert offset folio 286 here 36367A.155
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cnoel on PRODPC60 with HEARINGInsert offset folio 288 here 36367A.157
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cnoel on PRODPC60 with HEARINGInsert offset folio 289 here 36367A.158
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cnoel on PRODPC60 with HEARINGInsert offset folio 290 here 36367A.159
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cnoel on PRODPC60 with HEARINGInsert offset folio 294 here 36367A.163
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cnoel on PRODPC60 with HEARINGInsert offset folio 296 here 36367A.165
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cnoel on PRODPC60 with HEARINGInsert offset folio 298 here 36367A.167
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cnoel on PRODPC60 with HEARINGInsert offset folio 299 here 36367A.168
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cnoel on PRODPC60 with HEARINGInsert offset folio 300/350 here 36367A.169