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Opening Statement 

of 

The Honorable Nancy C. Pellett 

Chairman and Chief Executive Officer 

Farm Credit Administration 

Before the 

House Agriculture Subcommittee on 

Conservation, Credit, Rural Development, and Research 

United States House of Representatives 

September 29, 2004 

Mr. Chairman, members of the Sub-committee, I am Nancy Pellett, 

Chairman and Chief Executive Officer of the Farm Credit Administration. 

On behalf of my Board colleagues, Doug Flory and Michael Reyna, I am 

pleased to be here this afternoon to comment on the future of the Farm 

Credit System. 

I have submitted more extensive remarks on this subject and I would ask 

that they be made part of the record. 

The mission of the Farm Credit Administration is to ensure a safe, sound 

and dependable source of credit for farmers, ranchers, aquatic producers, 

farmer-owned cooperatives, and rural home owners. 

To achieve our mission we oversee the operations of the Farm Credit 

System, a government-sponsored-enterprise that Congress established to 

serve agriculture and rural America. The System is comprised of five 

banks and 97 retail-level lending institutions associated with those banks. 

We also oversee the operations of Farmer Mac which provides a secondary 

market operation for agricultural mortgage loans. 

As a government sponsored enterprise, the System serves a critically 

important public purpose....providing American agriculture and rural 

America with a dependable source of credit in good times and bad. 

Currently, the System provides about one hundred billion dollars to nearly 

five hundred thousand borrowers throughout the nation. 

Without this well conceived, financially sound, and time tested GSE, I 

believe the strength of our Nation’s agriculture, and the quality of life in 

rural America, would be diminished. 
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On August 3rd, one of the System’s retail-level lending institutions, the 

Farm Credit Services of America, notified us of its intent to terminate its 

status as a member of the System. Though rare, such an action is 

permissible under the statute and we have regulations that allow for the 

orderly exit of an institution from the System. 

Since my Board colleagues and I must make objective decisions on any 

termination request submitted to us, it would be inappropriate for me to 

comment on the merits of an application. Therefore, I hope you will 

appreciate that I may not be able to respond to certain questions here 

today. 

My written testimony provides information on the key decisions we must 

make when assessing a termination plan. I would also note that we have 

briefed staff from the full committee on our termination process, and Mr. 

Chairman, we would be pleased to update interested parties as we move 

through this process. 

The end result of an approved termination would be that a $7 billion 

institution serving 50,000 borrowers in a four state territory would no 

longer be an instrumentality of the United States Government. It would 

become a privately owned commercial venture. 

The loss of an established Farm Credit System presence is a matter of 

serious concern for all of us and it would require considerable effort, 

cost, and time for the System to re-establish its presence in the four state 

area. However, I assure you that should the Farm Credit Services of 

America termination process proceed, we will act swiftly to maintain a 

System presence in the vacated territory. 

Since I was appointed to the FCA Board, almost two years ago, I have 

heard frequent comments about whether changes are needed to the Farm 

Credit Act to make the System more effective. I believe Congress’s 

decision decades ago to create the Farm Credit System remains valid 

today, but I also believe the time has come when Congress may want to 

consider modifications to the Act that could enhance the System’s ability 

to better serve agricultural and rural economies of the future. 

In the early 1990s the Government Accountability Office reported to 

Congress that the System did not need new statutory authorities in the 

near term, but that ongoing changes in agriculture and rural America 

could justify such changes in the longer term. GAO noted, that over time, 

as agriculture and rural America change, the System’s authorities might 

need to be updated to ensure the System is not hampered by outdated 

restrictions in serving its customers. 
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Mr. Chairman, the changes in agriculture and rural America GAO alluded 

to have been well documented by several government and academic 

sources, and I mention some of them in my written testimony. Overall, 

these changes clearly point to a need to modernize an Act whose basic 

structure has not changed in almost 35 years. 

Although the commercial banking system was modernized in the late 

1990s, the System’s statute has not received a general update to reflect 

changes in the marketplace or rural America since 1971. As a result, the 

Farm Credit Act does not accommodate many of the market conditions and 

economic forces, nor reflect the rural America, that exist today. 

At FCA, we recognize that major changes have taken place in agriculture 

and rural America. 

Our intent is to maintain a flexible and responsive regulatory environment 

that will, where appropriate, modify regulations that needlessly impair the 

System’s activities. 

The System has the financial capability to serve customers and engage in 

financial transactions not previously contemplated by the Act. However, 

these activities sometime stretch the limit of what was initially conceived 

by Congress, and heighten the concern of other parties who question the 

System’s actions. We believe Congress is in the best position to resolve 

some of these issues. 

At FCA, we would welcome the opportunity to work with Congress to 

bring the Farm Credit Act into the 21st century and to provide the System 

with the direction it needs to better serve agriculture and rural America. 

In conclusion, Mr. Chairman, my Agency is committed to ensuring that 

the Farm Credit System remains financially capable and operationally 

equipped to fulfill its statutory mission to serve agriculture and rural 

America under all economic conditions. 

Thank you for the opportunity to appear before you today and I stand 

ready to answer questions you or members of the Sub-Committee might 

have.