Remarks by

The Honorable Kenneth A. Spearman

Member of the Board, Farm Credit Administration

Northwest Farm Credit Services Board Strategic Planning Session

Newberg, Oregon

July 10, 2012

Note: Introductory comments omitted

First off, I want to note that, while the Farm Credit Administration takes action upon the 

collective vote of its three Board members, each FCA Board member, appointed by the 

President, acts independently. This means, among other things, that any opinions expressed 

here today are my own and not official Agency views. Also, while we have an effective and 

collegial working relationship, my opinions may or may not be shared by my FCA Board 

colleagues, Chairman Lee Strom and Board Member Jill Long Thompson. 

FCA is what they call an “arm’s length” regulator. Therefore, as a Board member, I always need 

to be mindful of my role as a Government official and to keep the proper “arm’s length” distance 

necessary to avoid any appearance of favoritism or impropriety. 

However, I do believe it’s important and appropriate for me to interact with Farm Credit System 

management, directors, and customers to better understand what’s going on in the System.

That’s why I very much appreciate the opportunity to visit with you today and listen to your 

concerns and views. Effective communication with regulated parties is a key element for any

effective regulator. 

After a career in the private sector, it has been an adjustment for me to adapt to Government 

service. And I do view it as “service.” I essentially came out of retirement when I started with 

FCA about two and a half years ago for what I continue to feel is an important role in ensuring 

the continued health and mission of the Farm Credit System. 

I’m particularly pleased to be here today since one of the focus areas of this meeting is on 

mission and outreach programs. As some of you may know, one of my prime areas of interest

since I’ve joined the FCA Board has been on exploring ways that FCA can help the Farm Credit 

System better meet its statutory mission of serving the credit needs of all potential customers. 

I’m particularly interested in how the System can aid the development of local food systems,

and in how doing so could positively impact urban and other areas not usually reached by the 

System. 

Traveling with me here from FCA is Mark Johansen, the FCA Board’s Special Advisor for YBS

(young, beginning, and small farmers) and local food systems. Appointing Mark has been one of 

the tangible steps FCA has taken in further understanding and exploring potential options in this 

area. Mark brings a wealth of experience and knowledge to this position, and therefore I’d like to 
2

reserve a few minutes at the end of my remarks for Mark to fill you in on some of the specific 

things he and the Agency are doing in this area.

While FCA’s primary purpose is to ensure that Farm Credit System institutions operate in a safe 

and sound manner, Congress gave FCA broad authority over all matters related to the System 

and the Farm Credit Act. Therefore, part of FCA’s job is to ensure that the System—founded by 

Congress as a Government-sponsored enterprise—is fulfilling its public mission. 

The first section of the Farm Credit Act states that the System has a specific mission to “meet 

the credit needs of all types of agricultural producers having a basis for credit....” Congress also 

included a specific mandate for the System to serve young, beginning, and small farmers in 

order to help make sure there will be a next generation of American farmers. 

Therefore I think it’s important for the System, and for FCA, to take a broader view of System 

lending and to look at how the System is serving “all types of agricultural producers” in all 

segments of the agricultural marketplace. This marketplace includes minorities, women, and 

truly new farmers without family ties to farming, as well as producers seeking to capitalize on 

consumer demand for organic and local foods.

In large part, this is the background for the recent business planning rule adopted by the FCA 

Board this past April. I know you’ve already spent time talking about this rule, so you are familiar 

with the new requirements. It is important to remember that the intent of the rule is not to dictate 

particular outcomes; instead, the rule is intended to ensure that each System institution board 

thinks about concepts of diversity and inclusion in both its human capital and its marketing 

plans. 

In this regard, I do want to thank the people of Northwest Farm Credit Services for the efforts 

they’ve already made in this area. As you know, FCA annually reviews YBS lending 

performance by System associations. Partly because of the way the data are collected, there 

are some significant challenges in truly gauging the System’s performance in this area. The 

young, beginning, and small categories overlap and, notably, don’t effectively identify who is a 

truly new entrant to agriculture. The data also do not distinguish between small working farmers 

and small hobby farmers. However, under Mark’s leadership, we’ve been trying to use available 

resources to better evaluate System performance. 

One thing FCA did this year is to try to use qualitative factors to measure YBS performance.

Based on a variety of factors—many of which relate to market outreach efforts—we concluded 

that Northwest Farm Credit Services has one of the best YBS programs in the country. 

Many of the commenters on our business planning rule were concerned that we were looking 

for quotas or some other easily quantifiable result. Instead, it is this qualitative outreach effort 

that the rule is really focused on. Association boards and management cannot control or 

guarantee results; however, as the board and management of Northwest have proven, they can 

control the quality of outreach and other efforts made by their associations. 
3

We do recognize, for example, that agriculture in Oregon is different from agriculture in New 

York or Iowa. That’s why the new rule rejects a one-size-fits-all philosophy. Each association 

faces different sorts of challenges, and each association needs to take different steps in order to 

best serve its particular market. 

While it will be up to each association to figure out what works for them, I generally think System 

associations could do a much better job of working together to ensure the best service for all 

System customers. For example, I think it would be great if Northwest could effectively share 

information on marketing strategies and best practices with others across the System. I also 

encourage Northwest and other associations to continue to look for innovative approaches to 

expand lending opportunities for potentially underserved customers. 

It is a shared responsibility of everyone in the System to ensure that the System meets its 

mission of serving the credit needs of all potential customers. This is why I sought, as part of 

FCA’s approval of the merger of CoBank and U.S. AgBank, a condition that required CoBank to 

assist its associations in meeting their mission of serving all potential borrowers. While the 

associations are responsible for retail lending to farmers and ranchers, CoBank, with its vast 

resources and national presence, is uniquely situated to coordinate, support, and assist in local 

efforts. Therefore, I am very pleased to see CoBank step up and take a leadership role with its 

Growing Rural America initiative. I also look forward to other System banks taking a role in 

supporting their associations’ efforts to meet the System’s mission.

I think that FCA’s new rule—putting concepts of diversity and inclusion into our regulations—is a 

very good first step. I also recognize, however, that it is only a first step. In order to be effective, 

this cannot become a check-the-box sort of regulatory compliance issue. FCA cannot effectively 

dictate to the System in this area. Instead, this has to be something that the System embraces 

and effectively incorporates into its own culture. While Northwest Farm Credit Services and 

some other System institutions may be more forward-thinking, this culture change will likely not 

come easily in many parts of the country. Hopefully, leaders in the System will view this as an 

important issue for the System as a whole. This will be a continuing, evolving journey, one that I 

hope features FCA and the System working collaboratively together to reach common goals. 

FCA’s eligibility rules for financing agricultural producers—any kind of agricultural producers—

are broad. Under existing FCA rules, a System lender may provide credit to any bona fide 

farmer—who is basically anyone engaged in the production of agricultural products—for 

agricultural needs. However, we are continuing to review FCA rules and guidance to see if there 

are any impediments we need to remove or additional guidance we need to provide that will 

enhance the ability of the System to finance emerging farmers or local food producers. 

In addition to financing producers directly, FCA rules provide opportunities to finance some key 

elements of local food systems as farm-related businesses. These include businesses that 

provide services to eligible farmers and ranchers that are directly related to a farmer’s 

agricultural production. These may include local food “aggregators,” who provide marketing and 

transportation services to local farmers. Some of these aggregators also provide a forum for 
4

local businesses to order fresh agricultural products from local producers. Because the farmers 

retain ownership of their products until delivery of the products to the local business, these 

should be considered eligible farm-related service businesses.

Another important question in this area is how we look at the issue of creditworthiness. The risk 

profile for an unconventional borrower is going to be very different from that of a commodity 

producer with crop insurance and Government support programs. However, that doesn’t 

necessarily mean that the unconventional borrower is not creditworthy and won’t be able to 

repay debts. In fact, some local food producers are able to generate significant cash flow and 

are able to follow through on sophisticated business plans. 

I’m not suggesting that System lenders lend money to people who won’t be able to pay it back. I 

recognize that many small producers are not creditworthy under any reasonable standard and 

are not able to service any significant level of debt. The System is not the lender of last resort. 

However, I am suggesting that we make the effort to look differently at these types of farmers in 

making creditworthiness decisions. I am also suggesting that lending to these borrowers is the 

type of risk, effectively managed, that a System institution should be prepared to take in order to 

fulfill its mission. 

In addition to the obligation to serve all types of agricultural producers, the significant consumer 

demand for organic and locally produced foods indicates that there are also viable business

opportunities—and viable customers—out there for the System to cultivate. To maintain its longterm relevance, I think the System needs to continue to focus closely on agriculture and ensure 

that the next generation of farmers—whoever they are and however they operate—is served by 

Farm Credit. 

It may be just as important for the System’s long-term relevance for Congress and the public to 

understand the important role that Farm Credit plays in ensuring credit for all agricultural 

producers—in other words, that Farm Credit is needed and continues to support an important 

public purpose. 

Note that local food systems frequently include farmers operating in or near, or directly 

supplying, urban and suburban areas. These are areas in which Farm Credit historically doesn’t 

have much of a presence. Therefore, being active in this market is an opportunity to create 

more people who understand and care about Farm Credit—something that will clearly pay longterm dividends for the System. 

At this point, I’d like to ask Mark to provide some more specific comments about the Agency’s 

YBS and mission efforts. I thank you for this opportunity to visit and look forward to working with 

you during the next four years of my term on the FCA Board.