When the Farm Credit System was created 95 years ago, less than 10 percent of U.S. farms had electricity; telephone access was not universally available; and most farms used intensive manual labor and animal-drawn machines. Today, the majority of farmers have Internet access and a growing number are using satellite imagery, computer technology and Global Positioning Systems (GPS) to manage their operations. The increase in mechanization, irrigation and other technology has resulted in efficiencies that enable fewer farmers to produce more food and fiber than ever before (in considerably less time), for a growing world population. In addition, improvements in processing, transportation and marketing have led to what we know today to be a very safe, abundant and affordable food supply.
Like the industry it serves, the Farm Credit System keeps getting better with age. The strong foundation upon which the System was built in 1916, combined with ongoing leadership and effective management, has allowed Farm Credit to remain competitive, innovative and responsive to almost a century of ever-changing market conditions.
Many financial institutions were unable to withstand the recent storm that came in the form of a financial crisis and subsequent economic slowdown. When the winds shifted, they couldn’t raise money and had to be bailed out, bought out or closed out entirely. Farm Credit, on the other hand, served as a safe haven for investors looking for conservative lending policies, high liquidity and transparent practices. As a result, Farm Credit was able to fulfill its mission of providing access to credit in both good times and bad.
When Congress later adopted new financial reform laws in 2010, Farm Credit lenders were exempt from most of the new laws because policymakers knew the System was not part of the problem that led to the need for additional regulation. In fact, Farm Credit serves as an example of highly regulated lending, with conservative practices and full financial disclosure.
Unfortunately, when Standard and Poor’s Financial Services (S&P) downgraded the credit rating of the U.S. government in August, the Farm Credit System, along with a number of other institutions, got caught in the net. This happened only because the System is a government-sponsored enterprise (GSE), a privately held corporation created by Congress. Rather than recognize the differences among institutions — including the housing GSEs, Fannie Mae and Freddie Mac, which were taken over by the federal government in 2008, following their involvement in the subprime lending debacle — the S&P rating agency merely lumped them all together as part of their downgrade of the U.S. government. The marketplace, however, knew better. There was no sell-off of Farm Credit bonds, no increase in funding costs and no adverse impact on the System’s ability to serve its customers.
Farm Credit borrowers around the country are celebrating the 95th anniversary of the System this year, knowing that the nationwide network of financial cooperatives they own and operate is better than ever. Although the future may be volatile and uncertain in terms of interest rates, commodity prices and the overall economy, Farm Credit is well-positioned to remain a reliable and competitive source of financing for many years to come.
- Stan Ray