How is credit affecting family farmers right now?

May 2010

Dear Farm Aid,

I’ve been concerned by the number of banks closing in the country and know that a lot of my friends are hurting because of credit issues. I saw you’ve been doing some work on credit in the farming sector. How is credit affecting family farmers right now?

Christopher C.
Saratoga Springs, NY

As you know, Christopher, the economic crisis that erupted in 2008 continues to dominate headlines and threaten the stability of our country. It’s been a major part of our work here at Farm Aid, as both the economic downturn and the resulting credit crunch have devastated many family farmers. Judging from the calls we’re taking at the 1-800-FARM-AID hotline, 2009 and 2010 have been very bad years for farmers.

Statistics collected by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) echo our concerns, indicating that credit conditions are tightening while farms struggle to pay back their loans. In addition to shrinking resources for obtaining credit, family farmers and ranchers now have fewer opportunities to secure off-farm income amid increasing unemployment rates. Taken together, it is increasingly difficult for family farmers and ranchers to stay on their land and in their homes.

The stories we’re hearing are dramatic. Entering spring planting this year, family farmers and ranchers were desperate, as private and federal lending institutions failed them when they needed them most. In this tough economy, even farmers with strong credit histories have been turned away by banks they've worked well with for years. Still other farmers who were approved for federal loans are now being told the money is unavailable, leaving them nothing to do but wait.

The effects of this seemingly endless financial trauma are now coming to the fore: family tensions are exacerbated; farmer suicide is a grim reality; long established rural relationships are coming unglued; and church and local social services cannot keep up with demand. Hence, the short answer to your question is this: Family farmers are incredibly distressed and farm credit is a huge part of the problem.

But why does this issue matter so much to our farmers and ranchers? To explain the nitty-gritty of this answer, I think it’s worth referring to the fantastic column my colleague Hilde wrote back in 2008, when troubled credit markets once again threatened the survival of farm families. Here’s what she had to say:

Not your average day at the office…
All too often food is treated like any other commodity and farming like any other profession. But the reality is that both don't fit neatly into most economic curves and job descriptions.
To begin, farmers depend on loans to get them through their initial investment: to pay for the seed and feed and other inputs needed to get things in the ground and growing! Furthermore, farmers don't begin to reap any returns on their investment for at least a month, and generally, many more. Or not at all, if weather or a pest wipes out their crop altogether. Imagine taking a job for which you not only won't get paid for a whole season, but for which you have to supply the expenses upfront! Not a particularly enticing offer, is it?
The real irony about food and farming, however, is that even in a “good” year, when nature cooperates and yields are high, farmers don't necessarily make more cash to stow away for future investments. This is because food is what economists like to call inelastic. In other words, regardless of how much farmers grow there is literally only so much we as consumers can stomach (and, in turn, are willing to buy). The greater the supply of a particular crop on the market, the lower the price drops in response to this inelastic demand; and since consumers are buying more or less the same amount of food from week to week, a farmer can actually make less money when production is good.
In sum: year after year, farmers rely on credit to get the season started; and year after year, the security of that initial investment isn't guaranteed. Compared to most jobs with a steady paycheck, farming is risky business.

The squeeze...
Now consider what happens to this already tenuous situation when the market for your crop takes you on a virtual rollercoaster ride! This is exactly what happened to farmers this past season as a bushel of corn varied from a peak in June of $7.99 to just $3.64 in October (with wheat, soy, and rice following similar tracks). During the same time, farmers faced substantial hikes in the cost of production, with input costs, especially fertilizer and seed, continuing to skyrocket toward record highs. The simultaneous decrease in income and increase in costs results in what's called a price squeeze.

The crunch…
In normal conditions farmers rely heavily on credit, but when compounded by a price squeeze, the need for a stable and accessible credit system is greater than ever.
Farmers generally have three options for obtaining a loan – a commercial bank, the Farm Credit Service (FCS) or the U.S. Department of Agriculture’s Farm Service Agency (FSA). Comparatively, banks offer the majority of loans to farmers; but, as we know, today many commercial banks are credit crunched and less tolerant of taking on risk. Due to Farm Credit Service consolidation in recent years, the FCS credit system has become less accessible in rural areas, with some criticism that the program is disproportionately benefiting the wealthiest and largest farms that need it the least. Generally, farmers must be turned away from both commercial lenders and the FCS in order for the Farm Service Agency guaranteed loan program to kick in. Considering the current economic climate, we can expect a good deal of pressure to be placed on the FSA in coming months.
One additional option in many states is a government-sponsored beginning farmer loan program. Such loans are critical to attract new farmers to farming, especially with affordable land prices and loans becoming even more out of reach. For more information on the availability of these programs in your area, contact your state's Department of Agriculture.

Between a rock and a hard place…
Like many Americans and businesses grappling with the current credit crisis, farmers have been forced to downsize and delay major purchases. But the effects of the economic downturn run much deeper on the farm. With so much risk up in the air, it becomes difficult to make even the most basic business decisions: what to grow, how much and when.
So what can we do to help keep family farmers thriving during these trying times?
If you or a farmer you know is facing financial problems, the best thing to do is contact a banker who can help map out your options – and to do so early, before things grow too out of hand. Ask about the FSA guaranteed loan program or call your local USDA Farm Service Agency to find out how it works.
To locate a farm advocate working on financial counseling and credit issues, try searching Farm Aid's Farmer Resource Network (FRN) at; or give us a call at 1-800-FARMAID and we'll walk you through the process. With more than 75 groups in the FRN working on these issues, help may be just around the corner.
Buy locally. While localized markets and community-based food systems currently involve only a small fraction of farmers in this country, the model has many perks for farm economies, the environment and communities alike, including re-circulating more money within the local economy. Through continued consumer support of local markets, more and more family farmers and communities will be able to participate in their stability and viability.

What Farm Aid is Doing: A 2010 Update
As I mentioned, the issue of farm credit has kept our office busy (and not only recently since we first started working on credit issues in our first year, 1985). Back in February 2010, Farm Aid, along with our partners National Family Farm Coalition, Rural Advancement Foundation International-USA, and Food & Water Watch, met with USDA officials to emphasize the urgency of credit issues facing our farmers and ranchers. We noted the need to increase the amount of financing available through the federal government.

In April, Farm Aid was among a handful of organizations invited to speak with White House staff, including teams of economic and political advisors to the President, about the nation’s farm credit situation. Our message was simple: fairness for farmers. Washington has already bailed out big banks, automakers, and troubled homeowners. Yet, there is a desperate need for policymakers to focus on a real source of hope for our nation's troubled economy--our family farmers. Family farmers serve as the pillars of Main Streets across the nation and have enormous potential to revitalize communities from coast to coast. Without a credit system that serves their needs, they simply cannot stay on the land. 

As I mentioned, we hear from these farmers everyday on our 1-800-FARM-AID hotline and through, and have been eager to share our experiences, the stories of the farmers we speak with day-in, day-out, and our vision for a better, family farm-centered system of agriculture in America. We have highlighted the urgency the credit situation and the need to create a better financial infrastructure that supports the people who feed us each day.

Christopher, you can be sure we will continue to engage with the Administration on pressing credit needs for America's family farmers and ranchers. Thank you for such an important question!


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