They are more helpful to conventional corporate farmers than traditional family farmers. Yes, they provide a modicum of support through grants; but largely, they promote the USDA's agenda.
One example:
http://www.icba.org/advocacy/commentlettersdetail.cfm?ItemNumber=743&sn.ItemNumber=1711ICBA Comments
However, the FSA's proposal to define a "family farm" for loan eligibility purposes as any farm with annual gross farm income not exceeding the greater of $750,000 or the 95 percentile of farms in a given state with sales exceeding $10,000 would arbitrarily define "family farms" and limit participation in farm loan programs by legitimate family farmers. While this definition is aimed at making the application of who is eligible for FSA loans less subjective between states and counties within a state, its implications for eliminating "family farms" from program eligibility could potentially be wide reaching. It is our understanding that the proposal would make ineligible approximately 25,000 farms, including 5,500 full-time "family farms". Therefore, the proposal would immediately make ineligible a significant number of family farms based on gross income.
Because the gross income level is not indexed to inflation, the number of ineligible family farms could grow considerably over time and the real size of family farms eligible for FSA financing would become smaller and smaller. We experience a similar phenomenon on a regular basis in regards to deposit insurance offered consumers by commercial banks. The deposit coverage level, set at $100,000 in 1980, was not indexed to inflation and now has eroded by approximately one-half its original value. In the future, for example, could a farm be become ineligible if family's gross income exceeded the $750,000 threshold because the farmer's wife has an off-farm job?
We also understand that the greatest impact would likely be on dairy, fruit and vegetable, nursery, and some cotton, rice, and peanut farms - namely farms that produce higher value commodities. For example, a 230 cow dairy operator, with a typical per cow production of 20,000 pounds of milk per year, would be ineligible for FSA guaranteed loans under the proposal. Often in a dairy operation, several members of the same family have joined together for the sake of economic efficiencies. Many of these family owned dairy farms could become ineligible based on gross income even though their net incomes were very marginal.
We also note that estimates show the all-milk price for 2004 is projected to exceed $16 per cwt, a much higher price than farmers experienced just a few years ago. This suggests that some of the same dairy farmers who may have been eligible for FSA loans in previous years could suddenly become ineligible within the next year or so. This would be true even though their expenses, driven by higher fuel and feed costs for example, will also have risen dramatically. Thus, we believe that simply using a gross income figure or basing eligibility on the 95th percentile, can be just as arbitrary as FSA feels the current criteria is. In several states with dairies, even using the 95th percentile, up to two-thirds of dairy operations would become ineligible under this proposal. Therefore, the arbitrariness FSA seeks to eliminate would just be redefined and would still exist.
In today's environment of global competition and producing commodities and value-added products for the export market, a proposal that penalizes high-value, low net income operations the most contradicts the market driven trends occurring in the farm sector. Farms continue to become fewer in number but larger in size as they seek to survive in a world market.
Commercial Lenders Depend on FSA Guarantees
Commercial banks are consistently the largest users of FSA's guaranteed loan programs and continue to use the program to provide financing to borrowers who might not otherwise be able to obtain a loan without the guarantee. We point out that the current loan size limitations ($782,000 for guaranteed and $200,000 for direct loans) already create some restrictions on who applies to FSA for financing.
With today's prices for land and equipment and the rising costs of production, loans of this size do not typically finance large farm operations. For example, one banker commented to us on this issue stating, "In many cases in Texas, for a family farm to be economical, the size of the operation is large enough that these limits do not allow the FSA to be an adequate source of financing, especially if the operator has both real estate debt and equipment debt".
The proposed rule also seeks to clarify the meaning of "family members" when determining if substantial labor is provided by the loan applicant or persons related by blood or marriage. The proposal defines "family members" as a spouse, parent, child, brother, or sister. Limiting eligibility to just operations with the relatives named above would certainly cause some "family farms" to be excluded because they may have uncles, grandchildren, or grandparents as partners. This provision should be revised to reflect the various relatives that could be involved in the farm operation.
ICBA was a signatory of the letter sent to FSA by the American Farm Bureau Federation and other organizations calling on FSA to withdraw the proposed definition of a "family farm." In a survey to ICBA's Agriculture-Rural America Committee, one option presented was whether FSA should allow lenders to determine an eligible family farmer based on current FSA criteria. For example, bankers categorized as PLP or CLP lenders have a degree of flexibility in terms of utilizing FSA loan guarantees. This option would have the advantage of not requiring the staffing time currently required of FSA to determine who is an eligible family farmer. However, some bankers suggested that this option could also be abused by certain lenders who may not follow the FSA criteria. Even if this scenario were addressed through some type of FSA audit procedure, several bankers stated their strong desire for FSA to continue determining eligibility in case there is a problem with a delinquency at a later time and other issues.
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