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tv   Hearing Examines the Farm Credit System  CSPAN  May 19, 2016 9:50pm-11:15pm EDT

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>> the worst thing i ever have done is committed the murder in 1991. it was by far one of the worst things you can do and you know i made the unfortunate decision at the age of 19, and devastated the family. take somebody's husband, son, brother, father of a family. it's one of those things largely the reason that i do some of the work that i do in the inner-city. i never want another child to grow up with that type of burden it is one of those burdens that never goes away.
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for the past three years agriculture economy has been weakened due to improving crop yields and lower global demand. next, the farm credit credit administration chair testifies about the farm credit system before the senate agriculture committee. it's two and a half hours. [inaudible conversations] >> i call this the's hearing of the senate committee on agriculture attrition and forestry to order. thank you all for coming. today's hearing will examine the overall climate of credit in rural america, the health of ag lending from the commercial bank
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in the farm credit system perspectives and what the impact of current credit environment having our nation's farms. we will also examine whether the farm credit administration is exercising appropriate oversight in the farm credit system. farmers and ranchers across the country are experiencing difficult economic conditions as the farm sector profitability is forecast to decline for the third straight year. over the past three years alone, debt debt farm income is expected to decline by 56%. as our nation's farmers and rural communities continue to deal with low commodity prices and always elevated input costs, access to affordable credit in rural america is absolutely crucial. the spring 2016 agriculture lenders survey released by
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kansas state university's department of agriculture economics expects the credit environment for farmers to remain difficult for at least a few more years. lenders indicate the demand for operating loans will continue to remain high as liquidity cash flow are problematic for many farmers. for the nonperforming loans have increased and are expected to continue in this unfortunate trajectory due to low commodity prices. in addition to the lenders survey the federal reserve bank of kansas city painted a bleak picture. lenders know increasing share of farmers caring outstanding debt from previous years with an increased demand for loans and weakening repayment rates. now for farmers every year, every year so high-stakes bet is
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they put their confidence in their cross livestock in the business decisions they make all throughout the year while farmers continue to manage their the risk through period a low commodity prices and stubbornly high input prices. it is vitally important we began discussions regarding next year's borrowing decisions. there is no doubt that today's discussions are timely especially considering it's been just under a decade, 10 years since we have had representatives from either the banking industry or the farm credit system before this committee to discuss some of the issues we will cover today. rural america relies on a network of credit providers assisting in the private sector and the farm credit system. created under the federal ormand act of 1960 the farm credit system is a nationwide system of privately-owned cooperative lenders statutorily required to provide farmers and other burr
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borrowers with the permanent affordable source of credit. currently the farm credit system is comprised of 74 agricultural credit associations in four regional banks which provide the ag credit associations with funds to make loans to producers and other retail borrowers pay the agency tasked with regulating the farm credit system is the farm credit system administration or the sca. the farm credit administration is an independent agency comprised of a three-member board nominated by the president and his we all know on this committee confirmed by the senate through our committee. like the banking industry the farm credit system is not a lender of last resort. a lender of last resort for farmers who are otherwise unable to secure private financing is the department of agriculture's farm service agency are commercial banks and the farm credit system often relies on
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usda farm loan guarantees to make loans when borrowers are less creditworthy. now to date the farm service agency has seen a 21%, that's 21% increase in farm loans as compared to last year. a further troubling indication of the struggling agricultural economy. obviously much as change since congress established the farm credit system 100 years ago. one thing that is not changed however is the importance of providing farmers and other rural borrowers easily accessible and affordable credit. i along with a few members of my colleagues on the ag committee here remember very well the difficult times for the farm economy during the 1980s. no one, no one wants to see a repeat of those dark days. i look forward to hearing from
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our two panels of witnesses regarding the landscape of the current economic conditions in farm country, what is working or needs improvement from a legislative perspective to protect financial well-being of our farmers and our rural communities. before we hear from our witnesses i recognize their distinguished ranking members and senator stabenow for any opening remarks. >> thank you. >> thank you very much mr. chairman and thank you to our witnesses as well as leaders from the farm credit administration. great to see aalbue and mr. chairman this is a very important hearing so thank you for holding it. i want to especially welcome mr. tonsager in mr. hall unanimously approved last year. wonderful to see you again and i also want to give a warm welcome to jeb welder who served in the united states marine corps and the u.s. army and he and his
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wife are now the proud owners of trinity farms in greenville michigan. it's great to have you here today and thank you for your service to our country and for taking time away from planting corn to join us and tell your story. as many of us know 100 years ago the chairman said in 1916, is passed the federal farm loan act to address the serious problems facing our farmers and agriculture producers a problem that threatens our rural economy. at that time obtaining reliable credit was often on affordable in most rural areas. many lenders avoided farm loans altogether because the inherent risk of weather and price swings made lending to farmers unappealing. as a result congress established of the farm credit system to fill the gap in credit and provide american farmers and producers the financing they needed to expand in good times and to weather the bad times.
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100 years later the farm credit system continues to ensure that producers of all types and sizes have adequate and reliable access to credit. that farm credit lenders nationally provide more than $200 billion in loans to rural america. in my home state of michigan greenstone farm credit provides more than $5 billion of loans to producers including two to more than 17,500 small new and beginning farmers that need access to capital. as we look here for mr. welder it was exactly this type of the support that helped him secure land and create a new life for himself and his family after his military service. however as we look ahead to the next several years we know we are in a period of low commodity crisis. especially compared to what we have seen in the past two years. which will make it more challenging to make in this meet. this year alone that farm
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increase is expected to decline for the third consecutive year drop of 56% from 2013 and thank goodness mr. chairman we did the farm bill. we continue to rely on commercial banks, usda and our are farm credit system to provide the necessary short medium and long-term enhancing that will allow american agriculture to continue and prosper. i am please will be hearing today from our second panel who play an important role in providing credit throughout the entire supply chain. i would also like to briefly mention the support of the farm credit system by senator pat leahy. i understand he's in a pro-patience committee meeting and will be unable to attend today. mr. chairman as chair the committee during the 1990s when many important forms were made -- reforms are made senator
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leahy asked me to submit for the record transcript of his and ranking member lugar's floor statements during the consideration of one of those major changes and i would ask the chair to admitted into the record. >> without objection so ordered. >> mr. chairman? could i welcome the south dakota witness? >> i would be delighted if he did that. >> dallas tonsager has a farm in south dakota and served as secretary for rural development usda and has had a great distinguished career in public service of thank you for being here and welcome to the committee. give your family are passed. thank you dallas. >> thank you senator. today i'm pleased to welcome our first panel of witnesses that represent the farm credit the honorable kenneth spearman.
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we appreciate your joining joining us while why your cover from a medical procedure that puts you under doctors orders to wear your chapeau. i think that's the proper term. i told you in the backroom i was going to give you a black cowboy hat, a cowboy hat as we say in dodge city but we don't want this to be a hearing with black hats that you are permitted and you are looking good. mr. spearman appointed to serve on the farm credit system by president obama in october october 132009 and has an extensive background working in finance agriculture cooperatives from 1980 to 1991. mr. spearman served as a comptroller for the 100 million citrus co-op in orlando where he handled financial management report and supervision of staff
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accounts. after serving in his capacity mr. spearman went on to become director of the internal audit for florida's growers and served as an outside director on the ag first farm credit board until his appointment with the farm credit administration board. mr. spearman is also u.s. army and vietnam veteran and we thank you sir for your service. mr. spearman thank you for your service to our country and we look forward to hearing your testimony today after i introduced her fellow board members. our next witness on this panel is the honorable dallas tonsager already introduced by my distinguished colleague. mr. tonsager brings decades of experience working on issues concerning farm credit in rural america and is now on his second stint serving on the board of farm credit administration. in addition to being a board member of the farm credit administration mr. tonsager serves as chairman of the florida farm credit system insurance corporation which is
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responsible for ensuring the timely payment in principle and in just some obligations issued on behalf of the farm credit banks. before being nominated by president obama to serve on the farm credit mezrich import mr. tonsager served as usda's undersecretary for rural development from 2009 through 2013 where he worked to expand broadband another critical infrastructure projects all throughout rural america. mr. tonsager hails from south dakota where he grew up on a dairy farm. it's great to have you back before the committee dallas and i look forward to your testimony. a third witness on the panel is the honorable jeffrey hall. mr. hall was confirmed by president obama and 2015. pride is a prime minister hall was present of association management and consulting firm he cofounded in 2009.
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the forward thing in the or mr. hall was the kentucky state executive director for usda's farm service agency where he was responsible for the farm program and farm loan program delivery and compliance. and was a scout for the university of kentucky's basketball team assigned or stand. i made that up. prior to his time mr. hall served as assistant to the dean of agriculture at the university of kentucky professor served as a senior staff member to our majority leader mcconnell from 1988 to 1994. altogether he has enjoyed a 30-year career in that policy. thank you so much for joining us today. i look forward to hearing all three of your testimony today and asking questions about the state of the farm credit system. mr. spearman why do you kick things off. >> thank you mr. chairman. chairman roberts and ranking
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member stabenow and members of the committee it is a privilege to appear before you today to report on the mission of the farm credit administration. ever written statement to submit for the record. president obama appointed me to the board in october of 2009 and designated me as chairman and ceo of march of last year. at the pleasure serving of serving on the board with two very distinguished colleagues dallas tonsager and jeff hall for whom you will hear from in a moment. sca is an associations and related entities of the farm credit system including -- our responsibility is to ensure that the system meets his congressional mission to provide a dependable source of credit for agriculture and rural america.
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fca was created by an executive order of president roosevelt in 1933. during the agricultural credit crisis of the 1980s this committee restructured fca giving it regulatory and enforcement powers similar to those of other federal financial regulators. fca is not an appropriate agency we are funded primarily through assessments paid by system institutions. the farm credit system is the nation's oldest government-sponsored enterprise. it is a nationwide member of borrower owned cooperative financial institutions. currently the system includes four banks and 74 direct lending associations. the banks provide loan funds to association which in turn provide operating loans and long-term real estate loans to farmers, ranchers and other
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eligible borrowers. one of the system's banks also has the authority to lend to agricultural cooperatives and rural utilities. thanks and associations cannot take deposits. the system obtains funds by selling securities on the national and international money markets. the securities are not guaranteed by the federal government. the system is the only gsp that makes loans at the retail level. it was established to provide a dependable source of competitive credit to farmers, ranchers and farm cooperatives. its mission is to serve american agriculture in good times and bad. and now after several years of record farm income the agricultural industry has entered a new period of lower profits. in income is forecast
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to decline for the third straight year. times like this underscore our nation's need for dependable affordable agricultural credit. because congress had the foresight to establish the farm credit system 100 years ago our farmers and ranchers have been able to provide abundant affordable food and fiber to people at home and around the world. of course stress on the farm industry can create stress for the farm system and we are already seeing signs of stress in a few institutions. however i'm happy to report the system banks and associations are fundamentally safe and sound as is farmer and fca's taking steps to make sure the system remains safe and sound. the board recently finalized a rule that updates capital regulations and aligns them with the basel iii accord.
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we continue to emphasize robust internal controls and all system institutions and to monitor for emerging risks. regarding the system authority we have taken steps to ensure that it uses this authority only for the purpose of mitigating risk and is always if we find a transaction that's outside the limits and the purpose of the law we require the institution to take corrective action. we also emphasize the system must serve all eligible credit worth the potential borrowers regardless of race or gender and regardless of the commodities they produce or the size of their operations. we want to make sure the system also serves small organizations and operations that produce organic and value-added boost for local markets. mr. chairman this concludes my
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opening statement. thank you and i will be happy to answer any questions. >> mr. tonsager. >> chairman roberts and ranking member stabenow and members of the committee thank you for the opportunity to testify today. i'm pleased to now be serving his second term on the board of the farm credit administration with my distinguished colleagues chairman spearman and board member hall. i've previously served on the fca board from 2,042,009. the outset i want the committee to know of my absolute commitment to the continued safety and soundness of the farm credit system as we navigate through the downward cycle in the agricultural economy. rural america and the farm credit system are important to me both as a role as a board member and my personal connection to farming and rural america as i was raised on a farm in south dakota and was
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engaged in farming for over 40 years. the farm credit system which is quite the fam by farmers and ranchers was well-positioned to persist through the 2008 financial crisis. that the system's capital and liquidity positions risk profile stress testing capacity and lending practices and agriculture sector have all significantly strengthened over the last eight years. with the challenges now facing the agriculture of economy at ca's oversight role and the farm credit system's purpose to be there for a culture of our more critical than ever. i live to the difficult years in agriculture in the 1980s and will understand the importance of the farm credit system to farmers and ranchers in such times. i have great confidence in the ability to ensure that the farm credit system institutions remain a source of sound adequate and constructive credit to those farmers and ranchers struggling to keep their ad operations going and remain in
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the rural communities. in addition to my duties as a farm credit administration board member i served as chairman on the farm credit system corp. along with my colleagues on the fca bar. congress created the insurance corporation to ensure the timely payment of principle and interest on the debt issued by the farm credit bank. congress also gave insures for prisoners possibly to provide assistance to troubled farm credit system institutions and to act as a conservator or receiver for failed system institutions. five off the insurance fund must remain a secure base equivalent 2%% of adjusted insured observations of the system banks and there are currently $4.1 billion in the insurance fund. an amount that is marjuan to the secure base amount. this fund acts as a safety net for the farmer and rancher owners in addition to the protections afforded by several
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liabilities agreements in the system banks. that was my opening statement. thank you to the committee and i look forward to your questions. >> mr. hall. >> thank you mr. chairman recommender stabenow members of the committee. my name is jeff hall and it was a year ago that i set up for this committee and i appreciate your confidence in appointing me and i appreciate the chance to come back as a member of the farm credit administration. farm credit messerschmitts a regulator of the farm credit system and farmer mac printer agents examine system agents examine systems editions for safety and soundness in compliance with laws and regulations that fca exercise and increased oversight with institutions in a higher risk to the farm credit system was created to provide a permanent reliable source of credit to u.s. agriculture. when congress enacted the farm on act in 1916 credit was not always available and affordable in some rural areas. many lenders avoided pharmaceutically inherent production and price risk of agriculture. the foundation of the farm
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credit system is a corporate structure. agriculture is change many ways and will continue to change that the guiding principles of the cooperative model continue to stand the test of time. member ownership and governance are key ingredients of the system's success. as chairman scrivener ported the farm credit system is safe and sound. the system today is due in no small part to the actions of this committee. during agriculture credit crisis of the 1980s commerce made very important changes to the farm credit system that gave us the opportunity to emerge stronger and better pull the server america and its mission. as you well know farming comes comes -- is projected to climb virtually all sectors of commodity prices are lower than anytime in the past five years. our deck into sync reason many farmers and i'd assess a seven force to draw from the equity that though. fortunately agriculture center this downcycle from position of strength with historically low interest rates helping to hold down debt levels.
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there are challenges ahead on the farm credit system but is well situated to remain a reliable source of credit. chairman roberts told me as i sat at this table year ago outside of washington and the people in the system. i prioritize my travel to meet with borrowers is a shame bores employees dealing with these challenges on a daily basis trade-offs on my visits i learned about the consequences of the rules and make nations imposed at the farm credit administration did my visits have helped me greatly in my role as a board member. without input from the regulator my job would be much more difficult. would like to say we don't issa group that i will always listen. at our march board meeting the farm credit administration board approved a capital world which will require the system hold onto more and higher quality capital. by raising the cap on permits farmers investments and their associations is better protected from impairment. the farm credit administration board adopted guidance to the system on these of similar
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entity lending activity. understand the reputation is a valid concern and adopting this guidance will increase the examination reporting requirements. gives fca a tool to monitor activity. also gives us an indication of whether additional guidance is necessary. the a role in similar entity guns are good examples of the additional focus on internal controls create the beginning of my term chairman spearman has made internal controls is dated to party. modern agriculture in the financial service industry is more complex than ever. the farm credit administration in the system strengthening internal controls in order to mean your confidence and carry on the list as a service to american agricultural in rural macy's. thank again for inviting me to testify. having been a federal land bank or were in the 1980s i can say with confidence the system is much better and stronger than it was 30 years ago. i'm consider myself an advocate
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to the farm credit system. you consider it my responsibility to ensure a safe and sound source of credit to all of civil borrowers and donors of the cooperative. the agency is doing his job as a regulator and the benefits of dependable competitive source of credit while offering prosperity to rural america. thank you mr. chairman. >> thank you all again for appearing today before a committee and for your statements. mr. spearman the reports i cited in my opening statement by the kansas city university paint a very bleak economic picture for farmers around the country. i don't like saying that and you probably don't like agreeing to it. now i served in congress in the 1980s and during the last farm crisis and i'm confident that nobody, nobody wants to see a repeat of those tough times. today what are the conditions of
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the farm economy and how do they differ from those 35 years ago? i am hopeful they show we are not headed for another crisis and even more importantly what safeguards are in place to ensure our farmers are protected in a band we see two, three, four, five more years. i hope not but if that is the case of low commodity prices? >> mr. chairman thank you for the question. i had to push the right button here. the farm credit system as the three of us all stated is well capitalized at this time. it is well positioned if you will to withstand the possible downturns in the economy, agriculture, the -- commodity
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they are looming. the capital position is for a strong. there is 16% f. you will with 48 early in dollars or so roughly in capital. the asset decisions are strong in the system. the managements that are currently at the institutions are, i don't want to say a lot that are but they are more informed today than they were in the 1980s. the earnings work very well the system. as you can see from our financial statements, the liquidity ratios are over the top. in fact they are more than twice what the regulations require of 90 days so i think that the system is well positioned again to withstand any downturn.
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of course there could possibly be some black swans out there that we are not aware of that we have systems in place at the agency to keep us abreast of what those might be and as an agency we will take measures that will end up protecting the system more. >> i appreciate that mr. spearman. mr. tonsager. your role as chairman of farm credit system is to ensure farm credit funds in order to safeguard the timely payment of danceable and adjust on the debt issued by the system banks. this funding comes from a collective of premiums and system banks that issue noted in your written testimony and 2013 when times are pretty good, the farm credit system insurance
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corporation and the federal financing banks entered into a 10 billion-dollar line of credit please explain what financial conditions prompted this decision when we were in a much better situation and what authority exists allowing the insurance corporation to take out this line of credit? >> the line of credit can only be used in times of economic emergency for the united states in general, not for agriculture specifically. it is a liquidity line designed to ensure the flow of capital to the farm credit system should there be an event similar to 2008 that might occur again. so we simply cannot use it unless the federal funding bank agrees with us. it cannot be used in the event that the system fails properly
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manage itself. you can only be used in those economic emergency occasions. similar lines of reddit are available to the fdic and the national credit union administration, so the agency at that time after watching what occurred in the 2008 timeframe made this line of credit available and to have it there to assist us should there be a liquidity event within the markets. >> that was not only prudent but a profit during these rather bleak times weren't you? i appreciate that. let me ask a question of the full panel so anybody is welcome to answer. don't be bashful. one of the main criticisms we care about the farm credit administration is that fca oversight of system lenders who loans is not thorough enough,
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the loans are being approved that fall outside of the system's charter or scope. how do you respond to that criticism and furthermore how does the farm credit administration actually do its predatory duties to ensure system members are able to serve farmers but in a way that provides for the statute? feel free. >> mr. chairman the committee you are referring to is the lending process will that the system is involved in. this was a practice that was included in the act in 1992 as a risk mitigator. one of the primary criteria for participating in that robe ram is that an eligible loans that are functionally similar.
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there are limits to be well on what they participation the institutions can involve themselves in these types of loans and the agency drafted and approved a book letter to provide guidelines for the system, to actually update their procedures and get more of approval from the board on any of these loans that are entered into and the book letter also dressed the possible reputation of risk involving themselves in these types of loans. >> i appreciate that. mr. hall. in your testimony talked about capital rules recently approved by the farm credit administration board this last march.
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just a couple of weeks ago. can you expand a little further on this rationale for approving it and explain what you hope to accomplish? >> the primary goal is to make the system more comparable to other banking institutions. our money comes from wall street and when you have common terms and common factors that people on wall street look at buying the systems paper this comparability was an important step. cipro brand that i think the agency has been involved in for three or four years pores -- proposing rules ended march we were able to actually approve the board and the board approved the adoption of that role. >> i appreciate that. senator stabenow. >> thank you very much mr. chairman and again thank you to all of you eye wonder if you might just expand a little bit
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because i'm sure we are going to hear more about similar entity authority and some of the high-profile cases that there have been concerns raised about. if you could expand a little bit on steps you've taken to address that and again how this mitigates risk from your perspective and any of you are welcome to answer that. mr. spearman? >> i will start senator, thank you. as i mentioned previously some of the steps that have been taken have been to raise or heighten if you will awareness that these types of loans made create controversy. the act does permit fees types of loans is a risk mitigator and the way that it does is that the system is a monoline lender if
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you will so they have two be there for agriculture in good times and bad. the guidelines that we have put out in our book letter is that the board needs to be more involved in these types of loans and the policies and procedures are examined by our examiners to make sure that they have been updated and that's the institutions are keenly aware if you will that these are controversial type loans. >> would anyone else like to respond? >> thank you senator. i would just like to mention congress over the years has provided several elements within the farm credit act that require eggs and the farm credit system to work together and this is one of those elements.
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for every dollar that is invested in similar and the loan there's a dollar from a private banker. these loans cannot be done without a private tanker involved with it and there has to be at least a 50% involvement by another party other than the farm credit system. so i believe there has been some misunderstanding about these kinds of loans. they have been authorized for many, many years. they include, co-banks perspective they can do utility loans, communication was in several types alone so you are not only robbing the capacity by having these loans to strengthen the relationship bankers in this particular area and other areas. there are literally billions and billions of dollars together with the banking community each year with thousands of transactions between the farm credit system and banking. >> mr. hall that you want to add anything? >> the only thing i would add is
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the reason behind similar entity lending and back in the 90s was that allow the institutions that base of risk so they are functionally similar. they're not eligible loans so i think that is where some of the confusion comes in but i think we have monitored as an agency the activity. we have asked for additional oversight of data and we will continue to monitor the agency to make sure it's proper and appropriate. >> thank you. changing a little bit to a different area of concern in terms of risk and agriculture that is the decline in the total number of farms which is certainly something that we are all concerned about. according to the fda from 2014 to 2015 united states lost more than 18,000 farms and over 1 million acres of farmland. i'm wondering if you would respond to me.
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the trend in the average age of the american farmer as in all of our areas in the economy, the average age is 58 years old. i wonder if you might speak and describe some of the work that you're institutions are doing to support new and beginning farmers which are very important obviously to all of us. mr. spearman. >> thank you senator for that question. the wide program that you alluded to us a program that was added to the act in the early 1980s and it was added with the purpose of providing a vehicle to bring more young, more beginning if you will and small farmers into the agricultural sector. some of the provisions are provided under that act in that
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part of the act is that there could be lesser interest rates charged if you will in the underwriting process. education is provided for those folks who are not very familiar with some of the operations of agriculture and also we have passed a book letter if you will that encouraged farmers who borrow from the system to be more involved with with the youth aspect of farming. and the lenders, the book letter or dresses the fact that the systems who lend the money actually survey bear territory and make sure that they are addressing underserved folks
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within the territories. >> thank you. would anyone else like to respond the new beginning farmers? >> i think it's been for the systems mission it's been a success story to look at the data that has been accumulated regarding the growth in those loans in those areas and i think the system has taken very seriously and my discussions with them their requirement to do this and they have taken it to heart and aggressively pursue this program. they each have their own individual programs designed for their region. we examined for them to execute those programs. the report is given to us each year and we in turn report to congress each year about the results of that effort. >> mr. hall did you want to add anything? >> one comment two day summit previous experience working with the agency their partnerships on guaranteed programs that are
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available. i know the system is very active in working with other partners in making sure the best population assert. >> thank you mr. chairman. >> senator tell us. >> thank you mr. chair. i'm going to maybe ask a different question. first off i'm from north carolina and we have a highly diverse farming community and some are doing well right now and others are not doing so well. i just want to add that we need to be careful. we could see greater numbers of farmers harmed over time if we don't get things on track and what i want to do is talk about some of the future risks. it may seem odd asking this panel about gmos but are your people looking ahead and saying for example we have got a
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discussion right now about gmos here. we don't fix fix it than peoplee kellogg's and campbell's in a number of the major producers of food are going to start reformulating. over the course of the next few year sugar beets well and being an input for sugar as they grow cane sugar. over 90% of the corn grown in as states is a product of jama. i don't know what campbell's is going to to do or play set in their soups. the same thing to a certain extent with white potatoes. i am from north carolina and 50% of all the sweet potatoes grown in the united states are grown in north carolina and 70% of the exports are from north carolina and none of them are product of gmos ice and campbell's will decide to replace white potatoes with sweet potatoes. it would be good for me, not necessarily good for the potato rowing states but the point i'm making it if this represents a major risk in terms of demand
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over the very near future have you all looked at that in terms of your portfolios to get any idea of what it means if you completely shut the demand down for certain commodities they sugar beets? >> senator a very good question. what we do as a safety and soundness regulator is to try and examine all risks. we do have economists on staff who report to us regularly. >> have they done analysis on the particular policy if congress doesn't act the near immediate and long-term effect it will have on commodity producers? >> they analyze all risks within the system, some known in some unknown to others. >> would it be possible for my staff to get in touch with you to what extent they recognize the impact and what will happen among the campbell's and the
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kellogg's and major food producers. they will reformulate. they will increase demand and will we see it in our capacity for cane sugar so instead of sourcing sugar beets run an ad that the united states they will soar sugar from other parts of the world. the world finds sourcing inputs and it seems to me that we'll have that devastating impact on commodity prices. it must recognize this reformulation starting right now it will start on steroids in july and august timeframe and it's not one of these five or 10 year market disruptions. this is probably a one or two-year market disruption so i'd be interested in getting any analysis on that -- how that would affect the portfolio of farmers in the process of these target commodities. there's no question my minded major food producers those put that put cans and boxes on the shelves are going to reformulate to the maximum extent that they can and when you are talking
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about commodities that are in the 90 percentile in terms of gmo products and safe products i might add according to the fda the department of agriculture and the epa, what are they going to do? who are they going to sell that to them if they do sell it to what extent does this affect a portfolio at financial portfolio in terms of their ability to pay their bills? you probably didn't expect to get that question when i came into the room i didn't expect to ask a question but that's an example of risk that are dependent on congressional action or inaction and i think it's something to look at. that's a potential looming crisis for some of the farmers out there. i will say if i maybe will follow-up with questions to the agency so we can get specific information on how this could teach stabilizing to the sugar beat growing states that corn growing states the potato
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growing states in the soybean growing states. it's an equal opportunity disruptor and i think we need to get financial information behind it. >> thank you mr. chair. >> let me say before i recognize senator bennett on behalf of the distinguished ranking member. the responsibility and requirement that mr. tillis is raised with regard to agriculture by a technology. nokia difference is supposed to gmo. this is called agriculture biotechnology, abt. it's a good question and it's a challenge that the farm credit system ought to be thinking about as well as every lender that we have at our disposal within the world of agriculture. that responsibility is right here in this committee and also
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in the senate of the united states. the house has acted. we will act. the distinguished ranking member myself and staff have been working overtime to try to come to an agreement to bring to the floor where we could get 60 votes. i think mr. tillis admonition is a very good one especially chair of her body in the farm fields. reformulation is a pretty fancy word for we need to buy what you're selling and that is happening today as we speak for the sugar beat producers. so we know that we must act and everybody on this committee knows that we must act. i know that mr. tillis has raised a very important point. seen it mr. chair by may we need to put a face on who is affected by this policy and its farmers. it's farmers that are are ready have crops in the ground.
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they have plants in the ground. next year the big businesses will find out when they can buy to avoid what i think is still applies policy and the first evidence of this in vermont. they will be able to make the change because they have the resources and the reach to do it. the farmers don't. thank you mr. chair. >> senator bennett. >> thank you mr. chair and thanks for holding this hearing and i wish you and the ranking member while. negotiation time is not on our side. i want to thank the witnesses for being here today and for your prudent oversight of the fca. mr. chairman you said the mission of the fca is to serve farmers and ranchers in good times and bad times. farmers and ranchers across the country are facing financial hardships. producers are bringing in less
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revenue but their overall cost requirement increases year-over-year and are forecast to increase next year as well. on top of that persistent drought conditions and extra volatility which makes it clear to me that farmers need all available options when it comes to lending and the farm credit system and designed to mitigate against these fluctuations -- fluctuations. i wonder what they could describe the role of the farm credit system particularly in tough economic times and what role it plays in rural communities facing these economic hardships. i'd be happy to hear anybody on the panel address it. >> thank you senator. the obligation i think was made clear to us in 1980s and the struggling times we had in that time that there needs to be a level of strength and commitment and in rural america these are farmer on corporatists.
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these word members are extremely committed to their communities and that's number one that the sick governance that occurs within them. i think the system as has not the geisha and to make sure the system remains safe and sound. that is a reliable lender through that time but also an obligation to make sure to work closely with producers and i think they have developed a pretty good strength in their loan officers working with the clients and how they make sure they get the best opportunity for finance. i think financial strength of system and the capacity of the system and their lending working with producers is going to make a lot of difference. in the 80s we saw a lot of producers that simply couldn't get the credit they needed at the time or at they were overextending credits other income was replaced by credit and they lost ground. i think one of the critical elements of this is how loan officers in the farm credit
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system in the private sector work with those individuals producers and fund them if they possibly can or help work with them if it becomes too challenging. it's a tough, tough thing. the time we lost thousands of producers and many of them were fundamentally personally harmed in the process. additionally what i could add there are rights involved with this a lot requires the farm credit system provide rights to borrowers in the event there were closed on and so by law are process must be followed with individuals producers in the time comes to make decisions about their credit rates thank you for that thorough answer. i will ask a second question. last year colorado producers exported more than $1.8 billion in farm goods to countries around the world. some farm credit institutions like cho bank headquartered in colorado exports to support producers to say look to markets
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abroad. can you talk about the growth that we are seeing an export financing and ag in this country? ..
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>> >> different groups that may be getting funding or other minority groups are there certain areas that you target or would like to see more participation whether women or farmers or ranchers could you delve into that a little bit lacking in veterans are others who want to get into farming or ranching that we can express to our constituents? >> the program that provides an excellent entrance into non traditional agriculture
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was structured for young beginning in small bowl so with the diversity inclusion rule we passed a couple years ago where we requested and mandated the institutions will get the system the area that they operate in the district because the mission is to serve all qualified creditworthy folks. the system is doing that we are examining for and we're seeing a lot more improvement particularly with the veterans area. >> i appreciate that.
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>> we have been girding itself traveling together and we have great experience from them. >> i was at texas a few months ago with a young veteran who didn't have much agriculture experience but and was complimentary of the support he has received and other educational programs available and even in kentucky l ladies to be an employee in the system she and her husband are in full the locally grown community supported agriculture to be recognized as a woman of the year.
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>> i appreciate your work with veterans who might have challenges. >> prenup and interesting perspective but that does create a wrinkle out there if you're talking about other natural disasters with the outlook of the agriculture economy over the next several years what steps can you take with the credit system to prepare for that? explain how that works.
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as an mentioned previously as we tried to anticipate and examine all risks in their risk-based. looking at the problems that may be on the horizon. if those situations are going to the board if they are reacting whether a drought or another crisis you might see? >> it is not fast enough for me personally but we do try to plan and see if we can
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help the system do a better job to help those distressed areas. >> my time is expired. >> senator casey. >> thanks for your testimony in the answer that you gave for the young and small farmers i also want to raise the question about the new risks and challenges that we face in light of what happened in the '80s that you have losses from that you can apply to have to assume that because of technological innovations
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both the technology based those lessons may not apply in light of that had to face those risks going forward that limits the technology based on the other challenges from the old 1980's problems that they make a determination with the greatest exposure is maybe in their concentrated in that area.
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with those cyberthreats that our apparent in almost all sectors of our economy. one part is to spend time in the information technology area ended issues are found corrective action is mandated. >> when you encounter those pleas bring those to our attention and ask for resources where appropriate. also we want to raise a question regarding when you assess that credit stress level those portfolios will within risk, in light of
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that but also when you reference the dairy product in grain prices is a false and that you will experience if you just pinpoint the best you can in 2017 with full repayment. >> when you make determinations for what's going to be anticipated for those energies that will be
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examined and because of those payback abilities to have a deleterious effect on an institution. if we see an area of stress that would indicate to the institution and to look at the underwriting for something they are overlooking. >> thanks very much. >>, if you would answer this as we have heard a
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discussion how is that farm credit to ensure access what is the state of that insurance fund and how much of that is sufficient and share your thoughts about that. >> start with those lessons learned in the eighties coming out of the '70s there were very highly leveraged and after that the amount of debt leverage was automatically reduced so that is the big difference coming into the current circumstance with $50 billion of capital and celebrating $250 billion worth of loans.
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that total leverage comes and that ability how they borrow money it was different than previously lot of relationships lending in to watch that as and has devolved the obliterating is excellent with no allowances for losses at this point that can change quickly as we go into the coming year so it is necessary to look for that. and to see how hard repressive system with the
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safety and soundness of the system were the producers and diligently watch the situation in working with producers to america if we learned anything it is important of capital with the farm credit with the increasing interest with the city that i live in with locally grown food and in urban areas it is increasingly viable in what do we do to ensure those on to dash -- the nontraditional farmers have
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access? >> a very good question i initially met senator stabbed now in detroit i was at a convention that where your expanding up by to be more directly involved and i saw a young former bear with a little garden with us sierras program in the major
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customers is whole foods. edison the hold dear and der >> just to add a couple comments that we examine to that many have local food core nader's although we are looking at the marketing service to provide a lot of resources to those co-ops want to establish that market to make sure there is
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a flow of product. >> but my city of cleveland but today it is under 400 and there are lots of opportunities that people are taking advantage of with the restaurants that want to source locally so just ask all three to always be aware edits it is a relatively small part of your portfolio but a crucial area for what all three of you believe in. >> i guess i'm the only one at the table now. [laughter] >> even though the chairman is not here it is very good for all of us to say it is
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the appropriate oversight hearing to have banned in particular with regulators to reinforce the rules and regulations designed to preserve for agriculture am particularly this hearing is appropriate maybe not all agriculture products but at least in iowa with the production of those so we count on people like you to keep the system sound. i will ask anyone if you, how detailed are a the audits? does that farm credit randomly pick different
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portfolios to see what is reported matches up with the actual risk? morrison that the 30,000-foot level looking at final projections? >> a good question for a regulator off the top of my head their primary focus examination is risk-based if this system could be in more jeopardy each institution is examined once every 18 months but those can be it on going all year.
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so the banker reseeded most risk is once a year so these reports are issued once a year so that is the approach >> have like to add they take years of training the dad comments from each institution's we have an ongoing look at the system each by statute must be done every 18 months we have sat down to go down with an examiner what they go through that examination process he reports to the board's of directors to make sure the boards of directors are well aware so it is very thorough. >> so is it assumed that you
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do pick different portfolios to see what is the reported matches up for risk? >> it is a rand of its plant >> has the farm credit administration never required in institution to divest of what was inappropriate to the farm credit system? >> yes, sir, it has a have been instances that there has been taken corrective action to divest and economic you specifics but it has. >> farm credit lenders but
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for those teetoo watch one has an on-line advertisement to earn interest without tying appear funds to go on line and use a phone contrary to cds so could you explain to me any different from checking or savings accounts they seem to function the way it is marketed. >> these are not checking
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accounts this particular procedure is under the act to draft accounts to put in a fund to pay down there loans. >> that lead people to believe that. >> they're not insured by the fdic that allows producers of long-term credits. >> i have asked the questions.
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>> in case we don't get back for the other and then to ask the couple of questions. >> thanks to all of you. with loan guarantees with canadian farm banks in each of those lenders provide 40% rather financing and often working together but yeah
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farm credit and that we have an unfair advantage with how that is handled so can you explain what is happening? >> and if it is a full-time farmer cp can win for all credit needs so we have had some cases where farmers may choose to put up another business and they are allowed a statute so it appears as if we are lending directly to those businesses but that is one key element.
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>> one thing that is true with agriculture the price of commodities is changing so that they can safely use those options and also to provide credit is complicated 10 years ago grey and operator elevators were facing big margin calls and two years ago we saw price volatility resulting in the margin calls of 350 million. >> the system was able to help address that challenge to fund several million dollars in with those grain elevators.
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>> is that what the farm credit system is to handle the agricultural markets and how is that current situation similar to 2007 and 2008? >> there are a lot of similarities to make sure they're prepared in more periods of volatility between now and then is the cost of money bet the farm income will pay off debt. and the interest rates to work their way through it. i'll see a comparison to the 80s but there is volatility a bigger challenges for the
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producers for a says examiners and regulators. >> would you like to add anything? >> the system is well positioned with the strong liquidity end is a lot different during the '80s with the unfavorable underwriting with loose standards and to date it cannot happen. that is a lot more favorable a lot more going on today
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that did not exist at that time. >> in those reforms came about in there is a reason to make more reforms. >> and as a result of structuring is much more persistent and it was an important tool of the system to make sure there is plenty of capital. >>.
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>> thanks for your questions that concludes a force -- the first portion and with the farm credit administration to show with the assessment is sound and operating within the statute into my fellow members and by may 26 please answer all questions we will now like to invite the second panel to come to the table. [inaudible


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