Advance Notice of Proposed Rulemaking—Young, Beginning, and Small Farmers and Ranchers — Federal Register Number 35 Fed. Reg. 5389 (February 21, 2019)

Dear Deputy Director Murdock:

The American Bankers Association (ABA) appreciates the opportunity to provide comments onthe proposed rule to amend regulations relating to the Farm Credit System’s (FCS) mission tofinance and provide services to young, beginning and small farmers, ranchers, and producers orharvesters of aquatic products (YBS). The advance notice issued by the Farm CreditAdministration (FCA, the Agency) seeks public input on improving the accuracy andtransparency relating to the collection of YBS data; on clarifying the definitions of terms relatedto the collection, reporting, and identification of YBS data; on ensuring the definitions of YBSand related terms remain relevant and reflective of the evolving agricultural economy; and onevaluating the effectiveness of each FCS institution’s YBS program to achieve its mission ofserving YBS.

We commend the FCA for its effort to update definitions for YBS categories in order to providea more accurate accounting of whether the FCS fulfills its mission to finance YBS sufficiently.YBS deserve the FCS’s support now more than ever. Despite a statutory mandate to furnishsound and constructive credit to YBS, the FCS has failed to fulfill its potential in serving theseuniquely vulnerable populations. In 2017, the number of new loans to YBS fell approximatelyten percent in each category. Consequently, the share of new loan volume also decreased. Thisconcerning development stands at odds with the rationale provided for the FCS’s tax-advantagedstatus; namely, that it deserves tax-advantaged status so that it can assume more risk in the formof loans to YBS and other vulnerable populations. The FCA’s call for public comment to updatedefinitions for YBS categories demonstrates its commitment to the success of YBS, and wethank the FCA for its consideration of our comment.

Reporting of YBS Data

Section 4.19 of the Farm Credit Act of 1971, as amended (Act) requires each System directlender association to prepare a program for furnishing sound and constructive credit and relatedservices to YBS. The current reporting structure provides that a loan is reported under allexisting categories in which it fits. This practice distorts the efficacy of the System in furnishingcredit to YBS, overstating the number of YBS served. In its place, the ABA recommendsreporting practices which more accurately reflect an individual YBS relation to each of therelevant categories and any combination thereof. That is, an individual YBS may be reported inseven mutually exclusive categories: young; beginning; small; young and small; young andbeginning; beginning and small; and young, beginning, and small. Such an accounting moreaccurately reflects the System’s ability to furnish credit to YBS.

In reporting YBS program performance, the System’s primary focus should be to report thenumber of individual YBS borrowers who received credit and services. That should not preclude,however, the reporting of the dollar volume of existing loans, the dollar volume of new loans, thenumber of existing loans, and the number of new loans. The System’s reporting of YBS data,however, should not be limited to these categories.

The Farm Credit System would be well-served in reporting all data relevant to fulfilling itsmission to furnish credit to YBS. In addition to the categories listed above, each direct lenderassociation should include data indicating the number of operating loans to YBS and the numberof real estate loans to YBS. Each category should include further breakdown by loan size, andwhether the loan is secured by farmland. In order to demonstrate the Farm Credit System’scompliance with section 4.19 of the Act, the total number of extant loans offered through eachdirect lender association’s YBS program should be placed in direct comparison to its non-YBSlending activities. Under section 614.4165, each Farm Credit Bank must provide a reportsummarizing the YBS program operations of its direct lender associations on an annual basis. In order to provide a more timely accounting of each direct lender association’s adherence to andfulfillment of the purpose of the Act, each Farm Credit Bank should provide a report on its directlender associations’ YBS programs on a quarterly basis. Additionally, each Farm Credit Bankshould complete an annual review of its direct lender associations’ YBS programs to ensuremaintained efficacy.

Definitions of Key Terms Associated With YBS Data

The key element to direct lender associations’ programs for furnishing credit to young, beginningand small farmers is the definition of those categories themselves. The FCA’s Bookletter 040—Revised ‘‘Providing Sound and Constructive Credit to Young, Beginning, and Small Farmers,Ranchers, and Producers or Harvesters of Aquatic Products’’ governs which farmers, ranchersand producers or harvesters of aquatic products may be considered YBS. Where applicable, theAgency should direct attention to existing statutory definitions of young, beginning and smallfarmers which govern the activities of the U.S. Department of Agriculture (USDA) and itssubordinate agencies.

Young Farmers

The designation of a loan as one extended to a young farmer, rancher, or producer or harvester ofaquatic products (Young Farmer) should be contingent on a number of factors: the farmer’s ageat the transaction date of the loan; the farmer’s age during the term of the loan; and the farmer’sownership of agriculture land, an agricultural or aquatic operation, and exposure to productionrisk thereof. At the transaction date of a loan to a Young Farmer, one who is 35 years of age oryounger, the loan should be designated as one extended to a Young Farmer. Once the age of theYoung Farmer exceeds 35 years, the existing Young Farmer loan should lose its designation as aYoung Farmer loan. While a farmer is 35 years of age or fewer, owns agricultural land, anagricultural or aquatic operation, or is exposed to production risk from an agricultural or aquaticoperation, that farmer should be designated as a Young Farmer. Having financial control in anoperation can open the designation to many that are not involved in the actual operation andcould be used to make ineligible individuals eligible for System loans.

Beginning Farmers

The same rationale for the designation of a loan as one extended to a Young Farmer applies toone extended to a farmer, rancher, or producer or harvester of aquatic products who has ten yearsor fewer of farming, ranching, or aquatic experience as of the loan transaction date (BeginningFarmer). So, at the transaction date of a loan to a Beginning Farmer, the loan should bedesignated as one extended to a Beginning Farmer. Once the experience of the Beginning Farmerexceeds ten years, the existing Beginning Farmer loan should lose its designation as a BeginningFarmer loan. While a farmer has ten years of experience or fewer, owns agricultural land, anagricultural or aquatic operation, or is exposed to production risk from an agricultural or aquaticoperation, that farmer should be designated as a Beginning Farmer. Additionally, havingfinancial control in an operation can open the designation to many that are not involved in theactual operation and could be used as a way to make ineligible individuals eligible for FCSloans.

Small Farmers

In determining criteria for the designation of a loan as one to a small farmer, rancher, or produceror harvester of aquatic products (Small Farmer), the Agency should consider foremost the grossannual receipts of the putative Small Farmer. The Agency’s existing threshold of $250,000 ingross annual receipts or fewer should be altered to be in accordance with USDA’s definition,which requires a minimum of $1,000 and a maximum of $250,000 in gross annual receipts.Instituting a minimum in gross annual receipts ensures that the farmer sustains sufficientproduction to merit a reasonable observer’s belief that the farmer consistently engages inagricultural or aquatic production. Should the Small Farmer fail to produce $1,000 in grossannual receipts for two consecutive years after the transaction date, the loan should lose itsdesignation as one to a Small Farmer. In addition, the Small Farmer loan shall lose itsdesignation as such once the Small Farmer loses his or her designation. An acreage floor orceiling should not be used as a determination for the designation.

Other Reporting Definitions

An entity seeking to qualify as a Young/Beginning Farmer should have the loan in their ownname and not cosigned under another member of their family, unless that individual alsoqualifies as Young/Beginning. Additionally, an entity seeking to qualify as a Young/BeginningFarmer should be one in which a Young/Beginning Farmer holds an ownership stake of at least51 percent, and for which the principal operator is a Young/Beginning Farmer. If a singleYoung/Beginning Farmer’s ownership share does not meet the 51 percent threshold, but theaddition of another Young/Beginning Farmer’s ownership share would satisfy the 51 percentthreshold, then the entity should be considered as one meeting the standards required for aYoung/Beginning Farmer loan. An income threshold should not be used to determinedesignation as a Young/Beginning Farmer. The determination of a loan as one to aYoung/Beginning Farmer should occur at the closing date of the loan.

Conclusion

ABA appreciates the FCA’s interest in improving the accuracy and transparency relating to thecollection of YBS data, in ensuring the relevancy of YBS Farmer definitions and thresholds sothat they reflect the realities of the agricultural economy, and in reexamining the effectiveness ofeach FCS institution’s YBS program to achieve its mission of serving YBS. We look forward toworking with the FCA to ensure America’s young, beginning and small farmers are furnishedwith the sound and constructive credit they require. Should you have any questions about thesesuggestions, please do not hesitate to contact the undersigned at [email protected] or 202-663-5018.

Ed Elfmann
Senior Vice President
Agricultural and Rural Banking Policy
American Bankers Association